David Goldberg – Vice President and Treasurer Allan Merrill – President and Chief Executive Officer Bob Salomon – Executive Vice President and Chief Financial Officer.

Michael Rehaut – JPMorgan Jay McCanless – Wedbush Alan Ratner – Zelman & Associates.

Good morning and welcome to the Beazer Homes Earnings Conference Call for the quarter ended March 31, 2017. Today’s call is being recorded and a replay will be available on the Company 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, Vice President and Treasurer. Sir, you may begin..

Thank you Anna. Good morning and welcome to the Beazer Homes conference call discussing our results for the second quarter of fiscal year 2017. 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 which are described in our SEC filings including our Form 10-Q which may cause actual results to differ materially from our projections. Any forward-looking statement speaks only as to the date on which such statement is made.

And, except as required by law, we do not undertake any obligation to update or revise any forward-looking statement, whether a result of new information, future events or otherwise. New factors emerge from time to time and it is not possible for management to predict all such factors.

Joining me today are Allan Merrill, our President and Chief Executive Officer and Bob Salomon, our Executive Vice President and Chief Financial Officer. Allan will provide an overview of our second quarter 2017 results and an update on our balanced growth strategy.

Bob will then discuss second quarter results in greater depth, where we stand relative to our 2B-10 goals and our expectations for the third quarter of fiscal 2017. I will then come back to provide more details about our land spending this quarter and provide an update on our balance sheet and liquidity followed by a wrap-up by Allan.

After our prepared remarks, we will take questions with the time remaining. I will now turn the call over to Allan..

Thanks David and thank you for joining us on our call this morning. As you’ve seen in our press release by now we had a great second quarter. In fact our results were at or above our expectations on every front, highlighted by significant increases in homebuilding revenue, gross margin, operating margin and EBITDA.

We also generated order growth as a higher sales pace more than offset the temporary decline in community count that resulted from our debt reduction activities last year. Strategically, we made big improvements during the quarter. Our debt refinancing strengthened our balance sheet and our land spending and gatherings activities both accelerated.

All in all it was a very productive quarter and I’m happy to say sales in April remain quite strong. Our balanced growth strategy is about driving substantially higher profitability while generating a healthier and more efficient balance sheet. This is designed to improve return on capital while reducing risk.

Over the last year we’ve gotten great feedback on our efforts to improve our balance sheet, including your universal support for our commitment to complete an additional $100 million in debt reduction over the next 18 months.

Now I’d like to spend a few minutes defining the growth opportunity we see ahead of us and why we’re confident we can achieve it. Simply stated the growth we care about is growth in earnings per share.

Having grown our adjusted EBITDA by $185 million since 2011 and with the achievement of our 2B-10 targets approaching, we have our sight set on driving good old fashioned EPS for the next several years.

In this industry community count growth often serves as a proxy for estimates of future earnings growth, but in our case at least it misses an awful lot of the opportunity. In fact there is six different levers that are wholly or partially under our control that underscore our confidence around driving EPS over the next few years.

First, as we’ve discussed on previous calls, we’re making our balance sheet more efficient through a combination of reducing our land held for future development and increasing our use of both options in land bank financing where appropriate This will allow us to reach our 2B-10 community count goal without a commensurate increase in land investment.

Second, our average selling price is going to move higher. This in-part reflects our focus on millennials and baby boomers the demand and can afford a home that offers extraordinary value at an affordable price. That’s our sweet spot. So we don’t have to chase purely price driven buyers to outline set [ph] markets.

With our strong land pipeline we have visibility into gradually increasing average sales prices driven by both product and geographic mix and not by price appreciation. Third, we have an opportunity to further improve our sales base, particularly outside the usually strong spring selling season.

With a limited supply of resale homes, improving wage growth and moderate interest rates, we should be able to grow our absorptions as the economy continues to improve. Beyond that, our gatherings communities will also play a key role.

As we’ve mentioned the gatherings neighborhoods we’ve built over the last decade generated higher than company average sales spaces which bodes well for future absorption rates. Fourth, as we continue to work on operational efficiency, we think there will be incremental gross margin improvements.

