Beazer Homes USA's CEO Ian McCarthy on Friday launched the company's third- quarter earnings call by reminding all the listeners that the builder is being investigated by the U.S. Attorney's Office, the Securities and Exchange Commission and "other federal and state agencies."
"From the outset we have been fully cooperating and will continue to attempt to negotiate a settlement," he told analysts. Beyond that, he said the company couldn't comment.
At a time when many CEOs are opting to highlight their good news, it seemed like an odd note on which to start off a conference call, especially since it's old news. The Atlanta-based company has been under investigation for some of its lending practices for a year now.
But there was plenty of other bad news to report as well, including a $109.7- million, $2.85-a-share, net loss, actually an improvement over the $118.9 million net loss from the same quarter last year. The loss included $28 million in costs of defending itself against lawsuits and paying its bondholders last fall to give it some extra time to report its financials.
Sales and closing numbers were more dire. Closings fell to 1,677, down 37% from the 2,659 closed in the same quarter in '07. And new orders sat at 1,774, down almost 42% from the same quarter.
On the positive side, Beazer was able to hold onto $314.2 million in cash, more than it had on hand last year. And executives expect that number will climb higher by the end of its final quarter in September, boosted by $85 million from the sale of two condominium projects it recently sold to become apartments. It also was able to recover $55.8 million from a tax refund related to its net operating losses.
Likewise, gross margins improved to 10.6% from 6.4%.
The company also managed to negotiate itself some security by renegotiating its revolving credit facility, currently untapped, to eliminate potential covenants that might be tripped if the company's financials slip during the market downturn.
CFO Allan Merrill called it "future-proofing the facility" so it would remain stable as conditions change for better or worse, eliminating the need to frequently renegotiate terms. That, plus the fact that the builder has no big debt due until 2011, should help the company better weather the downturn, he said.
Meanwhile the company faces challenges dealing with the elimination of seller-assisted down-payment-assistance program loans. Beazer's FHA loans had grown to about half its business and roughly 20% of buyers were using the seller-assisted financing, Merrill reported during the call.
McCarthy said it is difficult to determine how much impact the elimination will have because some of those buyers may have been able to buy without the assistance.
"It's too early to tell what the impact would be," he said.
Beazer plans to try to emphasize the the $7,500 government-financed tax credit. It is planning webinars to educate buyers about it.
"I do think that that positive impact of getting people on the front foot rather than the back foot and saying that if you buy a home with in the next year (you will get this tax credit) I think that's a positive stimulus," McCarthy said.