Beazer Homes USA, Inc.

Good afternoon and welcome to the Beezer Homes Earnings Conference call for the second quarter ended March 31st, 2024. 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 second 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 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 today is Alan Merrill, our Chairman and Chief Executive Officer. On our call today, Alan will discuss highlights from our second quarter, the current environment for new home sales, some details on our operational strategy this spring, and an update on the progress we're making towards our multi-year goals. I'll then provide details on our second quarter results, our forward expectations, a review of our balance sheet and land spending, and then conclude with a review of our book value per share and the framework we employ in considering capital allocation. We will conclude with a wrap-up by Allen. After our prepared remarks, we will take questions in the time remaining. I will now turn the call over to Allen.

Thank you, Dave, and thank you for joining us on our call this afternoon. Our team delivered another successful quarter highlighted by solid sales results and excellent profitability from a growing community count. We also invested for the future and enhanced our capital structure. In more detailed terms, new orders were up 10% from the prior year as we generated a pace just over three sales per community per month. This provides us with the backlog to modestly increase our expectations for full year deliveries. EBITDA was over $58 million, driven by slightly better than anticipated gross margins and careful management of overheads. We ended the quarter with 145 active communities, up from 136 at the end of December and 121 a year ago. Land spend was nearly $200 million, bringing our total 12-month spending over $740 million. And finally, with our senior note issue and an extension of our revolver, we strengthened our balance sheet, enabling the consideration of a broad range of capital allocation priorities. In addition, we were recognized for both our culture and the energy efficiency of our homes. We also held our annual fundraiser for our national charity partner, Fisher House, which generated nearly $2 million. We remain very confident in the multi-year strength of the housing sector, and new home production in particular. Our thesis is anchored by both supply and demand factors. Shortfalls in new home production over the past decade and the lock-in effect of higher mortgage rates both contribute to very tight supply. In an economy characterized by low unemployment, wage growth, and attractive demographics for potential homebuyers, provides clarity on the sources for current and future demand. Last quarter, I outlined our view that over the balance of the fiscal year, our sales pace, and to some extent, the mix and gross margins on those sales, was likely to be closely related to mortgage rates due to strained affordability. We articulated three scenarios defined by the direction of rates, and this framework proved to be quite accurate in the second quarter. During the second quarter, mortgage rates moved around, ultimately rising about 20 basis points. This fell inside our base case, and as such, we were able to exceed our sales goals, though with a slightly larger share of spec home sales. Since the end of the quarter, rates have moved nearly 50 basis points, further straining affordability. If these rates persist, it's likely we will continue to see a stronger preference for specs. As we have talked about for several years, we are in the midst of transitioning to zero energy ready homes in all new and longer lasting communities. We call these our ready series homes. While we've committed that 100% of our starts will be ready series by the end of next year, we are substantially ahead of schedule with more than three quarters of our starts being built to this standard last quarter. Given the importance we've placed on developing and delivering our Ready Series homes, I am pleased to report that despite having somewhat higher construction costs, these homes are generating higher margins than our prior series. So, this spring, to accelerate our transition to the Ready Series, we've been encouraging our teams to be very competitive with pricing and incentives on our earlier Star and Plus Series homes. This will allow us to close out of older communities more quickly and simplify our production and sales efforts around the Ready series. We can prove that these are the best-built homes in our markets, and the sooner we are solely focused on building and selling them, the better. While this acceleration makes sense, there is a short-term financial consequence which will be apparent in the third quarter. Margins will be down sequentially. partially as a result of a higher share of specs, but more so from our efforts to move through our older series homes. With that said, we expect margins to rise in the fourth quarter as our mix of closings shifts strongly toward ready series homes. And for the full year, our EBITDA net income expectations remain within the range of our prior outlook as we anticipate more closings and tighter management of overheads to offset much of the short-term gross margin pressure. Dave will provide specifics, but I wanted to explain why we chose to impact the mix in pricing of our sales this spring. Finally, let me update you on our progress toward our multi-year goals. As it relates to our goal to have more than 200 active communities by the end of fiscal 26. As I mentioned, we closed the quarter with 145 active communities, up nearly 20% versus the prior year. We expect to end the fiscal year with more than 155 communities, representing year-over-year growth of about 15%, which also happens to be a good benchmark for projecting year-end community counts in 25 and 26. 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 43.4%, up a little bit versus the prior year. This is simply a function of the seasonality and timing of our land spend. By the end of this year, we expect this ratio to be in the mid to low 30s, positioning us to be comfortably under 30% by the end of fiscal 26. And finally, as it relates to our goal to have 100% of our starts zero energy ready by the end of calendar 25, I'm very pleased that we reached 77% ready series starts in the second quarter. With our acceleration, we are in excellent shape to reach our stated goal, perhaps even early. As we get closer to fiscal 25, I'm excited to see the impact that community account growth, reduced leverage, and a truly differentiated product will make to our financial performance. And with that, I'll turn the call back to Dave. Thanks, Alan.