Beazer Homes USA, Inc.

Good afternoon and welcome to the Beezer Homes earnings conference call for the first quarter ended December 31st, 2023. 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 2024. 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 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 today 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 home sales, our outlook for the balance of the year, and finish with an update on the progress we're making toward our multi-year goals. I'll then provide details on our first quarter results, our second quarter and full year expectations, a look at our steady book value accretion and maturity schedule, and end with a review of our land activity and future community count. 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. Against a challenging affordability backdrop, we delivered another solidly profitable quarter with new home orders substantially ahead of the expectations we outlined in mid-November. At that time, mortgage rates had begun to decline, but it was too soon for us to know whether the decline would be substantial enough or durable enough to improve sales paces. With the quarter now in the rear view mirror, I'm pleased to report that we experienced a meaningful improvement in demand, particularly in December, leaving us optimistic for the upcoming spring selling season. Here are a few of the highlights from our first quarter. Orders were up over 70% against an easy comp in the prior year, as we generated a 50% improvement in sales pace to two sales per community per month. Our community count expanded nicely, up 14% year over year. Gross margins were 22.9%, driven largely by home sales made in prior quarters when mortgage rates were lower. And earnings were $0.70 per share, driving book value over $36. As noted in our press release today, first quarter profitability was negatively impacted by a widely publicized cybersecurity incident which occurred at one of our title and settlement service providers at the end of December. Although we were able to adjust closing arrangements for most buyers scheduled that week, we delayed about 40 closings until early January, shifting a modest amount of revenue and profitability into our second quarter. While the situation was very frustrating for these buyers, the incident is fully resolved and won't impact our full year results. The macro environment for new home sales remains constructive but challenging. Most parts of the economy are in reasonably good shape, with job and wage growth providing support for home buyer demand. And the supply of both new and used homes remains at historically low levels. Those are the constructive parts. Affordability, or more precisely, the lack of it, is the challenging part. When rates got to 8% in the fall, many potential buyers either couldn't or wouldn't commit to home ownership. But as we saw in December, demand responded quite strongly to declining rates. Anticipating demand for new homes is always challenging because it is never a function of just one variable. But for now, the biggest factor remains affordability and, more specifically, mortgage rates. Our operating strategy is focused on maximizing returns at the community level, taking into account buyer profiles and local competitive dynamics. Given the breadth of our markets and products, this results in a fairly balanced mix of pace and margin ambition, which obviously evolves with market conditions, including mortgage rates. With that said, here's how we're thinking about our results for the balance of the year. Our base case is that mortgage rates stay in the range where they are now, in the upper sixes. In this scenario, we think demand is likely to remain healthy. To maximize returns, we're targeting sales pieces that are quite good, but perhaps a bit lower than our historical levels. On the margin side, we'd expect some pickup toward the end of the year, as improved cycle times allow us to deliver more homes with lower incentives. If rates move down into the fives, we'd expect a fairly robust increase in demand, leading to higher sales paces and even better opportunities to drive higher margins. The downside case would be if rates trend back toward 8%. In that case, we'd expect sluggish sales paces accompanied by a return of the incentives we offered in the fall. Whichever scenario unfolds, we've got the liquidity and land position to manage through it, and we expect to be able to generate a double-digit return on equity for the fiscal year while moving toward each of the multi-year goals we introduced last year. As a reminder, these goals target growth, balance sheet strength, and a differentiated product strategy. As it relates to our goal to have more than 200 active communities by the end of fiscal 26, we closed the quarter with 136 active communities, up 14% versus the prior year. By the end of the year, we expect that number to be above 155, or about 15% annual growth, and to be positioned for similar growth in both FY25 and 26. In support of these efforts, our land spend in the quarter was almost $200 million, up 73% year over year. with a large portion invested in the development activities necessary to activate new communities. As it relates to our balance sheet goal of having a net debt to net cap ratio below 30% by the end of fiscal 26, we completed the quarter with a ratio at 44% down four points versus the prior year. Given our expectations for sales volume and profitability over the balance of the year, we expect this ratio to be in the low 30s at year end. And finally, as it relates to our goal to have 100% of our starts zero energy ready by the end of calendar 25, we made huge progress in the first quarter with more than half our starts meeting the zero energy ready standard. By year end, this will be above 75% as we introduce our energy efficient homes into many more communities. The idea I hope investors will take away from this call is that we are focused on generating meaningful profitability and returns this year, while also making significant strides toward our multi-year goals. With that, I'll turn the call over to Dave.