Good afternoon and welcome to the Beazer Homes Earnings Conference Call for the Quarter Ended March 31, 2020. 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.

Thank you. Good afternoon and welcome to the Beazer Homes conference call discussing our results for the second quarter of fiscal 2020. 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 including any statement expressing confidence regarding future outcomes, speaks only as of the date the statement is made, and except as required by law, we do not undertake any obligation to update or revise any forward-looking statement 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 are Allan Merrill, our Chairman and Chief Executive Officer and Bob Salomon, our Executive Vice President and Chief Financial Officer. I will now turn the call over to Allan.

Thanks, David, and thank you for joining us on our call this afternoon. Before we get started, we want to express our sympathy to those who have been personally impacted by the COVID-19 pandemic. We recognize that there has been a profound loss of life and many Americans are still fighting the illness in healthcare facilities and at home. We also sincerely appreciate all the first responders and essential workers who are supporting the country during this challenging time. As most of you have probably anticipated, this is going to be a very different earnings call. In light of the extraordinary environment and taking into account recent SEC guidance about earnings calls, we have substantially modified the format and content of this quarter’s call. First, we will give a very brief summary of the reports we reported today. You will find our traditional, operational and financial slides included in the appendix to the presentation. Then, we will describe our immediate and ongoing response to the crisis both operationally and financially. This will include a discussion of April activity though we obviously don’t have final numbers for the month yet. Having reviewed our efforts to date, we will discuss the primary risks we see moving forward and how we are approaching these risks. After our prepaid remarks, we will take questions in the time remaining. Given the uncertainty in the economy today, we are withdrawing any goals or guidance we offered in our earlier public comments and we will not be giving any guidance for the next quarter or the full year. So turning to our second quarter results, despite the challenges that emerged in the final weeks of March, we had a successful second quarter, specifically new home orders increased 4% to 1,661 on spec sales for community per month…

Thanks, Allan and good afternoon everyone. As Allan discussed earlier, at the onset of the crisis we took decisive actions to generate and preserve liquidity. We fully drew on our $250 million revolver in mid-March and put new processes in place to ensure that we could continue to close homes. We also deferred several land purchases. As we have previously reported, these actions led to total liquidity of $294 million, up over $70 million from the same time last year. Looking forward, liquidity is a key financial objective because we do not want to be beholding to the capital markets in times like this. So let me describe the balance sheet and income statement aspects of our efforts to preserve and expand our liquidity in the quarters ahead. On the balance sheet, our two largest categories of investment are WIP and land. At March 31, our WIP balance was approximately $100 million higher than in the prior year, driven by higher backlog and specs under construction. We expect this balance to decline, creating additional liquidity. We also expect to generate liquidity by managing our land spending. Over 70% of our active land is owned, allowing us to generate significant cash flow from closings, particularly while we slow land spending. We are working with land sellers in each market to restructure, reduce or defer spending. And we have paused much of our land development spending, matching a slower sales pace and seeking improved terms from land development trades. In terms of the income statement, we have also taken steps to improve liquidity. We are working with our construction trades to reduce our direct costs across the board and not just from reduced longer costs. These efforts have shown immediate progress with most divisions targeting at least 3% savings and hard costs. We have also reduced operating expenses in most departments by, among other things, instituting a hiring freeze and delaying some significant, but discretionary IT spending. Finally, our senior leadership has taken a 20% reduction in salaries through at least the end of this fiscal year. We believe the actions we’re taking put us in position to operate through the coming quarters without needing to access the capital markets, even with substantially lower demand and higher cancellations than normal. Now I will turn it back over to Allan.

