Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as other information in this Form 10-K, before deciding whether to invest in shares of our common stock. The occurrence of any of the events described below could harm our business, financial condition, results of operations, and growth prospects. In such an event, the trading price of our common stock may decline, and you may lose all or part of your investment.
Business and Market Risks
A number of conditions that affect demand for the homes we sell are outside of our control. Many of these conditions, such as interest rates, inflation, employment levels, wage levels and governmental actions also impact consumer confidence, upon which our business is highly dependent.
Negative changes in national and regional economic conditions, as well as local economic conditions where we conduct our operations, may result in more caution on the part of homebuyers and, consequently, fewer home purchases. Demand softened during fiscal 2025 as homebuyers continued to face an elevated interest rate environment despite interest rate cuts by the Federal Reserve multiple times during fiscal 2025. This continued economic uncertainty is out of our control, affects buyer sentiment and behavior and the demand for the homes we sell, and negatively impacts consumer confidence, upon which our business is highly dependent.
A worsening of these conditions and/or further downturns in the homebuilding industry could also, among other things, result in an oversupply of both new and resale home inventory across housing markets in the U.S., an increase in foreclosures, reduced levels of consumer demand for new homes, increased cancellation rates, aggressive price competition among homebuilders, and increased incentives for home sales, any of which could result in a decrease in our revenues, earnings, or margins and adversely affect our financial condition and results of operations.
In addition, any certain government actions such as continuance of the U.S. federal government shutdown or U.S. initiated tariffs on certain foreign goods, particularly raw materials, commodities, and products manufactured outside the United States that are used in our homebuilding processes, may disrupt our home closings process or cause our homebuilding costs to rise, which would have a negative impact on our business and results of operations.
Because most of our customers require mortgage financing, elevated mortgage interest rates for prolonged periods and further increases in interest rates would likely negatively affect the affordability of the homes we sell. In addition, reductions in mortgage availability or increases in the effective costs of owning a home could prevent our customers from buying our homes and adversely affect our business and financial results.
Most of the purchasers of our homes finance their acquisition with mortgage financing. Despite modest interest rate reductions in September 2025, interest rates have remained at a heightened level for a prolonged period, and may continue to remain at a heightened level. Higher rate periods or future increases in interest rates could directly impact mortgage rates and increase the costs of owning a home, which could adversely affect the purchasing power of consumers. Elevated mortgage rates for prolonged periods could also lower demand for the homes we sell, resulting in a decrease in our revenues and earnings and adversely affect our financial condition.
The availability of mortgage financing is significantly influenced by governmental entities such as the Federal Housing Administration, Veteran’s Administration, and Government National Mortgage Association and government-sponsored enterprises known as Fannie Mae and Freddie Mac. If these or other lenders’ borrowing standards are tightened and/or the federal government were to reduce or eliminate these mortgage loan programs (including due to any failure of lawmakers to agree on a budget or appropriation legislation to fund relevant programs or operations or the continuance of the U.S. federal government shutdown which may result in these or other government agencies furloughing employees and stopping activities critical to the mortgage financing process), it would likely make it more difficult for our customers to obtain acceptable financing, which would, in turn, adversely affect our business, financial condition and results of operations.
Mortgage interest expenses and real estate taxes represent significant costs of homeownership. Therefore, when there are changes in federal or state income tax laws that eliminate or substantially limit the income tax deductions relating to these expenses, the after-tax costs of owning a new home can increase significantly. For example, in July 2025, H.R. 1, or the One Big Beautiful Bill Act ("OBBBA"), was enacted, which includes provisions that impose significant limitations with respect to these income tax deductions. Under this legislation, through the end of 2029, the annual deduction for real estate property taxes and state and local income or sales taxes has been limited to a combined amount of $40,000 ($20,000 in the case of a separate return filed by a married individual). In addition, the deduction for mortgage interest will generally only be available with respect to acquisition indebtedness that does not exceed $750,000 ($375,000 in the case of a separate return filed by a married individual). These changes could reduce the perceived affordability of homeownership, and therefore the demand for homes, or
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have a moderating impact on home sales prices in areas with relatively high housing prices or high state and local income and real estate taxes.
Inflation may adversely affect us by increasing costs beyond what we can recover through price increases.
Although inflation has moderated slightly, it has remained persistent in the United States in recent years due, in part, to supply chain issues, elevated energy prices, labor shortages and trade policies, among other factors. Inflation can adversely affect us by increasing costs of land, materials, and labor. In addition, inflation is often accompanied by higher interest rates. In an inflationary environment, depending on homebuilding industry and other economic conditions, we may be unable to raise home prices enough to keep up with the rate of inflation, which would reduce our profit margins.
If we are unsuccessful in competing against other homebuilders, our market share could decline or our growth could be impeded and, as a result, our financial condition and results of operations could suffer.
Competition in the homebuilding industry is intense, and there are relatively low barriers to entry into our business. Increased competition could hurt our business, as it could prevent us from acquiring attractive parcels of land on which to build homes or make such acquisitions more expensive, hinder our market share expansion and lead to pricing pressures on our homes that may adversely impact our margins and revenues. If we are unable to successfully compete, our financial results could suffer and our ability to service our debt could be adversely affected. Our competitors may independently develop land and construct housing units that are superior or substantially similar to our products. Furthermore, many of our competitors have substantially greater financial resources, less leverage, and lower costs of funds and operations than we do. In addition, the homebuilding industry has been subject to increasing consolidation and mergers and acquisition activity, which could result in existing competitors increasing their market share. Such changes have the potential to increase competitive dynamics in affected markets. Many of these competitors also have longstanding relationships with subcontractors and suppliers in the markets in which we operate. We currently build in several of the top markets in the nation and, therefore, we expect to continue to face additional competition from new entrants into our markets.
Operational, Legal and Regulatory Risks
An increase in cancellation rates will negatively impact our business and could lead to imprecise estimates related to homes to be delivered in the future (backlog).
Our backlog reflects the number and value of homes for which we have entered into a sales contract with a customer but have not yet delivered the home. Although these sales contracts typically require a cash deposit and generally do not make the sale contingent on the sale of the customer’s existing home, in some cases a customer may cancel the contract and receive a complete or partial refund of the deposit as a result of local laws or as a matter of our business practices. If industry or economic conditions deteriorate or if mortgage financing becomes less accessible, more homebuyers may have an incentive to cancel their contracts with us, even where they might be entitled to no refund or only a partial refund, rather than complete the purchase. While cancellation rates during fiscal 2025 have remained in line with our normal historical range, significant cancellations have had, and could again in the future have, a material adverse effect on our business as a result of lost sales revenue and the accumulation of unsold housing inventory. It is important to note that both backlog and cancellation metrics are operational, rather than accounting data, and should be used only as a general gauge to evaluate our performance. There is an inherent imprecision in these metrics based on an evaluation of qualitative factors during the transaction cycle.
Our long-term success depends on our ability to acquire finished lots and undeveloped land suitable for residential homebuilding at reasonable prices, in accordance with our land investment criteria.
The homebuilding industry is highly competitive for suitable land and the risk inherent in purchasing and developing land increases as consumer demand for housing increases. The availability of finished and partially finished developed lots and undeveloped land for purchase that meet our investment criteria depends on a number of factors outside our control, including land availability in general, competition with other homebuilders and land buyers, inflation in land prices, zoning, allowable housing density, the ability to obtain building permits, and other regulatory requirements. Should suitable lots or land become less available, the number of homes we may be able to build and sell could be reduced, and the cost of land could increase, perhaps substantially, which could adversely impact our financial condition and results of operations.
As competition for suitable land increases, the cost of acquiring both finished and undeveloped lots and the cost of developing owned land could rise, and the availability of suitable land at acceptable prices may decline, which could adversely impact our financial results. The availability of suitable land assets could also affect the success of our land acquisition strategy and ultimately our long-term strategic goals by impacting our ability to increase the number of actively selling communities, grow our revenues and margins and achieve or maintain profitability.
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Reduced numbers of home sales extend the time it takes us to recover land purchase and property development costs, negatively impacting profitability and our results of operations.
We incur many costs even before we begin to build homes in a community. Depending on the stage of development a land parcel is in when we acquire it, these may include costs of preparing land, finishing and entitling lots, installing roads, sewers, water systems, and other utilities, taxes, and other costs related to ownership of the land on which we plan to build homes. If the rate at which we sell and deliver homes slows, or if we delay the opening of new home communities, we may incur additional pre-construction costs, and it may take longer for us to recover our costs, which could adversely affect our profitability and results of operations.
Natural disasters and other related events could result in delays in land development or home construction, increase our costs or decrease demand in the impacted areas.
The climates and geology of many of the states in which we operate present increased risks of natural disasters. To the extent that hurricanes, tornadoes, severe storms, heavy or prolonged precipitation, earthquakes, droughts, floods, wildfires or other natural disasters or similar events occur, our homes under construction or our building lots in such states could be damaged or destroyed, which may result in losses exceeding our insurance coverage. Natural disasters or severe weather can also lead to increased competition for subcontractors and/or unavailability of laborers or service providers, both of which can delay our progress even after the event has concluded. Additionally, and as discussed below, increased competition for skilled labor can lead to cost overruns, as we may have to incentivize the impacted region’s limited trade base to work on our homes. Finally, natural disasters and other related events may also temporarily impact demand, as buyers are not as willing to shop for new homes during or after the event. These risks could adversely affect our business, financial condition, and results of operations.
Supply shortages and other risks related to the demand for skilled labor and building materials could increase costs, delay deliveries and could adversely affect our financial condition and results of operations.
The residential construction industry experiences price fluctuations and shortages in labor and materials from time to time. Shortages in labor can be due to shortages in qualified trades people, changes in immigration laws and trends in labor migration, lack of availability of adequate utility infrastructure and services, or our need to rely on local subcontractors who may not be adequately capitalized or insured. Shortages of materials can be due to certain disruptions, such as natural disasters, civil or political unrest and conflicts, trade disputes, difficulties in production or delivery or health issues like a pandemic. Labor and material shortages can be more severe during periods of strong demand for housing or during periods in which the markets where we operate experience natural disasters such as hurricanes or flooding as discussed more fully above. Pricing for labor and materials can be affected by the factors discussed above, changes in energy prices, and various other national, regional, and local economic and political factors. Additionally, heightened immigration guidelines and enforcement, including federal immigration provisions contained in the OBBBA, could result in labor shortages, particularly with our trade partners. Many of these changes may result in adverse impacts for us or our trade partners that could materially affect our operations. Such actions limit our ability to control costs, which if we are not able to successfully offset such increased costs through higher sales prices, could adversely affect our margins on the homes we build.
We may incur additional operating expenses or longer construction cycle times due to compliance programs or fines, penalties and remediation costs pertaining to environmental regulations within our markets. Additionally, any violations of such regulations could harm our reputation, thereby negatively impacting our financial condition and results of operations.
