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Good afternoon, and welcome to the Beazer Homes Earnings Conference Call for the First Quarter and Fiscal Year ended December 31, 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.beazer.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 Beazer 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 of 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's simply not possible to predict all such factors. Joining me today is Allan Merrill, our Chairman and Chief Executive Officer. On our call today, Allan 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 multiyear 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. Allan 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 Allan.

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 multiyear 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

Thanks, Allan. This afternoon, I will concentrate on providing some more specifics on our second quarter guidance and our outlook for the fiscal year. I will conclude my comments with a discussion of our balance sheet, land position and our commitment to generating double-digit returns. We have detailed our first quarter 2025 results in our presentation, our press release and our 10-Q. And of course, we're happy to discuss them during the Q&A portion of this call. Let's start with our expectations for the second quarter. We note that our outlook doesn't contemplate an improvement in market conditions. We expect sales to be up about 10% versus the same period last year as our average community count to be up about 15%. We expect to end the second quarter with around 160 communities. We anticipate closing around 1,050 homes with an average ASP of around $515,000. Adjusted gross margin should be up a bit sequentially. Our gross margin will benefit from the delayed closings from our first quarter and the activities Allan described to improve our profitability. SG&A as a percentage of revenue should be less than 13%. We expect our SG&A as a percentage of revenue to decline significantly in the back half of the year as our closings accelerate. We expect to generate more than $30 million in adjusted EBITDA, interest amortized as a percentage of homebuilding revenue should be just over 3% and our effective tax rate to be approximately 11.5%. This should lead to diluted earnings per share of about $0.30. Last quarter, we provided a range of potential outcomes on community count, sales pace and gross margin for the fiscal year. First quarter results put some pressure on our full year outlook and as such, will likely perform toward the lower end of our pace and margin ranges. Our year-end community count should be around 180, up about 10% versus the prior year. Our average community count for the year should be up between 18 and 22 communities, reflecting 12.5% to 15% growth. Despite the slower sales pace in the first quarter, we remain committed to achieving the sales pace between 2.5 and 3 sales per community per month for the full year, more in line with our historical norms. While we expect our sales pace to be off a little in the first half of the year, we expect substantial improvement in the back half. In part, this pickup is off easier comparisons, but it also is related to the fact that we have so many new community openings. For the full year, we provided a range of our expected gross margin between 19.5% and 20.5%. Incorporating first quarter results and current conditions, we now expect full year margins around 19.5%. As it relates to our ASP and SG&A, our backlog ASP is currently about $540,000, up about 4% versus the prior year and supporting our outlook that our full year ASP should approach $530,000. Further, while we're still investing heavily for growth, our higher community count should lead to revenue growing faster than our overheads in fiscal '25, driving down our SG&A percentage to about 11%. Even at the low end of each of the ranges, we expect to generate adjusted EBITDA that would represent another year of double-digit return on capital employed. Since we pivoted to growth in fiscal 2020, our total land position has grown nearly 50% from fewer than 19,000 lots to more than 28,000 lots today, and we've done that exclusively through increasing our option lots which have gone from 29% of our total to 59%. In 2025, we expect land spend to be around $850 million, and our owned and option lot position should exceed $30,000. Our balance sheet remains healthy with total liquidity exceeding $335 million at the end of the quarter, no maturities until October 2027 and more than enough liquidity to fuel our growth plans. Earlier this week, we successfully upsized our revolver to $365 million. We expect to end fiscal 2025 with a net debt to net cap in the mid-30s, and we're on a path to reduce our net debt to net cap below 30% by the end of fiscal 2026 as our improving profitability, cash generation and balance sheet management will sustain our deleveraging. Over the past five years, we've grown book value per share by about 19% on average. We're focused on consistently generating double-digit returns on capital employed and equity. While growth remains our primary priority for capital allocation, we consistently consider strategies that would contribute to sustaining double-digit returns. With that, I'll now turn the call back over to Allan.

