Q4 2025 Earnings Call: Contradictions Emerge on Spec Home Strategy, Cost Savings, and Sales Pace

Date of Call: November 13, 2025

Financials Results

• EPS: $1.02 diluted EPS in Q4; guiding to a net loss of about $0.50 per diluted share in Q1 FY26
• Gross Margin: 17.2% in Q4; guiding to ~16% in Q1 (expecting ~3 points of improvement by Q4 FY26)
• Operating Margin: SG&A 9.6% of revenue in Q4, implying an operating margin of roughly 7.6% in Q4

Guidance:

• Q1 FY26: expect to sell ~900 homes (specs up to 75%), close ~800 homes, end Q1 with ~170 communities and ASP around $515,000.
• Q1 adjusted gross margin expected ~16%; SG&A dollars flat YoY; adjusted EBITDA ~breakeven to $5M; interest amortized ~3% of homebuilding revenue; net tax benefit ~$2M.
• Full-year: target 5%–10% increase in closings vs FY25, ~3 points of gross margin improvement by Q4 driven by $10k rebid savings, mix shift, and new communities.
• Net leverage expected to fall several points in FY26; plan to repurchase at least ~1.5M shares.

Business Commentary:

• Operational Performance and Market Conditions:
• Beazer Homes reported 1,400 homes closed in Q4, exceeding expectations, with 83 model home sale leasebacks and an 17.2% gross margin.
• The company's strategy to enhance profitability through rebidding of material and labor costs and a reduction in force contributed to the improved results.

• These efforts were supported by a reduction in new home inventory and aggressive incentives.

• Community Count and Financial Health:

• Beazer Homes ended fiscal 2025 with an average active community count of 164, up 14% from the previous year, and reduced net debt to net capital below 40%.
• The company's balance sheet efficiency improved with a focus on strategic asset sales and land acquisition discipline.

• These milestones were achieved through geographical expansion and prudent financial management amid challenging market conditions.

• Gross Margin Improvement and Cost Management:

• Beazer Homes forecasts a gross margin improvement of three points over the year, attributed to savings from rebidding, mix shift within communities, and improved margins in new communities.
• The company is focused on realizing $10,000 per home in cost savings and optimizing the mix of communities to boost profitability.

• Despite elevated incentives and a higher percentage of specs in closings, the company expects margins to improve due to operational efficiencies.

• Strategic Positioning and Differentiation:

• Beazer Homes introduced the "Enjoy the Great Indoors" campaign to enhance brand awareness and emphasize its energy-efficient homebuilding approach.
• The strategy aims to address affordability concerns through lower mortgage rates, utility costs, and insurance premiums, offering buyers significant savings.
• The company believes this unique approach positions it well in a market hampered by affordability constraints.
  

  Sentiment Analysis:

  Overall Tone: Neutral

  • Management described FY25 as “productive but challenging,” highlighted Q4 outperformance (1,400 closings, $64M adjusted EBITDA, $1.02 EPS), provided cautious Q1 guidance (net loss ~ $0.50) but outlined clear margin catalysts (rebid savings ~$10k/home, mix shift, new communities) and emphasized balance sheet strength (nearly $540M liquidity, no revolver usage).

Q&A:

• Question from Rohit Seth (B. Riley Securities): Timing of rebate/cost-savings and when the $10k rebid benefits start to hit results?
  Response: Management: The $10k per-home rebid savings are being realized progressively through FY26 (not precisely dated), and they expect the three-point margin pickup (rebid savings, mix shift away from lower-priced communities, and higher-margin new communities) to materialize across the year, with Q1 as the low point.

• Question from Rohit Seth (B. Riley Securities): Orders — October/November trends and Q1 guide (~900 orders) context?
  Response: Management: October was seasonally sluggish, November/December typically build; Q1 guidance implies a sales pace just under 2 for the quarter and follows normal seasonality.

• Question from Alan Ratner (Zelman & Associates): Could rising land costs offset margin tailwinds from rebids and mix — how should we think about land flow-through?
  Response: Management: New communities bought later may have higher per-lot cost, but so far those 48 communities opened since April have delivered margins above existing communities, and ASP increases help offset land cost impact.

• Question from Alan Ratner (Zelman & Associates): Bridge to 5%–10% volume growth given backlog down 36% and lower specs/backlog?
  Response: Management: Backlog is less predictive in a spec-oriented market; focus is units under production, community count growth and expected sales pace improvement (especially in Q3) to achieve 5%–10% closings growth.

• Question from Alan Ratner (Zelman & Associates): Views on forward rate commitments and the impact on mortgage/program competition?
  Response: Management: Prefers customer choice and transparency; supports allowing buyers to use incentives for rate buydowns or other uses and sees transparency among lenders as positive.

• Question from Alexander Rygiel (Texas Capital): What is the strategy and rationale behind land sales and low-margin land revenue in the quarter?
  Response: Management: Selling nonstrategic or oversized product lines and harvesting lower-return, high-incentive assets; expects >$100M of asset sales in FY26 aggregated at or above book value to recycle capital into higher-return markets.

• Question from Alexander Rygiel (Texas Capital): Spec mix outlook — will 75% specs persist into FY26 and toward FY27?
  Response: Management: Specs will remain elevated while affordability/inventory issues persist; if market strengthens (e.g., spring), mix could move toward 60/40 or 50/50, but they will follow demand, not push specs unnecessarily.

• Question from Alexander Rygiel (Texas Capital): Directional net land spend for next year?
  Response: Management: Directionally similar to FY25 (around the same level); could be a little more or less, with discretion to pace takedowns as they grow toward 200 communities.

