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Good afternoon, and welcome to the Beazer Homes Earnings Conference Call for the third fiscal quarter ended June 30, 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 third 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 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 third quarter, the current operating environment, including a discussion about our product differentiation strategy, an update on our asset alignment efforts, including the 2 communities we impaired in the quarter and end with the status of our multiyear goals. I will then provide an overview of our operational response to a weaker sales environment, detailed guidance for our fourth quarter results and finish with updates on our balance sheet and liquidity, including our outlook for land spending and share repurchases. Alan will conclude with a wrap-up, after which we will take any questions in the remaining time. Before turning the call over, I'd like to share that we've added a new Vice President of Investor Relations, Mark Chekanow, who's in the room with us today. Mark just joined us about a month ago, and we're very pleased to have him on the team. I will now turn the call over to Alan.

Thank you, Dave, and thank you for joining us on our call this afternoon. Despite a particularly challenging sales environment in the third quarter, we were pleased with our progress toward our multiyear goals and the resilience of our gross margin. Relative to our goals, we grew our average community count 15% to 167, successfully activating 19 communities, and we grew book value per share to over $41 as we repurchased another $12.5 million of stock. We also generated an adjusted homebuilding gross margin of 18.4%, up slightly versus Q2 as margins on our newer homes overcame higher incentives and an elevated spec mix. Weighing against these accomplishments were several headwinds that impacted our sales results. At a macro level, affordability concerns and rising new and used home inventories impacted both traffic and sales conversion. While it's possible for us to know if or when mortgage rates may decline, we believe new home inventories will gradually be absorbed over the next several quarters because builders have already reduced start activity. Longer term, the structural housing shortage supports demand for new homes in our markets. Within our business, sales paces during the quarter varied greatly. In Texas, which represents approximately 40% of our active communities, our pace was disappointing at 1.3 sales per community per month, well below our recent third quarter absorption rates for the state, which have ranged from 1.9 to 3.1. These are among the markets that experienced the largest buildup of new home inventories during the spring. Despite near-term traffic and sales challenges in Texas, we remain bullish on the state. Dallas, Houston and San Antonio are growing and economically vibrant, and we've got experienced teams and well-located communities in each city. And we're making product feature and incentive changes, which are showing early signs of success. Sales paces in our other markets were largely in line with our expectations for the quarter. We acknowledge that builders who have reduced home sizes, feature levels or performance standards to be able to offer lower home prices have exceeded our sales paces this year. So I'd like to discuss the rationale for our commitment to a differentiated product and customer experience strategy. Today, we are both the #1 energy-efficient homebuilder in the country and the highest rated national homebuilder for customer service according to TrustBuilder. Attaining these positions has taken time and commitment, but we believe they will lead to substantial returns to shareholders over time. Let's dig a little deeper into how we are building a unique energy efficiency position. First, we identified a pervasive consumer pain point around utility bills, namely their size and rate of growth. Then we had to create a solution. Committing to ENERGY STAR and then

