Good morning and welcome to the Beazer Homes Earnings Conference Call for the Quarter Ended March 31, 2016. 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, Vice President and Treasurer. David, you may begin.

Thank you. Good morning and welcome to the Beazer Homes conference call discussing our results for the second quarter of fiscal year 2016. 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-K, which may cause actual results to differ materially from our projections. Any forward-looking statements speaks only as of 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 statements, whether as 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. Following our prepared remarks, we will take questions in the time remaining. I will now turn the call over to Allan.

Good morning and thank you for joining us. We are pleased to report our second quarter results, which reflected our continued progress towards both our 2B-10 targets and our deleveraging goals. We significantly increased revenue and EBITDA and paid down debt, here are the highlights. We reported $26.2 million of adjusted EBITDA up more than 30% versus the prior year. On a trailing 12-month basis our adjusted EBITDA is now over $160 million up 24%. We closed 1,150 homes in the quarter which was up almost 23%. This equated to 60% backlog conversion ratio as our focus on spec sales and improving construction cycle times both prove successful. We entered into $140 million two-year term loan and used the proceeds to retire our 2016 notes and reflecting our focus on generating liquidity, we ended the quarter with $135 million of unrestricted cash, even after paying off more than $18 million in debt. This brings our year-to-date repurchases to over $41 million and leaves us on track to retire at least $100 million of debt, during this fiscal year. Conditions in the housing market improved as we moved through the quarter. While it is very difficult for us to directly link our sales activity to macro issues. Elevated concerns about the direction of the economy and the potential risk of a near-term recession, appear to weigh on home buyers early in the quarter. As those concerns veined and we entered the selling season in February, home buyers seemed a bit more enthusiastic and optimistic. This led us to better sales, later in the quarter with good geographic breadth across all our markets. In terms of our balance sheet, last quarter we expanded, the deleveraging objective we outlined in the fall. This reflected our view that, poor conditions in the high yield…

Thanks, Allan. We continue to focus on the metrics that drive the achievement of our 2B-10 plan objectives. Although the path we take will evolve overtime, the expectations that we will reach $2 billion in revenue with 10% EBITDA margin remains unchanged. I'll be reviewing second quarter results and providing some visibility into our operational expectations for the third quarter and how those relate to our 2B-10 goals. So looking our progress to-date, our last 12-month revenue totaled $1.8 billion up more than $325 million or 22% compared to last year. In addition, our LTM adjusted EBITDA of $160 million is up more than $30 million versus the prior year. In-line with our guidance, our second quarter absorption rate was 3.1 sales per community per month. The slowdown versus the prior year was expected and reflects a more sustainable level than last year, which benefited from the unusually robust demand in a handful of markets. With more geographic balance in our absorption rates, we're less reliant on small number of markets. On a trailing 12-month basis, our sales pace was 2.6 sales per community per month, slightly below our 2B-10 range and mostly reflecting our poor sales pace in Q1. We anticipate moving back toward the low end of our target range, as we progress through the remainder of 2016 and into the next fiscal year. In the third quarter, we're expecting the sales pace at or above 3 in-line with our recent results. Turning now to average sales price. Our ASP in the second quarter rose 7% over the last year to $328,000. Each of our regions experienced price improvement on a year-over-year basis led by the West, where our prices were up 13%. On a trailing 12-month basis, ASPs rose 9.4% year-over-year to $322,000 up from $295,000. Importantly,…

Thanks, Bob. We ended the quarter with approximately $250 million consisting of $135 million of unrestricted cash and $115 million of availability on our credit revolver, after adjusting for letters of credit. As you've heard a couple of times already, during the quarter, we entered into $140 million two-year term loan, proceeds from the term loan and combination with cash in the balance sheet. We used to redeem all of our 2016 senior notes. The term loan provides us increased financial flexibility to reduce our pace, our debt at a pace more in-line with our normal seasonal cash generation. During the quarter, we repurchase $18.4 million of debt bringing our total purchases year-to-date to $41.3 million. These repurchases combined with the savings generated from refinancing the 2016s, has reduced the run rate of our annual cash interest expense by more than $6 million. We remain committed through retiring at least $100 million of debt in this fiscal year beyond the $35 million of principal repayments on the term loan. We plan on spending at least $25 million more on debt repurchases, with no current maturities. We have lots of flexibility around which debt instruments target. And then next year, we expect another $70 million in deleveraging as we make amortization payments on the term loan. With that, let me turn the call back over to Allan for his conclusions.

