Good morning and welcome to the Beazer Homes earnings conference call for the quarter ended December 31, 2016. 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, Gary. Good morning and welcome to the Beazer Homes conference call discussing our results for the first quarter of FY '17. 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 start the call by providing an update on our fiscal first quarter 2017 results and our operational priorities. Bob will discuss first quarter results in greater depth, where we stand relative to our 2B-10 goals and our expectations for the second quarter of FY '17. 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.

Thank you, David and thank you for joining us on our call this morning. Our first quarter results reflected continued progress on our balanced growth strategy. As anticipated, we generated a significant increase in our absorption pace, increased ASPs and squeezed out a small improvement in gross margins. This enabled us to overcome the temporary reduction in community count resulting from last year's major deleveraging and to invest in our recently launched gatherings division. Looking forward, we're focused on building homes for the two largest demographic groups in U.S. history. Millennials and the baby boomers. In both cases, we offer homes representing an exceptional value at an affordable price. This positions us to grow revenue and EBITDA for the foreseeable future. And, we're going to couple this expansion with a much more efficient balance sheet driven by a massive reduction in dormant land held assets, an increase in option lots and the elimination of an additional $100 million in debt though FY '18. Taken together, this strategy will allow us to continue to pursue our 2B-10 targets while deriving improvements in our return on assets and equity. As investors have undoubtedly noticed, the environment for new home sales remains supportive. Traffic and demand are strong, supported by accelerating wage growth and improving consumer sentiment. Mortgage rates are still attractive, even after recent increases. And, the supply of new and used homes remains very tight across our markets. Of course, there are risks and uncertainties, particularly related to mortgage rates, labor and potential new policies out of Washington. In the face of these issues, we're taking proactive steps that will lead to higher returns while helping mitigate our risk. Specifically, here are four operational priorities for this year. First, as discussed on our last call, we're expanding our gatherings business across…

Thank you, Allan. Good morning, everyone. In the first quarter, our sales absorption rate was 2.2 sales per community per month, up more than 18% year-over-year leading to a 9% increase in orders. Importantly, our sales pace remained balanced across our markets with notable gains in California, Las Vegas, Phoenix, Charleston and Raleigh. Homebuilding revenue was flat versus the prior year at $336 million. Our average selling price of $338,000 was more than 5% higher than the same period last year. Each of our regions experienced price improvement on a year-over-year basis led by the southeast were prices were up 9%. We generated a backlog conversion ratio of 52% which was in line with our expectation and slightly higher than the prior year. Our average selling price in backlog as of December 31 was approximately $346,000, suggesting further ASP growth moving forward. Our first quarter gross margins, excluding impairments and amortized interest was 20.5%, up 10 basis points versus the prior year when adjusted for a warranty recovery. We're pursuing modest additional gains as we move through FY '17 though expanding gross margin will be difficult if interest rates move up significantly or the labor situation becomes even more constrained. SG&A as a percentage of total revenue including both homebuilding revenue and land sales was 14.7%, up about 150 basis points year-over-year and higher than we anticipated. The reason for that was a $2.7 million write-off of a legacy investment in a development site. Excluding this write-off, our SG&A would have been 13.9%, in line with our expectation given the additional overhead spending related to our gatherings investments. Our first quarter adjusted EBITDA was $24.4 million. Our total GAAP interest expense which includes both direct interest expense and interest-amortized cost of goods sold, was $20.9 million in the first quarter,…

