Beazer Homes Q4 2025: Contradictions Emerge on Spec vs. Custom Order Mix, Affordability, Incentives Strategy, and Tariff Impacts

Date of Call: September 30, 2025

Financials Results

• EPS: $1.02 per diluted share in Q4 (adjusted); Q1 guidance net loss of about $0.50 per diluted share
• Gross Margin: 17.2% in Q4; guiding ~16% in Q1; expect ~3 percentage-point improvement by Q4 FY26

Guidance:

• Q1: expect to sell ~900 homes, close ~800 homes with ASP ~ $515,000 and adjusted gross margin ~16%.
• Q1: specs may be up to 75% of sales; end Q1 ~170 communities; adjusted EBITDA ~break-even to $5M; net tax benefit ~$2M; net loss ~$(0.50) per share.
• FY26: target 5%-10% increase in closings vs FY25; ASPs up; gross margin to improve ~3pp by Q4 driven by $10k rebid savings, mix shift, and new communities.
• Capital: expect >$100M of non-strategic land sales (at/above book) and repurchase at least ~1.5M shares.

Business Commentary:

* Sales and Profitability Improvement: - Beazer Homes improved their sales pace in the fourth quarter and exceeded expectations for home closings. - The company's adjusted EBITDA was approximately $64 million and diluted earnings per share was $1.02. - The improvement was driven by effective operational responses, including strategic asset sales and a reduction in force.

• Community Count Growth and Strategic Positioning:
• Beazer Homes achieved an average active community count of 164 in fiscal 2025, up 14% from the previous year.
• The company focused on aligning its portfolio with its strategy, with asset sales of $63 million and a profit contribution of $7 million.

• The growth was supported by intentional portfolio realignment and a shift in land control, enhancing balance sheet efficiency.

• Cost Savings and Profitability Initiatives:

• Beazer Homes identified cost savings of approximately $10,000 per home through rebidding material and labor costs.
• These savings are expected to be fully realized in closings by the fourth quarter of fiscal 2026.

• The savings resulted from negotiating better terms with suppliers and improving operational efficiency.

• Capital Allocation and Balance Sheet Management:

• The company allocated $122 million on land acquisition and development in Q4, bringing the full-year fiscal 2025 total to $684 million.
• Beazer Homes repurchased about 1.5 million shares for 5% of the company in fiscal 2025 and plans to repurchase at least that many shares in fiscal 2026.
• This strategic allocation is aimed at enhancing shareholder value while maintaining a healthy balance sheet.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized operational progress despite a tough market: 17.2% Q4 gross margin, ~$64M adjusted EBITDA, reduced net debt to <40% net capitalization, 164 average active communities (+14% YOY), and confidence in delivering ~3pp margin improvement by year-end via $10k rebid savings and mix shift.

Q&A:

• Question from Rohit Seps (B. Riley Financial): When will the rebid benefits (the ~$10k per home) start to hit — Q2, Q3?
  Response: Rebid savings will accrue gradually through the year; the $10k per home (~nearly two points of margin) should be largely realized by year-end, not pinned to a single quarter.

• Question from Rohit Seps (B. Riley Financial): Orders improved—what did you see in October and November and what is the Q1 orders cadence?
  Response: October was seasonally sluggish, November/December should build as normal; management expects a roughly 1.8 sales pace for the quarter (normal seasonal pattern).

• Question from Allan Ratner (Zelman & Associates): Should we expect land cost flowing through P&L to offset margin tailwinds from rebids and mix?
  Response: To date new communities opened since April have shown better margins despite potentially higher lot costs; ASP mix and product are offsetting any land-cost pressure, so land cost is not a material headwind in our view.

• Question from Allan Ratner (Zelman & Associates): With backlog down ~36% and lower spec count entering the year, how do you get to 5%-10% closings growth?
  Response: Closings growth will come from community count growth plus improved sales pace and higher turns on units under production (backlog is less predictive in a spec-heavy market).

• Question from Allan Ratner (Zelman & Associates): Thoughts on forward rate commitments and their impact given your mortgage program?
  Response: Beazer supports customer choice and transparency; buyers can use incentive dollars for rate buy-downs or other uses and Beazer provides transparent options and lender comparisons.

• Question from Alex Regal (Texas Capital): What is the strategy and outlook for land sales and expected proceeds?
  Response: We are selling non‑strategic product lines/assets identified in the re-underwrite; sold ~$63M in 2025 and expect aggregate proceeds >$100M in 2026, likely at or above book value to redeploy into higher-return locations.

• Question from Alex Regal (Texas Capital): How do you expect spec-to‑to‑be‑built mix to evolve into 2026/2027?
  Response: We prefer lower spec ratios but will follow market demand; specs may remain elevated if affordability/inventory persist, but could normalize toward 60/40 or 50/50 if the market improves.

• Question from Alex Regal (Texas Capital): Any directional thoughts on net land spend for next year?
  Response: Directionally similar to 2025 (net land spend just above $600M last year); could be modestly higher or lower but not dramatically different given discretionary control.

• Question from Sam Reed (Wells Fargo): Can you bucket the $10k direct cost savings into labor vs. material?
  Response: We do not split labor vs. material precisely; several thousand relates to efficiencies in delivering zero‑energy‑ready homes and the remainder reflects combined labor/material improvements, including turnkey gains.