Thanks, Alan. We have detailed our third 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. There's no question the sales environment has been weaker than we anticipated. While we remain highly optimistic about our strategy and prospects, we are aggressively responding to current conditions. These actions include renegotiating the pricing and terms on land contracts and rebidding land development and vertical construction trade and material agreements. While these actions will only slightly benefit our fourth quarter, they should contribute to a much more profitable fiscal 2026. With that said, let's start with our expectations for the fourth quarter. We note that our outlook contemplates conditions remaining relatively consistent to what we're seeing now in the market. We expect sales to be relatively flat versus the same period last year as a higher community count offsets a slower pace. We expect to end the fourth quarter with around 175 communities, up about 8% year- over-year. We anticipate closing between 1,200 and 1,300 homes in the quarter with an ASP around $535,000. The sequential increase in ASP is a function of product and community mix shift. Adjusted gross margin should remain around 18% as specs continue to represent an elevated share of our closings. SG&A should be around 11.5% of total revenue. We remain focused on adjusting our overhead to be in line with current conditions and expect improved SG&A leverage in fiscal 2026. We expect land sale revenue to be above prior periods and to contribute to profitability as we manage our portfolio to enhance returns. All in, this should generate about $50 million in adjusted EBITDA. Interest amortized as a percentage of homebuilding revenue should be just over 3%. Given our expectations for energy efficiency tax credits and our pretax income, we're anticipating generating a net tax benefit of several million dollars in the quarter. This should all lead to diluted earnings per share of just above $0.80. Our balance sheet remains healthy with total liquidity at the end of the third quarter exceeding $290 million. We expect to end the fiscal year with total liquidity around where we ended fiscal 2024 and with nothing drawn against our revolver and no maturities until October 2027. We view our current valuation as compelling and have the flexibility to allocate additional capital to share repurchases. So far this year, we've repurchased about 1.5 million shares or about 5% of the company. We anticipate continued share repurchases as part of our capital allocation strategy, though the magnitude will vary quarter-to-quarter based on our share price, profitability and land spend. During the third quarter, we spent $154 million on land acquisition and development, reflecting our decision to slow land spending. For the full year, we now expect the total land spend to be between $700 million and $750 million with an option percentage above 60%. This should result in an active controlled lot position similar to the end of last year. Utilizing more option contracts improves asset turns and will accelerate growth and boost returns when sales paces normalize. With that, I'll now turn the call back over to Alan.

Thanks, Dave. The simplest summary I can provide is this. We're responding to the current environment while still strengthening our differentiated market position. In addition to moderating our land spend, we're evaluating our existing lot positions and managing our portfolio to maximize returns on each asset. We're also in the midst of a broad effort to renegotiate contracts and agreements for land, labor and materials. These steps should boost near-term profitability and cash flow. At the same time, we remain focused on executing our differentiated strategy, including delivering the most energy-efficient homes and providing a best-in-class customer experience. Taken together, we believe succeeding in these areas will enable us to drive long- term shareholder returns. We have the strategy and the resources to achieve our goals, and I'm proud of the entire Beazer team for their dedication to our customers, our partners, our communities and to each other. With that, I'll turn the call over to the operator to take us into Q&A.

[Operator Instructions] Thank you. Our first question comes from Tyler Batory of Oppenheimer.

Alan, I appreciate the detail you gave on sales pace, but I just wanted to start there and dig a little deeper. It sounds like it was mostly a Texas issue, but can you talk a little bit more broadly in terms of how you're balancing pace and price, talk a little bit more too about if there's potentially a lower bound that you're willing to accept on the pace side of things. And you also talked a little bit about demand, too. I think one of the trends of earnings season so far is that demand is fairly inelastic out there. So I just wanted to get a perspective on what you're seeing in the market.

Sure. There were kind of 2 or 3 questions in there. I do think that your comment about the elasticity or lack of elasticity in demand is pretty accurate. You can't fix confidence with price, and that's definitely one of the phenomena that we see out there. And there are lots of things that can erode confidence, whether it's more inventory or income in security or other things. So we didn't see a big opportunity to get really dramatic with pricing to chase volume. Having said that, there's no question, and I've said it pretty clearly, I was disappointed with in the aggregate how we did in Texas. I don't expect that we'll have another quarter like that in Texas. Our communities are better than that. And I just think we got caught a little bit with blow up in inventory in the market and just didn't push hard enough. So we will. We've made a lot of adjustments to product to our strategies there from a marketing standpoint. And as I said in the comments, I feel a little better about where we are as we exited the quarter and entered the fourth quarter. But I also made the point that outside of Texas, really broadly, the results were in line with expectations. And there were -- it was interesting. There were highlights in different parts of the country. I know that it's always better if we can just hit a single theme, it's easier to digest. But I'll just give you an example, we saw strength in Virginia. I think that had something to do with the return to office that's happening in D.C. We also saw strength in Myrtle Beach, which is really a retirement in the second home market. And our Southern California business performed really well in the third quarter. It's just chronically undersupplied. So really different demographics and drivers in different parts of the country. So the opportunity to try and fit all of the demand and pace and margin stuff into a simple soundbite is awfully tough. I think that outside of Texas, we competed pretty well. Inside Texas, we needed to compete a little harder and we will.

