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Good afternoon, and welcome to the Beazer Homes Earnings Conference Call for the Second Quarter and Fiscal Year ended March 31, 2025. 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 second 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 the statement is made. We do not undertake any obligation to update or revise any forward-looking statements, 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 Allan Merrill, our Chairman and Chief Executive Officer. On our call today, Allan will discuss highlights from our second quarter, changes to our capital allocation priorities and our updated multiyear goals. I will then provide detailed guidance for our third quarter results, an update on our outlook for the full fiscal year and end with a discussion of our land position, liquidity and capital allocation framework. Allan will conclude with the wrap up, after which we will take any questions in the remaining time. I will now turn the call over to Allan.

Thank you. Thank you, Dave, and thank you for joining us on our call this afternoon. Our second quarter results reflected better-than-anticipated earnings, benefiting from our growing community count, improving construction cycle times, a modest sequential increase in gross margin and strong overhead discipline. This resulted in adjusted EBITDA of $38.8 million and earnings per diluted share of $0.42. We also repurchased more than $20 million of stock, bringing our total repurchases to $42 million over the past three years. While we're proud of these results, the second quarter was also characterized by a slower-than-anticipated selling environment, reflecting ongoing challenges with affordability, weakening consumer sentiment and increased economic uncertainty. And as investors know, these factors have been profoundly impactful on share prices in our sector, including ours. So today, in light of both the weaker demand environment, and the substantial reduction in our share price, we are announcing updates to both our capital allocation priorities and our multiyear goals. The balance of my comments this afternoon will focus on those two topics. Let's start with a quick refresher on how our approach to capital allocation has changed over time. For a number of years, our capital allocation decisions were quite simple. We needed to reduce risk to the enterprise by deleveraging. During this period, we repaid about $700 million of debt, dramatically reducing our leverage ratio. We also allocated $38 million to share repurchases, buying back nearly 4 million shares or more than 10% of the company at an average price below $11. These actions were entirely appropriate, but they meant we couldn't invest in community count growth. About five years ago, when we had our total debt down to a sustainable level, we announced that we were expanding our capital allocation priorities to emphasize profitable growth. We believed attractive risk-adjusted returns could be generated by investing in growing our community count, while we incrementally deleveraged through retained earnings. This mirrored what we heard from investors, namely that we weren't growing like our peers and that we were still too levered. Since adopting this growth posture, we have increased our total lot position by nearly 60%, reduced our leverage ratio by another 20 percentage points and have still been able to repurchase 2 million shares at roughly 60% of our book value. Together, these actions have led to significant growth in book value per share with a five-year CAGR of over 17%. That brings us to the present. While we remain committed to both growth and deleveraging, the current macro environment and our share price have caused us to reevaluate our capital allocation priorities, presented with the opportunity to buy back stock at less than half of book value, we think it is appropriate to slow the rate of growth in our community count and the rate at which we are deleveraging. Today, we announced that we have received board authorization to repurchase up to $100 million of our stock. That's nearly 20% of our current market cap. But I want to point out this is not going to be executed all at once. That's because we intend to continue growing community count and reducing leverage, although somewhat more slowly. The obvious question that arises when balancing these competing capital priorities is, how much to do of each and when? While I can't predict our share price or the trajectory of demand for new homes, I can share three perspectives that have informed our updated multiyear goals. First, I think growth matters a lot to shareholders and to share prices. But sometimes it's more valuable than others. Right now, with anxiety about nearly every aspect of housing, it would be easy to stop investing for growth. The challenge is that land investments typically take a couple of years to turn into homebuilding profits. So the decisions we make now will really impact 2027 and beyond when the environment is likely to be different. Because we remain optimistic about the fundamentals for new homes and our differentiated strategy, we think pulling back too sharply would be shortsighted. Next, we cannot ignore peer comparisons around leverage. I think we'll get our net debt to net capitalization into the high 30s this year, which feels great considering where we started. But many of our peers are in the 10s or 20s. While we could debate the perfect leverage ratio for a homebuilder, we don't want to fail to earn a fair multiple on our earnings or book value because of perceived balance sheet risk. Finally, I cannot imagine a more prudent investment for us to make on behalf of shareholders than buying our own stock at a substantial discount to book value. As challenging as conditions are right now, we own great assets in great locations, and we fully underwritten them. We do not believe we could replace them at our current cost basis, let alone at a significant discount. In light of these perspectives, we've updated our multiyear goals. Two of them will look very familiar though we are replacing our