• Question from Sam Reed (Wells Fargo): What are the economics of the model home sale-leasebacks?
  Response: 83 model home sale-leasebacks improved balance-sheet efficiency; profitability was roughly in line with the business and acted like a financing tool to free cash for higher-return deployment.

• Question from Julio Romero (Sidoti & Company): Texas sales pace improved to 1.8 in Q4—what should we expect sequentially in Q1 and full-year for Texas?
  Response: Texas remains subdued versus historical norms; Q4 improved to ~1.8 from 1.3 but management assumes no dramatic statewide recovery over the next ~9–10 months.

• Question from Julio Romero (Sidoti & Company): Where are you seeing wage-growth-driven affordability improvements (which markets)?
  Response: Affordability improvement is evident broadly from wage growth plus lower mortgage rates; Beazer's footprint targets markets with diversified job growth, but no single market was isolated as the main driver.

• Question from Jay McCanless (Wedbush): Will specs continue to come down or will you add specs for spring?
  Response: Spec counts may tick up modestly to prepare for the spring season but only if sales pace supports doing so; we won’t add specs without demand justification.

• Question from Jay McCanless (Wedbush): How visible is achieving >$100M in land sales and when will closings growth occur?
  Response: We have good visibility with multiple interested parties on attractive assets and expect aggregate proceeds >$100M at/above book; closings growth is expected to be back‑half weighted.

• Question from Jay McCanless (Wedbush): How much of the deferred tax assets (DTAs) can you monetize before expiry?
  Response: Focus is on ~$84M of energy tax credits (part of >$140M DTA) which grow through June 2026; credits can be used post‑June and we expect to monetize them over the next several years—rights plan protects realization and expires upon credit exhaustion or three years.

Contradiction Point 1

Speculation vs. Custom Order Mix

It involves the strategic balance between building homes based on customer orders (custom) and building homes speculatively, which can impact inventory management and financial performance.

Can you explain your land sales strategy and whether spec homes will remain a significant part? - Alex Regal (Texas Capital)

2025Q4: We expect specs to continue due to demand, potentially returning to a 60-40 or 50-50 mix if market conditions improve. - Allan Merrill(CEO)

What is the spec-to-build-to-order percentage? - Alex Barrón (Housing Research Center)

2025Q3: Specs account for about 65%-70% of our business, with the expectation that this will continue into the fourth quarter. - David Goldberg(CFO)

Contradiction Point 2

Affordability and Market Conditions

It involves differing perspectives on the impact of affordability constraints and market conditions, which are crucial for understanding the company's strategic positioning and market outlook.

When will the rebid benefits take effect, and are incentives expected to decrease or impact the market? - Rohit Seps (B. Riley Financial)

2025Q4: With no change in our community count guidance, we expect to deliver a record 16,000 to 17,000 homes across 32 states by year-end. The higher end of our guidance assumes orders improve through the spring selling season. - Allan Merrill(CEO)

How do affordability challenges affect your updated multiyear goals, and does this enhance your bargaining power with suppliers? - Julio Romero (Sidoti & Company)

2025Q2: We continue to believe in the long-term demand for housing in the United States. As we noted earlier, we see the affordability issue as currently a constraint, but it's not expected to be a permanent part of the housing market. - Allan Merrill(CEO)

Contradiction Point 3

Sales Performance and Incentives

It involves differing statements on the impact of incentives on sales performance, which is crucial for understanding the company's market strategy and financial health.

Can you confirm if October and November orders support the Q1 900-home guidance? - Rohit Seps(B. Riley Financial)

2025Q4: In October, we saw higher incentives and a more aggressive promotional environment, particularly in Texas. - Allan Merrill(CEO)

Could you provide an update on your expectations for incentive activity for the rest of the fiscal year? - Tyler Batory(Oppenheimer)

2025Q1: Inevitably, incentives are a mix of closing costs and concessions. In December, incentives were higher due to aggressive promotions from competitors, especially in Texas. - Allan Merrill(CEO)

Contradiction Point 4

Impact of Tariffs and Cost Reductions

It involves the expectations and impacts of tariffs on material costs and the efforts to reduce costs, which are crucial for financial planning and operational efficiency.

When will the rebid benefits take effect, and will incentives decrease or impact the market? - Rohit Seps (B. Riley Financial)

2025Q4: We haven't seen much impact from tariffs on material costs. Costs are being driven down, with benefits expected in 2026. Labor opportunities include renegotiating with trades and improving cycle times. - David Goldberg(CFO)

What are the current labor and material cost trends, and how are they impacting your homebuilding process? - Tyler Anton Batory (Oppenheimer)

2025Q3: We haven't seen much impact from tariffs on material costs. Costs are being driven down, with benefits expected in 2026. Labor opportunities include renegotiating with trades and improving cycle times. - David Goldberg(CFO)

Contradiction Point 5

Incentives Strategy and Market Positioning

It reflects differing views on the company's incentives strategy and its impact on market positioning, which are critical for understanding the company's competitive strategy and market dynamics.

When will rebid benefits take effect, and will incentives decrease or impact the market? - Rohit Seps (B. Riley Financial)

2025Q4: We talked about three points to add margin improvement. The first is the rebid savings, which should add nearly two percentage points by year-end. - David Goldberg(CFO)

Could you have been more aggressive with incentives to drive orders, considering gross margin? - Tyler Batory (Oppenheimer)

2025Q2: Our current incentives are right-sized based on market conditions. If we improve our incentives in this competitive environment, it would be at the risk of diluting our gross margins. - David Goldberg(CFO)