We are subject to a variety of local, state and federal statutes, ordinances, rules and regulations concerning the protection of health and the environment. The particular environmental laws that apply to any given community vary greatly according to the location of the community site, the site’s environmental conditions and the present and former use of the site. Environmental laws may result in delays, may cause us to implement time consuming and expensive compliance programs and may prohibit or severely restrict development in certain environmentally sensitive regions or areas. From time to time, the EPA and similar federal or state agencies review homebuilders’ compliance with environmental laws and may levy fines and penalties for failure to strictly comply with applicable environmental laws or impose additional requirements for future compliance as a result of past failures. Any such actions taken with respect to us may increase our costs or harm our reputation. Further, we expect that stringent requirements may be imposed on homebuilders in the future. In particular, our communities in California and Phoenix are especially susceptible to restrictive government regulations and environmental laws, particularly surrounding water usage.
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We are subject to extensive government regulation, which could cause us to incur significant liabilities or restrict our business activities.
Regulatory requirements could cause us to incur significant liabilities and operating expenses and could restrict our business activities. We are subject to local, state and federal statutes and rules regulating, among other things, certain developmental matters, building and site design, the availability of water and matters concerning the protection of health, safety and the environment. Our operating costs may be increased by governmental regulations, such as building permit allocation ordinances and impact and other fees and taxes, which may be imposed to defray the cost of providing certain governmental services and improvements. Other governmental regulations, such as building moratoriums and “no growth” or “slow growth” initiatives may be adopted in communities that have developed rapidly, which may cause delays in new home communities or otherwise restrict our business activities, resulting in reductions in our revenues. Any delay or refusal from government agencies to grant us necessary licenses, permits and approvals could have an adverse effect on our financial condition and results of operations.
Limitations on, or the elimination of, tax benefits in connection with the federal “Energy Star” or “Zero Energy” programs could be material to our business.
We receive tax benefits under Internal Revenue Code Section 45L, which we have earned through our substantial investment in and commitment to energy-efficient building practices (Energy-Efficiency Tax Credits). Historically, the Energy-Efficiency Tax Credits were valued at $2,000 per single family home that met the relevant qualifications. The Inflation Reduction Act of 2022 increased these credits to $2,500 or $5,000 per single family home meeting Energy Star or Zero Energy Ready qualifications, respectively. As we have effectively achieved our goal of building 100% Zero Energy Ready homes in fiscal 2025, we currently receive an Energy-Efficiency Tax Credit of $5,000 for each single family home certified as a Zero Energy Ready home.
However, pursuant to the OBBBA, the Energy-Efficiency Tax Credits for new energy-efficient homes delivered after June 30, 2026 will be disallowed and, therefore, unless the OBBBA is amended or other legislation is enacted, we will not receive any Energy-Efficiency Tax Credit benefit for any of our homes delivered after that date. As a result, our income tax expense and effective tax rate may increase. For more information, see Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Income Taxes.
Our activities and disclosures related to sustainability expose us to risks.
In recent years, we, along with many other companies, have been subject to focus and scrutiny from regulators, investors, employees and customers and other stakeholders regarding sustainability efforts, including compliance with evolving disclosure requirements. For example, the State of California has enacted legislation that will require large U.S. companies doing business in California to make broad-based climate-related disclosures, and other states have considered similar measures. We are assessing our obligations under these proposed and enacted rules and expect that compliance could require substantial effort in the future. Standards for tracking and reporting on sustainability matters, including climate-related matters, have also not been harmonized. Changes to these standards could require adjustments to our accounting or operational policies, as well as updates to our existing systems to meet these reporting obligations. We will therefore likely need to be prepared to contend with overlapping, yet distinct, climate-related disclosure approaches, frameworks and requirements.
At the same time, an increasing number of stakeholders, lawmakers and regulators have expressed or pursued contrary views, policy, and investment expectations with respect to sustainability matters, which may expose us to additional legal, financial or reputational risks. If our sustainability practices, commitments or disclosures do not meet, or are perceived not to meet, evolving regulatory, investor and other stakeholder expectations and standards, our reputation, our ability to attract or retain employees, and our attractiveness as an investment or business partner could be negatively affected. While we monitor a broad range of sustainability matters, we cannot be certain that we will manage such matters successfully, or that we will successfully meet the expectations of regulators, investors, employees, customers and other stakeholders.
We may be subject to significant potential liabilities as a result of construction defect, product liability and warranty claims made against us.
As a homebuilder, we have been, and continue to be, subject to construction defect, product liability and home warranty claims, including moisture intrusion and related claims, arising in the ordinary course of business. These claims are common to the homebuilding industry and can be costly.
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With respect to certain general liability exposures, including construction defect claims, product liability claims and related claims, assessment of claims and the related liability and reserve estimation process is highly judgmental due to the complex nature of these exposures and unique circumstances of each claim. Furthermore, once claims are asserted for construction defects, it can be difficult to determine the extent to which the assertion of these claims will expand geographically. Although we have obtained insurance for construction defect claims, such policies may not be available or adequate to cover liability for damages, the cost of repairs and/or the expense of litigation. Current and future claims may arise out of events or circumstances not covered by insurance and not subject to effective indemnification agreements with our subcontractors.
At any given time, we may be the subject of civil litigation that could require us to pay substantial damages or could otherwise have a material adverse effect on us.
We may be subject to civil litigation regarding claims made by homebuyers. We cannot predict or determine the timing or final outcome of such lawsuits, or the effect that any adverse determinations the lawsuits may have on us. An unfavorable determination in any of the lawsuits could result in the payment by us of substantial monetary damages that may not be covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and the Board of Directors on these matters, even if we are ultimately successful, could have a material adverse effect on our business, financial condition and results of operations. In addition to expenses incurred to defend the Company in these matters, under Delaware law and our bylaws, we may have an obligation to indemnify our current and former officers and directors in relation to these matters. We have obligations to advance legal fees and expenses to directors and certain officers.
Our insurance carriers may seek to rescind or deny coverage with respect to such lawsuits, or we may not have sufficient coverage under our insurance policies. If the insurance companies are successful in rescinding or denying coverage, or if we do not have sufficient coverage under our policies, our business, financial condition and results of operations could be materially adversely affected.
Our operating expenses could increase if we are required to pay higher insurance premiums or litigation costs for various claims, which could negatively impact our financial condition and results of operations. Additionally, our insurance policies may not offset our entire expense due to limitation in coverages, amounts payable under the policies or other related restrictions.
The costs of insuring against construction defect, product liability and director and officer claims are substantial. Increasingly in recent years, lawsuits (including class action lawsuits) have been filed against builders, asserting claims of personal injury and property damage. Our insurance may not cover all of the claims, including personal injury claims, or such coverage may become prohibitively expensive. If we are not able to obtain adequate insurance against these claims, we may experience losses that could negatively impact our financial condition and results of operations, as well as our cash flows.
Historically, builders have recovered from subcontractors and their insurance carriers a significant portion of the construction defect liabilities and costs of defense that the builders have incurred. However, insurance coverage available to subcontractors for construction defects is becoming increasingly expensive and the scope of coverage is restricted. If we cannot effectively recover from our subcontractors or their carriers, we may suffer even greater losses.
A builder’s ability to recover against any available insurance policy depends upon the continued solvency and financial strength of the insurance carrier that issued the policy. Many of the states in which we build homes have lengthy statutes of limitations and/or repose applicable to claims for construction defects. To the extent that any carrier providing insurance coverage to us, or our subcontractors becomes insolvent or experiences financial difficulty in the future, we may be unable to recover on those policies, thereby negatively impacting our financial condition and results of operations.
We are dependent on the services of certain key employees and the loss of their services could hurt our business.
Our future success depends upon our ability to attract, train and retain skilled personnel, including officers and directors. If we are unable to retain our key employees or attract, train or retain other skilled personnel in the future, it could hinder our business strategy and impose additional costs of identifying and training new individuals. Competition for qualified personnel in all of our operating markets, as well as within our corporate operations, is intense.
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Information technology failures, cybersecurity breaches or data security breaches could harm our business.
We use information technology and other computer resources to perform important operational and marketing activities and to maintain our business records. Certain of these resources are provided to us and/or maintained by third-party service providers pursuant to agreements that specify certain security and service level standards. Presently, we employ a limited array of traditional and generative artificial intelligence (AI) solutions for certain functions for our operations. We are consistently considering new ways we might further integrate AI solutions into our information systems, potentially assuming a more critical role in our operations over time. AI programs can incur significant costs and demand substantial expertise for development, pose challenges in setup and management, and necessitate periodic updates. In addition, the AI-related legal and regulatory landscape is constantly evolving and therefore remains uncertain and may be inconsistent from jurisdiction to jurisdiction. Our obligations to comply with the evolving legal and regulatory landscape could entail significant costs or limit our ability to incorporate certain AI capabilities into our operations. Our competitors or other entities may also integrate AI into their information systems and business operations more swiftly or effectively than us, potentially impairing our competitive edge and negatively impacting our financial performance.
Our computer systems, including our back-up systems and portable electronic devices, and those of our third-party providers, are subject to damage or interruption from power outages, computer and telecommunication failures, computer viruses, security breaches including malware and phishing, cyberattacks, natural disasters, usage errors or misconduct by our employees or contractors, and other related risks. As part of our normal business activities, we collect and store certain confidential information, including information about employees, homebuyers, customers, vendors and suppliers. This information is entitled to protection under a number of regulatory regimes. We share some of this information with third parties who assist us with certain aspects of our business. A significant and extended disruption of, or breach of, security related to our computer systems and back-up systems may result in business disruption, damage our reputation and cause us to lose customers, sales and revenue, result in the unintended misappropriation of proprietary, personal and confidential information, and require us to incur significant expense to remediate or otherwise resolve these issues including financial obligations to third parties, fines, penalties, regulatory proceedings and private litigation with potentially large costs and other competitive disadvantages. Additionally, the techniques and sophistication used to conduct cyber-attacks and breaches of information systems frequently change. For example, the deployment of evolving AI tools used to identify vulnerabilities and create more deceptive phishing attempts have the potential to not be recognized until such attacks are launched or have been in place for a period of time. A significant cybersecurity breach or attack could have a material impact on our business or results of operations, there can be no assurance that our efforts to maintain the security and integrity of these types of IT networks and related systems will be effective or that attempted security breaches or disruptions would not be successful or damaging.
Global economic and political instability and conflicts could adversely affect our business, financial condition or results of operations.
Our business could be adversely affected by unstable economic and political conditions within the United States, and geopolitical conflicts around the world. While we do not have any international operations or direct supplier relationships, current military conflicts and related sanctions, as well as export controls or actions that may be initiated by nations (e.g., potential cyberattacks, disruption of energy flows, etc.) and other potential uncertainties could adversely affect our supply chain by causing shortages or increases in costs for materials necessary to construct homes and/or increases to the price of gasoline and other fuels. In addition, changes in U.S. trade policy and retaliatory actions from other nations could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact consumer confidence, our business partners, employees or customers, or otherwise adversely impact our business.
Terrorist attacks or acts of war against the United States or increased domestic or international instability could have an adverse effect on our operations.
Adverse developments such as terrorist attacks against the United States or any outbreak or escalation of hostilities between the United States and/or any foreign power may cause disruption to the economy, our Company, our employees and our customers, which could negatively impact our financial condition and results of operations.
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Financial and Liquidity Risks
Our access to capital and our ability to obtain additional financing could be affected by any downgrade of our credit ratings, as well as limitations in the capital markets or adverse credit market conditions.