Thank you, David. On Slide 17, we've reiterated our main themes for 2016 and our accomplishments so far this year. We generated significant year-over-year EBITDA growth for the second quarter and year-to-date. We've grown our EBITDA while holding our inventory relatively flat, allowing us to improve our return on capital. And finally, we retired our 2016 notes and have now eliminated over $43 million of debt since September reducing the run rate on a cash interest expense by more than $6 million. Before turning the call over the operator for Q&A, I want to highlight that Beazer Homes was recently named in ENERGY STAR Partner of the Year for 2016. We are one of only three national builders to be recognized. Although, achieving these energy savings increases our construction cost. It's one of the three key ways, we differentiate our homes. We think it's the right thing to do and based on our customer surveys, our home buyers seem to agree. Would like to thank our employees and our trade partners for helping us, earn this recognition. With that, let's turn the call over to the operator to take us into Q&A.

[Operator Instructions] we have the first question in, it's from the line of Michael Rehaut of JP Morgan Chase. Sir your line is now open.

Thanks very much. Good morning, everyone.

Morning, Mike.

Good morning, Mike.

I appreciate all the detail and the data points and outlook around the third quarter. I guess just kind of bigger picture question here around gross margins. Obviously, kind of laid out what you want to do with specs and land banking. But just taking a step back and as you think about, if possible to give some thoughts around let's say 2017 and 2018 as the liquidity and deleveraging plays out. How should we think about specs and land banking and impacting the future direction of the gross margin on a pre-imposed interest type of dynamic? And I realize the interest is, we're playing into the leveraging there. But, any thoughts around the direction there would be very helpful.

Great. I'm going to just give you a health warning. I'm punting on the interest base. Let's talk about unlevered gross margin because that's really quite operational and I think we can give you a lot of things, to work with there. Maybe we'll have a separate interest discussions, but let's deal with the unlevered gross margins. And I appreciate your question. I think, we acknowledge where we are year-over-year, is down quite a bit in gross margins for reasons, that we're both structural related to our land banking arrangements and activating a number of land held assets. And some more temporary issues that really we're directing firepower, if you will at our desire to create liquidity, in the event that we had to take out the 2016s on our own. And I would say that both of those have contributed. I don't know to the last basis points, but those are both meaningful contributors to what, the year-over-year margin profile looks like. And as Bob said, as we think about the third quarter, what we did in Q1 and Q2 to emphasize the sale of specs, which included being more aggressive on pricing. We're going to continue to have some of that in the numbers. So I would guide it to Q3 gross margins to be pretty similar to Q2. But when we look out to Q4, I can tell you that, we have been successful in raising our margins on our 2B built homes and they're in backlog. So there is a nice upward trajectory into the fourth quarter and I see an absolute pathway, notwithstanding land held assets and land banking assets for us to get back towards 21%. Now I don't know that we'll get there in the fourth quarter, but as I look into early next year, that's the ramp that we're on, back to 21%. I think for the reasons that we've talked about previously it's going to tough for us to get back to 22%, but I think we can get back to 21%.

No, that's great and that's very helpful. I guess secondly, just you know as you look at, again kind of managing through this deleveraging period. Any initial thoughts around growth objectives for fiscal 2017 from either a community count or how the community mix might impact the sales pace. I know that in the third quarter and I think in general, you've been kind of hitting that three plus or minus the three per month, if that were to continue any thoughts around again the community count, direction.