Thank you, Dave. While the first quarter challenged us, we're positioned to drive significant top line growth and generate double-digit returns again this year, even as we invest heavily for the coming years. We're also well on our way to achieving each of our multiyear goals. I'm confident we have the team, the resources and the strategy to create growing and durable value for our stakeholders in the years ahead. And with that, I'll ask the operator to take us to Q&A.

[Operator Instructions]. Our first question comes from Tyler Batory of Oppenheimer. Your line is open.

Good afternoon. Thank you. First one for me just on the demand side of things so far in Q2 and in January. Just talk a little bit more about what you're seeing in the field, I'm not sure any anecdotes or any green shoots in terms of demand out there in your markets?

Yes. I've been traveling a fair bit already this year. And I would say, first of all, online traffic stayed pretty strong through December, even in sales were more challenging. And that's usually a very good sign. People are online before they're offline for the most part. And it's early in the month. I don't have the last week or so of activity. But January feels okay. It's not a blowout, it's not gangbusters, but it has not taken another step down. And arguably, for seasonal reasons at a minimum, it's a little better than December.

Okay. Great. In terms of incentive levels, can you talk a little bit more about where you were on incentives in Q1, how that compared with Q4 and then talk a little bit more about your expectations for incentive activity for the rest of this fiscal year?

Yes. So I totally understand the question. I'm going to do the best I can to answer it. The challenge with incentives is that, there are a number of components. And they're kind of in different places. So there's a closing cost amount. There are restrictions in loan programs against maxes that you can do there. There are discounts that may be in the form of design center credits or price reductions. And so when you think about incentives, it's really what are all of those parts and pieces. And then, of course, there's differences between specs and to-be-built. What we actually saw, and this was a bit of a concern for me is that, incentives on to-be-builts were going down into our first quarter, but we weren't selling enough of them and that's really what led to unpacking this creating a financing mechanism that was more compelling for buyers where they felt like there was an opportunity to lock a long rate below current market rates. And I think that will help, and it's well within the structure of incentives that we otherwise provide on the closing cost side. On the Spec side, there's no question in November and then really accelerating into December. The combination of price discounts and incentives that we had to offer spikes and it differed, of course, by market. But I would tell you, it took a point or two out of sales that we sold and closed just between the middle of November and the end of December. We have not extended that into January that was keeping up with the Jones' [ph]. And I feel a little better about not doing that so far this year. The other thing, Tyler, is rates moved about 50 basis points after our last earnings call before the end of the year. It was 42, but they moved about 50 basis points. For buyers that were in backlog, one of the things that we saw was, gosh, there were some very aggressive rate promos out there. We're in backlog with you, but we'd like a little help against this rate that may have moved. And so anytime you get an upward spike like that in a short period of time, you can see some movement in incentive. It wasn't huge, but there was some effect there. Now I take all that together, it's hard for me to give you an exact percentage because we're constantly changing base prices and include features. And then, of course, you've got the closing cost. But I think if you tried to -- if you had perfect information, you'd see there's been about a point of pressure over the last, call it, four months that has developed. As rates have started to move up being part of it and then that year-end selling that a lot of our peers were doing in their fourth quarter, a combination of those two things, I would put roughly in that bucket of about 1 point.

Frankly, Tyler, just to add to that, we talked about last quarter being 19.5% to 20.5% on the gross margin. We talked about this quarter being closer to that 19.5% number and that's kind of what Allan is talking about, that's the impact of it, and part also by the new communities coming online, but you can kind of see there's a lot of moving pieces.

I don't know if we made it better or worse, Tyler.

No, that was -- very good detail. Very good detail. I appreciate that. And kind of a segue to my last question just on the gross margin guide. And it implies a pretty significant ramp, I think, in the back half of the year. So maybe talk a little bit first about what's driving the sequential progression into Q2? And then talk a little bit more about just the inflection, if you will, in the second half of the year too?

