Good afternoon. And welcome to the Beazer Homes Earnings Conference Call for the Quarter Ended December 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, Senior Vice President and Chief Financial Officer.

Thank you. Good afternoon. And welcome to the Beazer Homes conference call discussing our results for the first quarter of fiscal 2021. 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, which may cause actual results to differ materially from our projections. Any forward-looking statement speaks only as of date this statement is made and 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 is Allan Merrill, our Chairman and Chief Executive Officer. On our call day, Allan will review highlights from the first quarter, explain the basis of our confidence in the new home market and discuss our improving expectations for fiscal 2021. He will also describe two significant commitments we recently made as part of our ESG strategy. I will cover our first quarter results in greater depth and provide detailed expectations for the second quarter and full year of fiscal 2021. I will then update our expectation for continued growth in our land position, followed by a wrap up by Allan. After our prepared remarks, we will take questions in the time remaining. I will now turn the call over to Allan.

Thank you, Dave, and thank you for joining us on our call this afternoon. With an acute focus on health and safety, we generated outstanding operational and financial results in the first quarter. Operationally, orders were up more than 15% year-over-year, driven by a sales pace that was up more than 40%. In fact, both orders and our sales pace reached their highest first quarter levels in more than a decade, even as we intentionally slowed sales with price increases. We also expanded our lot supply, creating a path for future growth. Financially, we delivered big improvements in gross margin, adjusted EBITDA and net income. The strengthened demand for new homes has exceeded our expectation over the past six months. We have known that pent-up demand was building based on the disconnect between demographics and strong affordability on the one hand and anemic housing starts for most of the last decade on the other. What we did not anticipate was that a pandemic would be a catalyst for that demand to begin to materialize. Many consumers are now focused on improving their living situation, whether their motivation is more space, better space, outdoor space or an entirely new location, demand for housing has been excellent. The question on everyone’s mind is, how long will this strength last? Well, we believe it’s likely to persist for some time. From a supply perspective, our industry has delivered far fewer homes in the last 10 years than job growth and household formation would have predicted. We think this cumulative deficit is conservatively well above 1 million homes, which means that a few good quarters are unlikely to exhaust the need for new homes. So what about the durability of demand? Well, to buy a home, perspective homeowners typically need two things, income security…

Thanks, Allan. Looking at the first quarter compared to the prior year, new home orders increased 15% to 1,442, despite a lower community count. Sales pace was up over 40% to 3.5 sales per community per month. Homebuilding revenue increased about 2% to $424 million on flat closings. Our gross margin, excluding amortized interest, impairments and abandonments was 22.1%, up approximately 230 basis points. SG&A was down approximately 60 basis points as a percentage of total revenue to 12.7%, driven by controlling overhead expenses. This led to adjusted EBITDA of $43.6 million in the quarter, up nearly 50% and exceeding 10% of revenue. Total GAAP interest expense was down about 3%. Our tax expense for the quarter was about $4.1 million for an effective tax rate of 25.5%. As a reminder, on a cash basis, our deferred tax assets offset substantially all of our tax expense. Taken together, this led to $12 million of net income from continued operations or $0.40 per share, up over three times versus the same period last year. Looking to second quarter, we expect the following versus the prior year. New homeowners should be down slightly. While we expect sales pace to be up, we do not expect it to fully offset our reduced community count as we focus on increasing margin and returns. Closings are likely to be 10% to 15%. There are a couple factors impacting our expectation for closings next quarter. First, given the strength and demand, we have fewer spec homes to sell and close this quarter. And second, we are bouncing cycle time pressures with our commitment to delivering exceptional customer experience. Our ASP is expected to be approximately $390,000. We note that the change in our ASP is reflective of our pricing power or margin opportunity, as we are…

Thank you, Dave. The first quarter of fiscal 2021 was very productive for Beazer, as we increased our sales pace, grew our backlog and improved both gross margins and SG&A, while expanding our lot position in a highly efficient manner. Even better, we expect this operational momentum to persist through the fiscal year in a new home market characterized by healthy demand and constrained supply. In November, we described fiscal 2021 is an inflection year, where we expected to modestly improve profitability, while investing for future growth. In fact, it is shaping up to be much more than that, allowing us to raise our expectations for profitability, investment and debt reduction. Ultimately, 2021 should demonstrate our opportunity to improve shareholder returns from our balanced growth and ESG strategies. I want to thank our team again for their ongoing efforts. I am confident that we have the people, the strategy and the resources to create durable value over the coming years. With that, I will turn the call over to the Operator to take us into Q&A.

Thank you. [Operator Instructions] And our first question will be from Jay McCanless with Wedbush. Your line is open.

Hey. Good morning or good afternoon. Thanks for taking my questions. The first question I had, I like to see the -- you are getting a little more aggressive on the debt repayment. But with the run that you have seen in the stock this year, is there any thought to maybe raising some equity and attacking what you have got for ‘21 and 22 to repay?