Well, there are lot of things going on there. I think it's hard to isolate, to answer that question. Let's do this, we continue to believe we'll have a nice uptick in EBITDA this year and I think we'll have a nice uptick in EBITDA next year. We're not going to give 2017 guidance. I think and I was quite intentional about this. As we think about taking $100 million in delevering this year and $70 million next year. Where that's really going to influence us, is in 2018 and beyond. And if we bought a piece raw ground today, it is very unlikely in any of our markets that it would progress from being raw ground to closings in fiscal 2017. So the effect of delevering is going to reduce the rate of growth that, we're able to achieve in 2018 and beyond for sure. And I'm intentional in saying, the rate of growth because I think that, there is still a lot of inefficiency in our balance sheet that we're working through. I mean, we have been successful in activating land held assets. There are more land held assets to activate. We've got our option percentage of our lots from the teens to the low-20s and I think, this most recent quarter was about 30%. There's a little bit more for us to do there as well. So we can be on an upward growth trajectory into the next several years. But clearly, the pace of our buying big land deals for 2018 and beyond, we're emphasizing de-risking the balance sheet, instead.

Appreciate and thanks for the talking little bit past this year. I know it's a little more than you wanted to do, but I appreciate the directional guidance.

Okay. Thanks, Mike.

Thank you, Michael. The next question is from Ivy Zelman of Zelman and Associates. Ma'am your line is now open.

Good morning, thanks guys. Maybe Allan, you can speak a little bit about strategy as it relates to entry level. I know that you've talked about staying infill and in better locations and not sprawling out. But you actually have, one of the highest percentages of homes that are built under 2,200 square feet. So are you doing more smaller units that might be little bit more expensive, but they're considered first time to closer end and what's the strategy going forward on that? And I have a follow-up. Thank you.

Sure, thanks. Ivy. So I appreciate the framing of that because I think the nomenclature of entry level and first-time buyer, are often times juxtaposed or used anonymously and we don't think of them as being the same thing. We do have a large share of first-time buyers and have historically and that's been a core business for us. It remains a core business. What we haven't made the decisions to do, is to reduced features and move to more outlying locations to get to that price driven entry level demand. We don't deny that it exists, but there are characteristics associated with that, that just are not in our wheel house. So our strategy is to be incredible value. We want to have a good location, we want to have the right amount of square footage, not excess square footage and between mortgage choice and ENERGY STAR programs and our choice plans, we want to stand out, as that first-time buyer proposition that is very distinguished. It's not, you can have any color as long as it's brown. It's not we've made all the selections for you. You've got things to do with the floor plans, things you can do with how you finance the home and oh! By the way, it has industry leading energy features, that's who we want to be. It is not right down on the lowest rung [ph] of price. But we are not trying to become something that we historically haven't. Which really seen in our company over the last few years. As we have bigger businesses in coastal markets and naturally, while we're going after a very similar buyer profile. Those have helped pull up our ASPs, which is one of the intentional strategies to lever our overheads. I mean, it's certainly the case that whatever the corporate overhead number is, having a $200,000 ASP as opposed to a $300,000. We clearly are getting better leverage and that has been part of the strategy as well. So I think, I dealt a little bit of the geography and a little bit with the buyer profile, I don't know if that's exactly what you're going for, but that's what we're trying to do and frankly what we have been doing pretty well.

No, it's helpful. Because I think that by providing us more of a framework. If you're going - not just give a box, but you're going to give a box that there is some optionality to it. It's a different than a pure entry level, even if it's infill, in a town home. It sounds like you're not necessarily going after sort of the basic box and you're giving features and allowing people to make decisions. So that's helpful. I don't know if you have a percent of how much is attached product and that might be something, if you don't have it. May be Bob or David can follow-up. But my second question, it relates more to as you do not have a captive mortgage company anymore and you're relying upon the lenders of choice, that used to help you, still getting [indiscernible] homes closed. Right now, they're definitely concerned about the sort of confusion still related to selling loans to investors, besides Fannie and Freddie. So I guess, what percent of your loan that goes through your lenders are sold directly to Fannie and Freddie, where there doesn't seem to be any issues, as opposed to being sold through correspondence and to wholesale.

