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Text: New factors emerge from time to time and it is simply not possible to predict all such factors.
On our call today 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.
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 strength in 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 in the form of a job, and homes for sale that they can afford.
With vaccines at hand, we are optimistic that economic and job growth may resume as soon as this spring.
In that case the concern about the durability of demand may be better seen as a question about affordability.
Affordability ultimately boils down to mortgage rates and home prices, however the Fed is on record is supporting low rates for an extended period, we know we have to work hard to keep home prices within the reach of most buyers, and that is exactly why our positioning is so important.
We believe we're in the right markets, with the best job growth.
We're targeting the largest buyer segments baby boomers and millennials, and we focus on delivering exceptional value at an affordable price, not competing primarily on price.
Ultimately this positioning gives us confidence that our pivot toward growth will allow us to fully participate in a strong housing market over the next several years.
As we enter this springs' selling season we have an unusually high degree of visibility and therefore confidence in our likely full-year results.
That's because the dollar value of our backlog is up nearly 60% compared to last year.
So today, we are increasing our expectations for each of the objectives we outlined for fiscal 2021.
Dave will provide more precise figures in his comments, but we now expect higher earnings and increased land activity this year, while exceeding earlier debt repayment objectives.
In summary, we're going to make significant progress on our balanced growth strategy, which is designed to grow profitability faster than assets and revenue from a more efficient and less leveraged balance sheet.
Although ESG is receiving increased attention, it isn't something new at Beazer.
We have been addressing all three facets of ESG for years, because we see it as fundamental to fulfilling our purpose statement which we've included on Slide 7.
Today, I'd like to draw your attention to the significant commitment we announced in our most recent proxy statement, that will result in a reduction in greenhouse gas emissions.
In short, we have committed that by the end of 2025, every home we build will be Net Zero Energy Ready.
In numeric terms, it means all of our homes will achieve a Home Energy Rating System or HERS rating of 45 or less, which is an energy conservation standard that is far beyond most existing Building and Energy codes.
At this level our homes will generate as much energy as they consume by attaching a properly sized alternative energy system.
Underscoring this commitment, we're a proud builder partner of the Department of Energy's Zero Energy Ready Homes Program and we're the first national production builder to commit to building 100% of our homes in accordance with the program.
Improving energy efficiency is so important that we've made it a part of our long-term compensation plans as well.
Before turning the call back over to Dave, I want to talk about one more aspect of our ESG strategy, namely our commitment to social responsibility.
We have a long-standing relationship with Fisher House Foundation, an organization that build homes where military and veteran families can stay free of charge, while a loved one is in the hospital.
Our work with Fisher House has had a profound impact on our employees, our customers and our partners and that's caused us to want to do more.
To fund this ambition, last year we started a title insurance agency called Charity Title, that will donate 100% of its profits to charity.
By creating an innovative, dedicated funding source for our philanthropic efforts, we expect to be able to expand both our contribution levels and the number of organizations we can support.
We encourage you to review the ESG materials contained in our proxy statement in 2020 annual report, which are available in the Investor Relations section of our website.
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 offsets substantially all of our tax expense.
Taken together, this led to $12 million of net income from continuing operations or $0.40 per share, up over 3 times versus the same period last year.
Looking at the second quarter, we expect the following versus the prior year.
New home orders 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 up 10% to 15%.
There are couple of factors impacting our expectation for closings next quarter.
First, given the strength in demand, we have fewer spec homes to sell and close this quarter.
And second, we are balancing cycle time pressures with our commitment to delivering an exceptional customer experience.
Our ASP is expected to be approximately $390,000.
We note that the change in our ASP isn't reflective of our pricing power or margin opportunity, as we are constantly adjusting features and product mix to retain affordability.
In fact, this quarter we had two segments with lower ASPs and substantially higher margins.
As we described last quarter, increases in lumber prices in September and October would create a modest headwind on gross margin for the second quarter.
Despite this, we expect gross margin to be up slightly versus the same quarter last year.
SG&A as a percentage of total revenue should be down at least 50 basis points, reflecting the benefit from top-line leverage.
We expect EBITDA to be up more than 20%.
Interest amortized as a percentage of homebuilding revenue should be in the low 4s.
Our tax rate is expected to be about 25%, and combined, this should drive net income and earnings per share up more than 60%.
At the start of our fiscal year we provide our expectation for our full-year results.
Given our first quarter performance, as well as our positive outlook, we are now able to increase each of those expectations.
First, we previously expected EBITDA to be up slightly versus the prior year.
We now expect EBITDA to grow at a double-digit rate to over $220million, much faster than the growth in assets or revenue.
This improvement is largely driven by increased profitability, as we expect gross margin to be up at least 50 basis points versus the prior year in the second half of fiscal 2021.
Second we targeted double-digit earnings-per-share growth on our last call.
At the low end this would have represented earnings per share of less than $2 per share.
We now expect earnings per share of at least $2.50.
And finally, we committed to reduce debt by more than $50 million last quarter.
We now intend for that to be closer to $75 million.
We expect to end fiscal 2021 with a book value per share in excess of $22.
Our expected level of profitability, our return on average equity for the full year should be approximately 12%, and if you exclude our deferred tax assets, which don't generate profits, our ROE should be over 17%.
During the quarter, we spent $110 million on land acquisition and development and ended with nearly $500 million of liquidity, up more than $200 million versus the prior year.
We expect land spending to accelerate in the remaining quarters of 2021, ultimately exceeding the $600 million we initially anticipated, funded by our cash from this liquidity and cash from operations.
On Slide 12, we depict our expectations for near-term community count, which we still anticipate will likely trough in the 120s later this year.
We expect community count growth will be evident in fiscal 2022, as we benefit from our increased land spending.
Last quarter we said 2021 would be an important inflection here as we allocated more capital to growth and expanded our use of options.
The initial results of this effort were evident in the first quarter as we grew our active lots by about 8% to over 18,000, and importantly, we control 42% of our active lots through options at quarter end, a 7 point sequential increase.
Given our current pipeline of deals, we expect to continue to grow our land position as we move through the remainder of the year.
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 the new home market, characterized by healthy demand and constrained supply.
In November, we described fiscal 2021 as 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 one should demonstrate our opportunity to improve shareholder returns from our balanced growth and ESG strategies.
I'm confident that we have the people, the strategy and the resources to create durable value over the coming years.

user
compname reports q1 earnings per share $0.40.
q1 earnings per share $0.40.
net new orders for q1 increased to 1,442, up 15.3% from prior year.

assistant