Yeah. Jay, I would tell you, we and us pretty well, from a capital allocation perspective, we are always considering every opportunity that’s in the market. Stock has certainly had a good run. We are paying attention to it and we will let you know if we do anything. But nothing on plan right now, and frankly, we will just keep options and leave them open.

Okay. And then in terms of the community count, glad to see that it’s still looking like the end of this year when that bottoms out. Any geographic preference or a little more biased to one geography over another?

Jay, good afternoon. It’s Allan. Not really, I mean, I got to tell you, I am pretty excited about the pipeline across all of our geographies. We are finding things to do everywhere. We went through a hard process of rationalizing markets over the last five years, 10 years, and so we are kind of in places that we know we can grow and I am seeing a path in each of those markets. On any given quarter, deal flow, it’s just the vagaries of the way deals become available and how they move through our process. But I think if you look at it over a year or two, you are going to see as bigger in every one of our markets.

Got it. And then in the West order growth was a little bit slower than the other two regions. Was that a function of just community timing or anything to point out or there -- a talk about there?

No. I think, we talked a little bit in the script about using price, in part to control demand and we did have some exposure or some experience with that in a few of our Western markets. So that was part of it as well. I mean, we have got such a big backlog in some of those markets, we wanted to be careful about adding to that backlog, so that we could in a appropriate way get the starts out there and keep that customer experience. So I would say, it was probably more on the near-term side -- sales side than it was community as a related to the change in the order growth.

Okay. That’s all I had. Thank you for taking my questions.

Thanks, Jay.

Our next question comes from Alan Ratner with Zelman & Associates. Your line is open.

Hey, guys. Good afternoon. Congrats on the strong performance and thanks for the update on the ESG initiatives. That’s certainly noteworthy and congratulations on the efforts there. My first question relates to the land market, I think, a common theme we are hearing from a lot of builders is that, the industry is picking up the pace of land acquisition pretty sharply over the last three months to six months and you guys are obviously in the mix there. Some builders are talking about doing certain things that to remain kind of competitive and avoid some of the inflation that’s going on in the market, whether that means buying larger deals, whether that means maybe going a little bit further out to reduce lot costs. So I am curious, A, can you talk a little bit about the inflation you are seeing, and B, have you changed either your underwriting standards or kind of that the targeted land at all to deal with the competitive nature of the market today?

Well, Alan, you are absolutely right. The markets are very competitive. I will give you an oversimplification and we can maybe go a little deeper. But where we are seeing particular enthusiasm, I mean, it -- and the way I have described it is, think of a barbell, very small kind of bespoke deals that private builders can be all over are super aggressively priced. And deals where there are 200 or more lots that are in the obvious submarkets where there are currently a lot of permits, those are incredibly highly priced. And where we have kind of found success and really have good footprint for us is 50 to 150 lots in most of our markets. Where if somebody is doing 2000 units in a market, they kind of can’t waste time on 75 or 80-lot deals, they have to do 30 of them in a year. And so we find that there is a bit of a window in many of our markets for that. So the deal size is really the thing that we kind of target. We ask ourselves, why did we get so lucky? Why are we able to be successful in this location? And is it just economics we paid the most or do we have an ability to extract more value from that site. So the other part of the strategy is, we are not very adventuresome. I mean, when we know a submarket, when we have got the trades and the realtor relationships in an area, I feel like that’s an opportunity for us to know what that price is, and make sure that, we are not letting somebody else into our kitchen. Where you start getting into new submarkets, new buyer profiles, you always have to be very cautious, because I tell our team, the other team gets paid to and we end up in kind of a new area, a new submarket and we could find ourselves paying the dumb tax, that I refer to. So I -- we are definitely not changing our underwriting numerics. We haven’t eased up at all. And if anything, I think, we have been pretty effective with our options strategy. But really the key for us is, sticking to what we know and finding deals that are meaningful for us, but frankly, are maybe a bit smaller than some of the very biggest builders would pursue.

Got it. That’s really helpful color there. So I appreciate that. Second question, I’d love your thoughts on single-family rental. I know you dip your toe in the water there a few years ago, and as far as I am aware, you are not really active in the space today. But a lot of builders are aggressively either raising capital for that initiative or are you acting as a GC for operators? And your comment earlier about 1 million starts threshold or under building so to speak, I have heard different opinions on how to think about single-family rental in that equation, because clearly, there’s a lot of single-family homes being rent -- built for that purpose. And I am curious are you seeing any competitive pressure from that yet? It’s probably a little bit early on. But do you view that as competition for your communities, if you see a development across the street or do you view that more as kind of just shifting from apartment demand today?