Well, I'm trying to frame an intelligent response and not sound like a smart-alec, Ivy. I don't know the answer because we don't have visibility to who the lenders are selling their loans to. And I'm not diminishing the importance of your question, but the fact is, we have this tension and it's an intentional tension at every community, which is we need two, three or four lenders competing for each buyers loan opportunity and we manage very carefully the capture rates between the lenders. If one lender is winning all the time, we need to get other lenders in there. So one lender doesn't win all the time. What that allowed us to do last year, as we think about TRID, just for a second. Is it allowed us to kick out those lenders where the risk factors around their TRID compliance was pretty high. What it's allowed us to do, is kick out lenders who have overlays that are above and beyond regulatory requirements to certain buyer profiles. So we're not held hostage by back office or underwriting criteria of individual lenders, that dynamic, that flexibility is an absolutely core part of our strategy. We're completely committed to it, it has driven sales pace, it has driven customer satisfaction and it is massively reduced risk in our business.

Thank you.

Thanks.

Thank you, Ivy. The next question is from Susan McClary of UBS. Susan, please raise your question now.

Good morning.

Good morning, Susan.

You talked a little bit about, how you expect the absorption rates to kind of improve as we move through the back half of the year and yet you also noted that you're not going to be as aggressive perhaps on pricing, with the sets that are out there. Can you talk a little bit about how you're balancing those two and how we should think about that in a bit more detail, as we move through this process?

Sure. So it was interesting in the second quarter. We knew and we talked about this 90 days ago, that the comp if you will, for us it was pretty tough in Q2, coming off something in the mid-three's. It was a great number, it was heavily influenced by handful of markets that were white hot and we were not expecting to do that again and in fact in the case of Dallas, we tried not to do that again. That certainly can create backlog issues that you worry about, both the quality of your backlog, the margins in your backlog, the customer experience. So I'm pleased with the fact that, we have not got it kind of an oddly shaping demand pattern. It feels pretty good across the business. Now that gives us some confidence as we look into Q3. Now your question really gets at this mix between specs and 2B builds. And I'm going to say something, maybe it's because I'm getting old. I can't remember, if I said this way exactly this way in February. But it's certainly been an issue inside the company. There's a certain unintentional or may be not an obvious relationship. As you're emphasizing specs sales in part by pushing up 2B built pricing, that's how you sort of make the specs on a relative basis more attractive. In some of the communities, that hurt sales space. Not a lot of specs in that community, not wanting to get the backlog, too big, too far out. So it's interesting. I think, that there might be a knee-jerk reaction, if you're going emphasize spec sales, that's only going to be positive for pace. It's more nuanced than that and that's why, as I look into Q3 and say, we're going to be a little less aggressive on pricing of the specs. I don't see that having this instant corollary that okay, well that means paces got to decelerate. I think, we can kind of let horses run a little bit in some communities from a 2B built perspective, that we didn't in the second quarter. The other thing that happens every quarter, is there's always a mix of close outs and start-ups or grand opening, that you've got and as we look at the roster of start-ups. I know that we've got pretty good pent up demand in some places interest list, waiting list. Checks in hand in some places, that also gives us some visibility into feeling all right about the third quarter.

Okay, that's very helpful. And then just, in terms of Houston there's obviously been a lot of very severe weather there recently, a lot of flooding and those kinds of things going on. Can you just talk a little bit about what's going on down there, within your communities and any impacts that we should be thinking about as we move through the third and fourth quarter?

Well it's great question. I'm going to, if I may with your indulgence. I'm going to answer, two Houston questions. One you asked, the one you didn't asked. That we kind of want to talk about because I think people are generally interested, what are we seeing in Houston. Is that all right, if I deal with that?

Absolutely.

