Beazer Homes USA, Inc. (BZH) on Q2 2021 Results - Earnings Call Transcript
Operator: Good afternoon, and welcome to the Beazer Homes Earnings Conference Call for the Quarter Ended March 31, 2021. 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. Now, I’ll turn over the conference call to David Goldberg, Senior Vice President and Chief Financial Officer. Thank you. David Goldberg: Thank you. Good afternoon and welcome to the Beazer Homes conference call, discussing our results for the second quarter of fiscal ‘21. 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 described in our SEC filings, which may cause actual results to differ materially from our projections. Allan Merrill: Thanks, Dave. And thank you for joining us on our call this afternoon. We had an extraordinary quarter, highlighted by an unprecedented increase in our sales pace, and significant growth in our gross margin, EBITDA and net income. At the same time, we invested for the future, grew our share of lots, controlled by options and continued to reduce debt. In some, we had a nearly perfect balanced growth quarter, with profitability growing faster than revenue, while operating from a less leveraged and more efficient balance sheet. Perhaps the best news is that our team is poised to translate continuing strength and market conditions into even better results in the quarters ahead. As I'm sure you've heard, the strength in new home demand has contributed to both longer cycle times and higher construction costs. To-date, we have successfully adapted to this environment by raising prices, limiting sales paces and extending delivery dates on sold homes. As we work through these issues, our objectives remain the same. We expect to create value for customers, partners, employees and shareholders by delivering great homes on time and at the margin we intended when we made the sale. Our commitment to creating value for our stakeholders can also be seen in our recent accomplishments and goals on the ESG front as summarized on Slide 5. This quarters highlights included being named an ENERGY STAR Partner of the Year for the sixth consecutive year, representing another significant step toward our goal of having every home we build Net Zero Energy Ready by 2025. We believe the strength in the housing market will prove to be pretty durable. And the reasons are simple, strong demographic demand, exceptionally limited supply and the recovering economy. On the demand side, we expect many of the COVID housing norms to be persistent, namely the desire for more space, better space and outdoor space, even as we return to offices and schools, our homes have clearly taken on new roles in our lives, couple that with a great awakening of Millennials to the benefits of homeownership and the desire of many boomers to simplify, you have a recipe for depth and breadth of demand that isn't likely to disappear anytime soon. David Goldberg: Thanks, Allan. Looking at the second quarter compared to the prior-year, new home orders increased approximately 12% to 1,854 as our sales pace was up more than 40% to 4.7 sales per community per month. Homebuilding revenue increased about 12% to $547 million on 9% higher closings. Our gross margin, excluding amortized interest, impairment and abandonment was 22.2% up approximately 140 basis points. SG&A was down 100 basis points as a percentage of total revenue to 11% as we benefited from improved overhead leverage. Adjusted EBITDA was $64.2 million up over 45%. Our EBITDA margin was 11.7%, the highest second quarter level in the past 10 years. Interest amortized as a percentage of homebuilding revenue was 4.4% down 20 basis points, and that led to net income from continuing operations of $24.6 million, yielding earnings per share of $0.81, more than double the same period last year. With the strength of our current backlog and positive macro outlook, we’re in a position to once again increase our financial expectations for fiscal ‘21. We now expect EBITDA to be up over 20% or more versus the prior-year, a significant increase from the previous guidance. This level of improvement implies EBITDA growth of more than 10% in the second half of this year, with greater year-over-year growth expected in the third quarter. Our full-year EBITDA guidance equates to earnings per share above $3 up from last quarter’s guidance of at least $2.50. We now expect our return on average equity for the full-year to be approximately 14%. If you exclude our deferred tax asset, which doesn't generate profits, our ROE would be over 20%. The current production environment is going to impact both sales and closings in the third quarter as a second quarter progressed in the face of the elongating cycle times, we deliberately slowed home sales to provide a better experience for customers and increase the value of our communities. Allan Merrill: Thanks, Dave. The second quarter of fiscal ‘21 was very successful for us as we maintain the momentum of the last several quarters highlighted by very strong new home orders