Sure. So relative to the first quarter moving into the second quarter, and we said it will be up a bit. Really, there are a few things going on there, but we will get the benefit of those homes that pushed out of the first quarter, which is nice because they had terrific margins. Our mix of specs in our closing count is going to be a little lower. A lower percentage of the specs that closed are from the prior series and we're starting to see just the very first homes closing with lower construction costs. So you're going to get little bits from all four of those, which is why we expect sequentially a little bit of improvement. When you play that out over the balance of the year, of course, the pushouts that was kind of a discrete activity, but the other three are all in place. We do expect to have a lower mix of specs over the balance of the year. And heck, if it just moves from 70 to 60, that's a big difference in our reported margin because of the 3 to 5 point differential between to-be-builts and specs, not having the prior series homes, and I don't remember which month will close were last of those or when it gets down to such a de minimis number. But it was still a meaningful share of the Q1 closings. It won't be by Q4 of this year. And while I'm happy about the $3,000 we've been able to take out of our direct so far, our plans are larger than that and a larger share of our homes as we move through the year, we'll get the benefit. So as Dave said, and I think I said we're not expecting more robust conditions or lower mortgage rates. It's really those discrete items that give us the confidence that we're going to be able to have a progression through the year and have a back half from a margin perspective that looks better than the first half.

Okay. That’s all for me. Thank you.

Thanks, Tyler.

Thank you. Our next question comes from Alan Ratner of

Hi, guys. Good afternoon. Thanks for all the detail as always. I guess first question on the order pace through the quarter. You gave the guide roughly midway through. And I certainly understand the closing shortfall and the impact that, that had on margin. I guess I want to focus a little bit more on the order side in terms of what transpired there. As you look at kind of results in the back half of the quarter, obviously, December wasn't a great month. But is there something you can put your finger on specifically that you feel like really contributed to that shortfall at least in your results? Like was it your competitors got more aggressive than you did on incentives? Were there specific markets that really drove that shortfall? Any color you can kind of give there would be helpful.

Absolutely, Alan. Look, I understand, we had just come off in October where we had a big pace improvement year-over-year, and online activity was good. We felt pretty confident about pace improvements in November and December. We didn't have it in November. And November can be a little bit of a funky month. You get Thanksgiving and travel and weather. So I don't really know what that means. It was really in December where we saw particularly in Texas and a little bit in Florida, although our business there is pretty small, but we really saw what I would call shocking off on pricing and incentives. And we participated to some extent, but maybe not fully. It's always a challenge to decide how much of that to engage in, but you're aware of where the inventory numbers are in all of the markets in Texas that we participate. And I think we were -- I was surprised, I won't blame anybody else. I think I was surprised by how deep folks went to move finished inventory. And here's the thing when those incentives are floating around, mean I don't ever attribute to our peers, that they do anything that's illogical or not financially astute. They may advertise, call it, a $2.99 rate. And that rate applies to these three homes that can close within this time period. But that rate is now in the market. So everybody they see, everybody we see says, gosh, that would be a great rate. Well, there's no path necessarily for every home to that rate. And so what do those buyers do? They hold out and say, well, we'll check back with you in January. Now I will say, I think a lot of folks could have made great deals in December that are finding it generally more difficult to make those deals in January, but there was definitely a promotion that spiked up and for us, particularly in Texas, is where I observed it.

Got it. No, that's helpful additional color there. Second question, just on kind of the energy efficiency strategy and kind of the benefits you've seen on the tax rate side. I'm just curious, from an economic standpoint, I know you've kind of touted obviously, you feel like you can get a premium for this product in the market, but there's also this benefit on the tax line as well. As you think about the new administration and kind of the seeming deemphasis on a lot of the energy efficiency side of things, are you rethinking some of the moves and the investments you're making in this category under the possibility that perhaps it's less beneficial going forward if there is tax reform there? Or are you kind of full steam ahead still on this move?