Talk about the weather piece. So on the Houston thing, I would say and I've seen some of the narrative from our peers about the market. We certainly concur things are slower on a year-over-year basis. It is been particularly acute, at move up price points certainly above four, down into the mid-to-low three's, in certain locations. There have been, there have been sales pace reductions for the industry, for the market. Now let me talk about, Beazer. Our absorptions are absolutely down on a year-over-year in Houston. However, they remain right around the company average which is to say at very healthy levels. So I'm pretty pleased and the question is, how will you define gravity and how could things be that good for you? The fact is and again, this is a bit redundant. We're in the right locations. We're targeting the right buyer profiles at the right price points. We have a terrific management team. So I feel pretty good about where we are in Houston. We have been cautious on land in the last 12 months. I mean, we were land sellers last year in that market, glad that we did. But it's a core market for us and it's one that we're absolutely committed to for the long-term. I think, I don't know that the worst is or isn't behind us. But I like our position, I like our buyer profile. So there is a level of stability and an absence of some exceptional anxiety that we've got about the market. I think, that's starting come through in some others comments. But again, we've been in the right places, with the right buyers and I think that's served as very well. As it relates to the specific question about weather, I think a couple of…

Yes, no that's very helpful. Thank you.

Thank you, Susan. The next question is from Susan Berliner of JPMC. Please go ahead.

Hi, good morning.

Good morning, Su.

So I guess I wanted to talk, I guess start with the debt repayment. And I know last quarter, you guys talked about what you had repaid subsequent to quarter end and I noticed you didn't this time. So does that mean, that you didn't do any debt repurchases since the quarter ended?

Yes, that's right, Su.

Okay and then I assume that $18.4 million couple of the bonds you bought. I would assume that would be at a decent discount at least.

Generally, that's right. Some of it also came from retiring the 2016s, which obviously [indiscernible] so.

Right.

But generally we have been buying them at pretty big discount, in the open market transactions.

Got you. And then, I guess Allan can you just talk about some of the other markets. Houston was helpful, but obviously there was, the orders were down. And I guess, I was just looking for any other color. So if you can give anything on April as well.

We don't really do the month thing. I find it's a little bit of fool’s gold. You can have two good weeks and start pounding your chest or you can feel sad after two weeks. There's just not enough stability. I mean, that's a dangerous game. It's not something we do. Patterns are pretty good. I think what we said about the third quarter should give you some indication that, nothing is substantially different from the second quarter. Let's go to the regional discussion. I'm happy to do that. I think, let's sort of think about as we report, which is in three segments. If we think about the East, our absorptions were actually up in the East and we had pretty showing in Indian, Maryland. We've kind of struggled a little bit in Maryland to find our footing. It is a market in which we compete at a much higher price point. And I'm pleased with the progress we've made there. We've got a big business there and it's firing on more and more cylinders. So I think that was nice. And the Indy market is one that, we allowed to get smaller. I admit it freely that, I wish we hadn't allowed it to get smaller at the rate, we did but it's still a strong business for us and it's one that we're growing and is performing very well. If I think about the West and the Southeast, the thing that they both have in common, is they both had year-over-year declines in absorptions rates, but they both ended up at levels right around the company average. I mean for the segment as a whole. So what that really tells you, is that were outliers in those segments last year that didn't recur and I'll be happy…

Thanks very much.

Thanks, Su.

Thank you, Susan. The next question is from Jay McCanless of Sterne Agee. Sir your line is now open.

Good morning, guys. Good order growth in the West segment or the West region. Can you talk about, is that a function of more community count out there or you guys seeing a pickup in the same store sales growth?

So it's great question. I'll tell you one of is, the biggest contributors to the order growth there was our Sacramento division and it's a really point of pride for us because a year ago, we had zero sales in Sacramento. We activated the division about this time. We pulled some land out of land, held for future development. We're active in two locations now, total of seven price points. And all of sudden, we've got a rapidly growing business that's got a lot of sticks in the air and a lot of momentum and we're monetizing these previously land held assets. So that's a meaningful part of what we saw in terms of order growth in that community count, growth was really supported by Sacramento.