The Company’s credit rating and ratings on our senior notes and our current credit condition affect, among other things, our ability to access new capital, especially debt. Negative changes in these ratings may result in more stringent covenants and higher interest rates under the terms of our indentures or of any new debt. If our credit ratings are lowered or rating agencies issue adverse commentaries in the future, it 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 a significant increase in our leverage or decrease in our profitability or cash flows, could adversely affect our ability to obtain necessary funds, result in a credit rating downgrade or change in outlook, or otherwise increase our cost of borrowing.
Our Senior Notes, Senior Unsecured Revolving Credit Facility, letter of credit facilities and certain other debt impose significant restrictions and obligations on us. Restrictions on our ability to borrow could adversely affect our liquidity. In addition, our indebtedness could adversely affect our financial condition, limit our growth and make it more difficult for us to satisfy our debt obligations.
Our Senior Notes, Senior Unsecured Revolving Credit Facility, letter of credit facilities and certain other debt impose certain restrictions and obligations on us. Under certain of these instruments, we must comply with defined covenants that limit our ability to, among other things, incur additional indebtedness, engage in certain asset sales, make certain types of restricted payments, engage in transactions with affiliates and create liens on our assets. Failure to comply with certain of these covenants could result in an event of default under the applicable instrument. Any such event of default could negatively impact other covenants or lead to cross defaults under certain of our other debt agreements. There can be no assurance that we will be able to obtain any waivers or amendments that may become necessary in the event of a future default situation without significant additional cost or at all.
Our indebtedness could have important consequences to us and the holders of our securities, including, among other things:
•causing us to be unable to satisfy our obligations under our debt agreements;
•causing us to pay higher interest rates upon refinancing indebtedness if interest rates rise;
•making us more vulnerable to adverse general economic and industry conditions;
•making it difficult to fund future working capital, land purchases, acquisitions, capital expenditures, share repurchases, general corporate or other activities; and
•causing us to be limited in our flexibility in planning for, or reacting to, changes in our business.
In addition, subject to the restrictions of our existing debt instruments, we may incur additional indebtedness. If new debt is added to our current debt levels, the related risks that we now face could intensify. Our growth plans and our ability to make payments of principal or interest on, or to refinance, our indebtedness will depend on our future operating performance and our ability to enter into additional debt and/or equity financings. If we are unable to generate sufficient cash flows in the future to service our debt, we may be required to refinance all or a portion of our existing debt, to sell assets or to obtain additional financing. We may not be able to do any of the foregoing on terms acceptable to us, if at all.
Our ability to use our net operating losses and tax credits has been, and may in the future be, impacted by an “ownership change” pursuant to Section 382 and Section 383 of the Internal Revenue Code.
We currently possess meaningful assets in the form net operating loss carryforwards (NOLs) and Energy-Efficiency Tax Credits. Section 382 and Section 383 of the Internal Revenue Code contain rules that limit the ability of a company that undergoes an “ownership change,” which is generally defined as any change in ownership of more than 50% of its common stock over a three-year period, to utilize its NOLs, tax credits (including, among others, Energy-Efficiency Tax Credits) and certain built-in losses or deductions, as of the ownership change date, that are recognized during the five-year period after the ownership change. These rules generally operate by focusing on changes in the ownership among shareholders owning, directly or indirectly, 5% or more of the Company’s common stock (including changes involving a shareholder becoming a 5% shareholder) or any change in ownership arising from a new issuance of stock or share repurchases by the Company.
NOLs, generated prior to fiscal 2019, and tax credits (including the Energy-Efficiency Tax Credits) generally may be carried forward for a 20-year period to offset future earnings and reduce our federal income tax liability. Any NOLs created during or after fiscal 2019 may be carried forward indefinitely, but may only be utilized to offset 80% of taxable income generated in a
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tax year. Built-in losses, if and when recognized, generally will result in tax losses that may then be deducted or carried forward. However, due to the “ownership change” we experienced in January 2010, for purposes of Section 382 and Section 383, our ability to use certain NOLs, tax credits and built-in losses or deductions in existence prior to the ownership change was limited by Section 382 and/or Section 383. We cannot predict or control the occurrence or timing of another ownership change in the future. If another ownership change were to occur, the limitations imposed by Section 382 and Section 383 could result in a material amount of our NOLs and Energy-Efficiency Tax Credits expiring unused and, therefore, significantly impair the future value of our deferred tax assets.
Because of this potential impairment of the future value of our deferred tax assets, the majority of which are Energy-Efficiency Tax Credits that we earned through substantial investment in energy-efficient building practices, the Company and its Board of Directors believe these assets are worth protecting. Specifically, the Company and its Board of Directors believe the deferred tax assets, inclusive of the Energy-Efficiency Tax Credits, provide substantial value to the Company and its shareholders and reflect our investment and commitment to our energy-efficient homebuilding strategy. Therefore, on November 12, 2025, the Company, with the unanimous approval of its Board of Directors, entered into that certain Rights Agreement for the Protection of NOLs and Energy-Efficiency Tax Credits (the "New Rights Agreement"). The New Rights Agreement is intended to act as a deterrent to any person desiring to acquire 4.95% or more of our common stock. Additionally, our certificate of incorporation has historically prohibited certain transfers of our common stock that could result in an ownership change under Section 382 and Section 383 of the Internal Revenue Code. At the Company’s 2026 Annual Meeting of Stockholders, the Company intends to seek stockholder ratification of the New Rights Agreement, as well as approval of similar protective provisions in our certificate of incorporation. Failure to obtain these stockholder approvals may jeopardize the Company’s ability to fully utilize its Energy-Efficiency Tax Credits and other deferred tax assets in future periods. Neither the New Rights Agreement, nor any protective provisions included in our certificate of incorporation, offer a complete solution, and an ownership change may still occur. Additionally, any protective provisions approved by our stockholders may not be enforceable against all stockholders and may not prevent all stock transfers that have the potential to cause a Section 382 or Section 383 ownership shift, and the New Rights Agreement may deter, but ultimately may not block, all transfers of our common stock that might result in an ownership change.
The realization of all or a portion of our deferred income tax assets (including NOLs and Energy-Efficiency Tax Credits) is dependent upon the generation of future income during the statutory carryforward periods. Our inability to utilize our limited pre-ownership change NOLs, other tax credits and recognized built-in losses or deductions, or the occurrence of a future ownership change and resulting additional limitations to these tax attributes, could have a material adverse effect on our financial condition, results of operations, and cash flows.
We could experience a reduction in home sales and revenues due to our inability to acquire and develop land for our communities if we are unable to obtain reasonably priced financing.
The homebuilding industry is capital intensive, and homebuilding requires significant up-front expenditures to acquire land and to begin development. Accordingly, we incur substantial indebtedness to finance our homebuilding activities. If internally generated funds are not sufficient, we would seek additional capital in the form of equity or debt financing from a variety of potential sources, including additional bank financing and/or securities offerings. The amount and types of indebtedness that we may incur are limited by the terms of our existing debt. In addition, the availability of borrowed funds, especially for land acquisition and construction financing, may be greatly reduced nationally, and the lending community may require increased amounts of equity to be invested in a project by borrowers in connection with both new loans and the extension of existing loans. The credit and capital markets have continued to experience significant volatility. If we are required to seek additional financing to fund our operations, the volatility in these markets may restrict our flexibility to access such financing. If we are not successful in obtaining sufficient capital to fund our planned capital and other expenditures, we may be unable to acquire land for our housing developments, thereby limiting our anticipated growth and community count. Additionally, if we cannot obtain additional financing to fund the purchase of land under our option agreements, we may incur contractual penalties and fees.
Inefficient or ineffective allocation of capital could adversely affect our operating results and/or stockholder value.
Our goal is to allocate capital to maximize our overall long-term returns. This includes growing profitability, improving balance sheet efficiency and generating returns above our cost of capital. If we do not properly allocate our capital, we may fail to produce optimal financial results and we may experience a reduction in stockholder value, including increased volatility in our stock price.
As part of our capital allocation strategy, from time to time we have, and may continue to, return value to our stockholders through share repurchases and to engage in bond repurchases to reduce our indebtedness. For example, in February 2025, we announced an acceleration of the pace of our share repurchases in light of market conditions, resulting in the repurchase of
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approximately 5% of our outstanding shares during fiscal 2025, for an aggregate purchase price of $33.1 million. As of September 30, 2025, we had the authority to purchase additional shares up to our remaining authorization limit of $87.5 million. Decisions with respect to share repurchases are subject to the discretion of our Board of Directors and are based on a variety of factors, including the price and availability of our shares, trading volume, our earnings and financial condition, general market conditions and other capital allocation opportunities. The share repurchase program may be suspended or discontinued at any time in the future without prior notice. Repurchases under our share repurchase program will reduce the market liquidity for our stock, potentially affecting its trading volatility and price. Future share repurchases or potential debt repurchases may also diminish our cash reserves, which may also impact our ability to pursue other opportunities.
Risk Relating to an Investment in our Common Stock
We experience fluctuations and variability in our operating results on a quarterly basis and, as a result, our historical performance may not be a meaningful indicator of future results.
We historically have experienced, and expect to continue to experience, variability in home sales and earnings on a quarterly basis. As a result of such variability, our historical performance may not be a meaningful indicator of future results. Our quarterly results of operations may continue to fluctuate in the future as a result of a variety of both national and local factors, including, among others:
•the timing of home closings and land sales;
•our ability to continue to acquire additional land or secure option agreements to acquire land on acceptable terms;
•conditions of the real estate market in areas where we operate and of the general economy;
•inventory impairments or other material write-downs;
•raw material and labor shortages;
•seasonal home buying patterns; and
•other changes in operating expenses, including the cost of labor and raw materials, personnel and general economic conditions.
Item 1B. Unresolved Staff Comments
None.
Item 1C. Cybersecurity
We maintain a cybersecurity program designed to detect, identify, classify and mitigate cybersecurity and other data security threats as part of our efforts to protect and maintain the confidentiality and security of homebuyer, customer, employee, vendor and supplier information, and non-public information about the Company, which has been strategically integrated into our enterprise risk management program to promote a company-wide culture of cyber risk awareness and inform our decision-making process. The foundation of our cybersecurity program is based on the National Institute of Standards and Technology (NIST) Cybersecurity Framework, which includes a set of controls to prevent, detect, and respond to cybersecurity and other data security threats and incidents.
Additionally, in furtherance of detecting, identifying, and managing material cybersecurity and other data security threats, including such threats associated with our use of any third-party service providers, we also:
•maintain robust information security and privacy policies that are reviewed and updated on an annual basis;
•engage with a range of third-party service providers, including cybersecurity consultants, to evaluate, monitor, and test our cyber management systems and related risks;
•conduct audits, penetration tests, threat and vulnerability assessments, cybersecurity risk monitoring, and security enhancement consultations, using both internal and external resources;
•maintain and continue to evolve our Cybersecurity Incident Management program, which includes regular incident response tabletop exercises, cybersecurity-related disaster recovery and business resiliency plans, and related communications and business continuity procedures;
•conduct security assessments of third-party software products and hosting providers prior to engagement;
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•implement ongoing monitoring procedures for third-party service providers’ hosted applications to ensure continued alignment with our cybersecurity standards and compliance requirements;
•provide mandatory annual security and privacy awareness training, along with monthly phishing simulations, to all of our employees. These trainings and simulations are designed to ensure employees are well-versed in the behaviors and requirements necessary to safeguard the Company's information resources; and
•maintain cyber liability insurance to protect against the financial impact of a cyber incident.