The short answer is we're full steam ahead and I'd like to take just another minute or two. When we committed to Energy Star in 2011, which coincided with me having this opportunity, it was not about tax arbitrage, it was about building a better, more efficient home. And we've been on a consistent path for 15 years to make our homes better than they had to be as a part of what makes us different. As you know, five years ago, we committed to

All right. Well said, and I appreciate the conviction there. If I can add one more possibly. Just if I look at your current margins today, obviously, you expect improvement in the back half of the year. But right now, the operating margin is pretty thin in terms of cushion overall, which leads to me to believe there's at least some communities, maybe even divisions that are kind of hovering closer to breakeven for the time being. Can you give us any framework about impairment risk or abandonment risk on any land deals or markets where the margins might be thinner than company average?

Alan, it's Dave. A couple of things. One, we gave a pretty fulsome discussion of our impairment evaluation process in the Q. It's on Page 11 of the Q. You'll note you've been reading our Qs for a long time, nothing's changed in many, many years. So the methodology is exactly the same. I'd tell you a couple of other things. We don't disclose a watch list number, but I can tell you from what we see really don't have any expectations for material changes, still room and still feel real comfortable with where the land position is. And I'd add a couple of other thoughts. One, we look at the John Burn's data, you can kind of see what's happening for land in the market today. Look, I think what we're paying for land is very much in line with what our competitors are paying. We're very much in the fairway of where land prices are. And yes, margins are in a little bit of pressure right now. We expect some improvement as we go through the year, but really don't think we overtake land, quite frankly. And then -- the last thing I would tell you is we get kind of a check on this on a pretty regular basis, right? If we have a community that's not really performing or maybe the way we underwrote it, the Qs changed a little bit, and we've got to sell land, we have a pretty good idea of what we paid versus where the market is, and we feel we're right on the market. So I can't go too much further in the detail than I don't have any expectations for material changes from where we are now, given current market conditions.

Well, Alan, I'm not going to rebut anything Dave said, that would be silly, but I want to add something. I think a growing company will have abandonment charges as a part of the regular diligence. And ironically, I think one of the things that was most challenging for us as a company as we pivoted to growing community count, something we didn't do for a decade, was allowing ourselves the idea that pre-underwriting could result in walking away. And we went a decade without taking impairments on things that we bought. There were some previous land held assets that got impaired. But honestly, I don't want to take abandonment charges. But part of being in the market, that is a part of doing business. I do think about that as being very modest and infrequent and completely differently from impairments. But because you said abandonments, I didn't want to leave you with a misimpression. I think it is a healthy part of growing a business that there will, from time to time, be modest abandon maturities.

All right, guys. I appreciate the thoughts.

Thank you. [Operator Instructions]. Our next question comes from Julio Romero of Sidoti & Company. Your line is open.

Sorry, I was on mute there. Good afternoon, guys. I guess maybe starting on, can you maybe expand on two factors that led to a little bit of sales softness in the first quarter. I think you talked about in the prepared remarks about labor availability in Texas and meter availability in California, if you could give a little more context on those two issues? And then also what kind of gives you the comfort that those issues won't persist?

So that related between them, the 47 homes which happen to be pretty high ASP and pretty good margins and that related to closings, not sales. Those were homes in backlog that sitting in mid-November, we had every anticipation that they were going to close in the first quarter, and they didn't. I think 34, 35 of them were in Houston, and they were delayed for, I would say, a good reason, and that is that the utility companies prioritize service repair over hooking up new builds. And in October and November, there were a number of storms that led to dislocation of power in a particular part of the Greater Houston Metro area and the power company, frankly, reallocated their resources or hooking up existing customers and repairing lines rather than doing new build work. Hard for me to find fault with that. I understand that it was disadvantageous for those buyers in backlog and for us, but temporarily. So that was a unique circumstance with the reallocation of labor in one part of Houston. In the other instance, it was just over a dozen homes where there are still occasionally little gremlins in the supply chain, and we had some gas and electric meter availability from the utilities that we do business with where they looked at us in the early part of December and said, yes, we're not getting any more before the end of December. And we said, well, fellas, we've been working on this and it's ordinary course. And they said, yes, we'll see in January with the meters." It was a little random. But that's what happened related to the 47 homes.