and substantially improved margins, while also improving the efficiency of our balance sheet. These results and continued strength in the market have enabled us to raise our expectations for the year. Perhaps more importantly, our performance should help investors understand the longer-term opportunity for value creation embedded in our balanced growth strategy and our ESG leadership. Operator: Thank you. Our first question will come from Alan Ratner from Zelman & Associates. Your line is now open. Alan Ratner: So, we’ve heard from a lot of builders over the last couple of days and it seems there's two somewhat differing views on the best way to approach the market these days, you've got some builders that are sticking to a kind of a to be build strategy and feel like that's what the consumer really is desiring today to kind of design and pick their perfect dream home. And then you've got other builders, that for a multitude of reasons feel like it makes more sense to wait until the home is started and kind of further along in the construction process perhaps to sell and I think at least those builders in the near-term are probably seeing a little bit of a greater lift gross margin, they're benefiting from those extra months of pricing power as well as maybe some increased visibility on their cost structure. And I know you guys kind of have a balanced sales approach, at least kind of historically. So I'm curious if you have a view one way or another, or if you've kind of shifted your sales strategy, one way or another to reflect kind of all the various trends and dynamics in the market today, uncertainty on costs, pricing, significant price appreciation, et cetera. Allan Merrill: Great question, Alan. I think my starting position on that is in an environment where you have near absolute cost certainty. Our value proposition for buyers tilts towards a larger share of our sales being to be built. But in the current environment, we’re doing a couple of things because of pockets of uncertainty around costs, either slowing the rate of those to be built sales, or starting homes, so that we have that certainty on cost, and then selling them. So unfortunately, I don't have a red or blue, a yes or no answer for you. But it's a navigating through but the pivot for us is where we have cost certainty, we have more confidence than therefore to be built model allows us we think to be paid for our pillars for our choice plan, for our surprising performance. But I totally understand the point that it's tough to sell a home not know what your costs are, lock the price, and then end-up with costs that you didn't anticipate. And so we're managing that problem at a community level. Alan Ratner: Got it. Your response, Allan makes a lot of sense and it’s helpful. And I guess on that note, it seems like at this point, really the only limitation on sales are our production, maybe for your guys community count is a factor as well. But what is your production pace look like right now? How many homes are you starting per month per community if you look at it that way, or on an annualized basis, how many homes do you feel like your production machine is capable of starting? And is there any flex point on that, where you can potentially drive that higher, assuming demand continues to be as robust as it is, if not accelerate even further? Allan Merrill: I think it can go up over time. But it's not the capacity, the throughput can't, there's no flip switch to flip to make that capacity go up in the next 30, 60, 90 days. And that's why you saw, I was talking about a meaningful part of our backlog delivering in Q1. I mean, we looked at the capacity for our throughput where we could have price certainty and deliver the right home the way we wanted and realize that the reality of that production environment is that, we won't have the backlog conversion that we've historically had in the third and the fourth quarter. It is going to get better, I think in terms of the production capacity for us and for the industry because I think that this whether it's $4 million or another number, this structural deficit I think is an undercurrent that is going to force us as an industry to expand capacity. We need to, the markets therefore, the trick of course is to keep it affordable. But I do think that that will increase over time. Alan Ratner: Great, thanks a lot. Good luck. Allan Merrill: Thanks, Alan. Operator: Our next question will come from Julio Romero, your line is now open. Julio Romero: Hey, good afternoon, Allan and David. Allan Merrill: Hi, Julio, how are you? Julio Romero: I’m good. So you're obviously seeing a very strong price environment. ASP is expected above 400K next quarter. Can you speak to maybe how much more price can be driven in this environment? And kind of, how do you see that kind of unfolding and is there a breaking point eventually? David Goldberg: Well, I know the answer to the last part of the question for sure. There is a breaking point, it’s affordability. And one of the things that that