Thanks, Allan. This afternoon I will concentrate on providing some more specifics on our third quarter guidance and our outlook for the fiscal year. I will then update our land spend expectations for the full year and conclude with a discussion of our liquidity and our framework for share repurchases. We have detailed our second quarter 2025 results and 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 third quarter. At a high level we're not expecting any improvement in mortgage rates or consumer sentiment. We're also assuming that our mix of spec sales will remain exceptionally elevated mirroring the 70% we experienced in the second quarter. We expect sales to be up 5% to 10% versus the same period last year with an average community count that should be up around 10%. We expect to end the third quarter with around 160 communities. We anticipate closing between 1,050 and 1,100 homes in the quarter, with an average ASP of around $525,000. The sequential increase in ASP is being driven by product and community mix shift. Adjusted gross margins should be up slightly sequentially. SG&A as a percentage of revenue should be less than 12%. We remain focused on driving improving overhead leverage by tightly controlling spend to reflect current market conditions. We expect to generate about $40 million in adjusted EBITDA. Interest amortized as a percentage of homebuilding revenue should be just over 3% and our effective tax rate should be approximately 8%. This should all lead to diluted earnings per share above $0.40. In light of the challenging market conditions and with a weaker than previously anticipated sales pace expected to persist, we are updating our outlook for the full year. Our average community count should be up between 12.5% and 15% versus the prior fiscal year. We expect to end the year with a community count in the 170s depending on the timing for new community activations and closeouts. We now expect our sales pace to remain between 2.25% and 2.5% per month for the full year, well below our historical norm. As it relates to our gross margin, ASP and SG&A we now expect adjusted gross margin for the full year to be around 18.5%, reflecting better margins on more recent spec sales and in new communities. Given our outlook for a heavier spec mix throughout this year, we anticipate our full year ASP should be around $520,000. Finally, our higher community count should lead to revenue growing faster than our overheads for the full year, driving down our SG&A percentage to be about 11%. Presented with both a slower sales environment and the opportunity to repurchase shares at a steep discount, we're reducing our expectations for full year land spending to a range of $750 million to $800 million. We still expect to end the year with about 30,000 lots up about 5% versus the prior year, positioning us for meaningful community count growth in the years ahead. Our balance sheet remains healthy with total liquidity exceeding $375 million at the end of the quarter and no maturities until October 2027. As has been the case in recent years, we expect to use our revolver seasonally but end fiscal years with no outstanding balances. Since we just announced $100 million share repurchase authorization, we know investors would appreciate understanding our framework for allocating capital. First, we expect both community account growth and increased balance sheet efficiency as we further expand the percentage of our lots controlled through options. Second, we expect to continue delevering principally through retained earnings until we reach our low 30s leverage ratio goal at the end of fiscal 2027. At that point, we will reassess whether further reductions are warranted. And third, when our shares are dramatically below book value like they are now, we believe repurchases likely represent a better risk reward opportunity than incremental land purchases. As our share price moves toward book value growth oriented investments typically become more attractive. With that, I will now turn the call back over to Allan.

Thanks, Dave. While we reported a profitable quarter, I think, the bigger story is our reevaluation of our capital allocation priorities. Through our updated multi-year goals, we're reaffirming our commitment to balancing growth, deleveraging and growing book value per share. And with our new share repurchase authorization, we're also acknowledging that the current disparity between our market value and our book value represents a compelling risk reward opportunity. However, the macro environment evolves over time, we're excited about the opportunities for our industry and for our differentiated value proposition. Our team has built a strong culture dedicated to creating value for customers, partners, shareholders and each other. And I know that we have the strategy and the resources to do even more in the years ahead. With that, I'll turn the call over to the operator to take us into Q&A.