We have a dedicated team of employees managing our cybersecurity program and initiatives, led by the Company’s Chief Information Security Officer (CISO), who reports to our Chief Information Officer (CIO). Both our CISO and CIO possess over 20 years of experience in senior leadership roles leading information security and technology teams across private and public companies. The team works directly in consultation with internal and external advisors to execute our cybersecurity and risk strategies.
Pursuant to our cybersecurity program, potential cybersecurity threats are classified by risk levels and threat mitigation efforts are typically prioritized based on those risk classifications, while focus also remains on maintaining the resiliency of our information systems. In the event we identify a potential cybersecurity issue, we have defined procedures for responding to such issues, including procedures that address when and how to engage with Company management, the Board of Directors, other stakeholders and law enforcement.
Our Board of Directors has ultimate oversight responsibility for risks relating to our cybersecurity program. In addition, the Audit Committee assists the Board of Directors in monitoring our cybersecurity and data security risk exposures and compliance with the Company’s cybersecurity program, and regularly makes inquiries of the Company’s management team, internal auditors and independent auditors regarding these risk exposures and compliance matters. We have also established a Technology Committee, which is a committee currently comprised of four members of the Board of Directors. The Technology Committee is responsible for advising and assisting the Board of Directors in overseeing the Company’s technology strategy and investment matters, and regularly meets with the Company’s management team with respect to these initiatives.
Conducting our businesses involves the collection, storage, use, disclosure, processing, transfer, and other handling of a wide variety of information, including personally identifiable information, for various purposes. Like other companies that process a wide variety of information, our information technology systems, networks and infrastructure and technology have been, and may in the future be, vulnerable to cybersecurity attacks and other data security threats. These types of attacks are constantly evolving, may be difficult to detect quickly, and often are not recognized until after they have been launched against a target. While, to date, we do not believe we have had a significant cybersecurity breach or attack that has had or is likely to have a material impact on our business strategy, results of operations, or financial condition, there can be no assurance that our efforts to maintain the security and integrity of these types of IT networks and related systems will be effective or that attempted security breaches or disruptions would not be successful or damaging. For more information about these and other cybersecurity risks faced by us, see Part 1. Item 1A. “Risk Factors.”
Item 2. Properties
As of September 30, 2025, we had under lease approximately 26,000 square feet of office space in Atlanta, Georgia to house our corporate headquarters. We also lease and own an aggregate of approximately 171,500 and 4,500 square feet of office space, respectively, for our divisional operations at various locations. All facilities are in good condition, adequately utilized, and sufficient to meet our present operating needs.
Due to the nature of our business, significant amounts of property are held by us as inventory in the ordinary course of our homebuilding operations. See Note 4 of notes to the consolidated financial statements in this Form 10-K for a further discussion of our inventory.
Item 3. Legal Proceedings
Litigation
In the normal course of business, we and certain of our subsidiaries are subject to various lawsuits. We cannot predict or determine the timing or final outcome of these lawsuits or the effect that any adverse findings or determinations in pending lawsuits may have on us. In addition, an estimate of possible loss or range of loss, if any, cannot presently be made with respect to certain of these pending matters. An unfavorable determination in pending lawsuits could result in the payment by us of substantial monetary damages that may not be fully covered by insurance. Further, the legal costs associated with the lawsuits and the amount of time required to be spent by management and our Board of Directors on these matters, even if we are ultimately successful, could have a material adverse effect on our financial condition, results of operations, or cash flows.
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For a discussion of our legal proceedings, see Note 8 of the notes to our consolidated financial statements in this Form 10-K.
Item 4. Mine Safety Disclosures
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
The Company lists its common stock on the New York Stock Exchange (NYSE) under the symbol “BZH.” On November 10, 2025, the last reported sales price of the Company's common stock on the NYSE was $21.79, and we had approximately 184 stockholders of record and 29,759,950 shares of common stock outstanding.
Dividends
The indentures under which our senior notes were issued contain certain restrictive covenants, including limitations on the payment of dividends. There were no dividends paid during our fiscal 2025, 2024 or 2023. The Board of Directors will periodically reconsider the declaration of dividends, assuming payment of dividends is not limited under our indentures. The reinstatement of quarterly dividends, the amount of such dividends and the form in which the dividends are paid (cash or stock) will depend upon our financial condition, results of operations, and other factors that the Board of Directors deems relevant.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information about the Company's shares of common stock that may be issued under our existing equity compensation plans as of September 30, 2025, all of which have been approved by our stockholders:
Issuer Purchases of Equity Securities
We did not repurchase any shares of our common stock in the fourth quarter ended September 30, 2025.
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Performance Graph
The following graph illustrates the cumulative total stockholder return on Beazer Homes' common stock for the last five fiscal years through September 30, 2025 as compared to the S&P 500 Index and the S&P 500 Homebuilding Index. The graph assumes an investment of $100 at September 30, 2020 in Beazer Homes' common stock and in each of the benchmark indices specified, assumes that all dividends were reinvested, and accounts for the impact of any stock splits, where applicable. Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.
Comparison of Five Year Cumulative Total Return Assuming $100 Investment as of September 30, 2020
September 30,
Item 6. [Reserved]
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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
Fiscal 2025 presented a challenging operating environment, driven by persistent affordability concerns, elevated mortgage rates, weak consumer sentiment, and continued uncertainties in the macroeconomic environment. In response, we offered discounts and incentives to stimulate sales and turn inventory. We also maintained a disciplined approach to our operations and capital allocation. This included slowing land spend to match current market conditions, renegotiating more favorable land acquisition terms, and pursuing capital-efficient growth opportunities through expanded usage of lot option agreements. During fiscal 2025, we allocated more capital to share repurchases, as our shares traded at a discount to book value, which we believe represented a compelling investment opportunity. Despite the soft selling environment, we continue to see longer-term housing market conditions as favorable with production shortfalls over the past decade contributing to a fundamental long-term undersupply of housing.
Multi-Year Goals
During fiscal 2025, we made steady progress toward our Multi-Year Goals and remain on track to achieve each of these objectives.
•Growth: reaching more than 200 active communities by the end of fiscal 2027,
•Deleveraging: reducing our net debt to net capitalization ratio to the low 30% range by the end of fiscal 2027, and
•Book value per share: achieving a double-digit compound annual growth rate in book value per share from the end of fiscal 2024 through fiscal 2027.
As of September 30, 2025, our ending active community count was 169, up 4.3% from 162 in the prior year. This marks the third consecutive year of growth in community count as we work towards our goal of reaching more than 200 active communities by the end of fiscal 2027.
Our total debt to total capitalization ratio and net debt to net capitalization ratio were 45.2% and39.5%, respectively, as of September 30, 2025, down 20 basis points and 50 basis points, respectively, compared to the prior year, despite the difficult environment. This reduction reflects our capital allocation and strategic asset alignment decisions to moderate land spend and increase land sales. With a strong balance sheet and ample liquidity, we believe we are well-equipped to navigate the evolving market dynamics and reduce our net debt to net capitalization ratio to the low 30% range by the end of fiscal 2027.
Our book value per share as of September 30, 2025 was $42.57, up from $40.05 in the prior year, an increase of 6.3%. This growth reflects our continued profitability and active share repurchase program, which has contributed meaningfully to long-term value creation. During fiscal 2025, we repurchased 1.5 million shares of our common stock, approximately 5% of our outstanding shares, for $33.1 million at an average price per share of $22.20.
As we look to fiscal 2026, we continue to advance towards the achievement of our Multi-Year Goals, while maintaining a strong liquidity position. We are accelerating our brand-building and marketing efforts to communicate our differentiated value proposition and drive customer engagement. A key component of this proposition is the energy efficiency of our homes, which enables homeowners to generate meaningful utility savings and reduce their total cost of ownership. We believe these operational and strategic initiatives will enhance our differentiated market position and support significant value creation for our stockholders.
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Overview of Results for Our Fiscal 2025
The following is a summary of our performance against certain key operating and financial metrics during fiscal 2025, as compared to fiscal 2024.
•During the fiscal year ended September 30, 2025, our average active community count of 164 was up14.2% from 144 in the prior year. As of September 30, 2025, our ending active community count was 169, up 4.3% from 162 in the prior year. We invested $684.0 million in land acquisition and land development during the year ended September 30, 2025, down 11.9% compared to $776.5 million in land spend during the year ended September 30, 2024. In response to the evolving market conditions, we reallocated a portion of our land investment toward reaching our Multi-Year Goals of deleveraging and growing book value per share. This shift underscores our confidence in our strong land position and the visibility we have into our community count growth.
•As of September 30, 2025, our land position included 25,660 controlled lots, down 10.1% from 28,538 as of September 30, 2024. We remain focused on the expanded usage of lot option agreements, which allow us to position for future growth while providing the flexibility to respond to market conditions. As of September 30, 2025, we had 15,373 lots, or 62.1% of our total active lots, under option agreements as compared to 16,125 lots, or 57.8% of our total active lots, under option agreements as of September 30, 2024.
•During the fiscal year ended September 30, 2025, orders per community per month were 2.0 compared to 2.4 in the prior year, and our net new orders were 3,890, down 7.8% from 4,221 in the prior year. The decrease in sales pace compared to the prior year reflected weaker consumer sentiment driven by affordability challenges and uncertainties in the macroeconomic environment. We continue to adjust prices, features and incentives to align with the current competitive market conditions.
•Homebuilding gross margin for the fiscal year ended September 30, 2025 was 14.3%, down from 18.0% in the prior year. Homebuilding gross margin was impacted by inventory impairment and abandonment charges of $10.2 million during the year ended September 30, 2025, of which $8.6 million related to impairments recorded for two projects in progress communities, one located in our Phoenix market and the other in our Orlando market, principally due to a reduction in price driven by the competitive and market dynamics. The remaining $1.6 million represents abandonment charges related to land acquisition deals we terminated during the year. Refer to Note 4 of the notes to the consolidated financial statements included in this Form 10-K for further discussion. Homebuilding gross margin, excluding impairments, abandonments and interest amortization, for the fiscal year ended September 30, 2025 was 18.0%, down from 21.1% in the prior year. The year-over-year decrease in homebuilding gross margin for the fiscal year ended September 30, 2025 was primarily driven by an increase in price concessions and incentives, such as mortgage rate buydowns, an increased share of spec home closings which generally have lower margins than "to be built" homes, and changes in product and community mix.
•SG&A for the fiscal year ended September 30, 2025 was 11.9% of total revenue compared with 11.4% a year earlier. SG&A expense was $281.7 million for the fiscal year ended September 30, 2025, up 5.8% compared to prior year primarily due to higher sales and marketing costs and other G&A expenses to support community count growth, partially offset by lower commissions.
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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 by a variety of factors, including periods of market volatility and changes in mortgage interest rates, which may result in increased or decreased new orders and/or revenues and closings that are outside of the normal ranges typically realized on account of seasonality.