Okay. Very good detail there. On the cost side of the equation, obviously, you build a little bit of a different home compared with some of the other homebuilders out there. So interested in what you're seeing on the labor front, there's been some more availability out there, how you're handling material costs as well, just kind of how all of those factors are working for you given that you do build a little bit of a different home than some of the peers.

Taylor, it's Dave. Hope you're well, Tyler. A couple of things to think about. Certainly, we get a lot of questions on tariffs. We haven't seen much impact from tariffs on our material costs. But I think there's probably a more important story there for us. And Alan talked about it in his remarks in the script, we're making some really good progress on our -- on the cost side, both in the cost and

Okay. And the last question, maybe a little bit more housekeeping. What percentage of orders or closings in the quarter were spec? Where are you thinking in terms of that number for the full year? And I know it's a little bit elevated versus where it's been in the past. How much of a headwind is that in terms of gross margin this year given that mix?

Yes. So absolutely, Tyler. So we've been talking about the SG&A, the spec count as a percentage being around high 60s. I'm not going to give a specific fourth quarter number. But certainly, we expect it to remain elevated around that level. And then based on where we are in that closing kind of range that we gave, that will be determinant of what the spec count looks like. I think the other thing that's important to think about, you mentioned gross margin. There are certainly -- we baked into our guidance a little bit of increased closing costs as we moved into Q4, and that caused some of the gross margin pressures you've seen. Look, we're really happy. We feel good in the 18s. We've been able to be resilient in the 18s. But sequentially and just kind of quarter-to-quarter, it's probably up a little bit.

Our next question comes from Julio Romero of Sidoti & Company.

Staying on the gross margin topic for a bit. Can you maybe just talk about this quarter and rank order the drivers of how you were able to meet the homebuilder gross margin guidance that you gave last quarter despite what looks like lower ASPs in a tougher demand environment than was already expected. I know you called out some spec profitability improvements, some

Sure. Julio, it's Dave. Look, I think Alan started his comments, and I think it's exactly right. We're really happy with the resilience of our gross margin. And that's honestly newer homes and our efforts to bring down those energy-ready costs I was talking about before, withstanding kind of higher incentives and frankly, that higher mix of specs that we're seeing. So I would tell you that's the biggest kind of driver when you think about the gross margin. It's really the resilience that we're seeing in gross margin. It's those newer homes in newer communities and frankly, our efforts to help reduce costs.

Excellent. Very helpful. And then thinking a little bit about your differentiated energy-efficient homes. Can you speak a little bit about the strategy to communicate that differentiation to the consumer? Is that kind of reliant on word-of-mouth? Or are there more structured educational and marketing initiatives in the works?

It's a little bit of everything except the Super Bowl ad. There is some brand marketing, but really, it's about the experience that our prospects and their realtors have when they visit a community. That's why I was so excited. And I mean, I realize it was a little unusual to put it in the earnings script, but I was so excited when I was in India a couple of weeks ago, and the team showed me something that they came up with because we've challenged all of our divisions to think about how do we show, tell, what we're doing that it's different. You can show her scores or ACH scores, you can show utility bills, but how do you create that visceral sense that this is just really different. And I thought it was absolutely genius that they just were able to mount these 2 wall panels and pivot them, and they're easily movable, but one is way heavier than the other. And I just felt like that was one of those aha moments where we found something. We found a mechanism to tell a story the old adage, if a picture is worth 1,000 words, a movable wall panel is probably worth 5,000 words. And look, we're definitely trying to innovate, like building this home is different. So telling the story is different. And it's an all- out effort across every division to find ways to connect. And I'll just add one degree of difficulty for those first-time buyers who are coming out of an apartment or for that empty nester buyer who is downsizing, the way that we connect this is slightly different. Now what they have in common is a much lower utility bill. But for that first-time buyer, it's about accessing the opportunity to have homeownership. Because they're all-in costs are within a zone that they can afford. For that move down or for that empty nester homebuyer, it's about connecting with, look, your income isn't going up, it's probably fixed, having certainty around your utility bills and having a better built home that you've earned after all the years that you've worked, like that's just a different kind of conversation. And so seminars and teach-ins and flyers, yes, it's all of those things. But what it's really about is finding the opportunity to connect the value with each type of buyer that we see. And I'd say the learning curve is steep, but it's exciting, like it's better every quarter.

