Beazer Homes USA, Inc. (NYSE:BZH) Q4 2019 Earnings Conference Call - Final Transcript

Nov 13, 2019 • 05:00 pm ET

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Beazer Homes USA, Inc. (NYSE:BZH) Q4 2019 Earnings Conference Call - Final Transcript

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Executive
Allan P. Merrill

and the return of nearly $90 million to investors. These debt reductions and share repurchases structurally improve earnings per share, which will be apparent in 2020. In short, despite a tough environment at the start of the fiscal year, we ended 2019 in a better position than we began.

2020 will represent another step forward in our long-term balanced growth strategy. As we have said before, the financial objective of our strategy is to generate a double-digit return on assets by growing EBITDA faster than revenue from a more efficient and less leveraged balance sheet.

While we aren't giving full year guidance, I am happy to share our goals for 2020. First, a combination of volume and margin improvements can contribute to EBITDA growth of 10% or more. Second, with a larger share of our assets now contributing to earnings, we are targeting a 10% ROA. And third, our commitment to retire more than $50 million of debt allows us to target a net debt-to-EBITDA ratio below 5 times. Achieving these goals will lead to higher earnings per share, growth in book value and further growth in our return on equity, all from a less leveraged balance sheet.

With that, I'm going to turn the call over to Bob.

Executive
Robert L. Salomon

Thanks, Allan, and good afternoon, everyone. In the fourth quarter, we built on the improvements we generated earlier in the year. New home orders increased about 12% to 1,458 as our average community count increased and our sales pace rose to its highest fourth quarter level since 2013. Homebuilding revenue increased 1.5% to $773 million, driven by a 3% increase in our ASP. Our backlog conversion ratio was up almost 300 basis points versus the prior year as we benefited from the sizable drop in cancellations and improved cycle times.

Our gross margin, excluding amortized interest impairments and abandonments, was 19.9%, ahead of our expectations, driven by our ongoing efforts to reduce incentives and simplify our product offering. SG&A, as a percentage of total revenue, was 9.5%, down 60 basis points versus the prior year. This led to adjusted EBITDA of $82.1 million in the quarter.

Finally, net income from continuing operations was $2.5 million, which was impacted by a $25 million pre-tax loss on debt extinguishment.

Turning now to our expectations for the first quarter of fiscal 2020 relative to the same quarter last year. We expect orders to be up more than 10%, driven by both community count and sales pace improvements. We expect closings to be relatively flat compared to last year, as we emphasize both margin improvement and to-be-built sales in the quarter.

Our ASP should be in the mid $370,000 range, up slightly versus the prior year. Gross margin should be between 19.5% and 20.0%, comparable to last year and our fourth quarter. This reflects our ongoing efforts to reduce incentives. In recent years, Q1 margins have been below Q4 margins by about 100 basis points, principally due to lower volume of closings in the first