The following tables present new order and closings data for the periods presented:
New Orders (Net of Cancellations)
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
Closings
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr Total
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RESULTS OF CONTINUING OPERATIONS
The following table summarizes certain key income statement metrics for the periods presented:
Fiscal Year Ended September 30,
Revenue:
Gross profit:
Gross margin:
G&A as a percentage of total revenue 8.6 % 8.0 % 8.1 %
Operating income as a percentage of total revenue 1.5 % 6.1 % 8.0 %
Inventory impairments and abandonments $ 12,959 $ 1,996 $ 641
Loss on extinguishment of debt, net $ — $ (437) $ (546)
(a) Excluding impairments, abandonments, and interest amortized to cost of sales, homebuilding gross margin was 18.0%, 21.1% and 23.1% for the fiscal years ended September 30, 2025, 2024 and 2023, respectively. Please see the "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 (non-GAAP measures) 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 (benefit) expense for the period divided by income from continuing operations before income taxes. Our income tax (benefit) expense is 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. Our tax credits are predominantly due to the energy efficiency of our homes, with credits valued between $2,000 and $5,000 per single family home. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. The OBBBA repeals many of the energy-efficiency credits enacted under the Inflation Reduction Act, including our ability to claim energy efficient new home tax credits for homes that close after June 30, 2026. While this change does not impact our fiscal 2025 effective rate and deferred tax balances, we are evaluating the full impact of the OBBBA on our future tax provision and financial results.
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Reconciliation of Net Income (GAAP) to Adjusted EBITDA (Non-GAAP)
Reconciliation of Net Income (GAAP measure) to Adjusted EBITDA (Non-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 (GAAP) to Adjusted EBITDA (non-GAAP) for the periods presented:
Fiscal Year Ended September 30,
Interest expense not qualified for capitalization — — — — 2,781
Gain on sale of investment(b) — (8,591) — — —
Litigation settlement in discontinued operations — — — — 120
Restructuring and severance expenses — — 335 — (10)
(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."
(b) We previously held a minority interest in a technology company specializing in digital marketing for new home communities, which was sold during the quarter ended March 31, 2024. In exchange for the previously held investment, we received cash in escrow along with a minority partnership interest in the acquiring company, which was recorded within other assets in our consolidated balance sheets. The resulting gain of $8.6 million from this transaction was recognized in other income, net on our consolidated statement of operations. The Company believes excluding this one-time gain from Adjusted EBITDA provides a better reflection of the Company's performance as this item is not representative of our core operations.
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Reconciliation of Total Debt to Total Capitalization Ratio (GAAP) to Net Debt to Net Capitalization Ratio (Non-GAAP)
Reconciliation of total debt to total capitalization ratio (GAAP measure) to net debt to net capitalization ratio (non-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.
Fiscal Year Ended September 30,
Total debt to total capitalization ratio (GAAP) 45.2 % 45.4 %
Net debt to net capitalization ratio (Non-GAAP) 39.5 % 40.0 %
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Homebuilding Operations Data
The following table summarizes net new orders and cancellation rates by reportable segment for the periods presented:
New Orders, net Cancellation Rates
Net new orders for the year ended September 30, 2025 decreased to 3,890, down 7.8% from the year ended September 30, 2024. The decrease in net new orders was driven primarily by a decrease in sales pace from 2.4 orders per community per month in the prior year to 2.0, partially offset by an increase in average active community count from 144 in the prior year to 164.
West Segment: Net new orders for the year ended September 30, 2025 was 2,365, down 14.1% from the year ended September 30, 2024. The decrease in net new orders compared to the prior year was driven by a 22.4% decrease in sales pace from 2.5 orders per community per month in the prior year to 1.9, partially offset by a 10.7% increase in average active community count from 93 in the prior year to 103.
East Segment: Net new orders for the year ended September 30, 2025 was 935, up 2.5% from the year ended September 30, 2024. The increase in net new orders compared to the prior year was driven by a 20.6% increase in average active community count from 30 in the prior year to 36, partially offset by a 15.0% decrease in sales pace from 2.5 orders per community per month in the prior year to 2.2.
Southeast Segment: Net new orders for the year ended September 30, 2025 was 590, up 6.1% from the year ended September 30, 2024. The increase in net new orders compared to the prior year was driven by a 20.2% increase in average active community count from 21 in the prior year to 25, partially offset by an 11.7% decrease in sales pace from 2.2 orders per community per month in the prior year to 1.9.
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, 2025, 2024 and 2023:
As of September 30,
Backlog Units:
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 decrease in backlog units was primarily due to closings exceeding net new orders for the year ended September 30, 2025. The aggregate dollar value of homes in backlog as of September 30, 2025 decreased 35.2% compared to the prior year due to a 36.2% decrease in backlog units, partially offset by a 1.6% increase in the ASP of homes in backlog. The increase in backlog ASP was primarily due to changes in product and community mix.
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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:
Homebuilding Revenue Average Selling Price
Closings
West Segment: Homebuilding revenue decreased by 1.8% for the fiscal year ended September 30, 2025 compared to the prior fiscal year due to a 1.3% decrease in ASP and a 0.6% decrease in closings. The year-over-year slight decrease in closings in the West segment was primarily due to lower beginning backlog, partially offset by higher volume of spec homes that sold and closed within the current year period and improved construction cycle times for fiscal 2025 compared to fiscal 2024.
East Segment: Homebuilding revenue increased by 19.0% for the fiscal year ended September 30, 2025 compared to the prior fiscal year due to an 11.1% increase in closings as well as a 7.1% increase in ASP. The year-over-year increase in closings in the East segment was primarily due to higher volume of spec homes that sold and closed within the current year period and improved construction cycle times, partially offset by lower beginning backlog, for fiscal 2025 compared to fiscal 2024.
Southeast Segment: Homebuilding revenue decreased by 15.5% for the fiscal year ended September 30, 2025 compared to the prior fiscal year due to a 15.4% decrease in closings, and a 0.1% decrease in ASP. The year-over-year decrease in closings in the Southeast segment is primarily due to lower beginning backlog, partially offset by higher volume of spec homes that sold and closed within the current year period for fiscal 2025 compared to fiscal 2024.
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Homebuilding Gross Profit and Gross Margin
The following tables present our homebuilding (HB) gross profit and gross margin by reportable segment and Corporate and unallocated. 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 impairment and abandonment charges).
Reconciliation of homebuilding gross profit and homebuilding gross margin (GAAP measures) to homebuilding gross profit and the related gross margin excluding impairments and abandonments and interest amortized to cost of sales (non-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.
$ in thousands Fiscal Year Ended September 30, 2025
$ in thousands Fiscal Year Ended September 30, 2024
$ in thousands Fiscal Year Ended September 30, 2023
(a) Corporate and unallocated includes amortization of capitalized interest, capitalization and amortization of indirect costs related to homebuilding activities, as well as capitalized interest and capitalized indirect costs impaired in order to reflect projects in progress assets at fair value, when applicable.
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Our homebuilding gross profit decreased by $84.2 million to $329.4 million for the fiscal year ended September 30, 2025, compared to $413.6 million in the prior year. The decrease in homebuilding gross profit was primarily driven by a decrease in gross margin of 370 basis points to 14.3%, partially offset by an increase in homebuilding revenue of $9.6 million. However, as shown in the tables above, the comparability of our gross profit and gross margin was impacted by impairments and abandonment charges which increased by $8.2 million and interest amortized to homebuilding cost of sales which increased by $6.1 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 $69.9 million compared to the prior year while homebuilding gross margin decreased by 310 basis points to 18.0%. The year-over-year decrease in gross margin for the fiscal year ended September 30, 2025 was primarily driven by an increase in price concessions and incentives, such as mortgage rate buydowns, an increased share of spec home closings which generally have lower margins than "to be built" homes, and changes in product and community mix.
West Segment: Compared to the prior fiscal year, homebuilding gross profit decreased by $51.0 million due to lower gross margin and a decrease in homebuilding revenue. Homebuilding gross margin, excluding impairments and abandonments, decreased to 18.2%, down from 21.3% in the prior year. The decrease in gross margin was primarily driven by an increase in price concessions and incentives, an increased share of spec home closings which generally have lower margins than "to be built" homes, and changes in product and community mix.
East Segment: Compared to the prior fiscal year, homebuilding gross profit increased by $10.7 million due to an increase in homebuilding revenue, partially offset by lower gross margin. Homebuilding gross margin, excluding impairments and abandonments, decreased to 17.1%, down from 18.1% in the prior year. The decrease in gross margin was primarily driven by an increase in price concessions and incentives, an increased share of spec home closings which generally have lower margins than "to be built" homes, and changes in product and community mix.
Southeast Segment: Compared to the prior fiscal year, homebuilding gross profit decreased by $32.4 million due to a decrease in homebuilding revenue and lower gross margin. Homebuilding gross margin, excluding impairments and abandonments, decreased to 17.3%, down from 22.0% in the prior year. The decrease in gross margin was primarily driven by an increase in price concessions and incentives, an increased share of spec home closings which generally have lower margins than "to be built" homes, and changes in product and community 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 non-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.
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Land Sales and Other Revenue and Gross Profit
Land sales relate to land and lots sold that do not fit within our homebuilding programs or 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 by reportable segment and Corporate and unallocated for the periods presented:
$ in thousands Land Sales and Other Revenue
$ in thousands Land Sales and Other Gross Profit (Loss)
Corporate and unallocated(a) (6,630) (834) — (695.0) % n/m(b)
(a) Corporate and unallocated includes capitalized interest and capitalized indirect costs expensed to land cost of sales related to land and lots sold, as well as capitalized interest and capitalized indirect costs impaired in order to reflect land held for sale assets at fair value less cost to sell.
(b) n/m - indicates the percentage is "not meaningful."
For the fiscal year ended September 30, 2025, land sales and other revenue increased by 85.2% to $68.9 million, and land sales and other gross profit decreased by 23.8% to $8.1 million compared to the prior year.
During the fiscal year ended September 30, 2025, our reviews of various communities led to a decision to sell certain lots that no longer aligned with our strategic plans. As a result of changes in strategy, we reclassified 131 lots from projects in progress to land held for sale and recognized a land held for sale impairment charge of $2.7 million during the fiscal year ended September 30, 2025 related to communities in our Phoenix, San Antonio, and Houston markets. No land held for sale impairment charges were recognized during the fiscal year ended September 30, 2024. Refer to Note 4 of the notes to the condensed consolidated financial statements included in this Form 10-K for further discussion.
Year-over-year fluctuations in land sales and other revenue are primarily driven by the timing and volume of land and lot sales closings. As we continue to proactively manage our land position and divest land assets that no longer align with our strategic priorities, the dollar value of land sales and other revenue may grow. Land sales and other gross profit are primarily impacted by the profitability of individual land and lot sale transactions as well as the volume of our title examinations operations. Future land and lot sales will depend on a variety of factors, including local market conditions, individual community performance, and changing strategic plans.
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Operating Income
The table below summarizes operating income by reportable segment and Corporate and unallocated for the periods presented:
Fiscal Year Ended September 30,
(a) Includes amortization of capitalized interest, capitalization and amortization of indirect costs, impairment of capitalized interest and capitalized indirect costs, when applicable, expenses related to numerous shared services functions that benefit all segments but are not allocated to the operating segments reported above, including information technology, treasury, corporate finance, legal, branding and national marketing, and certain other amounts that are not allocated to our operating segments.