And again growing our gatherings communities will help gathering sites have historically generated higher margins than the company average mainly because there is so much less competition for the sites. Fifty, as we saw this quarter, we’re going to keep improving our SG&A leverage as we continue to grow our top line faster than our overhead cost.

These are the five levers that will allow us to reach and then surpass our 2B-10 targets. Then below the EBITDA line we have a sixth lever that will further contribute to our earnings growth, namely interest expense, percentage of revenue will start to fall this year as a result of our successful deleveraging and refinancing.

That six different levers which taken together create a much more robust earnings growth opportunity than would be described by community count alone. Finally before I turn the call over to Bob I want to make sure to note the progress we’re making on expanding the number of gathering sites.

There are some statistics in our press release, but the important part is that our expansion remains on track. And in two weeks we’re hosting an Investor Dinner in New York where we’ll provide more insight into our plans for gatherings and introduce some of our team members.

With that I’ll turn the call over to Bob to discuss our results in more detail and update you on 2B-10 progress..

Thanks Allen and good morning everyone. In the second quarter our sales absorption rate was 3.4 sales per community per month up 9% year-over-year leading to a 1% increase in orders. We generated sizable year-over-year sales order growth in a number of our markets, Raleigh, Charleston Indianapolis and Virginia. And we made our first sales in San Diego.

Homebuilding revenue rose about twelve percent versus the prior year to $422 million. Our average selling price of $340,000 was almost 3% higher than the same period last year. Each of our regions experienced price improvements on a year-over-year basis led by the East where prices were up almost 8%.

We generated a backlog conversion ratio of 64% 400 basis points higher than the prior year. The improvement in the backlog conversion ratio primarily related to our efforts to reduce cycle times. Others has been challenging given the headwinds created by continued labor constraints there remains a focus for additional improvement.

Or average community count for the quarter was 144 and we ended the quarter with 158 communities. This is a little higher than expectations related to a few close outs that will now occur in the third quarter.

Our second quarter gross margin excluded impairments, abandonments and amortized interest was 20.7%, up 50 basis points versus the prior year and 20 basis points sequentially. This is ahead of our expectation driven by gains across the majority of our markets.

SG&A as a percentage of total revenue including both homebuilding revenue and land sales was 13.3%, down about 60 basis points year-over-year and ahead of the guidance we provided in February. The outperformance was attributable to the stronger top line growth we generated in the quarter.

Our second quarter adjusted EBITDA was $33.2 million, up $7 million or 27% versus the same period last year. Our total GAAP interest expense, which includes both direct interest expense and interest amortized to cost of goods sold was $23.9 million in the second quarter, up about $1 million versus the prior year.

With the recent reductions in our cash interest costs nearly $12 million annually we’re now effectively expensing the same amount of interest we’re incurring. That means future growth and EBITDA will flow straight to pretax income.

Our second quarter net loss from continuing operations was $7.5 million, which included $15.6 million of charges from the early extinguishment of debt and approximately $300,000 from impairment and abandonment charges.

This compared to a net loss of $1.3 million for the same period last year, which included both a loss in the early extinguishment of debt of $1.6 million, and impairment charges of $1.8 million. Excluding these charges would have made about $6.5 million more than a year-over-year basis.

Our total tax benefit in the quarter was $4.5 million based on the effective tax rate of approximately 30%. We continue to make progress toward achieving 2B-10. Our muti-year goal to get to $2 billion in revenue and 10% operating margin. As a reminder our 2B-10 objectives are measured against our last 12 months performance.

Total revenue was over $1.9 billion, up more than $60 million or 3.6% compared to last year. We closed 5454 homes over the last 12 months, 1% higher than the prior year. Our sales space was 2.8 sales per community per month within our 2B-10 target range and up as expected. Our 12-month sales pace remains among the highest in our peer group.

Our average selling price of the last 12 months was $335,000. Last quarter, we lifted our 2B10 target range to $340,000 to $350,000. With an ASP in backlog over $347,000, we expect to make continued progress toward that goal in the coming quarters.

Our average community count for the last 12 months was 159 and we ended the quarter with 158 active communities. Our gross margin over the past year came in a 20.7%. We remain focused on driving greater operating efficiency to offset rising direct costs and adding gatherings communities.

