Beazer Homes USA, Inc. (NYSE: BZH) after market close Wednesday reported net income from continuing operations of $2.5 million ($0.08 per share) for its fiscal fourth quarter ended September 30. The gain compared to net income from continuing operations of $60.5 million in fiscal fourth quarter 2018. Wall Street was expecting a gain of $0.80 per share.

Beazer Homes Zion model at Belmont Park.
Beazer Homes Zion model at Belmont Park.

Home building revenue was $733.0 million, up 1.5% on a 1.5% decrease in home closings to 2,014 and a 3.0% increase in average selling price to $383.800. Home building gross margin, excluding impairments and abandonments, was 15.2%, down 210 basis points. Excluding impairments, abandonments and amortized interest, home building gross margin was 19.9%, down 170 basis points,

Net new orders for the fourth quarter increased 11.7% from the prior year, to 1,458, exceeding our expectations as a result of healthy demand. The increase in net new orders was driven by a 3.7% increase in average community count to 168. The cancellation rate for the quarter was 16.3%, down 520 basis points from the previous year.

The dollar value of homes in backlog as of September 30, 2019 increased 5.9% to $665.1 million, or 1,708 homes, compared to $628.0 million, or 1,632 homes, at the same time last year. The average selling price of homes in backlog was $389.4 thousand, up 1.2% year over year.

Selling, general and administrative expenses as a percentage of total revenue, were 9.5% for the quarter, down 60 basis points compared to the prior year. On an absolute dollar basis, SG&A was down $3.4 million year over year.

At the close of the fourth quarter, the company had $356.7 million of available liquidity, including $106.7 million of unrestricted cash and $250.0 million available on its secured revolving credit facility.

The company retired $23.7 million of its outstanding 7.250% unsecured Senior Notes due 2023 at an average price of $102.417 per $100 principal amount and $6.0 million of its outstanding 5.875% unsecured Senior Notes due 2027 at an average price of $92.250 per $100 principal amount. For fiscal 2019, the company repurchased $51.3 million of unsecured Senior Notes and $34.6 million of stock. These successful repurchases drove the achievement of our capital allocation goals for fiscal 2019.

In September 2019, the company issued $350.0 million of 7.250% unsecured Senior Notes due 2029 and entered into an unsecured term loan agreement for $150.0 million. The proceeds from the issuance, combined with the principal amount from the term loan and cash on the balance sheet, were used to redeem all $500.0 million of the outstanding 8.750% unsecured Senior Notes due 2022. In addition, the company executed a Seventh Amendment to its Secured Revolving Credit Facility, which extended the termination date from February 2021 to February 2022 and increased the maximum aggregate amount of commitments from $210.0 million to $250.0 million. These transactions extended access to liquidity, reduced cash interest expense by approximately $15.0 million annually, and extended our next significant debt maturity to 2025.

As the company announced in August, Stephen Zelnak, the current Chairman, will be retiring at the next annual meeting of stockholders, scheduled for early February 2020. In connection with Mr. Zelnak’s retirement, the Board of Directors has appointed Allan P. Merrill, the CEO, to serve as chairman, and Norma A. Provencio, an independent director, to serve as Lead Director.

“We finished fiscal 2019 with a strong fourth quarter, positioning us for growth in revenue, profitability and returns in the coming year,” said Merrill. “Operational improvements in sales pace, community count and gross margins reflected the decisive actions we took to combat challenging market conditions in the first and second quarters. We also made improvements to our balance sheet during the year. We returned nearly $90 million to investors and accessed the capital markets, which allowed us to reduce debt, cut interest expense significantly, extend maturities, and buy back approximately 10% of our outstanding shares at prices well below book value.”

“Looking forward, we believe these operational and capital structure improvements will accelerate our progress toward our multi-year balanced growth objectives, which include achieving double digit returns on our assets and reducing debt below $1 billion.”

Beazer Homes Fiscal 2019 Highlights:

  • Net loss from continuing operations of $79.4 million. Excluding inventory impairments and abandonments, and loss on debt extinguishment, the company generated net income from continuing operations of $38.7 million
  • Adjusted EBITDA of $180.2 million, down 12.0%
  • Home building revenue of $2.1 billion, flat year over year
  • 5,500 new home deliveries, down 4.6%
  • Average selling price of $377.7 thousand, up 4.8%
  • Home building gross margin, excluding impairments and abandonments, was 15.2%, down 160 basis points. Excluding impairments, abandonments and amortized interest, home building gross margin was 19.7%, down 150 basis points
  • SG&A as a percentage of total revenue was 11.6%, down 20 basis points
  • Unit orders of 5,576, up 0.6% on a 6.3% increase in average community count to 166 and a 5.4% decrease in sales/community/month to 2.8