Got you. Very helpful context. So I guess no broader effect that you guys are seeing from either like immigration issues or wildfires or anything of that nature?

No, it was not related to that. They were two anomalies. And frankly, if we had, had the sales environment that we had hoped for and expected, I think it probably wouldn't have been noticed. But the combination of not flagging the gross sales that we expected and to lose that roughly 50 closings. That was not what you would call a happy daily double.

Understood. And then it sounds like you're very much on track for your community count goals this year. You said you're activating more than 60 new communities before year-end. Can you maybe just touch on how does the cadence of closeouts affect your expectations for the year?

Well, sure. I mean if you -- just simple math, we're about 160. We're going to end up around 180. So if we're adding 60 plus, we're going to drop 40, right? That's the math. The net adds will be about 20, but that 60 in nine months, they're not perfectly evenly distributed, but you're talking about more than one a week, right? I mean it's a lot more than that, but it's six, seven a month. So that's kind of the cadence of the start-ups. Now -- and we've got that well controlled, like most of them will be March, April, May, June as we really have benefit of capturing the stronger part of the so-called selling season. The closeouts will happen based on the pace of sales in those communities. They probably happen on a somewhat less easily programmed cadence.

Very helpful. And then last one for me is just taking a broader view. Obviously, affordability is going to be a big challenge in fiscal '25. But maybe looking at a little broader than that, just talk about your ability, how you're positioned to improve margin and profitability once the broader market would improve?

Look, I think, well, all industry participants would benefit enormously from a reduction in rates. I think we're all spending a very large share of our incentives to get to a monthly payment for the buyers that are out there. But the things that we're uniquely doing, I mean, we've absorbed all of the costs. It's been in our overhead. It's been in our gross margin. It's in our cost of goods sold to build a home that is fundamentally different from everybody else's. We're excited about that. And honestly, our ability to explain that, get paid for that. That is where I think we have an alpha opportunity that literally none of our competitors have. Now we start gaining traction in markets or in communities, I know they're going to come for us. So we've got ideas about where we need to go next. But I can tell you, for the next several years, we have a significant head start. Anyone with health issues, anyone with utility bill phobia, anyone who really is into advanced construction science, we are their builder. They may not know it yet. And our job is to make sure they come to know that before they buy their next home, but that's our opportunity.

Very helpful. Thanks very much.

Thank you. Our next question comes from Jay McCanless of Wedbush. Your line is open.

Hi, everyone. Thanks for taking my questions. I got a few of them. So we'll go rattle them off as quick as I can. I guess the first one on the deportation, the immigration issues, are you all seeing any impact of that in the field yet or hearing any impact on that from your side?

Jay, honestly, I have not. And we check in regularly. We've got a hotline set up internally to anything, and I have not heard any news on that. I won't be surprised if there is some in markets that we do business and in the industry. But so far, I have not heard of any.

Okay. And then could you talk about where your gross margins are on the average spec right now versus dirt starts?

Yes. I mean the differential is between 3 and 5 points depending on the market. So there -- with the 2 in the dirts and they're 3 to 5 points below that on the specs. So 70% of the lower number is what is leading to the current margin profile. It's just the weighted average of those two numbers. So the math for us is simple, change the spec percentage to be a lower percentage and improve the margins on our specs. And I think there are good reasons for us to believe we can do both of those things.

And what do you think the long-term goal should be for that, Allan?