is different about this environment now compared to other times that have felt quite euphoric from a new home construction perspective is I'm comforted by the fact that mortgage underwriting has remained really disciplined. So qualification income levels are going to ultimately have a big effect on how much pricing power we have. And of course, changes in interest rates will factor into that as well. And I think that there is more room, I'm not panicked about some of the pressures in the cost side of the supply chain, I think we've got the ability to make changes to the product and accommodate those in a mix. But I don't think that, if I looked at macro numbers, the level of price appreciation we've seen across all new homes or new and used homes in the last year, I don't think that's a run rate that we're going to see sustained over multiple years. But we're in a bit of a short squeeze right now for the next few months, quarters. There's quite a bit of pricing power. Julio Romero: Got it. And with the strong demand for these being, are consumers looking for certain amenities, or has there been any change in consumer preferences in regards to configurations, floor plans at all and has that affected your product mix? David Goldberg: It has a little bit and it will come as absolutely zero surprise when I tell you that a place to home office and home school comes up in almost every sales conversation and I don't think that's a cynical view that forever we're going to work from home and teach from home. But I think when you realize, you don't have that opportunity, that flexibility. It feels like your product is functionally obsolete. And I think that's a big part of what we've seen over the last year. And I think it's got legs to it, I think we’re very focused on having opportunities for people to work from home. And that that affects the architecture, the layout of the home, and in many of our communities and many of our floor plans where we’re intentionally designing more than one, so that you've got the opportunity for quieter spaces, and more of them. And I think I talked last quarter, a little bit about the fact that you've got an interesting thing happening right now in architecture, or interior architecture, at least, which is we've all got the visuals from television and the Internet, what open floor plan, open concept, high ceilings, great rooms, keeping rooms, we call them here in Atlanta. Those look great, and they feel great. But they're not awesome for working from home, teaching from home. So there's a little bit of a challenge, how do you create those nooks and crannies and those purpose built spaces and still have these gathering places, these senses of place within your floor plans, it's actually kind of exciting thing to figure out how to do that. And that is definitely a major theme and product in our floor plans everywhere in the country. Julio Romero: Understood, and I guess just last one for me is if you could speak to any progress updates with your commitment to having all your homes being Net Zero Energy Ready by 25. And there's a current kind of unique demand backdrop accelerate that at all, or change that at all? David Goldberg: I don't know that it changes that, the opportunity to accelerate is really, it's kind of a function of community, new community count, it's tough to go into a community that you’re two-thirds of the way told through entitled, permitted and have let contracts with sub and really, fundamentally change the way the home is built. So what will happen and the thing that will really play a big role in the rate of our achievement of that is, as we open new communities, our capacity to bring those features into homes within that community. Now, there's some larger communities where we’re making changes in real time. And those are incremental changes. But, I was thrilled to be recognized to have the company recognized again, as a ENERGY STAR Partner of the Year. Six years in a row is a big deal. Testing every single home for 10 years is a big deal. And I feel pretty confident. We're going to remain a leader in this category. I think we’re very disciplined about it. Our team is excited about it. I think it's the future, and we're driving it. Julio Romero: Great, appreciate you taking the questions and best of luck in the third quarter. David Goldberg: Thanks, Julio. Operator: Our next question will come from Jay McCanless from Wedbush. Your line is now open. Jay McCanless: Hi, good afternoon, everyone. Just wanted to walk through the math, if your backlog that 3,300 of 700 homes that are going to close in 1Q ’22. And you're looking at high single digits, you're talking somewhere 1,400, 1,500 closings for the third quarter. Are you all thinking right now that your fourth quarter is going to be in line to maybe slightly higher on the total closing basis than what you're seeing in 3Q or do you feel like you can deliver those home, deliver a few more homes than what you're going to close in 3Q? David Goldberg: So Jay, we're not going to