BEAZER HOMES USA INC (BZH) FY 2023 MD&A

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations is intended to help the reader understand our Company, business, operations and present business environment and is provided as a supplement to, and should be read together with the sections entitled “Risk Factors,” and the financial statements and the accompanying notes included elsewhere in this Form 10-K.

In addition, the statements in this discussion and analysis regarding industry outlook, our expectations regarding the performance of our business, anticipated financial results, liquidity and the other non-historical statements are forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties, including, but not limited to, the risks and uncertainties described in “Forward-Looking Statements” and in “Risk Factors” above. Our actual results may differ materially from those contained in or implied by any forward-looking statements.

Executive Overview and Outlook

Market Conditions

During the second half of fiscal 2022, mortgage interest rates began to increase sharply, pushing mortgage payments as a percentage of income substantially above their long-term average. This lack of affordability, along with inflation, an uncertain economic outlook and other macro-economic conditions, led to a significant decrease in new and used home sales that persisted through the first quarter of fiscal 2023. During this time period, sales pace decreased significantly, cancellation rates reached historically high levels, and home prices declined. Starting the second quarter of fiscal 2023, interest rates became less volatile and homebuyers began to adjust to the higher rate environment. As a result, homebuyer traffic and demand improved, leading to a recovery in sales pace and a reduction in cancellation rates. Additionally, the new home market benefited from low levels of resale inventory on the market. Against this backdrop of an evolving economic environment, we were able to generate historically solid financial results during fiscal 2023, with margins and profitability reaching a level that represented our second best year in more than a decade, only behind fiscal 2022.

Towards the end of September 2023, interest rates began to rapidly rise again which further strained affordability. If mortgage rates persist at current levels or continue to increase, housing market conditions may deteriorate and temper demand. We remain disciplined in our approach to the business and are focused on making the necessary adjustments to adapt in this changing operating environment.

It is difficult to predict the near-term direction of mortgage rates, consumer confidence and the overall economy, and the corresponding impact on demand for our homes. While we expect uncertainty in market conditions to persist for some time, we believe the long-term housing market outlook remains positive, supported by a demographic shift towards homeownership and a multimillion unit housing deficit that has accumulated over the past decade.

Further, as supply chain conditions have normalized in recent quarters, our construction cycle times have decreased and backlog conversion rates have improved. We continue to strive to reduce build costs through renegotiation and rebidding of construction jobs, reduce cycle times, and prudently manage our overhead costs.

Balanced Growth Strategy

Fiscal 2023 represented continued progress towards the execution of our balanced growth strategy, which is characterized by growing profitability, improving balance sheet efficiency, and generating returns above our cost of capital. We believe our balanced growth strategy has created significant value for our shareholders. During fiscal 2023, our total stockholders' equity of $1.1 billion exceeded the outstanding balance of our total debt for the first time in over 15 years.

As we look to fiscal 2024, we continue to position our business for longer-term growth, while focusing on the appropriate balance between pursuing growth opportunities, controlling risk, and maintaining a strong liquidity position. Our long-term strategic business objectives include increasing active communities to more than 200 by the end of fiscal 2026, reducing our net debt to net capitalization ratio to below 30% by the end of fiscal 2026, and reaching our target of 100% Zero Energy Ready starts by the end of the calendar year 2025.

23

Overview of Results for Our Fiscal 2023

The following is a summary of our performance against certain key operating and financial metrics during fiscal 2023:

•During the fiscal year ended September 30, 2023, sales per community per month was 2.6 compared to 2.8 in the prior year, and our net new orders were 3,866, down 4.8% from 4,061 in the prior year. The decrease in sales pace year-over-year was primarily due to a depressed sales pace of 1.3 in the first quarter of fiscal 2023 driven by the challenging housing market conditions at the time, as discussed above. With mortgage interest rates stabilizing and homebuyers adapting to the market, fiscal second, third, and fourth quarter sales paces of 3.2, 3.2, and 2.6, respectively, were strong by historical standards and reflected typical seasonality, although the recent rise of mortgage rates may temper sales pace in the near-term.

•Cancellation rate for the fiscal year ended September 30, 2023 was 20.3%, up from 17.6% in the prior year. Following a period of elevated cancellation rates in the fourth quarter of fiscal 2022 and first quarter of fiscal 2023, cancellation rates decreased and returned to a level within our normal historical range as buyer sentiment improved. The cancellation rate for the quarter ended September 30, 2023 was 16.5%.

•ASP for homes closed during the fiscal year ended September 30, 2023 was $517.8 thousand, up 7.0% from $484.1 thousand in the prior year. The increase in closing ASP year-over-year was primarily driven by price appreciation due to existing demand and low levels of resale inventory in the market. Our backlog ASP of $518.0 thousand as of September 30, 2023 was down from $547.5 thousand year-over-year. Our objective to improve new home affordability has led us to slightly alter our product strategy in certain markets by reducing home sizes and/or features included in our base price. These efforts are likely to reduce or eliminate growth in ASP in fiscal 2024. In addition, if mortgage rates continue to rise, challenging market conditions may lead to lower ASP.