Thanks Bob. We have identified three primary near-term risks that our company and our industry are facing. First is reduced demand for new homes. While conditions will vary by market or higher unemployment persists, it will lead to lower housing demand and potentially put pressure on home prices. Second is constrained mortgage availability. The mortgage market is facing a variety of challenges, including reduced liquidity among mortgage originators and a tightening of credit standards for borrowers. While we don’t do a substantial amount of business at the lowest levels of creditworthiness, any contraction in mortgage credit or the elimination of certain loan types will hinder new home sales. And third, there remains the potential for restrictions on our ability to operate, including the construction and closing of our homes. Currently, residential construction has been deemed an essential business across our markets, but this could change, especially if we see a reacceleration in diagnosed cases. We don’t know how these risks will play out, but we do know we won’t be immune to their impacts. To help us manage through them, we’re focusing on two key priorities. The first is to rely on our existing business model. Our long-standing operating philosophy has been to limit risk by focusing on existing markets, products and buyer segments and to compete for buyers by differentiating ourselves through the value we offer, not just the price. In a volatile market, continuing the simple, value driven approach should serve us well. In addition, we expect our mortgage choice program to be an even greater differentiator in this market. Connecting our buyers with a curated group of lenders who are competing with each other, results in more access to credit and more choices for our buyers, which is certainly also good for us. Our second priority is to protect our financial flexibility. We have worked hard over the last decade to dramatically improve our balance sheet. We’ve substantially reduced debt and lowered our annual cash interest expense by nearly $50 million. We have also termed out our maturities, eliminated maintenance covenants from our bonds and expanded our secured debt capacity. As we work through this challenging environment, we want to preserve flexibility to position us to return to our balanced growth approach when market conditions permit. In closing, I want to thank our employees for their ongoing efforts through these challenging times. Under extraordinary circumstances, we have lived up to our cultural aspirations with attitudes that define focus, grit and accountability. I’m confident that we have the people, the strategy and the resources to weather the current storm and come out a stronger company. With that, I’ll turn the call over to the operator to take us into Q&A.

It is now time for the question-and-answer session of today’s call. [Operator Instructions] Thank you. First question comes from Alan Ratner. Your line is open.

Hey guys, good afternoon. Thanks for taking my question and I hope everyone’s doing well on your end. But glad to hear that you guys sound good there. So, Allan, my first question, and maybe this is for Bob as well. I appreciate you walking through the levers on the liquidity that you’re pulling right now to maximize cash flow. I think one interesting point that seems to be an area where maybe some builders are differing is that kind of thinking about the spec side of the business. And I know you’re not a huge spec builder, but it seems like right now in this environment, just given how tight resale inventory is and given all the various uncertainty about what the market and the economy might look like 3 months, 6 months, 9 months from now, that spec inventory seems to be more desirable. I know a lot of builders that have reported over the last couple of days, they are more spec heavy builders, seemed to be putting up slightly better April numbers than builders that are more to be built. And on one hand, you don’t want to put more money into the ground that might be at risk in the future, but on the other hand, if that’s where the stronger demand is today, certainly, that’s an easier way to generate some sales and cash flow. So just curious how that thinking has evolved over the last 5 weeks or 6 weeks from you guys. How much is your – is your start production down year-over-year? And have you maybe started to put the pedal down a bit in terms of starting new spec inventory?

Well, first of all Alan, let me just say thank you for your comments and very much hope the same thing for you, your family, your company. So we ended March with really 900 specs, almost 250 finished specs which was up, I want to say, about 80 year-over-year. So we’ve got a pretty good spec position. I wouldn’t disagree with your characterization that specs have been quite attractive and I think we were in a good spot relative to our spec position. We were pretty cautious the first two weeks of April on spec starts. No doubt about it, but we have worked as we always do with each division, each community. If they are selling specs, they are getting more specs. So we are not seized up and stopping but we are not trying to pivot and dramatically change our model either. The thing about having a mix of communities and buyer profiles is some communities in our company have been heavier specs, some are definitely more to be built. And we want to be in the market and competitive in each location. So we have tried to avoid swinging the gate all one way or all the other way kind of across all communities. We like our position, but I don’t disagree with your specs right now. We are quite attractive, and we are not restricting specs that we’re selling in the communities where we are having success.

Got it. That’s helpful, Allan. I appreciate that. Second question, shifting gears a little bit to your comments on the mortgage side, I think this is an area where depending on who you talk to you get much different answers on exactly how impactful the tightening has been in the industry. And I know builders that have their own mortgage subs or joint venture programs, one of the things they are kind of touting is an ability to sell direct to Fannie, Freddie and Ginnie Mae and therefore some of the overlay is that originators are instituting – they’re able to kind of get around them a little bit by avoiding that part of the market, whereas you’re dealing with, obviously, banks and non-bank lenders, I presume, in your Mortgage Choice program. So can you just kind of walk through a little bit what the current standards that your mortgage partners are offering buyers? What has the tightening been, whether it’s FICO, DTI, any overlays that they’re putting in place that you’re dealing with today?