give specific fourth quarter guidance, you can kind of back into it, given what we said and what's in backlog and kind of what the spec level looks like. But we're not going to go to specific guidance. And I think as I mentioned in my comments, there's a bit of uncertainty between Q3 and Q4 with the production and kind of moving in between, so high single digits for Q3 and you can kind of back into it based on what's in backlog and the spec count. that's what you think for Q4. Jay McCanless: Right, well, and that's going to be my next question is on the spec, I mean is everything that you guys are starting right now mainly to meet the backlog or you trying to rebuild that spec count at all? David Goldberg: We’re trying to and in some places, we've got the throughput to do that, Jay and candidly, in some places, the backlog of sold homes and started sold homes is that the throughput for a lot of additional specs is limited. So the answer differs by community. We do want to have a little larger spec number. We're a little bit off of our traditional number of specs per community and it really is mostly attributable to this excess that we had selling the spec. But we want to take care of the customers, we've gotten backlog and the balance there is kind of how we got to where we think, the second half of this year will get from a total perspective. And that's kind of why we focused more on the earning side than on the unit side, because I think there's going to be some movement, as Dave said, between Q3 and Q4, both specs and backlog. Jay McCanless: Okay, the communities that you're planning to start growing in ‘22, is there any geographic specificity to those and then also, when you think about underwriting now, what type of monthly absorption pace are you underwriting these newer communities to? David Goldberg: I'm really glad you asked both those questions, Jay. The answer on the first one is no, there isn't really an asymmetric distribution of new communities, we've got growth in every market. And as part of the discipline of staying in the footprint, right, instead of getting excited by a new market A, or new market B. I mean, we've got great teams, we've got long histories in the markets we're in and we want to invest with our team and our markets that we know pretty well. In terms of underwriting, this is a question that that I know comes up a lot. These are really, really exciting frothy kinds of sales times, these are not the sales paces that we’re using in our underwriting. We’re using sales paces that look like our last three, four or five years not that look like the last six or seven months. Jay McCanless: Okay, it's good to hear. Okay, that's all I had. Congrats on the great quarter. Thanks. David Goldberg: Thanks, Jay. Allan Merrill: Thanks, Jay. Operator: And our next question will come from Alex Barron from Housing Research. Your line is now open. Alex Barron: Yes, hi guys. Thanks. I was hoping you could comment on your interest expense versus interest incurred. Obviously, interest incurred has been going down because you guys have been paying down your debt. But this quarter, we saw a jump in the interest that went through cost of goods sold. So roughly when can we expect those two numbers to be more in line? Is it maybe until next year? David Goldberg: Well, we've actually talked about it in the past. Absolutely, Allan mentioned in his commentary, in the script that we think we're going to see a benefit from the interest perspective, flowing through cost of goods sold. And overall in the income statement, as we look to next year in terms of winning that and amortize some together, it's a little bit further off in the distance. And there are some factors that go into it, as you know, between inventory turnover and encourage and beginning balance. But certainly the reduction next year's plan as Allan mentioned and a benefit from an income statement and earnings perspective as Allan referred to in the script. Alex Barron: Okay, great. Thanks. And then, as I think about capital allocation, and I looked at your balance sheet, obviously, you guys don't have any debt maturing near-term. So I'm assuming you probably won't be delevering in the near-term. So what are the uses of cash at this point? Is it more to buy land? Is there potential for share buyback? How are you guys thinking about that? David Goldberg: Well, let me just correct one thing lightly, if I may, we’re going to get debt below a $1 billion, we've committed to do that by the end of fiscal ‘22. We've got, we structured intentionally a few years-ago a term loan with $50 million principal payments, so that we could balance the delevering with our growth ambitions. And we've been executing against that. So we'll have a term loan at the end of this year, another one, at the end of next year, we'll pick up a few other bonds in the market to make sure that the aggregate gets to total below a billion dollars. But that is for sure, going to be one of the allocation. Beyond that and frankly, the much larger dollar