Beazer Homes USA, Inc.

Good afternoon and welcome to the Beezer Homes earnings conference call for the first quarter ended December 31st, 2022. Today's call is being recorded and a replay will be available on the company's website later today. In addition, PowerPoint slides intended to accompany this call are available in the investor relations section of the company's website at www.beezer.com. At this point, I will turn the call over to David Goldberg, Senior Vice President and Chief Financial Officer.

Thank you. Good afternoon and welcome to the Beezer Homes Conference Call, discussing our results for the first quarter of fiscal 2023. Before we begin, you should be aware that during this call, we will be making forward-looking statements. Such statements involve known and unknown risks, uncertainties, and other factors described in our SEC filings, which may cause actual results to differ materially from our projections. Any forward-looking statement speaks only as of the date the statement is made. We do not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise. New factors emerge from time to time, and it is simply not possible to predict all such factors. Joining me is Alan Merrill, our Chairman and Chief Executive Officer On our call today, Alan will discuss highlights from our first quarter, the current environment for new homes, and an update to our balanced growth strategy. I'll then provide details on our first quarter results and second quarter expectations, updates on our cycle time and cost savings initiatives, a review of our land activity and future community count, and end with a look at our balance sheet and book value. We will conclude with a wrap-up by Alan. After our prepared remarks, we'll take questions in the time remaining. I will now turn the call over to Alan.

Thank you, Dave, and thank you for joining us on our call this afternoon. In our first quarter, we were pleased to generate financial results and profitability in line with the expectations we outlined in November. This translated into adjusted EBITDA of $47 million and 80 cents of earnings per share. Having said that, the new home sales and cancellation environment proved to be even more difficult than we had anticipated. As we will discuss, however, more recent traffic and sales results have been much improved. Beyond the selling environment, we are continuing to pursue and make progress with each of the operational priorities we set out for the year. This includes accelerating cycle times, reducing construction costs, and re-underwriting all pending land transactions. These efforts will generate benefits in the coming quarters. In the meantime, thanks to our significant backlog and the deleveraging we have come accomplished in recent years, we're in a strong position from a balance sheet perspective. We have an ample supply of lots, plenty of liquidity, and no near-term maturities, so we expect to remain both resilient and opportunistic over the course of the year. Let's dive into the sales and cancellation environment in the first quarter with an update on more recent trends. Early in the quarter, mortgage rates continued their relentless move higher. which, together with elevated home prices and other macro concerns, effectively froze the market for most discretionary homebuyers. The sales activity that was taking place was primarily for specs or quick move-in homes, many of which were being offered with big incentives as most of our peers were completing their fiscal years. That presented a tough environment for us for two main reasons. First, we had just completed our fiscal year end, so our finished spec position was extremely low. We entered the quarter with fewer than 100 quick move-in homes, leaving us with few opportunities for buyers with serious time constraints. Second, we experienced an increase in cancellations. As a percentage of beginning backlog, our first quarter cancellation rate was about 14%, which was in line with prior years, but a lot higher than the 5% to 10% we had experienced in the preceding quarters. And there was one other factor at play, improving cycle times. On our last call, we outlined our efforts to accelerate cycle times to extend our window for making fiscal 23 starts and closings. Fortunately, we saw a lot of progress during the quarter, which limited our enthusiasm to offer to-be-built homes at finished inventory prices. In December, as mortgage rates drifted lower, we started to see a nice uptick in online and in-person visits. This translated into a January sales pace more than double our first quarter results. While we've adjusted prices, features, and incentives to align with the market, overall, we haven't had to make drastic changes, and we are slowly capturing lower construction costs for future closings. There remains a lot of uncertainty about the trajectory of demand and pricing for new homes, largely because of affordability. But the wage growth, home price reductions, and rate relief that have already occurred are gradually improving affordability. This, along with limited new and used home supply, leads us to be cautiously optimistic about the spring selling season. Looking further out, we remain confident in the strength of the new home market and our ability to create shareholder value. For quite a few years, we have described our financial strategy with the phrase balanced growth. The objectives and our results arising from this strategy have been straightforward. Profitability growth and a less leveraged and more efficient balance sheet have led to higher returns. Our long-term commitment to all three elements of balanced growth remains in place. In order to consistently deliver these balanced growth results, we know we need to successfully execute differentiated and customer-oriented operational strategies. To date, our positioning has been to deliver what we call extraordinary value at an affordable price through our three pillars. But to continue to win with customers, we know we need to continue to innovate. Over a year ago, we became the first and so far the only public builder to commit that 100% of our homes would be built to the U.S. Department of Energy's Net Zero Energy Ready standard. While we set the end of fiscal 25 as our deadline, we're using the current slowdown to move even faster. In fact, we expect to have Net Zero Energy Ready homes under production in each of our markets by the end of this year. While there are obviously some additional costs associated with building to this higher standard, We believe further differentiating our homes creates an opportunity for driving both sales paces and prices. Energy efficient homes cost less to operate, are more durable over time, and deliver higher customer satisfaction. And it's worth noting that the recently adopted Inflation Reduction Act provides meaningful financial incentives to attain the net zero energy ready standard. Companies have to make choices about how to pursue the creation of shareholder value. Our path is to execute against our balanced growth objectives by delivering differentiated, energy-efficient homes with a truly unique mortgage experience. With that, I'll turn the call over to Dave. Thanks, Alan.