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Beazer Homes USA Inc  (NYSE:BZH)
Q1 2019 Earnings Conference Call
Feb. 04, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the Beazer Homes Earnings Conference Call for the quarter ended December 31, 2018. 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, Vice President and Treasurer.

David I. Goldberg -- Vice President & Treasurer

Thank you. Good afternoon, and welcome to the Beazer Homes conference call discussing our results for the first quarter of fiscal 2019. Before we begin, you should be aware that during this call, we'll be making forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors, which are described in our SEC filings, including our Form 10-K, which may cause actual results to differ materially from our projections. Any forward-looking statement speaks only as of the date the statement is made, and we do not undertake any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. New factors emerge from time-to-time, and it's simply not possible to predict all such factors.

Joining me today are Allan Merrill, our President and Chief Executive Officer; and Bob Salomon, our Executive Vice President and Chief Financial Officer. On our call today, Allan will review highlights from the first quarter and provide perspective on how we are adjusting to changing conditions in the housing market.

Bob will cover our first quarter results in greater depth, as well as our expectations for the second quarter of fiscal 2019. I will then come back to provide more detail about our land spend in the quarter and our updated capital allocation priorities followed by a wrap-up by Allan. After our prepared remarks, we'll take questions in the time remaining. I will now turn the call over to Allan.

Allan P. Merrill -- Chief Executive Officer, President & Director

Thanks, David, and thank you for joining us on our call this afternoon. By now, it's been well documented that conditions in the housing market weakened substantially during the final months of the calendar year. A combination of buyer concerns, highlighted by affordability in mortgage rates, led to weaker-than-anticipated demand for new homes.

In spite of this more challenging environment, we had a number of achievements. Specifically, we grew our top line by 9%, as we benefited from increased home closings and a higher ASP. This increase in ASP resulted from a geographic mix shift rather than a change in our customer segmentation. We reduced our overhead as a percentage of total revenue remaining among the industry leaders in overhead dollars for home closed.

We generated $27 million of adjusted EBITDA and $0.23 in earnings per share, which benefited from sizable tax credits earned from our long-standing leadership in building energy efficient homes. And finally, we completed the first portion of our share repurchase program, spending $16.5 million to buy back about 5% of our shares, well below book value. In short, we continued the execution of our balanced growth strategy.

We have explained our customer-facing market position over the last few years in one simple sentence. We deliver extraordinary value at an affordable price primarily to millennials and baby boomers. That positioning remains demographically sound and if anything, even more attractive in affordability challenged environment. And we're taking steps to enhance this position.

Here are some examples. First, we've been refining both the mix and feature levels of homes available on every community. We don't need to introduce a lot of new and untested plans to meet the needs of affordability conscious buyers. Instead, by tweaking the breadth of offerings within a community and adjusting feature levels to emphasize the elements most valued by buyers, we're building our best-selling plans even more frequently and less expensively. And because all of our plans contain a number of pre-engineered structural options at no additional cost, our buyers can still configure their homes to fit their lifestyle.

Second, we are getting better at demonstrating the value of buying an ENERGY STAR certified home. Very few national builders attempt to adhere to the full ENERGY STAR requirements and then, test every single home they deliver. Even fewer take the steps necessary to deliver a home with an ACH score or air changes per hour below four; we do. As we better educate buyers about the monthly cost savings that result from our award-winning building practices, we're delivering affordability by means other than simply increasing incentives.

And third, we're extending our innovative and industry-leading Mortgage Choice platform, which requires a cultivated group of lenders to compete for our buyers' business. This competitive tension between lenders in the qualification, underwriting and pricing of mortgages is a huge advantage for home buyers.

Our technology platform will soon make side-by-side comparisons even easier, ensuring that our buyers are not paying more for a mortgage than they have to. In addition to these operational improvements, we've modified our capital allocation strategy to adapt to a less certain demand environment. From a land acquisition perspective, we've tightened our underwriting to account for the likelihood of higher mortgage rates in the future.

In dollar terms, we previously expected land spending between $500 million and $600 million this year. We now expect to be near the low end of this range. In terms of returning capital to investors, in November, we announced that our Board has authorized the repurchase of up to $50 million of stock. We also said that any buybacks would be matched by a comparable debt reduction by the end of the fiscal year.