Well, you know our model has, I use the word curated, I guess. I don’t need to use such a fussy word, but we have multiple lenders in each community that are competing for our customers’ business. And that is very carefully controlled and designed, not just at the division level, but at the community level because we want to have lenders who want that business. And obviously, it makes it difficult then to talk broadly, that I will tell you that having competition has been a really good thing. There have been some lenders who have raised their FICO scores and other lenders who have not. There have been some who have had overlays, others who have been less concerned. And so one of the – I think one of the great advantages of having a competitive environment is the people who want the business are in the business. And so we’re not beholding to a particular lender, a particular program. And I think that’s proven to be very, very effective here. And you made a good point. We have both bank and non-bank lenders. And there are brands that are well-known. I’m not sure I really want to get into naming them, but I mean, it’s – big money center banks are part of our program. And so I feel like we’ve got ready access to the GSEs, FHA, Ginni programs. I think our customers are finding that having eliminated the middleman in a builder captive, they’ve actually got lower rates than they would have, if they were working with one of our competitors. And I think this environment is proving not just the pricing advantage, but also the access to capital advantage.

So it doesn’t sound like you think there’s a big piece of the business that has evaporated in terms of your ability to get those loans done today?

I do not. There are certainly challenges in the jumbo market. That’s not a big part of our business. There is certainly more difficulty in the investor market, again, not a big part of our business. So macro-wise, those have been categories that have been more hurt, but we have not seen, and I’m certainly aware of this from my industry perspective that some of the non-bank lenders in the servicing area, it’s backed up into a liquidity problem on the origination side. We have not been affected by that.

Right. Okay, thanks a lot. Good luck and stay safe.

Thanks.

Thank you. Next question comes from Jay McCanless from Wedbush. Your line is open.

Hey, good afternoon. Thanks for taking my questions. The first one I had, and I appreciate you guys putting the cancellation numbers out there. Could you just tell us what the April orders month-to-date are compared to April at the same time last year?

I have got a nice graph here for you, Jay, but not the exact numbers in front of me. I would tell you, I think we started the month we were down more than 50% the most recent week, and today is the last week of the month, and I don’t have this week’s number. We were down well under 50%. So I think for the month as a whole, it will be under 50% by the time we get done this week, but it was certainly worse than that the first seven, 10 days of the month.

Understood. What about incentives, whether it’s incentives to the buyers or paying some maybe higher co-broker fees, what is Beazer doing and then what are you seeing from your competition right now?

There is so little supply that we have seen very little in the way of change in aggregate incentives. We have changed a little bit packaging, that we’re always doing that. And I wouldn’t really say that, that’s as much COVID related as it is just normal evolution, but we have not had a change in incentives of any magnitude in our company. And I’m not aware of our competitors’ specific pricing strategies, but I haven’t heard a lot of chatter about that either. I think as the prior question got to specs right now that are finished, ready to move in. They’re pretty valuable. And I think we’re finding not having a big need to change incentives.

Then on the community count, I know you guys are not giving guidance, but if I look at the schedule on Page 13 of the slides, I mean it looks like you are still going to be probably down just assuming natural attrition. I guess….

Thing about that chart, as Jay, and you followed us for a long time, and I thank you for that, but the thing you know about that chart is the pluses and the minuses are kind of hidden in plain sight. They’re right there, but it has never been harder for us to guess the timing. I mean the pace of close outs, in a robust market, you tend to close out faster. In a softer environment, we may close out more slowly. To the extent land development is done, and we’ve got a community to open. We’re not going to hold it back. So I think that there is more uncertainty as to the timing mix of close outs and start-ups. I’m pretty pleased with the fact that we’ve got nearly 45 communities either opening in the next six months or actively under develop another 30 plus that are approved. I really couldn’t tell you if I wanted to, what I think the exact pace of the close outs is going to be, but there are at least as many in the – with the plus sign in front of them as there are with a minus sign, but the timing is really tricky.

Well, and that’s where I was going with the question, it’s not necessarily wanting the guidance, but if you guys are going to go a little bit heavier on specs, what you have is active communities right now due to those and lend themselves generally to flexing up the spec count and maybe closing out a little bit quicker. I don’t want numbers I just want...