SG&A as a percentage of total revenue over the last 12 months was 12.3%. This is still a little above where we like it to be, but with the rising community count and higher average selling prices we expect to reach our 2B-10 range.

These results generated adjusted EBITDA $162 million, up about $2 million from the same period last year and up about $185 million since 2011. We have made significant progress toward achieving 2B-10 and we expect fiscal 2017 to represent another big step towards that goal. Moving on our expectations for the third quarter of 2017.

We expect orders to be relatively flat versus a same time period last year despite the community count that will be down 5% year-over-year, but up a couple of communities sequentially. Our backlog conversion ratio should be just above 60%. Our ASP is expected to be in the low 340s, up significantly relative to the third quarter of last year.

Our gross margins should be relatively flat sequentially consistent with our objective of full-year gross margin improvement with allowances for modest sequential fluctuations. Our SG&A as a percentage of total revenue should be down slightly year-over-year. Our land sale revenue will be relatively flat sequentially.

And finally, the cash component of our land spend is expected to be around $100 million, which will be up significantly year-over-year. At this point I’ll turn it over to David to discuss our land spending and balance sheet..

Thanks Bob. In the second quarter we spent $103 million on land and land development. Additionally we were able to activate more than $20 million of land hope for future development. Combining these four effective land spending was up about 27% versus the prior year.

Over the past four years our total land held for future development has declined nearly $360 million to about $150 million, a reduction of 57%. Our active assets now represent nearly 90% of total inventory up from just 68% at the end of the second quarter of fiscal 2013.

We remain committed to further reducing our land held assets this year allowing us to continue improve our capital efficiency.

While predicting future community counts is difficult you can see that we have 34 communities scheduled to open in the next six months and a pipeline of 36 communities that have been approved and are currently under contract offset by 36 near term closings.

We believe our community count is troughed and that will experience gradual growth in the coming quarters. Last quarter we discussed the expansion of our Southern California Division in San Diego. During the second quarter, we opened to new communities in this market and we’ve been encouraged by the strong demand we’ve seen thus far.

As a reminder we expect to have seven communities open in San Diego over the next three or four quarters. All the underlying land for these new neighborhoods came from either land bank or land held assets demonstrating how we can generate higher sales, closings and EBITDA with limited additional capital investment.

Demonstrating the progress we’ve made in improving our profitability and more efficiently using capital our trailing 12-month EBITDA to inventory ratio was about 10% represented dramatic improvement relative to prior years. While we’ve made great strides to date we are confident there are significant upsides to our profitability still ahead of us.

Reflecting the benefits of the refinancings we’ve completed and our efforts to reduce leverage our balance sheet is well-positioned to support our growth ambitions with nearly $140 million in unrestricted cash and over $280 million in total liquidity at the end of March. With that, let me turn the call back over to Allan for his conclusion..

Thanks David. Our second quarter results demonstrated our ability to execute our balance growth strategy and the opportunity we have to accelerate growth from a leaner and less leverage balance sheet.

As we move toward our 2B-10 targets we’re increasingly measuring growth as growth in EPS, which will be driven by our six levers, namely, we’re focused on generating a combination of community count growth higher ASPs increased sales pace, incremental gross margin, improved SG&A leverage and lower expense as a percentage of our top line.

I want to thank our team for their continued efforts. With their talents, I’m confident we have the people, the strategy and the resources to reach our objectives. And with that I’ll turn the call over to the operator to take us into Q&A..

Thank you we will now begin the question-and-answer session. [Operator Instructions] And I first question comes from Michael Rehaut. Sir your line is now open..

Michael?.

So the first question I wanted to get a little bit more on sales pace. Obviously you continue to show some solid improvement on year-over-year, as well as on an absolute basis. And I think it came in a bit better than what you were expecting when you gave guidance last quarter.

So as you look through across the different regions and product lines across the company, I wanted to see how you think the different regions perform on a relative basis and what the biggest drivers you have of the upside relative to your initial expectation..

That was a good question. I would start by just telling you that all three of our segments performed about three sales per community per month in the quarter which was terrific because it really showed a broader base and we were less reliant on a very small number of divisions that just had really spectacular quarters.