•Homebuilding gross margin for the fiscal year ended September 30, 2023 was 19.9%, down from 23.1% in the prior year. Homebuilding gross margin excluding impairments, abandonments, and interest for the fiscal year ended September 30, 2023 was 23.1%, down from 26.3% in the prior year. Homebuilding gross margin peaked in the third quarter of fiscal 2022 followed by a period of decline as we increased price concessions and closing cost incentives in response to rising interest rates and affordability challenges. Although down year-over-year, homebuilding gross margin stabilized during fiscal 2023 and remained strong by historical standards. If market conditions deteriorate due to elevated mortgage rates, gross margin may be compressed in the future.

•During the fiscal year ended September 30, 2023, our average active community count of 125 was up 3.9% from 120 in the prior year. We ended the year with an active community count of 134, compared to 123 at the prior year quarter end. We have been working to grow community counts by increasing investments in new communities strategically with a goal of reaching more than 200 active communities by the end of 2026.

•As of September 30, 2023, our land position included 26,189 controlled lots, up 4.0% from 25,170 as of September 30, 2022. Excluding land held for future development and land held for sale lots, we controlled 25,567 active lots, up 4.8% from the prior year. As of September 30, 2023, we had 14,490 lots, or 56.7% of our total active lots, under option agreements as compared to 13,312 lots, or 54.6% of our total active lots, under option agreements as of September 30, 2022.

•SG&A for the fiscal year ended September 30, 2023 was 11.5% of total revenue compared with 10.9% a year earlier. The increase in SG&A as a percentage of total revenue was primarily due to lower revenues. We remain focused on prudently managing overhead costs.

24

Seasonal and Quarterly Variability: Our homebuilding operating cycle historically has reflected escalating new order activity in the second and third fiscal quarters and increased closings in the third and fourth fiscal quarters. However, these seasonal patterns may be impacted or reduced by a variety of factors, including periods of economic downturn, which may result in decreased revenues and closings.

The following tables present new order and closings data for the periods presented:

25

RESULTS OF CONTINUING OPERATIONS

The following table summarizes certain key income statement metrics for the periods presented:

(a) Excluding impairments, abandonments, and interest amortized to cost of sales, homebuilding gross margin was 23.1%, 26.3% and 23.0% for the fiscal years ended September 30, 2023, 2022 and 2021, respectively. Please see "Homebuilding Gross Profit and Gross Margin" section below for a reconciliation of homebuilding gross profit and the related gross margin excluding impairments and abandonments and interest amortized to cost of sales to homebuilding gross profit and gross margin, the most directly comparable GAAP measure.

(b) Calculated as land sales and other gross profit divided by land sales and other revenue.

(c) Calculated as tax expense for the period divided by income from continuing operations. Our income tax expenses are not always directly correlated to the amount of pre-tax income for the associated period due to a variety of factors, including, but not limited to, the impact of tax credits and permanent differences. For the fiscal years ended September 30, 2023, 2022 and 2021, our effective tax rate was impacted by, among other factors, tax credits of $20.3 million, $12.1 million, and $12.1 million, respectively. Please see Note 12 of the notes to our consolidated financial statements in this Form 10-K for details of significant items that impact our effective tax rate.

26

Reconciliation of Net Income (Loss) to Adjusted EBITDA

Reconciliation of Adjusted EBITDA (a non-GAAP financial measure) to total company net income (loss), the most directly comparable GAAP measure, is provided for each period discussed below. Management believes that Adjusted EBITDA assists investors in understanding and comparing core operating results and underlying business trends by eliminating many of the differences in companies' respective capitalization, tax position, level of impairments, and other non-recurring items. This non-GAAP financial measure may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

The following table reconciles our net income (loss) to Adjusted EBITDA for the periods presented:

(a) In periods during which we impaired certain of our inventory assets, capitalized interest that is impaired is included in the line above titled "Interest amortized to home construction and land sales expenses and capitalized interest impaired."

Reconciliation of Total Debt to Total Capitalization Ratio to Net Debt to Net Capitalization Ratio

Reconciliation of net debt to net capitalization ratio (a non-GAAP financial measure) to total debt to total capitalization ratio, the most directly comparable GAAP measure, is provided for each period below. Management believes that net debt to net capitalization ratio is useful in understanding the leverage employed in our operations and as an indicator of our ability to obtain financing. This non-GAAP financial measure may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

27

Homebuilding Operations Data

The following table summarizes new orders and cancellation rates by reportable segment for the periods presented:

Net new orders for the year ended September 30, 2023 decreased to 3,866, down 4.8% from the year ended September 30, 2022. The decrease in net new orders was driven primarily by a decrease in sales pace from 2.8 sales per community per month in the prior year to 2.6 and an increase in cancellation rates from 17.6% in the prior year to 20.3%, partially offset by an increase in average active community count from 120 in the prior year to 125. The decrease in net new orders was primarily attributed to the low sales pace and high cancellation rates we experienced during our fiscal first quarter as a result of a significant decline in the housing market conditions at the time. Beginning in the second fiscal quarter, sales pace and cancellation rates improved and were in line with historical standards; however, the recent increase in mortgage rates may temper sales pace in the near-term.