Got it. Got it and then just, on the on slide, it's the slide of the specs. It looks like basically your total spec count Slide 23, is flat to slightly higher on an average basis versus last year. And how much more on a community basis, do you want to have in spec and what should we anticipate for spec versus third closings going forward?

Jay, this is Bob. That's a good question. I think when we talk about specs. We're pretty comfortable with where we are, we're set up well for Q3 and Q4 and really on a community basis. Every community is little bit different. Some community sell specs very well and some don't and we continue to monitor that community by community. I think with less emphasis on pulling spec sales forward. I think we'll see the margins related to those improve on a go forward basis and I don't think you'll see anything drastically different than maybe what we've been more from a historical sense.

Okay and then one other quick question. What's the spread now on a gross margin basis for spec versus dirt [ph] sales?

I think this quarter and probably third quarter little bit wider than normal. We will always had historically we're somewhere in 200 to 300 basis points. It's a little bit higher now because we were bringing those spec sales forward.

Got it.

And when we expect that to normalize is when we get into Q4 and into 2017.

Great. Thank you.

Thank you, Jay. Your last question is from Peter [indiscernible] Sir your line is now open.

Hi guys, this is Peter [indiscernible], thanks for taking my questions. I just want to understand a little more in terms of your strategies, in addressing 2018 maturities. What are your current thoughts on using alternative financing methods? Perhaps, such as JV, land banking maybe a non-recourse mortgages or maybe even model sale [indiscernible] versus traditional refinancing.

Peter, it's David. I would tell you and not specific to the 2018, but just in general. You know, we kind of consider all different sources of financing. We are pretty active users of land banks. We've talked about that in the land banking relationships. Haven't done as much early in the JV side, but we've looked to kind of lot of different ways to think about generating liquidity and the answer is, we're going to be opportunistic. We're going to look at our cost to capital, we are going to look at how the capital markets look and how they evolve overtime, things have clearly gotten better in the last few months and that's a great sign. But we're going to be opportunistic in how we approach the market and how we deal with our debt maturities.

Peter, I want to add one other thing. We are not planning on selling land that we own today to a land banker.

Absolutely.

To generate that liquidity, I just wanted to clear in that.

Got it, very helpful. Thank you. And given your deleveraging targets, how should thinking about total inventory numbers going forward from the cash flow standpoint? Do you intend this to be source of cash this or next year?

It's an excellent question and there's some timing issues, which make that tricky because as we mix land banking into the overall equation. I think we're going to be buying land at a level that is equal to or in excess of what we're running through cost of sales for the next couple of years, if you think about them in the aggregate, but in any given period what that mix is and how that affects the carrying value. It's a little bit tricky. I think we're going to be more exposed to the markets, with a larger combination of land banking takedown opportunities plus land on balance sheet. But there is going to be much less growth and in certain periods no growth in the on balance sheet piece, over the next year and half.

Got it, great. And my last question, if I may? You mentioned the spread in specs versus non-spec homes for 200, 300 bps. Can you provide similar kind of metric maybe for gross margins in land banking?

Well couple of things there. I think, just to be clear Bob had talked about the sort of normal range of 200, 300 sort of on a run rate basis, we widen that on both sides specs and 2B build's in the first, second quarter in the part of this liquidity strategy. So it's wider than that now and we think that narrowing that, which we've already taken the steps to do is, we'll start to flow through in the fourth quarter and beyond. When we think about land banking, we've got a slide. What number is it, David?

Slide 20.

All right. So I think I'll direct you and others to Slide 20 because I think this is really the context for the impact of land banking and frankly the land held assets on our 2015 and 2016 results and it's a illustrative mean it's, we can kill ourselves getting overly precise. But in general, you're thinking about 400 points, 400 basis points or about 4 percentage points in margin associated with the land bank deal to essentially move 85% of the capital onto somebody else's balance sheet.

Got it, very helpful. Thank you guys and best of luck.

All right, thanks. Peter.

Richard, are there any other additional questions?

That's the last question we had was Peter.

All right, well thank you all for joining on our earnings call. We look forward to talking to you in 90 days and reporting further progress. Thanks again.