In fact, a couple of the divisions that in the prior year had been very strong were down still at healthy levels. But I felt very good about the fact as I said all three segments were up. It’s hard to pick out individual markets other than the ones that Bob mentioned.

But I think we’ve felt pretty good about it across single-family and across our townhome programs..

Okay great. Then just moving on to gathering, wanted to see where you think as you look across your markets where the biggest opportunities are? And then I know that you’ve spoken about how historically gatherings have higher margins in sales business traditional business.

So as you evaluate new land opportunities for gatherings I wanted to understand how you think about the underwriting criteria there?.

Well the underwriting criteria, absolutely has been designed with outperformance relative to pace and margin in mind. And I made the comment it’s subtle, but I made the comment in the script that there’s less competition for these sites. That’s true it’s a little more complicated than that.

What I would say is we don’t typically compete for sites with other builders we are competing with other uses. And if there is a higher and better use sort of real estate lingo for a more intense use an office building or maybe a retail center although that’s increasingly unlikely. We don’t have to compete for that site.

But where the alternative use may be 15 townhomes and we can do to 54 condo units, we’ve got a significant advantage. And that’s really one of the things that underpins our confidence in the margin strategy.

Now the building takes a little while to build but what that allows us to do before we open is create significant interest lists so that when we open we’ve got some pent-up demand.

We’re being cautious about that as we get to new markets because we’ve got a good reputation with a program in Maryland and Virginia but with the groundbreaking in Orlando we’ve drawn a lot of attention to that to try and build that same level of expectations, so that when we open for sales in the first quarter of 2018 there are an awful lot of people who we have been exposed to and have been in dialogue with.

I think those are some of the things that we’re doing to make sure that we keep margins and pace above company average as we roll the program out..

Okay great. And just lastly, the backlog conversion I think came in a bit ahead of what you were looking for.

I know you talked about the goal to try to improve cycle times, but wanted to see if there was any element of more spec sales in the quarter that feels higher debt on conversion ratio or is it the cycle time improvement? And then if you could just comment on the margin differential you’re seeing between spec and 2B-10 and if there was any impact in the quarter there that’d be helpful..

Yes the number of spec sales we had during the quarter were actually pretty similar to the prior year.

So the improvement in backlog conversion was really driven by operational efficiencies and the margin differentials obviously depends on which community in which area of the country, but the margin differentials are kind of within the short norms and we’re pretty comfortable with where we are..

Okay thanks..

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

All right, good morning everyone.

First question I had on the other expense line the number you guys had this quarter is that what we should expect for the run rate going forward, the negative 3.9 million?.

Jay it’s obviously is a function of debt reduction, but I think that like we talked about last quarter about the same line, I think you’ll see that continue to trend a little bit lower in the coming quarters..

Okay. And then on the order front I know that your quarterly orders in the West were down year-over-year.

Could you talk a little bit about what’s going on there? But also as we think about modeling going forward on the sales absorption line should we expect a little bit of improvement low-to-mid-single digits improvement there just as gatherings comes online and I’m assuming that’s a higher turning property.

Should we build some improvement in the sales absorption line?.

Well just on the gatherings question I think the answer in time will be yes, but groundbreaking on a site in Orlando this quarter for sales in that one community in the first quarter of 2018, it’ll be a little while before the weighted average effect if you will of gatherings makes a big difference.

So I think that’s an intermediate term opportunity for us in both margins and on pace. In terms of sales base what we’ve said particularly about the third quarter today is we expect orders to be roughly flat with last year even though on a year-over-year basis we’re going to have a reduction in community count.

As Dave said the community count we think is trough so in aggregate levels it’ll be up just a bit from the second quarter, but year-over-year that comp is still tough. So a flat order number would be great outcome..

Okay, I got it.

And then just on the on the West could you talk about West orders being down year-over-year?.

Sure. Totally community count. That’s really what it is. I would use the opportunity to take a little bit of a step back and kind of point something out that is underneath that because community counts don’t change within the quarter, they actually change two years ago you just didn’t know it yet right because it has to do with how we allocate capital.

And I’m telling this in part because it’s known in our company and it’s known in our Houston division but I think it’s valuable for investors to understand a little bit of the discipline that we use when we’re allocating capital. We made a call in 2014, 2015 that house prices had run in an unusual way in Houston, it was polling land prices.