Our operating income decreased by $106.4 million to $36.6 million for the year ended September 30, 2025, compared to operating income of $143.0 million for year ended September 30, 2024, primarily driven by the previously discussed decrease in gross profit, including the impact of $13.0 million inventory impairments and abandonments recognized. SG&A as a percentage of total revenue increased by 50 basis points compared to the prior year, from 11.4% to 11.9%, primarily due to higher sales and marketing expenses and other G&A expenses to support community count growth, partially offset by lower commissions.
West Segment: The $47.2 million decrease in operating income compared to the prior year was primarily due to the decrease in gross profit and higher sales and marketing expenses, partially offset by lower commissions on lower homebuilding revenue in the segment.
East Segment: The $1.8 million increase in operating income compared to the prior year was primarily due to the increase in gross profit previously discussed, partially offset by higher commissions expense on higher homebuilding revenue, higher other G&A expenses, and higher sales and marketing expenses in the segment.
Southeast Segment: The $30.5 million decrease in operating income compared to the prior year was primarily due to the decrease in gross profit previously discussed and higher other G&A expenses, partially offset by lower commissions expense on lower homebuilding revenue 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, 2025, corporate and unallocated net expenses increased by $30.5 million from the prior fiscal year, primarily due to higher G&A expenses, higher amortization of capitalized interest and capitalized indirect costs to homebuilding and land sales cost of sales, higher depreciation and amortization expenses, and an impairment of capitalized interest and capitalized indirect costs of $2.2 million recognized during the current year compared to no such charge in the prior year.
Below operating income, we had the following noteworthy year-over-year fluctuations for the fiscal year ended September 30, 2025 compared to the prior year. Specifically, (1) within, other income, net, we recognized a gain on sale of investment of $8.6 million during the year ended September 30, 2024 compared to no such transaction in the current year (See the "Reconciliation of Net Income (GAAP) to Adjusted EBITDA (Non-GAAP)" section above for further discussion on this transaction), (2) within other income, net, we experienced lower interest income year-over-year driven by lower interest rates on lower operating cash balances, and (3) we recorded a loss on extinguishment of debt of $0.4 million during the year ended September 30, 2024 compared to no such loss in the current period. See Note 7 of the notes to our consolidated financial statements in this Form 10-K for a further discussion of debt.
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Income Taxes
We recognized income tax benefit from continuing operations of $4.7 million for the fiscal year ended September 30, 2025, compared to income tax expense from continuing operations of $18.9 million and $24.0 million for our fiscal years ended September 30, 2024 and 2023, respectively. Income tax benefit in our fiscal 2025 primarily resulted from the generation of additional federal tax credits, partially offset by the tax expense from income generated in the fiscal year and permanent book/tax differences. Income tax expense in our fiscal 2024 and 2023 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.
On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law. The OBBBA repeals many of the energy efficiency credits enacted under the Inflation Reduction Act, including our ability to claim energy efficient new home tax credits for homes that close after June 30, 2026. While this change does not impact our fiscal 2025 effective tax rate and deferred tax balances, we are evaluating the full impact of the OBBBA on our future tax provision and financial results.
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:
Net cash (used in) provided by financing activities (36,361) 23,878 (13,926)
Operating Activities
Net cash provided by operating activities was $32.0 million for the fiscal year ended September 30, 2025. 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 $40.9 million, which included $30.4 million of non-cash charges and a decrease in inventory of $2.8 million, partially offset by a net increase in non-inventory working capital of $42.0 million.
Net cash used in operating activities was $137.5 million for the fiscal year ended September 30, 2024. Net cash used in operating activities during the period was primarily driven by an increase in inventory of $282.1 million resulting from land acquisition, land development, and house construction spending to support continued growth and a net increase in non-inventory working capital of $30.2 million, partially offset by income before income taxes of $159.1 million, which included $15.7 million of non-cash charges.
Investing Activities
Net cash used in investing activities for the fiscal year ended September 30, 2025 was $19.7 million, primarily driven by capital expenditures for model homes and information systems infrastructure and purchase of investment securities, partially offset primarily by proceeds from maturities of investment securities.
Net cash used in investing activities for the fiscal year ended September 30, 2024 was $30.0 million, primarily driven by capital expenditures for model homes and information systems infrastructure and purchases of investment securities.
Financing Activities
Net cash used in financing activities was $36.4 million for the fiscal year ended September 30, 2025, primarily driven by repurchases of common stock and tax payments for stock-based compensation awards vesting.
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Net cash provided by financing activities was $23.9 million for the fiscal year ended September 30, 2024, primarily driven by inflows from the issuance of the 2031 Notes, partially offset by outflows from redemption of our 2025 Notes, debt issuance costs related to the 2031 Notes and extension of the term of our Unsecured Facility (see Note 7), repurchases of common stock, and tax payments for stock-based compensation awards vesting.
Financial Position
As of September 30, 2025, our liquidity position consisted of $214.7 million in cash and cash equivalents and $323.6 million of remaining capacity under the Unsecured Facility, compared to $203.9 million in cash and cash equivalents and $300.0 million of remaining capacity under the Unsecured Facility as of September 30, 2024.
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 loans, 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 working capital and letter of credit capacity of $365.0 million, which includes a letter of credit capacity of $100.0 million. As of September 30, 2025, no borrowings and $41.4 million letters of credit were outstanding under the Unsecured Facility, resulting in a remaining borrowing capacity of $323.6 million. See Note 7 of the notes to the consolidated financial statements in this Form 10-K for further discussion.
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 November 2025, S&P revised the Company’s corporate credit rating from B+ to B and revised the Company's outlook from negative to stable. In September 2025, Moody's reaffirmed the Company's issuer corporate family rating of B1 and reaffirmed the Company's outlook of stable. In addition, our Senior Notes have a rating of B and B1 per S&P and Moody's, respectively. 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.
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Stock Repurchases and Dividends Paid
In April 2025, the Company's Board of Directors approved a new share repurchase program that authorizes the Company to repurchase up to $100.0 million of its outstanding common stock. The newly authorized program replaced the prior share repurchase program authorized in May 2022 of up to $50.0 million of common stock repurchases, pursuant to which $8.3 million of the capacity remained prior to the replacement of the program. Under our share repurchase programs, the Company repurchased 1.5 million shares of its common stock for $33.1 million at an average price per share of $22.20 during the fiscal year ended September 30, 2025 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, 2025 was $33.1 million. As of September 30, 2025, the remaining availability of the share repurchase program was $87.5 million.
During the fiscal year ended September 30, 2024, the Company repurchased 455 thousand shares of its common stock for $12.9 million at an average price per share of $28.41 through open market transactions. The aggregate reduction to stockholders’ equity related to share repurchases during the fiscal year ended September 30, 2024 was $12.9 million.
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, 2025, 2024 or 2023.
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 issuance of an irrevocable 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, 2025, we controlled 25,660 lots, which includes 251 lots of land held for future development and 651 lots of land held for sale. Of the 24,758 total active lots, we controlled 15,373 of these lots, or 62.1%, through option agreements, as compared to 16,125 active lots controlled, or 57.8% of our total active lots, through option agreements as of September 30, 2024. 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 $333.4 million as of September 30, 2025. The total remaining purchase price, net of cash deposits, committed under all options was $1.61 billion as of September 30, 2025. 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 $41.4 million and $321.9 million, respectively, as of September 30, 2025, primarily related to our obligations to local governments to construct roads and other improvements in various developments.
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Contractual Commitments
The following table summarizes our aggregate contractual commitments as of September 30, 2025:
Payments Due by Period
in thousands Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years
Uncertain tax positions(c) — — — — —
(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, 2025.
(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, 2025.
We had outstanding letters of credit and surety bonds of $41.4 million and $321.9 million, respectively, as of September 30, 2025, 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.
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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 them 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, 2025, our warranty reserve was $13.6 million, reflecting an accrual range of 0.3% to 0.9% 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 $2.6 million as of September 30, 2025.
There were no material changes in assumptions in calculating our reserve balance for the year ended September 30, 2025.
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, the nature, frequency and severity of any current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, our experience with operating loss and tax credit carryforwards not expiring unused, the Section 382 and Section 383 limitation on our ability to carryforward pre-ownership change net operating losses, tax credits and certain built-in losses or deductions, and tax planning alternatives.
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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 2025, 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 sustained tax profitability, 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, elevated mortgage interest rates, and softening housing demand due to affordability challenges.
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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to a number of market risks in the ordinary course of business. Our primary market risk exposure relates to fluctuations in interest rates. We do not believe that our exposure in this area is material to our cash flows or results of operations. As of September 30, 2025, we had variable rate debt outstanding, totaling $78.5 million. A one percent increase in the interest rate for these notes would result in an increase in our interest expense of approximately $1.0 million over the next twelve-month period. The estimated fair value of our fixed rate debt as of September 30, 2025 was $968.6 million, compared to a carrying amount of $950.6 million. The effect of a hypothetical one-percentage point decrease in our estimated discount rates would increase the estimated fair value of the fixed rate debt instruments from $968.6 million to $999.7 million as of September 30, 2025.
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Item 8. Financial Statements and Supplementary Data
BEAZER HOMES USA, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Stockholders’ equity:
See accompanying notes to consolidated financial statements.
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BEAZER HOMES USA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Year Ended September 30,
Loss on extinguishment of debt, net — (437) (546)
Loss from discontinued operations, net of tax — — (77)
Weighted-average number of shares:
Basic income per share:
Discontinued operations — — —
Diluted income per share:
Discontinued operations — — —
See accompanying notes to consolidated financial statements.
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BEAZER HOMES USA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Paid-in Capital Retained Earnings
in thousands Shares Amount Total
Stock-based compensation expense — — 7,275 — 7,275
Shares issued under employee stock plans, net 675 — — — —
Forfeiture and other settlements of restricted stock (12) — — — —
Common stock redeemed for tax liability (206) — (2,615) — (2,615)
Stock-based compensation expense — — 7,391 — 7,391
Stock option exercises 3 — 20 — 20
Shares issued under employee stock plans, net 387 1 — — 1
Forfeiture and other settlements of restricted stock (61) — — — —
Common stock redeemed for tax liability (177) — (5,366) — (5,366)
Net income and comprehensive income — — — 45,588 45,588
Stock-based compensation expense — — 7,338 — 7,338
Shares issued under employee stock plans, net 327 — — — —
Forfeiture and other settlements of restricted stock (36) — — — —
Common stock redeemed for tax liability (97) — (3,161) — (3,161)
See accompanying notes to consolidated financial statements.
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BEAZER HOMES USA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Year Ended September 30,
Cash flows from operating activities:
Model sale-leaseback revenue (8,799) — —
(Gain) loss on disposal of fixed assets (301) (426) 1,113
Gain on sale of investment — (8,591) —
Loss on extinguishment of debt, net — 437 546
Changes in operating assets and liabilities:
Decrease in income tax receivable — — 9,987
Cash flows from investing activities:
Proceeds from sale of fixed assets 317 428 445
Proceeds from maturities of investment securities 9,556 — —
Other — — (2)
Cash flows from financing activities:
Proceeds from issuance of debt — 250,000 —
Repayment of borrowings from credit facility (450,000) (280,000) —
Tax payments for stock-based compensation awards (3,161) (5,366) (2,615)
Net cash (used in) provided by financing activities (36,361) 23,878 (13,926)
See accompanying notes to consolidated financial statements.