Thank you. [Operator Instructions] Please stand by. Thank you. Our first question comes from Julio Romero at Sidoti & Company. You may ask your question. Great.

Thank you. Good afternoon, Allan and David. Thanks for taking the questions.

Hi, Julio.

My first one – hey, good afternoon. My first one is just curious how the affordability challenge of today is considered in your updated multi-year goals and the adjusted community count timeline. Does that longer timeline for community count afford you any bargaining power with regards to your suppliers as they kind of try to push on price increases? Just your thoughts on how affordability is kind of considered into your updated goals?

Well, I mean, we’ve been dealing with a super constrained affordability environment for the last year and a half or two and I don't think there is reason for us to expect it's going to get dramatically better. I mean, we're obviously hopeful for wage growth and maybe there will be some improvement in the rate structure, but we have to kind of plan for what we know and what we know right now is that while the underpinnings of demand are really good, affordability is a constraint. In terms of bargaining power, I feel pretty good about the fact that we’ve made the investments over the last several years to ensure a growing community count into 2026 and 2027, changing the slope a little bit just means that we have more choices and more discretion over the deployment of capital. And given how the market is valuing builders right now and us in particular, that made a lot of sense.

Got it. That’s helpful. Thinking about the newer goal about book value per share and some of that is driven by the deferred tax asset with book value.

I mean, deferred tax assets are less than 10% of our book value. It really is reflecting earnings growth and some benefit resumed from share repurchases. But I think one of the things that we’re hoping to remind investors, we’ve been growing book value per share pretty consistently at a very high rate. We’ve sustained, I think Dave said or I said, a 17% rate over the last five years, and we have a line of sight with the capital that we have and the choices in front of us to be in the double digits in the next 2.5 years. So the idea of like we can continue to grow book value, even if you change the amplitude of community count a little bit, we didn’t want that to get lost in capital allocation priorities that yes, we’re going to be capital allocators, but we have every expectation for double-digit book value growth.

Got you. Understood. Just last one for me, if I could, is just thinking about the share repurchase of $20 million in this quarter. The share release says that you are – the new authorization of $100 million is for over multiple years. So just thinking about that what you did this quarter that longer-term goal would kind of imply less quarterly repurchases less of a pace than it was done this quarter. So how would you have to think about the expected cadence of repurchases? And could we see you step in for something larger than what you did this quarter if you see a large enough disconnect?

So look, Julio, I would tell you there’s – when we think about it, there’s kind of multiple things that we’re trying to balance, right? What is – one is what does the land market look like? What are the opportunities? What does the growth opportunity look like for us? What’s available to us? And then certainly, what’s happening with our stock and what do our share prices look like and what kind of returns do we generate from our share price. So instead of signaling this is what we’re going to go do or giving you an exact number, I think the way to think about it is we have a history of being really good capital allocators, focusing on buying the stock back, frankly, when returns on the stock are very attractive. And then so based on what’s happening in the market, what’s happening in the land market, what the growth looks like. And frankly, we talked about in the script, we’re still focused on growth and deleveraging, maybe at a little bit slower rate. That will dictate the kind of liquidity that we generate and then we think about what the share price looks like and what returns look like from buying back the stock. So it’s kind of those three things that go into it, and that’s how we make the decision.

Very helpful. Exciting to see the new multi-year goals. I’ll pass it on.

Thanks, Julio.

Thank you. Our next question comes from Tyler Batory of Oppenheimer. Your line is open.

Hey, good afternoon. Thanks for taking my questions here. I’ll start with a couple on the guidance and then switch over to capital allocation. In terms of sales pace, can you talk a little bit about what you saw in April? And you need to see a little bit of a better May or June to hit the order guide that you provided for Q3. And then when you take a step back and you look at the sales pace and the adjustment that you made to the guide there, I mean I think you did just over 2.1% in the first half. When you look at the back half of the year, implies a little bit of a better than normal seasonal ramp. So is that the way that you’re thinking about it? And kind of what gives you confidence that the sales pace can grow a little bit from where it was in the second quarter.

