Beazer Homes USA, Inc.

Good afternoon and welcome to the Beezer Homes Earning Conference call for the first quarter and fiscal year ended December 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 first quarter of fiscal 2025. 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 this 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 results, the recent environment for new home sales, actions we're taking to improve performance as it relates to our fiscal year 2025 outlook, and the significant progress we're making towards our multi-year goals. I will then provide detailed guidance for our second quarter results, an update on our outlook for the full fiscal year, and end with a discussion of our land position, liquidity, and our commitment to generating double-digit returns. Alan will conclude with a wrap-up, after which we will take any questions in the remaining time. I will now turn the call over to Alan.

Thanks, Dave, and thank you for joining us on our call this afternoon. We had a profitable and productive first quarter that positions us to achieve both our full-year outlook and our multi-year goals. Despite experiencing an uneven sales environment and having to defer the closing of nearly 50 homes in backlog, There are three highlights from the quarter that demonstrate real progress toward our growth and profitability ambitions. The base of our business is expanding. Our ending community count was up nearly 20% versus the prior year, which allowed us to increase both sales and closings compared to last year. We also grew our active lot position by about 10%, providing visibility into further community count growth, both this year and next. Our balance sheet is more efficient and liquidity is improving. 59% of our lot position is now controlled through options, up from 53% last year. This growth in option lots leverages our investment in land, improving returns and mitigating risk. On the funding side, subsequent to quarter end, we upsized our revolver by more than 20%, providing ample seasonal liquidity to accommodate more communities and more homes under production. Our zero energy ready homes are gaining momentum. These homes represented more than 85% of our sales during the quarter, up from 43% in last year's first quarter. As our sales and closings have ramped up, we've reduced the cost to achieve the DOE standard by several thousand dollars per home. Although home buyer affordability is likely to remain the key challenge throughout the We're optimistic about the longer term outlook for new home sales and our growth prospects specifically. Having noted the highlights, it's important we acknowledge that we missed both our sales and closings guidance for the quarter, something we're not accustomed to doing. I'll tell you what happened and what we're doing about it. On the sales side, the strength we experienced in October, with paces up sharply over the prior year, softened in November and became materially weaker in December. As a result, we sold fewer homes and had to spend more on incentives for the sales we made. While our first quarter is our lowest volume quarter of the year, it is also the most difficult to predict because it occurs during many other builders' year-ends. Unsurprisingly, the most challenging markets were in Texas and Florida, where higher inventory levels led to sluggish sales and more aggressive incentives. Our absorption rate in many other markets, including California, Nevada, and the Mid-Atlantic, held up much better. Weaker-than-expected sales obviously played a role in our closings miss. But separately, we had to push out 47 closings from the quarter as we dealt with some unique utility issues, labor availability in Houston and meter availability in California. The ASPs and margins on these deferred closings would have really helped first quarter results. The good news is we don't expect these issues to persist, and all of these homes are now scheduled to close this spring. That's a summary of what happened. Now let's turn to what we're doing to improve results. I'll share four initiatives that are already well underway. First, we're activating more than 60 new communities before year end. That's the largest nine-month community launch effort in our recent history. Over the past three fiscal years, we've activated more than 150 communities, and we've gotten better at it over time. By building deep, qualified VIP interest lists, updating elevations and floor plans, and including the most relevant design features, we expect to generate robust grand opening sales activity in these new communities. Second, we're making mortgage financing for to-be-built homes more compelling. To-be-built homes let our buyers personalize their home, and they consistently carry higher margins. But short-term mortgage incentives, tied to specs that can close right away, have suppressed demand for homes that won't be available for six months. To address this challenge, we've worked with our lenders to offer one-way rate locks with an embedded permanent rate buy-down that provide protection from rising rates while allowing our buyers to benefit if rates happen to decline. Combining long-term rate locks with buy-downs is an important innovation for us, and I think it'll help with to-be-built sales. Third, we're improving the profitability of our specs. During the quarter, specs represented nearly 70% of our closings, the highest level in over a decade. While we're working hard to drive that percentage down, we're also focused on improving spec profitability. In fact, the margin profile on our spec should improve organically over the balance of the year as our prior series homes close out. We've also updated feature levels to better align with market conditions. We know we probably can't get spec margins to match to be built homes, but we do expect to narrow the gap. And finally, we're reducing construction costs. We've said many times that we expected to reduce the costs to deliver zero energy ready homes, and we're now doing it. but our cost reduction efforts are broader than that. We're also capturing savings from a more focused SKU list with our national partners and using our sizeable community count growth to rebid local labor and material providers. Since October 1st, we've been able to reduce build costs by about $3,000 so far, which will benefit to-be-built and spec homes that deliver later in the year. We are committed to translating these efforts into better sales paces and better margins this year. which is why we still expect our full-year performance to fall within the broad ranges we provided in November, even if market conditions and mortgage rates don't improve. Beyond 2025, we continue to have a very positive longer-term outlook for new home sales, and we remain fully committed to achieving our three multi-year goals, which include expanding our community count, deleveraging our balance sheet, and delivering a demonstrably superior home. We ended the first quarter with 163 communities, up nearly 20% versus the prior year, and we remain on track to end the year with a community count around 180. Our total land position grew about 10%, giving us a clear path to achieving our goal of ending FY26 with more than 200 communities. We also remain on track to have a net debt to net capitalization ratio below 30% by the end of fiscal 26. While our leverage was relatively flat, versus the prior year, as we continue to grow our land pipeline, the cumulative profitability and cash flow we anticipate over the next two years will allow us to reach this target. Lastly, we continue to make significant progress towards qualifying 100% of our starts as Zero Energy Ready by the end of the calendar year. In the first quarter, 98% of our starts met the DOE standard. Over the balance of the year, we have fewer than 100 starts, remaining in four closeout communities, related to our prior series. I know many observers haven't realized how important Zero Energy Ready is yet, but as you may have noticed on the cover slide, we're leaning into this advantage. Our homes are different, and they're better, and we can prove it.