The table below summarizes backlog units by reportable segment as well as the aggregate dollar value and ASP of homes in backlog as of September 30, 2023, 2022 and 2021:

Backlog reflects the number of homes for which the Company has entered into a sales contract with a customer but has not yet delivered the home. The aggregate dollar value of homes in backlog as of September 30, 2023 decreased 22.6% compared to the prior year due to an 18.2% decrease in backlog units and a 5.4% decrease in the ASP of homes in backlog. The decrease in backlog units was primarily due to lower beginning backlog and lower net new orders year-over-year.

28

Homebuilding Revenue, Average Selling Price, and Closings

The table below summarizes homebuilding revenue, ASP of our homes closed, and closings by reportable segment for the periods presented:

West Segment: Homebuilding revenue decreased by 2.7% for the fiscal year ended September 30, 2023 compared to the prior fiscal year due to a 12.9% decrease in closings, partially offset by a 11.7% increase in ASP. The year-over-year decrease in closings in the West segment was primarily due to lower beginning backlog, partially offset by a higher backlog conversion rate for fiscal 2023 compared to fiscal 2022.

East Segment: Homebuilding revenue decreased by 9.4% for the fiscal year ended September 30, 2023 compared to the prior fiscal year due to a 12.4% decrease in closings, partially offset by a 3.5% increase in ASP. The year-over-year decrease in closings in the East segment was primarily due to lower beginning backlog, partially offset by a higher backlog conversion rate for fiscal 2023 compared to fiscal 2022.

Southeast Segment: Homebuilding revenue decreased by 3.9% for the fiscal year ended September 30, 2023 compared to the prior fiscal year due to a 2.6% decrease in ASP as well as a decrease in closings of 1.3%. The year-over-year decrease in ASP was due to changes in pricing and product mix. The year-over-year decrease in closings in the Southeast segment is primarily due to lower beginning backlog, partially offset by a higher backlog conversion rate for fiscal 2023 compared to fiscal 2022.

29

Homebuilding Gross Profit and Gross Margin

The following tables present our homebuilding (HB) gross profit and gross margin by reportable segment and in total. In addition, such amounts are presented excluding inventory impairments and abandonments and interest amortized to cost of sales (COS). Homebuilding gross profit is defined as homebuilding revenue less home cost of sales (which includes land and land development costs, home construction costs, capitalized interest, indirect costs of construction, estimated warranty costs, closing costs, and inventory impairments and abandonment charges).

Reconciliation of homebuilding gross profit and the related gross margin excluding impairments and abandonments and interest amortized to cost of sales (each a non-GAAP financial measure) to their most directly comparable GAAP measures is provided for each period discussed below. Management believes that this information assists investors in comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective level of impairments and level of debt. These non-GAAP financial measures may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP.

(a) Corporate and unallocated includes capitalized interest and capitalized indirect costs expensed to homebuilding cost of sale related to homes closed, as well as capitalized interest and capitalized indirect costs impaired in order to reflect projects in progress assets at fair value.

30

Our homebuilding gross profit decreased by $94.0 million to $438.1 million for the fiscal year ended September 30, 2023, compared to $532.1 million in the prior year. The decrease in homebuilding gross profit was primarily driven by a decrease in homebuilding revenue of $104.1 million and a decrease in gross margin of 320 basis points to 19.9%. However, as shown in the tables above, the comparability of our gross profit and gross margin was modestly impacted by impairments and abandonment charges which decreased by $0.5 million and interest amortized to homebuilding cost of sales which decreased by $3.1 million year-over-year (refer to Note 4 and Note 5 of the notes to the consolidated financial statements in this Form 10-K for additional details). When excluding the impact of impairments and abandonment charges and interest amortized to homebuilding cost of sales, homebuilding gross profit decreased by $97.6 million compared to the prior year while homebuilding gross margin decreased by 320 basis points to 23.1%. The year-over-year decrease in gross margin for the fiscal year ended September 30, 2023 was primarily driven by an increase in price concessions and closing cost incentives including rate buydowns, as well as changes in product mix.

West Segment: Compared to the prior fiscal year, homebuilding gross profit decreased by $46.1 million due to the decrease in homebuilding revenue and lower gross margin. Homebuilding gross margin, excluding impairments and abandonments, decreased to 23.8%, down from 26.6% in the prior year. The decrease in gross margin was primarily driven by an increase in price concessions, and closing cost incentives including rate buydowns, as well as changes in product mix.

East Segment: Compared to the prior fiscal year, homebuilding gross profit decreased by $34.8 million due to a decrease in homebuilding revenue and lower gross margin. Homebuilding gross margin, excluding impairments and abandonments, decreased to 20.5%, down from 24.9% in the prior year. The decrease in gross margin was primarily driven by an increase in price concessions and closing cost incentives including rate buydowns, as well as changes in product mix.