Thanks, Bob. In the first quarter, we spent $103 million on land and land development. Additionally, we were able to activate more than $40 million of land held for future development. Combining these, our effective land spend was up about 28% versus the prior year. Over the past three years, our total land held for future development has declined from up $340 million to less than $175 million, a reduction of nearly 50%. Looked at differently, our active assets now represent 87% of our total inventory compared to slightly over 70% at the end of the first quarter of FY14. We see opportunities to reduce our land held assets even further this year allowing us to continue to improve our capital efficiency. In line with our expectation, our average community count of 156 for the first quarter was approximately 8% lower than the same period last year, driven by our decision to accelerate debt reduction in FY '16. While predicting future quarterly community count is difficult, you can see that we have 42 communities scheduled to open in the next 6 months and 40 near term closeouts. Additionally, we have a pipeline of 44 communities that have been approved and are currently under contract, underscoring our confidence for growth in FY '18. It is important to point out that our expectation for future community count growth is not solely a function of increasing the dollar spend on land acquisition. We can and will grow community count by using our capital more efficiently. Whether it is buying more land through traditional options, using land banking structures, focusing on smaller communities that protect against an eventual downturn or activating assets previously classified as land held for future development, we're finding opportunities to accelerate our community counts and therefore our growth profile, while…

Okay. Thanks, David. I want to conclude today's call with a recap of our strategy. Simply put, we're working to generate revenue and profitability growth from a leaner and less leveraged balance sheet as we approach and then surpass our 2B-10 goals. That means deploying capital very efficiently, growing our community account with emphasis on our high-performing gatherings communities, keeping overhead per home closed near the bottom of their peer group and doing all this while reducing our debt by at least an additional $100 million through FY '18. Achieving these goals will allow us to continue expanding our top line, EBITDA and our returns. I would like to thank our team for their continuing efforts. With their talent, I'm confident we have the people, the strategy and the resources to reach our objectives. With that, let me turn the call over to the Operator to take us to Q&A.

[Operator Instructions]. We have our first question [indiscernible]. Sir your line is open.

Good morning. This is Neal on for Mike. I guess gross purchase for the quarter so you have had pretty good progress towards the 21%-22% target. But I guess you are looking for more flat sequentially this quarter. So what were maybe some of the puts and takes with more labor raw materials?

I think the answer, Neil, is it is ethical to project gross margins even 90 days out within 20 or 25 basis points. So I don’t have a big read through. We were happy it was up year over year. There are pressures on the cost side, as you know last year we were pretty focused on generating liquidity. And as we have evolved I think that has released some of the pressure that we were under rise under. I think the puts and takes for us is we still see opportunities for modest incremental margin gains on a year-over-year basis.

Okay. That's helpful. I guess I mean taking into account that the balance sheet is potentially stronger and you are now able to kind of focus less on lower margin specs. You think that is one of the drivers this year but maybe what are some other drivers for the rest of the year?

I think last year we acknowledged very clearly that we stepped on the specs a little bit to generate liquidity and it allowed us to pay off a ton of debt but we said at the end of that we will sort of transition back to our more historical pattern of specs and to be built. So I think that is a lift for us. Beyond that, I rent mentioned something around cycle times. I appreciate that is a little bit of an eye roller for most investors. But squeezing a week at of our cycle time saves money and Franklin helps backlog conversion which also leverages fixed parts of gross profit. So the fixed parts our cost to consult pizza there are a few different things there. There is no magic bullet. The labor situation is definitely challenging and we're working in every trade and every city. On that like our competitors are. The position we're in we see a little like that we can continue to squeeze out or eke out incremental margin improvements.

[Operator Instructions]. Our next question is from [indiscernible]. Sir your line is open.

First question I had, it looks like closings out West were fairly strong this quarter. Could you talk about the impacted gross margin there and what are you expecting maybe for the rest of the year in terms of a balance between the different regions?

As you know, J, we don't give quarterly sort of segment guidance. I would tell you that the West has become slightly more important with Sacramento that we reactivated last year. And I think that will be incrementally true just a bit. But I don't think there's going to be a big mix shift across our segments over the balance of this year. I think it is going to be relatively flat. There is some seasonality. So I would look to last year's mix on a quarterly basis more than I would sequential. But just in the Northeast as example we tend to be a little lump year or the mid Atlantic we tend to be a little bit more lumpy are the second and third quarter than we're and our West or Southeast regions.