Yes, look, there is not a – we haven’t made a command decision that, hey, if you’ve got 10 left, go put 10 specs in the ground. We try and make community specific decisions. If it’s a market and a community where specs have been a big part, we are certainly not restricting starting specs, but we have got some communities that are stalwarts that have been great to be built communities, throwing a bunch of specs in the ground for that buyer profile. It hasn’t historically proven to be very effective. If it’s not kind of a characteristic of competition in that submarket, I don’t want to override the judgment of our division by telling them they have got to go start specs.

Nice improvement in the backlog. What – how much of that backlog is subject to a contingency where the buyer has to sell their current home or anything of that nature we need to be thinking about with the backlog?

Yes, we don’t have a big move up business. And so we have a very small percentage of that. I don’t know the exact number, Jay. And certainly, contingencies are always in the backlog, but it is, for us a very small percentage. I mean, clearly, the thing that we are more concerned about than that is loss of job. If you’ve got someone who’s qualified, he’s in backlog and then has an interruption in their employment, that’s the thing that you and we are very focused on. And I’m really pleased with the way our team has engaged and connected with our buyers and talking to them about their situations. And one of the things, it’s kind of subtle, but one of the things I was actually pretty pleased with is we were pulling our materials together was to look at the cadence of cans kind of by week, and we’re not going to be in the habit of doing things weekly, but one of the things you see is we deal with reality in real time. We’ve got a situation where something in backlog needs to be canned, that’s the week we take it. There isn’t a kind of a – well, we’ll wait until the end of the month or the quarter and see if maybe we get lucky thing. So I think we have been dealing with reality in real time and we will continue to do that.

Okay, great. Thanks for taking my questions.

Okay, Jay. Stay safe.

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

Hey guys. Thanks for taking the call. Hope you are all well. I wanted to ask if you have noticed any big difference in the performance of your entry level product versus move up versus gatherings?

I know you don’t and I don’t mean this in any kind of a tricky way, but it’s a little bit hard to react to that question. And let me just explain why. Entry level is sort of – or is often kind of overlaid with first time buyer. And when I think about our first time buyer business, it’s been very good. But our first time buyer business does not tend to tilt to the lowest price points. We are affordable, and we’re very competitive on the basis of value as opposed to exclusively on the basis of price. So I make that distinction because I couldn’t in a thoughtful way comment on a more price driven part of the market and the extent to which it has been or not been affected by the current circumstance. Our first time buyer and first move up buyer business has been pretty good. I would say on the gathering side, it’s still relatively small for us, but there is definitely some effect from traffic waiting until it’s safer to come and visit the community. So I would say that’s an area where we won’t be surprised to have a little slower sales cycle. But I will tell you, in terms of leads and engagement, we feel great about that business. I just think we have to be a little bit patient about the stay-at-home orders being removed and older population being less at risk. And I think there are an awful lot of people that will be excited to be in a gatherings community, but as it relates to what you characterized as entry level, I would say our first time and first move up businesses are performing quite well, all things considered.

Okay, great. And in terms of the build times, are you guys noticing any extensions because of social distancing or permitting or anything like that?

Yes, it is a little less on the permitting side, but it is definitely a function of not double stacking trades. We are maintaining really close control over these sites and not having multiple trades and multiple crews in a house. I can’t give you at this moment a number of days delay, but I am totally certain that we will have a slower cycle time in production, certainly through April and May and probably extending beyond that somewhat, but we want to be safe, first and foremost.

Yes, of course. And then in the markets that are starting to reopen a little bit sooner. Are you guys noticing more activity or interest or something like that picking up in other states that are maybe going to take longer to reopen?

Yes, it’s a really good question. We have moved across the company to an appointment-only sales environment. And we have been able to be compliant with all local requirements for the stay-at-home orders and essential workers and still had a small appointments one or two people touring a model in each of our markets. And that hasn’t changed yet in any of our markets. We are still, for example, in Georgia, on a scheduled appointment. So I wouldn’t tell you that I have seen a big difference between those markets that have made tentative early steps to open and those that haven’t done it yet, but I can tell you that in every market, that online lead activity that I referred to is up pretty significantly.

Okay. Well, great. Best of luck and stay safe guys. Thanks.

Thank you.

Thank you. We are showing no further questions at this time.

Okay. I want to thank everybody for joining the call today, and we will talk in next quarter. Thank you very much. This concludes today’s call. Stay safe and thank you for joining us.

That concludes today’s conference. You may disconnect at this time and thank you for joining.