Southeast Segment: Compared to the prior fiscal year, homebuilding gross profit decreased by $12.1 million due to a decrease in homebuilding revenue and lower gross margin. Homebuilding gross margin, excluding impairments and abandonments, decreased to 22.9%, down from 25.1% in the prior year. The decrease in gross margin was primarily driven by an increase in price concessions, and closing cost incentives including rate buydowns, as well as changes in product mix.

Measures of homebuilding gross profit and gross margin after excluding inventory impairments and abandonments, interest amortized to cost of sales, and other non-recurring items are not GAAP financial measures. These measures should not be considered alternatives to homebuilding gross profit and gross margin determined in accordance with GAAP as an indicator of operating performance.

In particular, the magnitude and volatility of non-cash inventory impairments and abandonment charges for the Company and other homebuilders have been significant historically and, as such, have made financial analysis of our industry more difficult. Homebuilding metrics excluding these charges, as well as interest amortized to cost of sales and other similar presentations by analysts and other companies, are frequently used to assist investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies' respective level of impairments and levels of debt. Management believes these non-GAAP measures enable holders of our securities to better understand the cash implications of our operating performance and our ability to service our debt obligations as they currently exist and as additional indebtedness is incurred in the future. These measures are also useful internally, helping management to compare operating results and to measure cash available for discretionary spending.

In a given period, our reported gross profit is generated from both communities previously impaired and communities not previously impaired. In addition, as indicated above, certain gross profit amounts arise from recoveries of prior period costs, including warranty items that are not directly tied to communities generating revenue in the period. Home closings from communities previously impaired would, in most instances, generate very low or negative gross margins prior to the impact of the previously recognized impairment. Gross margin for each home closing is higher for a particular community after an impairment because the carrying value of the underlying land was previously reduced to the present value of future cash flows as a result of the impairment, leading to lower cost of sales at the home closing. This improvement in gross margin resulting from one or more prior impairments is frequently referred to in the aggregate as the “impairment turn” or “flow-back” of impairments within the reporting period. The amount of this impairment turn may exceed the gross margin for an individual impaired asset if the gross margin for that asset prior to the impairment would have been negative. The extent to which this impairment turn is greater than the reported gross margin for the individual asset is related to the specific historical cost basis of that individual asset.

31

The asset valuations that result from our impairment calculations are based on discounted cash flow analyses and are not derived by simply applying prospective gross margins to individual communities. As such, impaired communities may have gross margins that are somewhat higher or lower than the gross margins for unimpaired communities. The mix of home closings in any particular quarter varies to such an extent that comparisons between previously impaired and never impaired communities would not be a reliable way to ascertain profitability trends or to assess the accuracy of previous valuation estimates. In addition, since any amount of impairment turn is tied to individual lots in specific communities, it will vary considerably from period to period. As a result of these factors, we review the impairment turn impact on gross margin on a trailing 12-month basis rather than a quarterly basis as a way of considering whether our impairment calculations are resulting in gross margins for impaired communities that are comparable to our unimpaired communities. For fiscal 2023, our homebuilding gross margin was 19.9% and excluding interest and inventory impairments and abandonments, it was 23.1%. For the same period, homebuilding gross margin was as follows in those communities that have previously been impaired, which represented 87 homes and 2.0% of total closings during fiscal 2023:

For further discussion of our impairment policies, refer to Note 2 and Note 4 of the notes to consolidated financial statements in this Form 10-K.

Land Sales and Other Revenue and Gross Profit (Loss)

Land sales relate to land and lots sold that do not fit within our homebuilding programs and strategic plans. We also have other revenue related to title examinations provided for our homebuyers in certain markets. The following tables summarize our land sales and other revenue and related gross profit (loss) by reportable segment for the periods presented:

(a) Includes capitalized interest and capitalized indirect costs expensed to land cost of sale related to land sold, as well as capitalized interest and capitalized indirect costs impaired in order to reflect land held for sale assets at net realizable value.

For the fiscal year ended September 30, 2023, land sales and other revenue decreased by 42.0% to $8.4 million, and land sales and other gross profit decreased by 14.6% to $4.6 million compared to the prior year. Year-over-year fluctuations in land sales and other revenue are primarily driven by the timing and volume of land and lot sales closings. Land sales and other gross profit is primarily impacted by the profitability of individual land and lot sale transactions. Future land and lot sales will depend on a variety of factors, including local market conditions, individual community performance, and changing strategic plans.

32

Operating Income

The table below summarizes operating income by reportable segment for the periods presented:

(a) Includes amortization of capitalized interest, capitalization and amortization of indirect costs, impairment of capitalized interest and capitalized indirect costs, expenses related to numerous shared services functions that benefit all segments but are not allocated to the operating segments, and certain other amounts that are not allocated to our operating segments.