• Question from Richard Reid (Wells Fargo): Can you bucket the $10k direct cost savings between labor and materials?
  Response: Management: They do not break out labor vs. material; savings come from multiple sources (rebids, turnkey vs. piecemeal contracts) and include reductions in Zero Energy Ready home delivery costs.

• Question from Richard Reid (Wells Fargo): Economics of the model home sale-leasebacks — high-level impact?
  Response: Management: 83 model sale-leasebacks improved balance sheet efficiency, generated revenue consistent with business margins, incurred financing cost but allowed redeployment of cash to higher-return uses.

• Question from Julio Romero (Sidoti & Company): Texas sequential sales pace expectations for Q1 and full-year embedded assumptions?
  Response: Management: Texas outlook is subdued; Q4 pace improved to ~1.8 (from 1.3 prior quarter) but they are not assuming a dramatic statewide rebound over the next 9–10 months; cautious, incremental improvement expected.

• Question from Julio Romero (Sidoti & Company): Which markets show wage-growth-driven affordability improvements?
  Response: Management: Nationwide data show mortgage payments as a percentage of income improving in some markets due to lower rates and local wage growth; they emphasize their footprint targets markets with multiple job-growth sources but did not list specific metros.

• Question from James McCanless (Wedbush): Will you further reduce specs or add specs to prepare for spring?
  Response: Management: Expect spec count to pick up modestly for spring if sales pace justifies it; they will add specs selectively based on real demand, not proactively chase specs.

• Question from James McCanless (Wedbush): Visibility to $100M land sales and timing of closings growth (back-half weighting)?
  Response: Management: Confident in visibility to >$100M aggregate land sales (multiple parties, LOIs), expect closings growth to be back-half weighted with community count increases and backlog positioning.

• Question from James McCanless (Wedbush): How quickly can you monetize the deferred tax assets (DTAs) tied to energy credits if the rights plan is ratified?
  Response: Management: Focused on ~$84M of energy tax credits (growing through June 2026 via Zero Energy Ready homes); expects to utilize those credits over the next several years as profitability permits and structured the rights plan to protect the ability to realize them.

Contradiction Point 1

Spec Home Strategy and Inventory Management

It directly impacts the company's strategy for managing inventory levels and sales pace, which are crucial for maintaining profitability and market competitiveness.

How do you see the spec home strategy evolving in 2026? - Alexander Rygiel

2025Q4: We'd like to lower the spec ratio, but the current environment demands specs for sales pace. If conditions improve, we might return to a 60-40 or 50-50 ratio. - Allan Merrill(CEO)

What percentage of orders or closings were spec in the quarter, and what is their impact on gross margin? - Tyler Anton Batory (Oppenheimer & Co. Inc., Research Division)

2025Q3: We'd like to get back to a 60-40 or 50-50 ratio of to-be-built versus spec homes. - Allan Merrill(CEO)

Contradiction Point 2

Cost Savings and Efficiency Gains

It involves the company's ability to achieve cost savings and operational efficiencies, which are crucial for maintaining profitability and competitive positioning.

Can you explain the drivers of the $10,000 cost savings and allocate them by labor and materials? - Richard Reid

2025Q4: Savings are a combination of labor and materials. We've focused on efficiencies in delivering Zero Energy Ready Homes, reducing costs while maintaining performance. - Allan Merrill(CEO)

Can you discuss the cost structure, particularly labor and material costs, given your distinct home-building approach compared to peers? - Tyler Anton Batory

2025Q3: Cost savings are being achieved in direct costs, with notable progress on Zero Energy Ready homes. Improved labor efficiencies and cost reduction agreements are expected to contribute to profitability in 2026. - David Goldberg(CFO)

Contradiction Point 3

Sales Pace Expectations

It involves changes in sales pace expectations, which are critical indicators for investor expectations and operational planning.

Order growth improved significantly from Q3, with Q1 guidance of ~900 orders. Can you share October and November order trends? - Rohit Seth (B. Riley Securities, Inc., Research Division)

2025Q4: Typically, November and December see an increase in orders. The overall guide for the quarter is just below 2. - Allan Merrill(CEO)

Can you share April's sales pace and expectations for May and June? - Julio Romero (Sidoti & Company)

2025Q2: The sales comparison in Q3 is easier than in Q2, and we expect a 10% increase in community count. - Allan Merrill(CEO)

Contradiction Point 4

Spec Home Strategy

It involves the company's strategic approach to spec homes, which directly impacts operational efficiency and financial performance.

How do you assess the spec home strategy for 2026 and how will it evolve? - Alexander Rygiel

2025Q4: We'd like to lower the spec ratio, but the current environment demands specs for sales pace. If conditions improve, we might return to a 60-40 or 50-50 ratio. - Allan Merrill(CEO)

How do you assess your incentive strategy in a competitive market? - Alex Barron (Housing Research Center)

2025Q2: Our focus on specification homes has been largely driven by the improvement in the demand environment. - Allan Merrill(CEO)

Contradiction Point 5

Impact of Incentives on Sales and Margins

It concerns the impact of incentive levels on sales and gross margins, which are crucial for understanding the company's pricing strategy and profitability.

Your order growth improved from Q3, addressing prior challenges. With Q1 guidance of ~900 orders, can you share order trends for October and November? - Rohit Seth (B. Riley Securities, Inc., Research Division)

2025Q4: Incentives on specs spiked in December, especially in Texas and Florida, but we're seeing some stabilization in the new year. - Allan Merrill(CEO)

How did Q1 incentives compare to Q4, and what are your expectations for the remainder of the fiscal year? - Tyler Batory (Oppenheimer)

2025Q1: Incentives on to-be-builts went down in Q1, but we didn't sell enough of them. Incentives on specs spiked in December, especially in Texas and Florida. - Allan Merrill(CEO)