So the expansion into San Diego, should we expect the same type of gross margin impact from that expansion that we have seen from [indiscernible]? Or is it going to carry a little bit higher average gross margin?

It's a good question. I think maybe not everyone understands everything that was packed into that question. Let me just take one step back and I will try and react. For folks who hadn't focused on it, turn 11 is our Sacramento assets with activated that for future development a couple of years ago and started generated closings last year. It has become a good part of the business. The nice thing with the Thomas , is from where we started we say clearly that the land held assets would carry margins well below what the company average was. We have been able to generate a pretty good list in margins in the Thomas. And so as we anniversary our lap being in Sacramento, that actually ends up being a bit of a help to margins as opposed to in incremental negative. In Southern California, in San Diego in particular we have a mix, we have on land held for future development sites that will activate next year. And we really won't have any closings from that site until next year. The other two are [indiscernible] transactions. I will tell you they will have very good margins. Land bank transactions leverage our capital so it is not quite the same margin as if we would put him balance sheet. But I think those will be pretty constructive. Our early indications on demand I have to say I feel pretty good about.

The last question I have, other specs came in lower this quarter than what I had anticipated. 5.2 million range, is that something we can use for the rest of the year? Can it be even lower?

J, this is Bob, that is our interest expect -- expense [indiscernible] which relates to how much debt we have versus qualified inventory. And with the debt we paid down last year, obviously we're starting to now see that reduction going through the income statement. That is probably a reasonable place to think about on a go forward basis.

Next question is from Alan Ratner, Zelman & Associates Sir your line is open.

My question is with the as G&A rate. So if you look at TB 10 targets you are clearly 1011 and expecting further leverage their into the 11-12% range. If you look at the current level you are at [indiscernible] it would on an annualized basis, it still certainly above other builders. And I think even your target that 11 and 12 would be a bit higher than where you kind of bottomed out in a prior cycle. And when I look at other companies there are several that are actually them below prior. [indiscernible] today, lower volume rate. So maybe you could spend a minute talking about the challenges driving the as G&A rate even lower and why [indiscernible]?

The simple answer which is usually the best one is ASP. The fact is every $10,000 in ASP is about 30 dips. I look at our peer group, they are typically about $100,000 in ASP from where we're and you can do the math on what that would do. So one of the reasons I made the point in my closing comment about keeping our overheads on a per unit basis near the bottom, it is not the very bottom of their peer group. I think we're actually doing a pretty good job with as G&A and -- in the very one -- low 41-$42,000 unit. All stack that up against anyone. I last calculation was there was one builder that had a lower number. It isn't so much the fault of our homes, what our overheads are. So I look at it on a per unit basis, not just on percentage basis. Beyond that, there really are challenges. You know probably better than I do what are closings were 10 years ago, we closed 18,000 homes. So that is a little different size company, so that makes the comparison pretty difficult. But I really think for you and for others the focus is when we're running the business on a lien basis, for every home closed I think we get pretty good bang for the buck.

And then the second question if I could. Just some more guidance for Q2 it applied the absorption growth rate which has been trending very strong the last couple of quarters, in the high teens does pull back a little bit. Just curious, based on what you're seeing you did really spend a lot of time talking about the interim postelection with moving rates maybe you could spend a second talking about what you're seeing there? And why the growth rate might be slower in the second quarter with the fiscal second quarter? Thank you.

So you are right. We do expect a lower or negligible rate of improvement in the pace. We had a really good March quarter last year. That's part of it. I will sort of take the bait in terms of let's go back and unpack Q1 and kind of talk about January a little bit. Q1 was a really odd quarter. We talked about October on our fourth quarter call it we were up about 20%. That's a harbinger of a strong quarter. November was not very good. November was odd , nothing really changed. Traffic was good, sales were very good. In fact we were down year-over-year in November. December came back and acted a lot like nope -- October. And I will tell you, we did not do crazy stuff. A lot of our peers, don't know why they do this but they are closed many days between Christmas and New Year's. We tend to do really well between Christmas and new year. And that carried over into January. At a high level what happened in January was the pickup in pace we got offset the decline in community count. So we sit here feeling pretty good about January, realizing that February and March our bigger month and were quite -- quite strong last year.