Our operating income decreased by $95.2 million to $177.3 million for the year ended September 30, 2023, compared to operating income of $272.5 million for year ended September 30, 2022, primarily driven by the previously discussed decrease in gross profit, as well as an increase in SG&A expense. The dollar amount of SG&A increased by $1.6 million, or 0.6%, primarily due to higher sales and marketing costs, partially offset by lower commissions expense on lower revenue. Additionally, SG&A as a percentage of total revenue increased year-over-year by 60 basis points from 10.9% to 11.5% primarily due to the decrease in homebuilding revenue.

West Segment: The $48.1 million decrease in operating income compared to the prior year was primarily due to the decrease in gross profit previously discussed and higher sales and marketing expenses and other G&A expenses, partially offset by lower commissions expense on lower revenue in the segment.

East Segment: The $37.1 million decrease in operating income compared to the prior year was primarily due to the decrease in gross profit previously discussed and higher sales and marketing expenses, partially offset by lower commissions expense on lower revenue, and lower other G&A expenses in the segment.

Southeast Segment: The $11.4 million decrease in operating income compared to the prior year was primarily due to the decrease in gross profit previously discussed, partially offset by lower sales and marketing expenses and lower other G&A expenses in the segment.

Corporate and Unallocated: Our Corporate and unallocated results include amortization of capitalized interest, capitalization and amortization of indirect costs, impairment of capitalized interest and capitalized indirect costs, expenses for various shared services functions that benefit all segments but are not allocated, including information technology, treasury, corporate finance, legal, branding and national marketing, and certain other amounts that are not allocated to our operating segments. For the fiscal year ended September 30, 2023, corporate and unallocated net expenses decreased by $1.4 million from the prior fiscal year, primarily due to lower amortization of capitalized interest to cost of sales on lower homebuilding revenue as well as lower G&A costs.

Below operating income, we had one noteworthy year-over-year fluctuation for the fiscal year ended September 30, 2023 compared to the prior year. Specifically, we experienced an increase in other income, net, primarily attributable to a year-over-year increase in interest received due to higher interest rates on operating cash bank accounts.

Income Taxes

We recognized income tax expense from continuing operations of $24.0 million for the fiscal year ended September 30, 2023, compared to income tax expense from continuing operations of $53.3 million and $21.5 million for our fiscal years ended September 30, 2022 and 2021, respectively. Income tax expense in our fiscal 2023, 2022 and 2021 primarily resulted from income generated in the fiscal year and permanent book/tax differences, partially offset by the generation of additional federal tax credits. Refer to Note 12 of the notes to the consolidated financial statements in this Form 10-K for a further discussion of our income taxes.

33

Liquidity and Capital Resources

Our sources of liquidity include, but are not limited to, cash from operations, proceeds from Senior Notes, our Senior Unsecured Revolving Credit Facility (the Unsecured Facility) and other bank borrowings, the issuance of equity and equity-linked securities, and other external sources of funds. Our short-term and long-term liquidity depends primarily upon our level of net income, working capital management (cash, accounts receivable, accounts payable and other liabilities), and available credit facilities.

Net changes in cash, cash equivalents, and restricted cash are as follows for the periods presented:

Operating Activities

Net cash provided by operating activities was $178.1 million for the fiscal year ended September 30, 2023. The primary drivers of operating cash flows are typically cash earnings and changes in inventory levels, including land acquisition and development spending. Net cash provided by operating activities during the period was primarily driven by income before income taxes of $182.5 million, which included $21.8 million of non-cash charges, partially offset by a net increase in non-inventory working capital of $11.5 million and an increase in inventory of $14.7 million resulting from land acquisition, land development, and house construction spending to support continued growth.

Net cash provided by operating activities was $81.1 million for the fiscal year ended September 30, 2022, primarily driven by income before income taxes of $274.0 million, which included $24.0 million of non-cash charges, a net decrease in non-inventory working capital of $14.5 million, partially offset by an increase in inventory of $231.4 million resulting from land acquisition, land development, and house construction spending to support continued growth.

Investing Activities

Net cash used in investing activities for the fiscal year ended September 30, 2023 was $29.7 million, primarily driven by capital expenditures for model homes and information systems infrastructure, and investments in securities.

Net cash used in investing activities for the fiscal year ended September 30, 2022 was 14.7 million, primarily driven by capital expenditures for model homes and information systems infrastructure.

Financing Activities

Net cash used in financing activities was $13.9 million for the fiscal year ended September 30, 2023, primarily driven by the repurchases of a portion of our 2025 Senior Notes, debt issuance costs for the Unsecured Facility (see Note 7), and tax payments for stock-based compensation awards vesting.

Net cash used in financing activities was $88.7 million during the fiscal year ended September 30, 2022, primarily driven by repayment of the Senior Unsecured Term Loan (the Term Loan), repurchases of a portion of our 2025 and 2027 Senior Notes, common stock repurchases under our share repurchase program, and tax payments for stock-based compensation awards vesting.