Really great question. So a couple of things. April, I don’t actually have the most recent week in front of me. I would say things don’t have to be really different in May and June than they were in April. In our June quarter, the comp is way easier relative to last year’s sales pace than the first quarter was – sorry, our fiscal second quarter, calendar first quarter, I should know better than that. And so I feel like that year-over-year comparison eases quite a bit, and we’re going to have a 10% larger community count, which is kind of where the total order guide came from. In terms of seasonality, I mean we’re always going to see or we have historically seen, but for one year in COVID, that our Q1 is the weakest quarter. Our Qs 2 and 3 are the strongest, and then Q4 is a little light relative to Q2 and Q3, but certainly better than Q4. So just that mix would suggest we would normally see the back half of the year stronger than the first half of the year. And we’ve adjusted the guide for the balance of the year to kind of match exactly the environment that we’ve experienced and really no seasonal deviation from the pattern that we see in our third and fourth quarter normally.

Okay. Okay. Thank you. Thank you for that. In terms of gross margin, too, to bring that into the discussion here, in terms of what you reported in the second quarter. Is that kind of what we should think of in terms of the lower bound on gross margin? Because I just – I look at where you were in terms of the sizable orders missed versus what you expected and perhaps I should read that as you really holding the line on margin. So maybe ask it another way. I mean, do you think you could have gotten a little bit more maybe aggressive on incentives and you would have a little bit more orders and you kind of chose to pull back? Is that how I should interpret what happened in terms of the results?

So Tyler, kind of two questions inherent in what you asked. And I want to start with the first question about if we cut prices more, can we drive some more pace because I think that’s a kind of fundamental question. I think you heard Allan say on the call and it was pretty clear. We think we have some great assets and some great land. And one of the reasons we’re so comfortable doing share repurchases, we’re confident in the value of our land, right? That’s one of the reasons. And what goes kind of corollary to that is you don’t want to burn through a great land position. So could we have cut prices more to drive some volume maybe. But the truth is we really like our land positions. We like where we sit and we want to preserve the value of land that we have and the lots that we have and that’s really the strategy. In terms of the gross margin question on the go forward, which was the other part of what you asked, obviously, there’s a lot of puts and takes on the gross margin side. In terms of what’s driving the sequential improvement in margin, we talked about a lot of this stuff in Q1, and it’s coming to fruition, and I want to go through it again just for folks on the call. We’ve seen some specs profitability improvement quarter-over-quarter. We think it’s going to continue. Part of it is in the first half of the year, we were delivering especially in Q1 older, maybe over-specified specs, some of our prior series homes that weren’t

Okay. Perfect. That's very helpful. Switching gears to the capital allocation side of things, and you gave a lot of great detail there. But I just want to put a finer point on what you're thinking in terms of the weighted investment side of things. And you did bring down the expectation of what you're going to spend this year. But you're in a pretty fortunate situation where you already have a pretty robust land portfolio. You've got some pretty good community counts. So is this going to be a multiyear maybe into next year in terms of pulling back on the land investment? What do you think about ramping things up? And just maybe give a little bit more detail just kind of where that fits in, in terms of the decisions that you made today.

I think Dave referred to the fact that the land prices matter and our stock price matters, right? We're looking at those. And I – things are challenging in a lot of ways, but I agree with your characterization. We're in a pretty fortunate spot. We're going to end the year with 30,000 lots or thereabouts with built-in community count growth next year. So it really gives us the opportunity not to pursue growth at any cost or share buybacks at any cost, but really to orient the capital in a way that's going to generate the best returns. Now the boundary condition is and statement, we're going to grow, we are going to delever, and we are going to buy back stock. And in combination, that's going to drive a double-digit return on – double-digit growth in book value per share. I don't think next year, you should expect land spend to be lower than this year just as an observation. It could be higher. It could be quite a bit higher. We've got the capacity to do that. It probably won't be quite a bit higher unless we see some really significant change between our share price and land prices, but that could happen. We haven't seen – the land market hasn't broken. Terms have eased a little bit. And frankly, that helps drive more option deals, which we kind of like. We've driven that up into the low 60s, and I see that growing over the next couple of years to a somewhat higher percentage. But that's really the dynamic as we're thinking about what the share price, what are land prices, and we know what our objectives are on a multiyear basis so that we can kind of make decisions in each quarter about what that allocation should be.