Next question is from [indiscernible]. Sir your line is open.

I was wondering about your SG&A comment being flat year-over-year. Were you talking in dollars or percentage terms?

We were talking in percentage terms, Alex.

Okay. And then I guess, as it pertains to the rest of the year , what kind of tax rate can we model or assume?

Our annual effective tax rate will be about 36% for the whole year.

The next question is from Yaman Tasdivar of Private Investment Management Firm.

As I mentioned on the last call, I'm going to be a long term investor in your company. So my questions are going to be more longer term and strategic in nature. I was wondering what are your thoughts on, I would like to drill down into the labor issue a little bit more. And I want to see your thoughts on how reduced immigration affects the labor rates, especially in the southern states versus the last boom cycle from 2005, where we saw increased immigration? And the follow-up to that, if there is any implications, what does the new administration's policies due to her future gross margins? Thank you.

Well, I am glad you paraphrase or characterized your question is long term in nature and strategic. Because the good news -- the bad news is there's a lot of unknowns. I don't know what the administration's immigration policy is going to look like. But let's take labor and sort of look at a little bit more broadly. Because I think immigration is certainly a part of it. And I will address that. I think there are three different pillars we're looking at longer term to help offset some of the pressures that we anticipate in terms of the availability and therefore the cost of labor. First, right in the middle of your question we're clearly in favor of an responsible guestworker program. We're well aligned with other industries, including agricultural industry. That isn't super popular right now, but I can tell you with some time spent in DC personally, I think that there is a bigger audience for a broader immigration program and in particular around guestworkers then would maybe appear to be the case based on headlines. I think it is a complicated issue obviously, it is a highly charged issue. But I think they are certainly seasonal and industry group impacts that I think you will see some greater flexibility around guestworkers in particular. But that is not the only part of the labor question. Think the second part really gets to training and education. I feel pretty strongly about this. I think that as an industry we have a big opportunity to do a better job competing for the available talent pool. By talking to high school kids and talking to college kids and community college kids about the fact that it is okay to work with your hands, it is a great industry. It's highly…

It is really good to hear about your personal and note that you see the color on this issue is overall positive what the headline suggests printouts or agree with you that a construction job is very rewarding, with you that a construction job is very rewarding, as I know from a personal experience and some nonprofit projects. Thank you and good luck in the next quarters.

Thank you.

Our next question from Alex Baron of Housing Research Center [ph]. Your line is open Sir.

I was hoping you could elaborate on what you expect ASP to do over the next few quarters? I guess as your mix changes and as California becomes a bigger part?

Alex, we increased our target range for TB10 [ph] $10,000 from 340-350 knowing that our backlog is already centered in the middle of that. What we talked about in the script as we're looking about a fourth -- $3-$40,000 Q2. Somewhere in the 400 Q2. Somewhere in the 440-3 to 50 range throughout the rest of the year.

Okay. And what about your margins I guess longer term, would they be going up because of your increased California exposure?

We talked about the fact that the mix of those communities, the land held communities and the land banked communities in general carrying margins that are lower than the company average. So I would tell you that I think there is an opportunity overtime for those to help but in the near term we're generating a terrific return on capital and frankly a lot of cash by monetizing assets that have historically been stranded in generating no margin and no EBIT at all and that’s really a big part of the strategy.

Thank you. It looks like we have no further questions at the moment. I would like to hand the call back to our speakers.

All right. Thank you again for participating on our call. We look forward to talking to you after the end of the second quarter. Thank you and have a good day.

Thank you speakers. And that will conclude today's conference. Thank you all for participating. You may all now disconnect.