Beazer Homes USA, Inc. Q1 FY2026 earnings call

• Started fiscal '26 in soft demand but focused on differentiation, cost reduction, and balance sheet efficiency. • Since mid-December, better traffic and buyer engagement; January sales pace in line with prior year after 8 quarters of compression. • Tangible catalysts for higher homebuilding margins in back half: reduced construction costs by over $10,000 per home (~200 basis points), mix shifts in existing communities, increase in new communities' contributions (new communities ~10% of Q1 revenue, projected 50% of Q4 revenue with higher ASP and margins), and modest shift toward to-be-built sales. • Capital allocation: selling nonstrategic assets for ~$150 million proceeds, bought back $15 million of stock in Q1, $72 million remaining on share repurchase authorization, aiming to fully execute it this year. • Community count: 167 active communities at quarter end, on track to reach >200 by end of fiscal '27. • Book value per share finished quarter above $41, goal to generate double-digit CAGR in book value per share through profitability and share repurchases.

Homebuilding revenue was $359.7 million. Homebuilding gross margin was 14% including a litigation-related charge; excluding the charge, it would have been 15.8%. Specs represented 70% of closings but only 61% of sales. Second quarter expectations include selling ~1,100 homes, closing ~800 homes with ASP around $520,000 to $525,000, adjusted homebuilding gross margin relatively flat sequentially (excluding litigation), SG&A expected to be about flat vs prior year quarter, and land sale revenue expected to be ~$30 million.

• Second quarter expected to sell ~1,100 homes, close ~800 homes with ASP ~$520,000 to $525,000, adjusted EBITDA around $5 million including land sale gains. • Goal to generate growth in EBITDA for full year, with factors needed: ASP to reach $565,000 in back half, 3 points of adjusted homebuilding gross margin expansion by Q4, SG&A growth under $25 million, execute $150 million land sales, incentives consistent, and sales pace above 2.5% in Q3-Q4. • Expect to grow book value per share by 5%-10% at year-end via share repurchases, net leverage flat at or just under 40% at fiscal year-end.

• Market conditions and competitive activity can impact achieving EBITDA growth. • Adoption of solar included homes relates to utility providers' posture, which may vary and affect margins. • Dependence on market stability and normalization for achieving full-year goals.

Q: Is your repurchase plan contingent on the timing of the $150 million profitable land sales?

A: No, not really, not contingent on specific timing of land sales.

Q: What is the gross margin spread between a build-to-order versus a spec home?

A: It depends widely, but has always been in the 4% or 5% range, possibly wider in last year.

Q: What are the reasons for improved traffic in latter half of December and January?

A: Combination of rates moving down, home prices stabilizing/coming down, incomes moving forward improving affordability, and good traction with newer communities with super high efficiency and solar included.

Q: When do solar included homes begin to flow through orders and closings?

A: Not a huge percentage now, but trending towards 20% of business by end of year, with markets like Las Vegas, Phoenix, Georgia, South Carolina having them. Solar included communities have higher margins.

Q: Drivers of to-be-built mix trend?

A: Newer communities drawing attention and inventory coming down creating buyers willing to wait.

Q: Closings growth expectation for fiscal 2026?

A: Depends on selling season and next 90 days, focus on EBITDA and book value per share growth, independent of EBITDA growth, with path to grow book value per share.

Q: Was first quarter weakness particular markets or broad-based?

A: Broad-based, with two or three divisions up, dozen or more flat or down, about 100-150 sales short of expectation, and decision not to chase volume like peers.

Q: Achievability of 2.5% sales pace in back half?

A: Achievable with normalized market, inventory levels coming down, and seen improvement in January traffic, though not easy.

Q: Shortfall in Q1 gross margin and progression into Q2?

A: Q1 gross margin 16% including litigation charge, close to guidance, back half improvement from mix shift, direct cost savings, and new starts.

Q: ASP or margin premium on newer communities?

A: Significantly higher, backlog ASP around $560 thousand from newer communities, contributing to margin lift.

Q: Is litigation expense ongoing?

A: Onetime charge related to community started in 2014, not repeating.

Q: Inventory position heading into new year?

A: Healthy, combined spec position down from 7s to 6s per community, finished inventory in good spot for spring selling season.

Q: Cycle times and ability to ramp if demand snaps back?

A: Reduced cycle time by ~2 calendar weeks in Q1, pushing cutoff date for to-be-built sales further out, well positioned to ramp if demand snaps back.

Q: Impactful intervention in housing market: rate side vs down payment side?

A: Combination of wage growth and monthly payment reduction (focus on utility savings, mortgage rate savings) more important for buyers than down payment assistance.