Okay, very good detail. I'll leave it there. Thank you.

Thanks, Tyler.

Thank you. Our next question comes from Natalie Kulasekere of

Hey, good afternoon and thanks for all the details so far. So what impact will the adjustments to your growth plans and capital allocation have on your overheads and I guess, your interest expense leverage. With your SG&A running above 12% and your interest at 3% of revenue, would you still be able to pose leverage on these line items at least in the near-term, if you're not growing at the rate we were previously expecting?

Yes. Look, Natalie, I mean it's a fair question. But remember, we are talking about some significant growth. And we did talk about in the script, really making sure that our overhead spend is matched with our growth and what we're doing from a business. So look, just like when – as we thought we're going to go a little bit faster, maybe we bulked up a little bit on overhead to prepare for the growth. If we're not going to have the same, we'll adjust accordingly. So the short answer is, yes, I still feel real comfortable we get some good overhead leverage. We're still going to have top line growth. We're still going to have community count growth, as I mentioned before. And that should drive some SG&A improvement overhead leverage.

Yes. I would just add. The investments that we've made in overhead for the community count growth, those needed to happen because that community count growth is happening. Like we've made those investments, those communities are coming. That community count growth will occur and the revenue growth will follow shortly thereafter. So we feel very good about being able to lever that. What we don't need to do is necessarily buttress those overheads at the same rate that we might have because we are going to grow that future community count a little bit more slowly.

Okay. That's fair. I have a follow-up to that. So is it safe to assume that some of the land that is tied up – that was tied up before the market, like the demand started declining, that it may not make economic sense anymore? And will you be walking away from some of these deals? Or do you think this opens up an opportunity for renegotiating some of these contracts to lower prices.

Absolutely. I think it opens up the door to try and renegotiate them, and we may have success doing that, we may not. It takes two to tango. I think there is pretty good opportunity for terms to change. I don't know how much prices will change. And if we don't like the prices, we can walk. Again, with pushing towards 30,000 lots, and a growing community count next year, we have an awful lot of discretion. So if we don't find and it's not every deal, but if there are a handful of deals that are in flight, that we are looking at a little bit more skeptically today. If we don't see improvement in price or terms, we probably won't do them.

Okay, thanks. And final question for me. So given the incentives that your competitors are offering, and I guess it's clearly ramped up since your last call. So do you still feel like you can earn a premium for your energy-ready homes?

Yes, I think we can. I mean, the interesting thing for us is our

All right. Thank you so much.

Thanks, Natalie.

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

Hey, guys, thanks for taking my questions. I guess, the first one, we've heard from some of your peers that labor market availability is loosening up. I'm just wondering if you guys have been seeing that if it might be a tailwind for gross margin later this year and then also maybe what you're seeing for the rest of the input costs into the house?

Well, on the labor side, Jay, I agree with that, plenty of availability across trades, across submarkets, I think – that is a possibility for a tailwind. I wouldn't take it to the bank yet, but the pressure is low enough that I think that opportunity does exist. Across the rest of the cost inputs, we've got a bunch of Beazer-specific initiatives, the standardization, simplification and frankly, working with trades now that we've got almost a year under our belt doing

Okay. And actually, you just – you sold my next question, Allan, about

It is. And it's kind of a cool thing. Like this is maybe strange to say, but we knew and we told our teams, we know that the costs that we're going to incur to deliver this home are higher than they should be. But we've got to start somewhere. And as our trades have realized, wow, we can with the way we've got DUCs and condition space, we can do two of your homes in a day, not one of your home in a day. Well, that's great. Like let's capture that savings. We've got a lot less job site waste because of some of the construction practices. Well, now I'm not pulling dumpsters every two days, I'm pulling them every two weeks. Well, there are savings there. So there are bits and pieces, and it's really granular, but it's been exciting to kind of find all of those nickels and quarters and dollars. And frankly, there's still more there. And that's kind of where Dave alluded to the Beazer-specific initiatives that give us a little bit of confidence that we can take out possibly a little sequential growth in gross margin in a pretty challenging environment.