Financial Position

As of September 30, 2023, our liquidity position consisted of $345.6 million in cash and cash equivalents and $265.0 million of remaining capacity under the Unsecured Facility, compared to $214.6 million in cash and cash equivalents and $244.5 million of remaining capacity under the Secured Revolving Credit Facility as of September 30, 2022. Meanwhile, we invested $573.1 million and $573.6 million in land acquisition and land development during fiscal years ended September 30, 2023 and September 30, 2022, respectively.

34

While we believe we possess sufficient liquidity, we are mindful of potential short-term or seasonal requirements for enhanced liquidity that may arise to operate and grow our business. As of the date of this report, we believe we have adequate capital resources and sufficient access to external financing sources to satisfy our current and long-term liquidity needs for funds to conduct our operations and meet other needs in the ordinary course of our business, however, we are continually reviewing our capital resources to determine whether we can meet our short- and long-term goals, and we may require additional capital to do so.

At times, we may also engage in capital markets, bank loan, project debt or other financial transactions, including the repurchase of debt or potential new issuances of debt or equity securities to support our business needs. The amounts involved in these transactions, if any, may be material. In addition, as necessary or desirable, we may adjust or amend the terms of and/or expand the capacity of the Unsecured Facility, or enter into additional letter of credit facilities, or other similar facility arrangements, in each case with the same or other financial institutions, or allow any such facilities to mature or expire.

Debt

We generally fulfill our short-term cash requirements with cash generated from our operations and available borrowings. Additionally, our Unsecured Facility provides borrowing capacity of $265.0 million, which includes a letter of credit capacity of $100.0 million. As of September 30, 2023, no borrowings and no letters of credit were outstanding under the Unsecured Facility, resulting in a remaining borrowing capacity of $265.0 million. Subsequently in October, 2023, we increased our available borrowing capacity under the Unsecured Facility from $265.0 million to $300.0 million. See Note 7 and Note 18 of the notes to the consolidated financial statements in this Form 10-K for further discussion.

We have also entered into a number of stand-alone letter of credit agreements with banks, secured with cash or certificates of deposit. These combined facilities provide for letter of credit needs collateralized by either cash or assets of the Company. We currently have $31.2 million of outstanding letters of credit under these facilities.

In the future, we may from time to time seek to continue to retire or purchase our outstanding debt through cash repurchases or in exchange for other debt securities, in open market purchases, privately negotiated transactions, or otherwise. In addition, any material variance from our projected operating results could require us to obtain additional equity or debt financing. There can be no assurance that we will be able to complete any of these transactions in the future on favorable terms or at all. See Note 7 of the notes to the consolidated financial statements in this Form 10-K for additional details related to our borrowings.

Supplemental Guarantor Information

As discussed in Note 7 of the notes to the consolidated financial statements in this Form 10-K, the Company's obligations to pay principal and interest under certain debt agreements are guaranteed on a joint and several basis by substantially all of the Company's subsidiaries. Some of the immaterial subsidiaries do not guarantee the Senior Notes. The guarantees are full and unconditional. Summarized financial information is not presented for Beazer Homes USA, Inc. and the guarantor subsidiaries on a combined basis as the assets, liabilities and results of operations of the combined issuer and guarantors of the guaranteed security are not materially different than corresponding amounts presented in the consolidated financial statements of the parent company.

Credit Ratings

Our credit ratings are periodically reviewed by rating agencies. In August 2023, S&P upgraded the Company’s corporate credit rating of B to B+, updated the Company's outlook from positive to stable, and upgraded the rating for our senior unsecured notes from B to B+. In October 2023, Moody's upgraded the rating for our senior unsecured notes from B2 to B1, upgraded the Company's issuer corporate family rating from B2 to B1, and updated the Company's outlook from positive to stable. These ratings and our current credit condition affect, among other things, our ability to access new capital. These ratings are not recommendations to buy, sell or hold debt securities. Negative changes to these ratings may result in more stringent covenants and higher interest rates under the terms of any new debt. Our credit ratings could be lowered, or rating agencies could issue adverse commentaries in the future, which could have a material adverse effect on our business, financial condition, results of operations, and liquidity. In particular, a weakening of our financial condition, including any further increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, could result in a credit rating downgrade or change in outlook, or could otherwise increase our cost of borrowing.

35

Stock Repurchases and Dividends Paid

In May 2022, the Company's Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $50.0 million of its outstanding common stock. This share repurchase program replaced the prior share repurchase program, authorized in the first quarter of fiscal 2019 of up to $50.0 million of common stock repurchases, pursuant to which $12.0 million of the capacity remained prior to the replacement of the program. No share repurchases were made during fiscal years 2023 and 2021. During the fiscal year ended September 30, 2022, the Company repurchased 570 thousand shares of its common stock for $8.2 million at an average price per share of $14.33 through open market transactions. All shares have been retired upon repurchase. The aggregate reduction to stockholders’ equity related to share repurchases during the fiscal year ended September 30, 2022 was $8.2 million. As of September 30, 2023, the remaining availability of the share repurchase program was $41.8 million. The repurchase program has no expiration date.