We were very concerned about how frothy things were and we made a conscious decision to throttle back land spending. We knew when we made that decision that we’d have fewer communities two years out. We made that decision at that time.

We didn’t think that Houston was going to hell on our hand basket but we definitely saw some signs active at the periphery there’s going to be a little bit of a reset. And what we’ve seen over the last two years is a little bit of a reset.

I think we’ve been in an exceptionally good place and we have reloaded and so as I look out a couple of years I’m really excited about the role that Huston is going to play. But as I look at the quarter that we’re talking about it really reflects decisions we made about capital allocation a couple of years ago..

Understood. Thanks for that answer. The last question I had could you just talk where you are on the progress to reducing the net debt by $100 million, I think, in the release you guys talked about the $56 million on the term loan being paid down. So does that leave it roughly $44 million to go or where do you stand now..

Yes Jay it’s still about $50 million we paid down about $3 three million in the re-financing transaction net between the issuance and what we bought back. So we still have about $100 million over the next eighteen months.

So less $3 million or so but not much up there we still have every intention of going forward and doing the forward purchase and moving forward..

Okay, sounds great. Thanks guys..

Thank you. Our next question comes from Alan Ratner of Zelman & Associates. Your line is now open..

Hey guys, good morning, nice quarter..

Thanks Allan..

Allan or Bob just on the margin outlook it sounds like in the near-term pretty stable trends there.

We’re just curious if you could talk about some of the recent developments on lumber and costs going out how you guys see that playing out over the next couple of quarters? And then our pricing I think you gave some metrics in terms of year-over-year growth I believe that’s partially mix driven.

So have you seen pricing power reaccelerating through the spring and what in magnitude are you raising prices across, however, many percentage of your communities that you’re seeing the pricing power?.

Alan it’s Dave. I’ll start and I’ll handle some of the lumber questions that you asked and I’ll pass over to Alan and you can answer some of the pricing questions. I would tell you from a lumber perspective clearly the market anticipated this tariff. And prices started to move well in advance the tariff.

We’ve seen price increases, we drove about half the price increases that you would have – you think we would – we would see just getting locks, the timing for our locks. We’ll see the remainder of the impact from the increase in lumber costs in the latter part of this year, which means it will show up in results late in 2018 – late 2017 into 2018.

So we have absorbed some of it already and our guidance certainly incorporates higher lumber costs as we look forward..

I think on the pricing side every lot in every floor plan has its story. And I completely appreciate investors’ perspective on hey make it simple for us. What I would tell you is with a strong sales pace there’s clearly less pressure on incentives and there are opportunities in most of our communities to adjust pricing.

One of the things that we keep repeating intentionally is extraordinary value at an affordable price but I think we want to be not just on the base price but on the whole value proposition I think we want to be seen as value, the features that are included, and the amenities in the community and those kinds of things.

So I think we’ve got some pricing momentum but we’re being careful with that. And while we’re leaning into it I think we want to sustain both absorption rates and some forward traction on prices and not just check [ph] one off for the other..

Understood that sounds prudent to me.

Second question if you could just give us an update on your reactivation of previous mothball land how much of your land book right now is still mothballed? And when you look at your overall community count, how many per, how many communities have been reactivated and what is performance looking like on these communities? Thank you..

Yes Allan I think like what we talked about in the script we’ve got about 10% of our total inventory is land held future development. So we’ve activated a significant amount. It’s about $150 million left from a high years ago around 400. We don’t give total community count specific to those, but we have activated many of them.

Many of them are selling and what I would tell you is that the margin characteristics of those deals after they open up are certainly on the up side and are higher from when we open them up, where as we’ve talked they’re below the company margins purposely to get the community going.

But we’re very happy with the progression margin characteristics of all those communities..

Great. Thanks a lot. Good luck guys..

Thanks..

Thanks Alan..

Thank you. Excuse me speaker we show no further questions at this time. Speakers you may continue..

Alright, well thank you very much for joining us on our earnings conference call. We look forward to talking to you after the third quarter. Everybody have a great day. Thanks..

And that concludes today’s conference. Thank you for your participation. You may disconnect at this time..