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BEAZER HOMES USA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Description of Business
Beazer Homes USA, Inc. (“we,” “us,” “our,” “Beazer,” “Beazer Homes” or the “Company”) is a nationally recognized homebuilder committed to building homes and communities designed with the intention of inspiring sustainable and healthier living. Operating across 13 states in the West, East, and Southeast geographic regions of the United States, Beazer Homes offers a diverse portfolio of products tailored to meet the evolving needs of homebuyers that value a well-constructed and energy efficient home.
(2) Basis of Presentation and Summary of Significant Accounting Policies
Basis of Consolidation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP), and present the consolidated financial position, income, stockholders' equity, and cash flows of Beazer Homes USA, Inc. and its consolidated subsidiaries. Intercompany transactions and balances have been eliminated in consolidation. Our net income is equivalent to our comprehensive income, so we have not presented a separate statement of comprehensive income.
In the past, we have discontinued homebuilding operations in various markets. Results from certain of these exited markets are reported as discontinued operations in the accompanying consolidated statements of operations for all periods presented.
Our fiscal year 2025 began on October 1, 2024 and ended on September 30, 2025. Our fiscal year 2024 began on October 1, 2023 and ended on September 30, 2024. Our fiscal year 2023 began on October 1, 2022 and ended on September 30, 2023.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make informed estimates and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Accordingly, actual results could differ from these estimates.
Cash and Cash Equivalents and Restricted Cash
We consider highly liquid investments with maturities of three months or less when acquired to be cash equivalents. As of September 30, 2025, the majority of our cash and cash equivalents were on demand deposits with major banks. These assets were valued at par and had no withdrawal restrictions. Restricted cash includes cash restricted by state law or a contractual requirement, including cash collateral for our outstanding cash-secured letters of credit (refer to Note 7).
Accounts Receivable and Allowance
Accounts receivable includes receivables from municipalities related to the development of utilities or other infrastructure, land banker reimbursements to be received related to land development costs, rebates to be received from our suppliers, escrow proceeds to be received from title companies associated with closed homes, and other miscellaneous receivables. Generally, we receive cash from title companies within a few days of the home being closed. We regularly review our receivable balances for collectability and record an allowance for expected credit losses.
Owned Inventory
Owned inventory includes land acquisition costs, land development costs, home construction costs, capitalized interest, real estate taxes, direct overhead costs and capitalized indirect costs incurred during land development and home construction, and common costs that benefit the entire community, less impairment, if any. Land acquisition, land development and other common costs (both incurred and estimated to be incurred) are allocated to individual lots on a pro-rata basis, and the cost of individual lots is transferred to homes under construction when home construction begins. Changes in estimated land and other common costs to be incurred in a community are generally allocated to the remaining lots on a prospective basis. Home construction costs are accumulated on a per-home basis. Cost of home closings includes the specific construction costs of the home and the allocated lot costs. Refer to Note 4 for further discussion of our inventory balance.
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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. This undiscounted cash flow analysis requires important assumptions including, among other things, the current and future home sale prices, margins and the pace of closings to occur in the future. 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.
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. The fair value of the community is estimated using the present value of the estimated future cash flows using discount rates commensurate with the risk associated with the underlying community. Should the estimates or expectations used in determining estimated fair values deteriorate in the future, we may be required to recognize additional impairment charges and write-offs related to these assets, and such amounts could be material.
Inventory Valuation - Land Held for Future Development
Land held for future development consists of communities for which construction and development activities are expected to occur in the future or have been idled. All applicable carrying costs, such as interest and real estate taxes, are expensed as incurred. Land held for future development is stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable, such as the future enactment of a development plan or the occurrence of outside events. We evaluate the potential plans for each community in land held for future development if changes in facts and circumstances occur that would give rise to a more detailed analysis for a change in the status of a community.
Inventory Valuation - Land Held for Sale
Land held for sale includes land and lots that do not fit within our homebuilding programs or strategic plans in certain markets. We record land held for sale at the lower of the asset's carrying value or fair value less cost to sell. Land is classified as held for sale when the following criteria are met:
•management has the authority and commits to a plan to sell the land;
•the land is available for immediate sale in its present condition, subject only to terms that are usual and customary for sales of land assets;
•there is an active program to locate a buyer and the plan to sell the property has been initiated;
•the sale of the land is probable within one year;
•the property is being actively marketed at a reasonable sale price relative to its current fair value; and
•it is unlikely that the plan to sell will be withdrawn or that significant changes to the plan will be made.
We evaluate the fair value less cost to sell of a land held for sale asset when indicators of impairment are present. In determining the fair value of the assets, we consider factors including executed sales contracts, current sales prices for comparable assets in the area, recent market analysis studies, appraisals, recent legitimate offers and listing prices of similar properties, as applicable. If the current carrying value of the asset exceeds the estimated fair value less cost to sell, the asset is impaired and written down.
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Due to uncertainties in the estimation process, it is reasonably possible that actual results could differ from the estimates used in our analysis. Our assumptions about land sales prices require significant judgment because the market is highly sensitive to changes in economic conditions. We calculate the estimated fair values of land held for sale based on current market conditions and assumptions made by management, which may differ materially from actual results and may result in additional impairments if market conditions deteriorate.
Lot Option Agreements and Variable Interest Entities (VIE)
In addition to purchasing land directly, we utilize lot option agreements that enable us to defer acquiring portions of properties owned by third parties and unconsolidated entities until we have determined whether to exercise our lot option. The majority of our lot option agreements require a non-refundable cash deposit or issuance of an irrevocable letter of credit or surety bond based on a percentage of the purchase price of the land for the right to acquire lots during a specified period at a specified price. Purchase of the properties under these agreements is contingent upon satisfaction of certain requirements by us and the sellers. Under lot option agreements, our liability is generally limited to forfeiture of the non-refundable deposits, letters of credit or surety bonds, and other non-refundable amounts incurred. If the Company cancels a lot option agreement, the cancellation would result in a write-off of the related deposits and pre-acquisition costs but would not expose the Company to the overall risks or losses of the applicable entity we are purchasing from. We expect to exercise, subject to market conditions and seller satisfaction of contract terms, most of our remaining 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.
The following table provides a summary of our interests in lot option agreements as of September 30, 2025 and 2024:
in thousands
(a) Amount is included as a component of land under development within our owned inventory in the consolidated balance sheets.
In accordance with Accounting Standards Codification (ASC) Topic 810, Consolidation (ASC 810), if the entity holding the land under option is a VIE, the Company's deposit represents a variable interest in that entity. ASC 810 requires a company to consolidate a VIE if the company is determined to be the primary beneficiary. To determine whether we are the primary beneficiary of the VIE, we first evaluate whether we have the ability to control the activities of the VIE that most significantly impact its economic performance. Such activities include, but are not limited to, (1) the ability to determine the budget and scope of land development work, if any; (2) the ability to control financing decisions for the VIE; (3) the ability to acquire additional land into the VIE or dispose of land in the VIE not under contract with Beazer; and (4) the ability to change or amend the existing option agreement with the VIE. If we are not determined to control such activities, we are not considered the primary beneficiary of the VIE and thus do not consolidate the VIE. If we do have the ability to control such activities, we will continue our analysis by determining if we are expected to absorb a potentially significant amount of the VIE's losses or, if no party absorbs the majority of such losses, if we will benefit from potentially a significant amount of the VIE's expected gains.
If we are the primary beneficiary of the VIE, we will consolidate the VIE even though creditors of the VIE have no recourse against the Company. For those we consolidate, we record the remaining contractual purchase price under the applicable lot option agreement, net of option deposits already paid, to consolidated inventory not owned with an offsetting increase to obligations related to consolidated inventory not owned on our consolidated balance sheets. Also, to reflect the total purchase price of this inventory on a consolidated basis, we present the related option deposits as consolidated inventory not owned. No VIEs required consolidation as of September 2025 and 2024 because we have determined that we were not the primary beneficiary of any VIEs.
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Property and Equipment, Net
Our property and equipment is recorded at cost, net of accumulated depreciation. Depreciation is generally computed on a straight-line basis based on estimated useful lives as follows:
Asset Class Useful Lives
Buildings and improvements 25 - 30 years
Information systems Lesser of estimated useful life of the asset or 5 years
Furniture, fixtures and computer and office equipment 3 - 7 years
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets from the businesses that we acquire. The Company's entire goodwill balance is recorded in our Southeast reportable segment. The Company evaluates goodwill for impairment at the reporting unit level annually during the fourth quarter or more often if indicators of impairment exist.
The Company has the option to perform a qualitative or quantitative assessment to determine whether the fair value of a reporting unit exceeds its carrying value. Qualitative factors may include, but are not limited to, economic conditions, industry and market considerations, cost factors, overall financial performance of the reporting unit and other entity and reporting unit specific events. If after assessing these qualitative factors, the Company determines it is more likely than not that the fair value of the reporting unit is less than the carrying value, then a quantitative assessment is performed.
The fair value of the reporting unit is estimated using a combination of the income approach, utilizing the discounted cash flow method, and the market approach, utilizing readily available market valuation multiples. If the estimated fair value of the reporting unit is less than its carrying value, an impairment will be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. Determining the fair value of a reporting unit under the quantitative goodwill impairment assessment requires the Company to make estimates and assumptions regarding future operating results, cash flows (including timing), discount rates, expected growth rates, capital expenditures and cost of capital, similar to those a market participant would use to assess fair value. We also make certain assumptions about future economic conditions and other data. Many of the factors used in assessing fair value are outside the control of management, and these assumptions and estimates may change in future periods.
During the fourth quarter of 2025, the Company performed its annual goodwill impairment analysis and concluded our goodwill was not impaired.
Other Assets
Our other assets principally include prepaid expenses, assets related to our deferred compensation plan (refer to Note 14 for a discussion of our deferred compensation plan), investment securities, and unamortized debt issuance costs on our Senior Unsecured Revolving Credit Facility.
Other Liabilities
Our other liabilities principally include accrued compensations and benefits, accrued interest on our outstanding borrowings, customer deposits, warranty reserves, litigation accruals, income tax liabilities and other accruals related to our operations. Refer to Note 11 for details of our other liabilities.
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Income Taxes
Our provision for income taxes is comprised of taxes that are currently payable and deferred taxes that relate to temporary differences between financial reporting carrying values and tax bases of assets and liabilities. Deferred tax assets and liabilities result from deductible or taxable amounts in future years when such assets and liabilities are recovered or settled and are measured using the enacted tax rates and laws that are expected to be in effect when the assets and liabilities are recovered or settled. We include any estimated interest and penalties on tax related matters in income taxes payable. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. We record interest and penalties related to unrecognized tax benefits in income tax expense within our consolidated statements of operations. Changes in recognition of measurement are recorded in the period in which the change in judgment occurs. Refer to Note 12 for a detailed discussion of our tax provision, deferred tax assets and valuation allowance.
Revenue Recognition
We recognize revenue upon the transfer of promised goods to our customers in an amount that reflects the consideration to which we expect to be entitled by applying the process specified in ASC Topic 606, Revenue from Contracts with Customers.