The indentures under which our Senior Notes were issued contain certain restrictive covenants, including limitations on our payment of dividends. There were no dividends paid during our fiscal years ended September 30, 2023, 2022 or 2021.

Off-Balance Sheet Arrangements and Aggregate Contractual Commitments

Lot Option Agreements

In addition to purchasing land directly, we control a portion of our land supply through lot option agreements with land developers and land bankers, which generally require the payment of cash or the posting of a letter of credit or surety bond for the right to acquire lots during a specified period of time at a specified price. In recent years, we have focused on increasing our lot option agreement usage to minimize risk as we grow our land position. As of September 30, 2023, we controlled 26,189 lots, which includes 272 lots of land held for future development and 350 lots of land held for sale. Of the 25,567 total active lots, we controlled 14,490 of these lots, or 56.7%, through option agreements, as compared to 13,312 active lots controlled, or 54.6% of our total active lots, through option agreements as of September 30, 2022. Lot option agreements allow us to position for future growth while providing the flexibility to respond to market conditions by renegotiating the terms of the options prior to exercise or terminating the agreement.

Under option agreements, purchase of the properties is contingent upon satisfaction of certain requirements by us and the sellers, and our liability is generally limited to forfeiture of the non-refundable deposits, letters of credit or surety bonds, and other non-refundable amounts incurred, which totaled $165.4 million as of September 30, 2023. The total remaining purchase price, net of cash deposits, committed under all options was $949.4 million as of September 30, 2023. Subject to market conditions and our liquidity, we may further expand our use of option agreements to supplement our owned inventory supply.

We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our option agreements. Various factors, some of which are beyond our control, such as market conditions, weather conditions, and the timing of the completion of development activities, will have a significant impact on the timing of option exercises or whether lot options will be exercised at all.

We have historically funded the exercise of lot options with operating cash flows. We expect these sources to continue to be adequate to fund anticipated future option exercises. Therefore, we do not anticipate that the exercise of our lot options will have a material adverse effect on our liquidity.

Letters of Credit and Surety Bonds

In connection with the development of our communities, we are frequently required to provide performance, maintenance, and other bonds and letters of credit in support of our related obligations with respect to such developments. The amount of such obligations outstanding at any time varies in accordance with our pending development activities. In the event any such bonds or letters of credit are drawn upon, we would be obligated to reimburse the issuer of such bonds or letters of credit. We had outstanding letters of credit and surety bonds of $31.2 million and $254.2 million, respectively, as of September 30, 2023, primarily related to our obligations to local governments to construct roads and other improvements in various developments.

36

Contractual Commitments

The following table summarizes our aggregate contractual commitments as of September 30, 2023:

(a) For a listing of our borrowings, refer to Note 7 of the notes to the consolidated financial statements in this Form 10-K.

(b) Interest on variable rate obligations is based on rates effective as of September 30, 2023.

(c) Based on its current inventory of uncertain tax positions and tax carryforward attributes, the Company does not expect a cash settlement of unrecognized tax benefits related to uncertain tax positions in future years. See Note 12 of the notes to the consolidated financial statements in this Form 10-K for additional information regarding the Company's unrecognized tax benefits related to uncertain tax positions as of September 30, 2023.

We had outstanding letters of credit and surety bonds of $31.2 million and $254.2 million, respectively, as of September 30, 2023, primarily related to our obligations to local governments to construct roads and other improvements in various developments.

Critical Accounting Estimates

Our critical accounting policies require the use of judgment in their application and in certain cases require estimates of inherently uncertain matters. Although our accounting policies are in compliance with accounting principles generally accepted in the United States of America (GAAP), a change in the facts and circumstances of the underlying transactions could significantly change the application of the accounting policies and the resulting financial statement impact. Listed below are those policies that we believe are critical and require the use of complex judgment in their application.

Inventory Valuation - Projects in Progress

Projects in progress inventory includes homes under construction and land under development grouped together as communities. Generally, upon the commencement of land development activities, it may take three to five years (depending on, among other things, the size of the community and its sales pace) to fully develop, sell, construct and close all the homes in a typical community. Projects in progress are stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable.

We assess our projects in progress inventory for indicators of impairment at the community level on a quarterly basis. We evaluate, among other things, the average sales price and margins on recent home closings, homes in backlog and expected future home sales for each community. If indicators of impairment are present for a community with more than ten homes remaining to close, we perform a recoverability test by comparing the expected undiscounted cash flows for the community to its carrying value. For those communities whose carrying values exceed the aggregate undiscounted cash flows, we perform a discounted cash flow analysis to determine the fair value of the community, and impairment charges are recorded if the fair value of the community's inventory is less than its carrying value.

