Beazer Homes USA, Inc.

Good afternoon and welcome to the Beezer Homes Earnings Conference call for the third quarter ended June 30th, 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 third 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 to 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 third quarter, the current environment for new home sales, our longer-term outlook on the market, and conclude with an overview of our progress towards our multi-year goals. I'll then provide details on our third quarter results, expectations for our fourth quarter and full year results, the basis for our confidence in profitability growth next year, a review of our land activity, followed by a quick discussion of our balance sheet and book value growth. 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. Despite the continuing challenges presented by an affordability constrained market, Our third quarter reflected profitability in line with our expectations and significant progress toward our multi-year goals. While our new home orders were softer than we had anticipated, reflecting both macro and market-specific factors that I'll address in a moment, our long-term confidence in the broader new home market and Beezer's positioning in particular remains very strong. In terms of third quarter profitability, Closings in revenue matched our expectations, and adjusted gross margin came in slightly higher than anticipated. This led to adjusted EBITDA of $53.5 million and diluted earnings per share of 88 cents. In turn, book value grew to more than $38 per share. I'd also like to call out two operational highlights. First, we substantially grew our total lot pipeline. We now have more than 28,000 lots, up 25% from last year. providing excellent visibility into our growing community count. And second, we reached a major energy efficiency milestone this quarter, as we have now closed more homes to the DOE's single family, zero energy ready requirements than any other home builder in the country. Although we generated strong financial results in the quarter, the sales environment proved quite challenging. our pace of 2.4 sales per community per month was below our expectations. From a macro perspective, we had many prospective buyers struggle to qualify for a mortgage and others who chose to defer their purchase based on expectations of lower mortgage rates later this year. And weather events in Texas were quite disruptive. These dynamics impacted all builders to some extent, but for us, there were a couple of specific markets where additional factors played an even bigger role. In particular, week sales in Houston and San Antonio weighed on our results. Excluding these markets, which represent about a quarter of our community count, our sales pace would have been around 2.8 sales per community per month, closer to both normal seasonal patterns and our expectations. Houston and San Antonio are among the most affordable housing markets we serve, which is why we remain confident in their near and long-term prospects. But during the quarter, both markets saw particularly strong demand at price points well below our offerings. While we might have achieved higher sales with more aggressive incentives, this quarter we chose not to chase volume in either market. That's because we believe it is important to demonstrate the value of our highly differentiated and newly introduced Ready Series Humps. Given a short period to adapt, We believe these homes and our team can more than hold their own competitively, and we expect Houston and San Antonio to be among our most productive markets. Looking out to 2025 and beyond, we continue to be quite optimistic on new home sales. A decade of underbuilding has left the country undersupplied for housing, and continuing employment and wage growth should underpin demand. While stretched affordability and growth in for-sale inventories likely means that sales patterns will remain volatile in individual markets, we have not seen anything that changes our longer-term bullish thesis. And eventually, we expect lower rates to improve affordability for home buyers. With this positive longer-term outlook, we remain fully committed to our three multi-year goals, which include expanding our community count, deleveraging our balance sheet, and delivering a demonstrably superior home. We ended the quarter with 146 active communities, up about 17% year over year, and up slightly on a sequential basis. By the end of fiscal 24, we expect our active community count to exceed 155, representing annual growth of about 15%. With similar growth expected in FY25, we have a clear path toward achieving our goal of having more than 200 communities by the end of fiscal year 2026. As it relates to deleveraging our balance sheet, we expect to end FY24 with a net debt to net cap ratio in the mid-30s, even as we invest in the growth of our business. And importantly, we're on track to achieve our target of having net debt to net cap below 30% by the end of FY26. Finally, as it relates to our goal that 100% of our starts will be zero energy ready by the end of calendar 2025, we continue to make significant progress. During the third quarter, just over 90% of our starts were ready series homes. This rapid progress has simplified our construction process so we can now focus on reducing our zero energy ready costs. On the sales side, I remain enthusiastic about our potential to drive value from a product position that is truly unique within our industry. We remain confident in the long-term demand for new homes and believe the achievement of our multi-year goals will position us to create significant shareholder value. With that, I'll turn the call over to Dave.