amount is investing in the business. The market is strong, we're seeing lots of opportunities, we're excited about, the commitments that we've made, the deals that we've tied up, we've given pretty bullish guidance as it relates to land spending in the back half of this year, and for the total year. And frankly, a lot of the deals that we’re doing will have takedowns and other uses of capital in ‘22 and beyond. So at this point, I'm excited about the returns, we can make investing in the business. So that plus paying down the debt to get below a billion dollars. That's really where our focus is from a capital allocation perspective. Alex Barron: Got it, if I could ask another one. Your land balance didn't seem to go up year-over-year. So is that something that is in the works, to kind of line-up more with the growth, you guys are seeing in orders? David Goldberg: Yes, I mean, there are a lot of cross currents in the land balance. We had some formerly land held for future development assets that were pretty big. And as those have, we’ve been selling through them we have debt, we don't need to have the same number of lots that we had for the size of the business. The other thing that's happening and you've seen this in the option percentage, the option percentage has gone from 30% to over 45%. So our land balance or dollars, we constantly talk about the efficiency of our balance sheet, we want to have a big investment that no bigger than we need to have, so that we can drive higher and higher returns. And that's a big focus of our strategy is to make sure that we're growing our return on unlevered assets and our return on equity. So I think actually, that's a good thing, right, that we've been very prudent about the rate of growth in the assets. And we've been able to drive a lot of EBITDA growth without a lot of asset growth. But we’re definitely growing assets, but we're more focused on growing returns than we’re growing assets. That's what balanced growth is for us. Alex Barron: Okay, great. Well keep up the good work. Thanks. David Goldberg: Thank you, Alex. Operator: And I'm currently showing no additional questions at this time. Allan Merrill: All right, I want to thank everybody for tuning into our call for our second quarter call and look forward to talking to everybody again in 90 days. Thank you very much. And this concludes today’s call. Operator: This will conclude today’s call. Thank you for joining today. You may now disconnect.
Beazer Homes Meets Profitability Expectations with Adjusted EBITDA of $53.3 Million: Key Insights from the Earnings Call
Beazer Homes Meets Profitability Expectations with Adjusted EBITDA of $53.3 Million: Key Insights from the Earnings Call
Beazer Homes has recently reported its earnings, showcasing its ability to meet profitability expectations with an adjusted EBITDA of $53.3 million for the quarter. The company’s earnings call provided valuable insights into its financial performance, strategic initiatives, and future outlook. Here’s a detailed overview of Beazer Homes’ recent achievements and what they mean for investors.
Highlights from Beazer Homes’ Earnings Call
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Profitability Performance: Beazer Homes reported an adjusted EBITDA of $53.3 million, meeting profitability expectations. This strong performance reflects the company’s effective cost management and operational efficiency in the competitive housing market.
-
Financial Results: The company’s earnings demonstrate solid financial health, supported by its strategic focus on enhancing profitability and optimizing business operations. Beazer Homes’ results underscore its ability to navigate market challenges and achieve consistent performance.
-
Strategic Initiatives: Beazer Homes is concentrating on several key initiatives to drive future growth. These include expanding its market presence, improving operational efficiencies, and exploring new opportunities in the housing sector.
-
Market Conditions: The company’s performance highlights its resilience amidst fluctuating market conditions. Beazer Homes is well-positioned to leverage its strengths and adapt to evolving market dynamics.
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Future Outlook: Looking ahead, Beazer Homes remains optimistic about its growth prospects. The company plans to continue focusing on profitability and strategic expansion to enhance its market position and shareholder value.
Implications for Investors and the Housing Sector
-
Investment Considerations: Beazer Homes’ strong profitability performance and adjusted EBITDA highlight attractive investment opportunities. Investors should consider the company’s financial health and strategic focus when evaluating potential investments.
-
Housing Market Trends: The company’s achievements reflect broader trends in the housing sector, including the importance of operational efficiency and profitability. Understanding these trends can provide valuable insights for investors and industry participants.