Boy, it -- that’s a big topic and I guess you are right. I do want to establish both the credential and our humility. I mean, we were early in this in 2010, when we started our Pre Owned Rental Homes Company. We simply didn’t, at that time, have the capital, even with our partners to scale it fast enough and I think we did the right thing. We created value for our partners and ourselves. And we sold it to one of the big public REITs and they have done very well with that portfolio. So I am respectful of the degree of difficulty of actually operating a business in that space. Being a landlord is a different business. And I think we were -- we are humble about the degree of difficulty. But your question about it being competitive, look, it plays at a few different levels. It plays in the land market and it is absolutely the case that there are some scenarios where we have been out bid for an asset by someone whose intention was to turn it into a rental community. So, yes, that is a source of demand for land and so it’s competitive in that way. I think for a lot of our buyers, they have made a decision to become homeowners. And so they are not as -- and I am sure that this is not universally true. But I don’t sense that the issue is, 10 in the morning, I am kind of betwixt in between am I a renter or I am an owner. They have decided. They have crossed a threshold. It’s time to become an owner, their value -- and value creation and wealth building and autonomy that come with being an owner. So I really do…

I really appreciate your thoughts on that and that it will be interesting to watch unfold over the next few years. So thank you.

Okay.

Thank you. And the next question comes from Julio Romero with Sidoti & Company. Your line is open.

Hey. Good afternoon, everyone.

Hey, Julio.

So you mentioned you expect growth to be up slightly in the quarter even with those low headwinds. Can you just talk about that, is that a function of product mix or maybe we -- lumber or any other different costs, any additional color?

Yeah. Julio, I think you broke up a little bit on the question, I think the question was about second quarter gross margin and our expectation. When we talked about in the script, lumber and timing on lumber price increases in September and October and the way that would impact margins, in terms of having a year-over-year increase we still got good pricing in the market. We had the price in the market and given the visibility we have from our backlog, we are pretty comfortable in terms of the price and cost match that we can get margin increases in second quarter.

Understood. I will hop back in the queue. Thank you.

I think it’s important to point out, Dave, that we will do better in the second quarter than we did last year, but it won’t be like the first quarter.

Yeah.

It that headwind is there and so we will be up, but by a lot less.

Our next question comes from Alex Barron with Housing Research Center. Your line is open.

Thank you. Good afternoon, guys. Great job in the quarter. I had a question about the interest expense or the margin, I guess, in related to the interest expense. I am guessing your comments around margins going up 50 basis points, is that outside of the impact of your interest capitalization and all that?

So just to be clear, Alex, the comment very clearly was slight increase on a year-over-year basis in the gross margin in Q2 and up more than 50 basis points in the back half of the year, and yeah, that’s excluding the interest.

Okay. Now if we focus on the interest that’s running through cost of goods sold, obviously, you guys have been paying down the debt and last year the interest that ran through cost of goods sold was higher than the interest incurred. Should we expect the interest in cost of goods sold to start kind of narrowing a little bit more than interest incurred this year?

Yeah. Alex, we have talked about it before. Remember of the interest, it’s amortized through cost of goods sold. It’s a function of the capitalized balance and our inventory turnover. And so as the capitalized balance starts to kind of move its way down, you will see those two numbers converge. It’s going to take some time. It’s not going to be right away. But you will eventually get to that point, we see some convergence.

Well, I think to be more precise, I would expect the interest in cost of goods sold will exceed our interest incurred again this year.

Yes.

Okay. Got it. But the general trend, I guess, is moving in that direction, which is...

They are going to migrate. Over time you should expect that convergence. But it won’t be in 2021. It will narrow. So there’s a little difference. I mean the good news is our cash interest expense is lower than our book interest and so it effectively understates the earnings power of the business, because we are running through that GAAP interest expense, but that’s just extra liquidity we have got to put into land.

Right. Now on your comments about the orders being flattish, I am guessing and you can correct me if I am wrong, I am guessing that has more to do with the drop in community count. So two questions, one is, where do you see the inflection point for community count is going up, and if that’s not the reason are you guys just limiting sales at this point because of starts or some other factor?

Well, you are 100% right. We expect our pace will be stronger in Q2 this year than Q2 last year. But very unlikely we will let that, yes, high enough that it will offset what we know the reduction in community count is, which is why we won’t probably match last year’s total orders. And absolutely we are being very careful at the community level about releases, not because we are so much trying to manage the community count, we are trying to maximize the value of every asset, and given the scarcity of homes in our markets, selling a little bit slower and the pricing power that is associated with that to us in this environment makes a lot of sense. So that is the thought process. You can appreciate that every community in each market has a slightly different set of issues. But the macro approach that we are taking is definitely slowing the sales pace with price, which is having the effect of dampening that pace a little bit. In terms of when the inflection point is going to occur, we found, at least I found in my experience here that making projections about community count a couple of quarters out is really foolish, because of the vagaries of land development. We know that we will trough in the 120s mid-to-late this year and we know that next year we will have a higher community count. But trying to be precise enough to tell you what day, at what week that’s going to happen, I am sorry, Alex, I just can’t do that.

Okay. Got it. Thanks a lot.

Thanks, Alex.

There are currently no other questions.

Okay. I want to thank everybody for joining us for our first quarter call and we will see you for our second quarter call. This concludes today’s conference call. Thank you very much.

Thank you. And that does conclude today’s call. We appreciate your participation today and you may disconnect. Thank you.