It's a great question. It's a little different, honestly, Jay, than I would have told you four years or five years ago. I think it's a little bit higher to the spec side. If you had asked me five years ago, I would have told you 70-30 to be built felt really comfortable I think it's probably more like 60-40. And in some of our markets, it may be 50-50. But I would like to see us get back to and I think we can, being a majority to be built versus spec. I do think sort of laying the dragon here on the financing side is a part of it because you can appreciate where something is being heavily incentivized and promoted, that quick move-in home with a rate teaser, if there isn't anything that's comparable on the long-term side, it makes it harder. And that's why we put so much work into this program with our lenders to make sure that we've got an opportunity for those buyers who do want that to be built.

And actually, could you touch on that for a second? Because I guess a cost differential or gross margin differential, are you giving up some of that advantage in the to-be-built by using that longer-term rate lock? And I guess -- I don't even know if you've already done this yet, but like what would the gross margin difference will be versus a spec that close in two months versus to-be-built the close at seven months using that rate lock?

The way I think about it is we are allocating incentive dollars that we generally provide to to-be-built homes in a different way. Instead of more dollars in a design center, we can use a larger share on this new structured program. And one of the things, and I can't help myself, but one of the things that I like about our Mortgage Choice program is we really believe in choice. We insist on it, in fact. So any time we roll out a program like the one I described today, there is more than one lender offering it. We're never going to put the customer in a position where you can have like the Henry Ford Model T, you can have any color as long as it's black. We have multiple lenders making those orders available. There is nothing that keeps the pencil sharp and the wits alert. We're pricing competitive than having multiple lenders competing for that buyer's business. So I think we've mitigated kind of the economic cost of that. But what we're really doing, frankly, is allocating in incentive dollars to rates. And that's what spec homes have been doing for the last year or two is directing their incentive dollars toward rates and we now have a way to do that on to-be-built.

Okay. And then on the fiscal '25 guide, it looks like it's the same as what you all had in the fourth quarter slides, except you guys are pointing to the low end of the gross margin range. Is that -- I think that's only real change I heard in the prepared comments?

That's right, Jay. We talked about the potential that the pace will be a little bit closer to the lower side. But yes, the gross margin is really only the difference towards the 19.5%.

And then if you look at the West, you guys had a decent order growth there, I think, 10%, 11%, which based on what you said about Texas, would imply, I think, that California, Arizona, etcetera., probably we're up 30%, 40% in orders and then Texas was down. I guess do you have the community count coming online in California and Arizona keep that up? Or should we expect the West to slow down a little bit after such a robust quarter?

Yes, I would expect that because what's really going on is it has been outside of California, easier to activate communities in the West than many of our Eastern or the Midwestern markets, just -- either because land development is simpler. The entitlement process is a little bit faster. So our community count has been able to grow in that West segment a bit faster, and that's been 1 of the things that has driven that. But of course, having strong sales in California and Nevada, in particular, was helpful. And I don't see reasons to think that, that's going to change anytime soon. But I do think our non-Western markets are likely to grow community count here over the next 12 months faster than our Western markets.

I think too, Jay, we've talked about a pace between 2.5 and 3 sales per community per month for the year, that is not in any way an elevated pace for us, right? That's kind of below what we've done historically, the business stems from between 2.8 and 3.2. So when you think about longer-term pace, I don't think we're really in data at point, we'll see a big fall-off to your question.

Thanks for that, guys. And the last one I had, just knowing that you called out the 3,000 savings there. I guess -- could you talk about what that 3,000 represents as a percentage of the average build to build costs out of home?

Yes. I mean it's about 1 point. It's a little over one point actually. It's 60 basis points against our ASP and so it's a little bit more than 1% of the build cost of the home.

Okay, great. That's all.

Thank you. At this time, we have no further questions.

Okay. I want to thank everybody for joining us on our call this quarter, and we look forward to talking to you on our second quarter call. This concludes today's call. Thank you.