37

There is uncertainty associated with preparing the undiscounted cash flow analyses because future market conditions will almost certainly be different, either better or worse, than current conditions. Significant valuation assumptions include expected pace of closings, average sales price, expected costs for land development, direct construction, overhead, and interest. The risk of over or under-stating any of the important cash flow variables is greater with longer-lived communities and within markets that have historically experienced greater home price volatility. To address these risks, we consider home price and construction cost appreciation in future years for certain communities that are expected to be selling for more than a year and/or if the market has typically exhibited high levels of price volatility. Absent these assumptions on cost and sales price appreciation, we believe the long-term cash flow analysis would be unrealistic. Finally, we also ensure that the pace of sales and closings used in our undiscounted cash flow analyses are reasonable by considering seasonal variations in sales and closings, our development schedules and what we have achieved historically, and by comparing to those achieved by our competitors for comparable communities.

The fair value of the community is estimated based on the present value of the estimated future cash flows using discount rates commensurate with the risk associated with the underlying community. The discount rate used may be different for each community. The factors considered when determining an appropriate discount rate for a community include, among others: (1) community specific factors such as product types, development stage and expected duration of the project, and the competitive factors influencing the sales performance of the community and (2) local market factors such as employment levels, consumer confidence and the existing supply of new and used homes for sale. The assumptions used in the determination of fair value of projects in progress communities are based on factors known to us at the time such estimates are made and our expectations of future operations and market conditions. Due to uncertainties in the estimation process, the significant volatility in market conditions, the long life cycles of many communities, and potential changes in our strategy related to certain communities, actual results could differ significantly from our estimates.

Warranty Reserves

The adequacy of our warranty reserves is based on historical experience and management's estimate of the costs to remediate any claims. Our review includes a quarterly analysis of the historical data and trends in warranty expense by division. An analysis by division allows us to consider market specific factors such as our warranty experience, the number of home closings, the prices of homes, product mix, and other data in estimating our warranty reserves. In addition, our analysis also factors in the existence of any non-recurring or community-specific warranty matters that might not be contemplated in our historical data and trends that may need to be separately estimated based on management's judgment of the ultimate cost of repair for that specific issue.

At September 30, 2023, our warranty reserve was $13.0 million, reflecting an accrual range of 0.3% to 1.0% of total revenue recognized for each home closed depending on our loss history in the division in which the home was built. A ten basis point increase in our warranty reserve rate would have increased our accrual and corresponding cost of sales by $2.3 million as of September 30, 2023.

There were no material changes in assumptions in calculating our reserve balance for the year ended September 30, 2023.

Our estimation process is discussed in Note 8 of notes to the consolidated financial statements in this Form 10-K. While we believe that our current warranty reserves are adequate, there can be no assurances that historical data and trends will accurately predict our actual warranty costs or that future developments might not lead to a significant change in the reserve.

Income Taxes - Valuation Allowance

The carrying amounts of deferred tax assets are reduced by a valuation allowance if an assessment of their components indicates that it is more likely than not that all or some portion of these assets will not be realized. Judgment is required in estimating valuation allowances for deferred tax assets. The realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income in either the carryback or carryforward periods under tax law. We assess the need for valuation allowances for deferred tax assets based on more-likely-than-not realization threshold criteria. In our assessment, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, (1) the nature, frequency and severity of any current and cumulative losses; (2) forecasts of future profitability; (3) the duration of statutory carryforward periods; (4) our experience with operating loss and tax credit carryforwards not expiring unused; (5) the Section 382 limitation on our ability to carryforward pre-ownership change net operating losses; (6) recognized built-in losses or deductions; and (7) tax planning alternatives.

38

Our assessment of the need for the valuation of deferred tax assets includes assessing the likely future tax consequences of events that have been recognized in our financial statements or tax returns. We base our estimate of deferred tax assets and liabilities on current tax laws and rates and, in certain cases, business plans and other expectations about future outcomes. Changes in existing tax laws or rates could affect actual tax results and future business results may affect the amount of deferred tax liabilities or the valuation of deferred tax assets over time. Our analysis includes several scenarios with both increases and decreases in our estimates of operating income across future periods. Routine or cyclical reductions in our pre-tax earnings would not have changed our assessment of our ability to utilize various tax carryforwards. In addition to various company-specific factors, we consider several positive and negative external factors that may impact our estimates. These factors may include broad economic considerations such as mortgage interest rates, the relative health of the U.S. economy and employment levels, as well as industry or market specific factors such as housing supply and demand outlook.

In fiscal 2023, our conclusions about our ability to more likely than not realize all of our federal and certain state tax attributes remain consistent with our prior determinations. We considered positive factors including our recent earnings levels, interest savings from our debt reduction strategies, shortage in housing supply, and our backlog. The negative factors included the overall health of the broader economy, significant increases in mortgage interest rates, and weakened housing demand.

Our accounting for deferred tax consequences represents our best estimate of future events. It is possible there will be changes that are not anticipated in our current estimates. If those changes resulted in significant and sustained reductions in our pre-tax earnings or our utilization of existing tax carryforwards, it is likely such changes would have a material impact on our financial condition or results of operations. The nature and amounts of the various tax attributes comprising our deferred tax assets are discussed in Note 12 of notes to the consolidated financial statements in this Form 10-K.