Good. Can you tell us what percentage of your homes were sold and closed during the quarter?

Jay, I can get back to the number. I don't have the data in front of me exactly, but I can certainly come back to you. And we also show in the – I don't have the – Allan's got it right there.

Yes. Sold and closed in the quarter was 367 homes. So out of the closings, you can do that math quickly.

Yes.

By the way, it's in the Page 23 in the appendix in the backlog.

Okay. I mean, are you thinking for the rest of this year that that number is going to go up? Just you said earlier that the percentage of specs or sorry, the percentage of 2b builds is probably going to be less this year than what you thought it would be. Should we expect orders and closings to run a little more close together when we think about forecasting not only the rest of this year, but maybe even into fiscal 2026 if conditions to keep up like they are?

Look Jay, I don't want to predict in the 2026 because there's a lot that goes into like you said, it's very condition based. But certainly, I would think your assessment is correct. And that's really translating into is a higher backlog conversion ratio, right? We've had significant improvement in the backlog conversion, actually, what's happening is you're selling and delivering more specs in the quarter. And that will – that should persist from what we see now in Q3 and Q4.

Okay. It sounds good.

I mean, ideally, we'll sell specs. I mean, if we're going to sell specs, selling them and closing them in the quarter is terrific. The only downside is that means that we're finished in the quarter. I'd really rather tell them in Stage 8, 9, 10 of construction so that they weren't available to deliver in the quarter that they were sold, but in the next quarter. But those two things together are definitely driving the backlog conversion higher.

Okay. And then, yes, I'd like to see the share repurchase. I guess if it gets even worse from here, would you guys consider more aggressive measures, whether they like an ASR like you did before something else along those lines?

I think we'd say all the tools are in the toolkit. We've been super transparent about the magnitude of our ambition. I think the size of our authorization is quite large in relation not just a market cap, but across the industry as a percentage of market caps, and I'm pretty proud of the record we've got in terms of being a buyer of our shares at times that represented unusual value. And I think the extension of the two multiyear goals gives us even more latitude to be opportunistic.

Okay. Great. That's all I have. Thanks guys.

Thanks, Jay.

Thank you. [Operator Instructions] Our next question comes from Alex Barron of Housing Research Center. Your line is open.

Yes. Thank you. Yes. I just wanted to congratulate you guys on the decision to shift towards share buybacks. I think it's a great decision. And also, I wanted to congratulate you on the energy-efficient homes. I had an opportunity to go see one of your homes in the Texas markets, and it was pretty impressive. So that said, I think you guys don't – are not building a commodity like other guys. So no, I don't think there's a need to follow them down the spiral in terms of price cuts. That said, what is your general incentive at this point? Are you guys doing more of a great buy down and closing costs? And if so, how much is your total incentive as a percentage of price?

We don't give out the exact number, Alex, but Alex, but I will tell you, we have seen more buyers opting for, especially in the last quarter rate buy downs and where we were in the quarter before. And it's generally focused on firms. We have buyers doing temps certainly, but it's generally focused on firms.

Got it. And other than that, are all of your homes pretty much at this point, super energy efficient or is it just a percentage?

We have 30 starts left in – I think it's in two different communities that are in our prior series that we will get started here before December. But other than that, everything is

All right. That's awesome. Thanks guys.

Thanks Alex. Thank you.

Thank you for visiting our community. It's always appreciated.

Thank you. At this time, I'm showing no further questions.

All right. I want to thank everybody for dialing in to our call, and we'll talk in three months. Thank you very much. This concludes today's call.