-
Strategic Focus: Beazer Homes’ emphasis on profitability and market expansion underscores the importance of strategic planning in the housing industry. Investors should monitor the company’s initiatives and performance to assess future growth potential.
-
Growth Potential: Despite current market conditions, Beazer Homes’ solid financial performance and strategic focus position it well for continued success. Staying informed about the company’s developments and industry trends can aid in making informed investment decisions.
Enhance Your Investment Analysis
To gain deeper insights into financial performance and make informed investment decisions, leverage advanced financial tools for comprehensive analysis. FMP’s Owner Earnings API offers a detailed view of a company’s true profitability, including all expenses, taxes, and debt payments.
???? Unlock True Profitability Insights with FMP's Owner Earnings API!
Assess a company’s financial health and compare it with competitors using precise, data-driven insights. Explore the API here: FMP Owner Earnings API.
Stay ahead of market trends and enhance your investment strategies with accurate financial data!
Beazer Homes Meets Profitability Expectations with Adjusted EBITDA of $53.3 Million: Key Insights from the Earnings Call
Beazer Homes Meets Profitability Expectations with Adjusted EBITDA of $53.3 Million: Key Insights from the Earnings Call
Beazer Homes has recently reported its earnings, showcasing its ability to meet profitability expectations with an adjusted EBITDA of $53.3 million for the quarter. The company’s earnings call provided valuable insights into its financial performance, strategic initiatives, and future outlook. Here’s a detailed overview of Beazer Homes’ recent achievements and what they mean for investors.
Highlights from Beazer Homes’ Earnings Call
-
Profitability Performance: Beazer Homes reported an adjusted EBITDA of $53.3 million, meeting profitability expectations. This strong performance reflects the company’s effective cost management and operational efficiency in the competitive housing market.
-
Financial Results: The company’s earnings demonstrate solid financial health, supported by its strategic focus on enhancing profitability and optimizing business operations. Beazer Homes’ results underscore its ability to navigate market challenges and achieve consistent performance.
-
Strategic Initiatives: Beazer Homes is concentrating on several key initiatives to drive future growth. These include expanding its market presence, improving operational efficiencies, and exploring new opportunities in the housing sector.
-
Market Conditions: The company’s performance highlights its resilience amidst fluctuating market conditions. Beazer Homes is well-positioned to leverage its strengths and adapt to evolving market dynamics.
-
Future Outlook: Looking ahead, Beazer Homes remains optimistic about its growth prospects. The company plans to continue focusing on profitability and strategic expansion to enhance its market position and shareholder value.
Implications for Investors and the Housing Sector
-
Investment Considerations: Beazer Homes’ strong profitability performance and adjusted EBITDA highlight attractive investment opportunities. Investors should consider the company’s financial health and strategic focus when evaluating potential investments.
-
Housing Market Trends: The company’s achievements reflect broader trends in the housing sector, including the importance of operational efficiency and profitability. Understanding these trends can provide valuable insights for investors and industry participants.
-
Strategic Focus: Beazer Homes’ emphasis on profitability and market expansion underscores the importance of strategic planning in the housing industry. Investors should monitor the company’s initiatives and performance to assess future growth potential.
-
Growth Potential: Despite current market conditions, Beazer Homes’ solid financial performance and strategic focus position it well for continued success. Staying informed about the company’s developments and industry trends can aid in making informed investment decisions.
Enhance Your Investment Analysis
To gain deeper insights into financial performance and make informed investment decisions, leverage advanced financial tools for comprehensive analysis. FMP’s Owner Earnings API offers a detailed view of a company’s true profitability, including all expenses, taxes, and debt payments.
???? Unlock True Profitability Insights with FMP's Owner Earnings API!
Assess a company’s financial health and compare it with competitors using precise, data-driven insights. Explore the API here: FMP Owner Earnings API.
Stay ahead of market trends and enhance your investment strategies with accurate financial data!