Our next question comes from Alan Ratner of

I'm hoping you can help clarify the guidance a little bit for me. I'm having a hard time understanding a little bit of it. So specifically on the orders, your guidance for flat orders year-on-year, that would imply a pretty healthy sequential ramp in orders, about 20%. And I'm looking at your business historically, I've only seen 1 year in the last 30 where your fourth quarter orders were higher than 3Q. And I understand this quarter was disappointing, but I look at your margin guide, it's pretty flat quarter-over-quarter. So it doesn't seem like you're drastically changing the incentive strategy or the pricing strategy. And I didn't hear much commentary that the market has meaningfully improved over the last handful of weeks. So can you just help explain a little bit the optimism why orders are going to be up by that magnitude over the third quarter?

Well, look, I've got to look, Alan, because we have a little bit of different numbers and I got to look at your model, but frankly, we talked about relatively flat. And we talked about 8% community count growth. And so when you kind of look at the year-over-year change in pace, I think it implies a pace that we're pretty comfortable getting to. It is a little bit better sequentially. That's absolutely true. But we do tend to have a little better quarters as we -- months, excuse me, as we get into the end of the year. So we feel pretty comfortable, and Alan talked about some improvements in Texas and things that we're doing. We feel pretty comfortable with the pace that we guided to.

Look, I think the big thing is, and I don't have the community count chart, but there were a lot of years in the last, however many you've looked at where the community count goes down. So it's kind of working against the headwind of the decline in community count between Q4 and Q3. We have the benefit of the tailwind of a bigger community count leaning into the fourth quarter. So that's part of it. And we're simply not going to have a 1.3 in Texas again.

So I guess on that point, Alan, you're not going to have 1.3. What specifically is changing to improve that because your margin is flat. So if you -- I would imagine if you're getting more aggressive on pricing there, it is 40% of your business. I would think that would have a negative impact on your margins. So I'm just trying to -- I'm struggling to square the 2 pieces there.

I think the bread crumb trail is that these newer homes have higher margins. And so even though we are going to be working hard in Texas, and that may increase incentives, we've contemplated that as a part of the guide. I think we had talked all year about a pretty good lift in the fourth quarter from margins because we kind of were building a to-be-built backlog on the

Got it. Okay. I appreciate that. On the community count growth, obviously, impressive growth numbers there, and I know it's generally consistent with the plan and the expectations. If you think about the markets where absorptions have really fallen off a bit, I'm sure maybe communities are closing out at a slightly slower rate than maybe you would have thought a few quarters ago. Are there any markets where as you open up new communities, there's any potential cannibalization of existing communities, meaning like these new projects are located pretty close to existing ones and the fact that they haven't closed out is making it more difficult to sell through them?

I'd be making it up if I said, I know for sure. That doesn't resonate as an issue that we've really dealt with. There might be an exception to that. But I don't think cannibalization has really been an issue because a lot of the new communities, I mean, they were intentionally in submarkets that we knew and that we desired, and we contemplated somebody was going to be on that site, whether it was us or somebody else. So I don't think we put ourselves in a position where, one, community is robbing Peter to pay Paul, so to speak. There's probably an example to the contrary, though, Alan, I'll be honest. I can't think of one.

I appreciate that. Just trying to square the absorption declines year-on-year relative to your expectations coming into the quarter.

Yes. No, it's definitely -- and Dave said it, I own it. For the full year, absorption rates have been lower -- it's a little gratuitous, but your caution and conservatism 6 and 9 months ago has proven closer to what's played out than what the fall and the early spring looked like. I mean February and March were awfully good. And obviously, April and then May into June didn't sustain that. But look, we're in a very good spot. We've got a growing community count. We've got a differentiated product, and we're not in the same rates that everybody else is in. That's actually a pretty good spot to be.