The following table presents our total revenue disaggregated by revenue stream for the periods presented:
Fiscal Year Ended September 30,
(a) Please see Note 17 for total revenue disaggregated by reportable segment.
Homebuilding revenue
Homebuilding revenue is reported net of discounts and is generally recognized when title to and possession of the home is transferred to the buyer at the closing date. The performance obligation to deliver the home is generally satisfied in less than one year from the original contract date. Home sale contract assets consist of cash from home closings held by title companies in escrow for our benefit, typically for less than five days, and are considered accounts receivable. Contract liabilities include customer deposits related to sold but undelivered homes and totaled $14.3 million and $18.7 million as of September 30, 2025 and 2024, respectively. Of the customer liabilities outstanding as of September 30, 2024, $16.1 million was recognized in revenue during the fiscal year ended September 30, 2025 upon closing of the related homes, and $1.9 million was refunded to or forfeited by the buyer.
Land sales and other revenue
Land sales revenue relates to land that does not fit within our homebuilding programs or strategic plans. Land sales typically require cash consideration on the closing date, which is generally when performance obligations are satisfied. We also provide title examinations for our homebuyers in certain markets. Revenues associated with our title operations are recognized when closing services are rendered and title insurance policies are issued, both of which generally occur as each home is closed.
Home Construction and Land Sales Expenses
Home construction expenses include the specific construction costs of the home, the allocated lot costs (land acquisition, land development and other common costs are allocated to individual lots on a pro-rata basis based on the number of lots remaining to close within the community), and amortization of capitalized interest and indirect costs. All associated homebuilding costs are charged to home construction expenses in the period when the revenues from home closing are recognized.
Sales discounts and incentives include discounts on home prices, discounts on home building options and option upgrades, and seller-paid financing or closing costs, including mortgage rate buydowns. Home price discounts and option discounts are accounted for as a reduction in the sale price of the home, thereby decreasing the amount of revenue we recognize on that closing. All other sales incentives are recognized as a cost of selling the home and are included in home construction expenses.
Estimated future warranty costs are charged to home construction expense in the period when the revenues from home closings are recognized. Such estimated warranty costs generally range from 0.3% to 0.9% of total revenue recognized for each home closed. Additional warranty costs are charged to home construction expenses as necessary based on management's estimate of the costs to remediate existing claims. See Note 8 for a more detailed discussion of warranty costs and related reserves.
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Land sales expenses include land acquisition costs, land development costs, and amortization of capitalized interest and indirects costs. All associated land costs are charged to land sales expenses in the period when the revenues from the land sales are recognized.
Advertising Costs
Advertising costs related to continuing operations of $23.0 million, $19.9 million and $15.1 million for our fiscal years 2025, 2024 and 2023, respectively, were expensed as incurred and were included in general and administrative (G&A) expenses in the consolidated statements of operations.
Fair Value Measurements
Certain of our assets are required to be recorded at fair value on a recurring basis, for example, the fair value of our deferred compensation plan assets is based on quoted market prices (Level 1) or market-corroborated inputs (Level 2). Certain of our assets are required to be recorded at fair value on a non-recurring basis when events and circumstances indicate that the carrying value may not be recovered (Level 3). For example, we review our long-lived assets, including inventory, for recoverability when factors indicate an impairment may exist, but no less than quarterly. Fair value is based on estimated cash flows discounted for market risks associated with the long-lived assets. The fair value of certain of our financial instruments approximates their carrying amounts due to the short maturity of these assets and liabilities or the variable interest rates on such obligations. The fair value of our publicly-held debt is generally estimated based on quoted bid prices for these instruments (Level 2). Certain of our other financial liabilities are estimated by discounting scheduled cash flows through maturity or using market rates currently being offered on loans with similar terms and credit quality. See Note 9 for additional discussion of our fair value measurements.
Stock-Based Compensation
We use the Black-Scholes option-pricing model to value our stock option grants. Restricted stock awards with market conditions are valued using the Monte Carlo valuation method. Other restricted stock awards without market conditions are valued based on the market price of the Company's common stock on the date of the grant. In addition, we reflect the benefits of tax deductions in excess of recognized compensation cost as an operating cash outflow. Compensation cost arising from all stock-based compensation awards is recognized as expense using the straight-line method over the vesting period and is included in G&A in our consolidated statements of operations. See Note 15 for additional discussion of our stock-based compensation.
Recent Accounting Pronouncements
Segment Reporting. In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets. ASU 2023-07 became effective for us for the fiscal year ending September 30, 2025, and we applied the amendments retrospectively to all prior periods presented in our consolidated financial statements. See Note 17 for more information regarding our reportable segments.
Income Taxes. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 will be effective for our fiscal year ending September 30, 2026. Early adoption is permitted and the amendments in this update should be applied on a prospective basis. The Company is currently evaluating the impact that the adoption of ASU 2023-09 may have on our consolidated financial statements and disclosures.
Income Statement Disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. ASU 2024-03 requires disclosure of additional information about specific expense categories in the notes to the financial statements. ASU 2024-03 will be effective for our fiscal year ending September 30, 2028. Early adoption is permitted and the amendments in this update should be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements. The Company is currently evaluating the impact that the adoption of ASU 2024-03 may have on our consolidated financial statements and disclosures.
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Credit Losses. In July 2025, the FASB issued ASU 2025-05, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which allows entities to use the practical expedient to estimate expected credit losses. ASU 2025-05 will be effective for our fiscal year ending September 30, 2027 and interim reporting periods within this annual reporting period, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2025-05 may have on our consolidated financial statements and disclosures.
Internal-Use Software. In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which modernizes the accounting for the costs of internal-use software by removing all references to software development project stages so that the guidance is neutral to different software development methods. ASU 2025-06 will be effective for our fiscal year ending September 30, 2029 and interim reporting periods within this annual reporting period. Early adoption is permitted and the amendments in this update may be applied on a retrospective, modified transition, or prospective basis. The Company is currently evaluating the impact that the adoption of ASU 2025-06 may have on our consolidated financial statements and disclosures.
(3) Supplemental Cash Flow Information
The following table presents supplemental disclosure of non-cash and cash activity as well as a reconciliation of total cash balances between the consolidated balance sheets and consolidated statements of cash flows for the periods presented:
Fiscal Year Ended September 30,
Supplemental disclosure of non-cash activity:
Increase in operating lease right-of-use assets(a) $ 11,309 $ 4,114 $ 10,829
Supplemental disclosure of cash activity:
Tax refunds received $ — $ — $ 9,987
Reconciliation of cash, cash equivalents and restricted cash:
(a) Represents leases renewed or additional leases that commenced during the fiscal years ended September 30, 2025,2024 and 2023.
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(4) Owned Inventory
The components of our owned inventory are as follows as of September 30, 2025 and 2024:
in thousands As of September 30, 2025 As of September 30, 2024
Homes under construction include homes substantially finished and ready for delivery and homes in various stages of construction, including costs of the underlying lot, direct construction costs and capitalized indirect costs. As of September 30, 2025, we had 1,800 homes under construction, including 1,078 spec homes totaling $417.4 million (577 in-process spec homes totaling $201.8 million, and 501 finished spec homes totaling $215.6 million). As of September 30, 2024, we had 2,315 homes under construction, including 1,154 spec homes totaling $360.9 million (827 in-process spec homes totaling $231.4 million, and 327 finished spec homes totaling $129.5 million).
Land under development consists principally of land acquisition, land development and other common costs. These land related costs are allocated to individual lots on a pro-rata basis, and the lot costs are transferred to homes under construction when home construction begins for the respective lots. Certain of the fully developed lots in this category are reserved by a customer deposit or sales contract.
Land held for future development consists of communities for which construction and development activities are expected to occur in the future or have been idled and are stated at cost unless facts and circumstances indicate that the carrying value of the assets may not be recoverable. All applicable carrying costs, such as interest and real estate taxes, are expensed as incurred.
Land held for sale includes land and lots that do not fit within our homebuilding programs or strategic plans in certain markets, and land is classified as held for sale once certain criteria are met (refer to Note 2). These assets are recorded at the lower of the carrying value or fair value less costs to sell.
The amount of interest we are able to capitalize depends on our qualified inventory balance, which considers the status of our inventory holdings. Our qualified inventory balance includes the majority of our homes under construction and land under development but excludes land held for future development and land held for sale (see Note 5 for additional information on capitalized interest).
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Total owned inventory by reportable segment and Corporate and unallocated is presented in the table below as of September 30, 2025 and 2024:
(a) Projects in progress include homes under construction, land under development, capitalized interest, and model home categories from the preceding table.
(b) Projects in progress amount includes capitalized interest and indirect costs that are maintained within Corporate and unallocated.
Inventory Impairments
The following table presents, by reportable segment and Corporate and unallocated, our total impairment and abandonment charges for the periods presented:
Fiscal Year Ended September 30,
Projects in Progress:
Corporate and unallocated (a) 1,002 — —
Total impairment charges on projects in progress $ 8,642 $ — $ —
Land Held for Sale:
Corporate and unallocated(a) 1,238 — —
Total impairment charges on land held for sale $ 2,733 $ — $ —
Abandonments:
Total impairment and abandonment charges $ 12,959 $ 1,996 $ 641
(a) Amount represents capitalized interest and indirects balance that was impaired. Capitalized interest and indirects are maintained within Corporate and unallocated.
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Projects in Progress Impairments
Projects in progress inventory includes homes under construction and land under development grouped together as communities. 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. 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. If the aggregate undiscounted cash flows are in excess of the carrying value, the asset is considered to be recoverable and is not impaired. If the carrying value exceeds 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.
Valuation assumptions for communities tested for impairment are specific to each community. For projects in progress impaired during the periods presented, we determined the fair value of each community by discounting its estimated future cash flows at a rate commensurate with the risks associated with the underlying community. The discount rate used depends on (1) community specific factors such as product types, development stage and expected duration of the project, and competitive factors influencing the sales performance of the community, (2) local market factors such as employment levels, consumer confidence and existing supply of new and used homes for sale, and (3) other specific factors. The estimated future cash flows for each community were determined based on the expected pace of closings and average sales price less expected costs for land acquisition and land development, direct construction, overhead and interest. 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.
During the fiscal year ended September 30, 2025, we performed discounted cash flow analyses to determine the fair value of two projects in progress communities, one in our Phoenix market and the other in our Orlando market. These analyses led to an $8.6 million projects in progress impairment charge, principally due to a reduction in price driven by the competitive and market dynamics. No projects in progress impairments were recognized during the fiscal years ended September 30, 2024 and 2023.
The following table presents, by reportable segment and Corporate and unallocated, details of the impairment charges taken on projects in progress for the period presented:
$ in thousands Results of Impairment Analysis
Fiscal Year Ended September 30, 2025
Corporate and unallocated(a) — — 1,002 2,210
(a) Amount represents the capitalized interest and indirects balances that were impaired. Capitalized interest and indirects are maintained within Corporate and unallocated.
(b) Projects in progress assets are measured at fair value on a non-recurring basis when events and circumstances indicate that their carrying value is not recoverable. The fair value of projects in progress is determined using Level 3 unobservable inputs. Refer to Note 9 for further discussion of our fair value measurements and hierarchy levels.
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