[Operator Instructions] Our next question comes from Alex Rygiel of Texas Capital Securities.

Dave, could you talk a little bit about your cancellation rate and how we should think about it in light of maybe some of your peers and how they disclose it or calculate it and whether or not there's something to do there from a bigger company standpoint to capture more retention that could drive greater closings?

Alex, I would be a little bit careful on talking about other people's cancellation rates and how other builders can calculate them. I would tell you in our business, cancellation rates as a percent of gross sales typically are between 15% and 20%. They're on the high end of that, but really nothing to see there. It's pretty normal in our business, especially given some of the issues we've talked about around consumer confidence. It's not surprising that we're a little bit on the higher end of that. But honestly, really nothing unusual.

And then as it relates to your closings ASP guidance for the fourth quarter, is that a good baseline to consider for 2026?

I want to be real careful on giving any kind of '26 guidance. We'll be talking about it as we kind of move into next quarter. Obviously, there's a bunch of new communities coming online where the ASP will be a little bit different. So I prefer to not get into '26 guidance right now.

Our next question comes from Jay McCanless of Wedbush.

I know this has been asked, but I'm going to go ahead and ask it again. If we look at the gross margin, the adjusted gross margin declining sequentially from 3Q to 4Q, I guess, what is in that sales mix? Is there a lot of discounted homes that you talked about the 2 impaired properties? Is it clearing out some specs? I guess just kind of give us a sense of what you think is going to close in the quarter.

We've got a pretty good backlog at June 30 that includes a bunch of the to-be-built that I talked about just a minute ago. There will be a higher share of specs in the fourth quarter, not a lot higher. We've been in the high 60s. I think it may be a little bit higher than that. And we've contemplated that, which is why I don't think we're going to get the lift in gross margin that we otherwise would have gotten.

And then I was glad to see you guys call out the new home inventory that I think some other builders have tried to shy away from. But I guess what are you hearing from the field? Is it -- have we seen the worst of it from a competitive new home inventory perspective? Or do you guys expect it's going to get worse for at least the next 3 months while one of your larger competitors tries to clear out ahead of their year-end?

Well, I know that start activity in the markets that we're paying really close attention to is almost in every instance down year-over- year. So I do think that there was some -- we were not alone in being somewhat optimistic last fall thinking about starts for the spring, for the spring selling season. The spring selling season was a little bit of a dud. And I think that led to higher levels of inventory and the industry has reacted to that. by slowing start activity and frankly, going back to trades looking for different pricing. So I see both of those things happening in nearly every market. We'll have seasonality start to play with the starts numbers here as we get toward the end of the summer and into the fall. And the next real tell will be in that October, November time period where we see are the animal spirits back and are people excited about the spring selling season? Or is there a little bit more caution. But I think over the next few months, we're going to see the new home inventories compress a little bit. We will and others will work through what we build up, and we're starting fewer.

And then the last one for me. We've heard from some of the government officials, trade department, et cetera, that the inbound import lumber duty rates for Canadian imports have already gone up and potentially, we're going to see a further increase of that on August 8. I guess what are you hearing from your lumber suppliers? Are they talking about passing through a price increase as a result of these higher Canadian softwood lumber -- this Canadian softwood lumber agreement?

I have not heard that, Jay. I think there's a lot of fear on the lumber side about the starts number coming down. And I think holding price is what they're focused on, whether they're going to be able to do that or not.

So I'm going to be careful. We don't give out the numbers, Alex. We don't report the numbers. I'm going to be kind of careful on that. But like I said, we're about 2 or 3 months lighter than we were at the peak, and we're getting back towards pre-COVID levels.

We talked about before, Alex, the number is kind of in the high 60s. We are typically -- that specs to to-be-built, 65% -- between 65% and 70% specs. Our business, as you know, is typically the opposite. We tend to be kind of a 50-50, even more oriented towards to- be-built. But the market is clearly preferring specs, and we're a little bit higher than we have been historically. And frankly, we expect that to continue into the fourth quarter.

At this time, we have no further questions.

I want to thank everybody for joining our third quarter call, and we look forward to speaking to you on our fourth quarter call. This concludes today's call.