Through last week, our total share repurchases had grown to nearly $23 million, representing approximately 2.1 million shares. We expect to buy back additional shares this year, although the dollar value and timing remain subject to market conditions. What's changed is that we now expect our debt retirement will exceed the dollar value of our share repurchases as we continue to reduce debt as a part of our balanced growth strategy.

Finally, I'd like to discuss our full year target of achieving EPS above (ph) $2.00. The energy and confidence in our sales offices was much improved in January, and sales trends were stronger than in December. But the spring selling season is just getting under way, so it is too early for us to have much visibility about reaching our target. It's clear that with the sales and margin challenges in the first quarter and backlog margins a bit lower than anticipated, we have our work cut out for us. But there are some reasons for optimism.

From a market perspective, we have lower mortgage rates, less capital market's volatility, continuing job and wage growth and a constrained supply of new homes. Internally, we are anticipating growth in our community count all year and we will benefit from further share and debt repurchases. Maybe most importantly, we have a great team committed to driving the best possible results of our communities.

At this point, I'll turn the call over to Bob to walk through the results in more detail.

Robert L. Salomon -- Chief Financial Officer and Executive Vice President

Thanks, Allan. And good afternoon, everyone. Before discussing our results, I'd like to give some context on our first quarter strategy. Normally during this time of year, we emphasize selling to-be-built homes as we look to build our backlog for the fiscal year. This year was a little different. With significant price discounting in the market, we chose to focus on selling and closing specs making deep discounts on to-be-built homes. As such, specs represented a substantially higher percentage of our sales at nearly 43%, up from 32% the prior year.

Specs were over 50% of our closings for the first time since 2013, leading to slightly lower margins relative to our initial expectations. Looking at our first quarter results compared to the prior year. New home orders decreased 12% to 967 (ph), as sales per community per month were 2.0. We note that our orders in the first quarter of last year were up 10%, driven by our sales pace of 2.4, which was well above historical levels. Homebuilding revenue rose 9%, $401 million, driven by a 2% growth in closings, combined with a 7% increase in ASP.

Our backlog conversion ratio was over 66%, up nearly 900 basis points in part due to the greater number of specs sold and closed within the quarter. Our average community count rose to 160, an increase of five communities from the previous year, and we ended the quarter with 162 active communities.

Our first quarter gross margin, excluding amortized interest, impairments and abandonments, was 19.7%, about 30 basis points below our expectations, primarily because of increased incentives on spec sales.

SG&A as a percentage of total revenue was 13.5%, down 40 basis points. These results led to adjusted EBITDA of $27 million, down about 6%. Total GAAP interest expense was down more than $2 million.

Finally, net income from continuing operations was over $7 million, which included energy tax credits of $5 million.

Turning to our expectations for the second quarter. Although these expectations anticipate some seasonal improvement, they reflect a more challenging environment than last year. As it relates to our orders, we expect our average community count to be up between 5% and 10%. Estimating our sales pace is obviously much more difficult. If we experience a year-over-year reduction in pace similar to the first quarter, our orders would be down between 5% and 10%. Of course, if the selling season continues, if there is an improvement, we would expect to be a little bit better than that.

We'd also note that last year's second quarter represents a particularly challenging comparison as the sales pace we generated was the highest we've achieved in any quarter in the last decade.

Our ASP should be around $370,000, up versus the prior year and approximately in line with Q1. We expect the backlog conversion in the low 70% range, again reflecting a higher mix of spec closings.

In turn, our emphasis on specs and driving pace should result in a gross margin in the low to mid-19% range. On an absolute dollar basis, SG&A expense should be down versus the prior year. As a percentage of total revenue, it's likely to be up slightly. Taking together, we don't expect to reach last year's EBITDA. And finally, the cash component of land spend should be relatively flat with last year.

At this point, I'll turn it over to David.

David I. Goldberg -- Vice President & Treasurer

Thanks, Bob. In the quarter, we spent $121 million on land and development, down 15% versus the prior year. The decrease in our land spending was primarily driven by our more stringent underwriting and our pursuit of more option deals.

The objective of our balanced growth strategy is to drive higher returns on our assets by improving our EBITDA without increasing our asset base. You can see the success we've achieved thus far on Slide 10. Looking forward, we expect additional improvement as we currently have more than $500 million of non-earning assets, nearly one-third of which will begin producing revenue this year.

On Slide 11, we outline the components of our expected community count growth for the coming quarters. We continue to expect to end fiscal 2019 with more than 170 active communities, though forecasting exact quarterly trends is challenging given the uncertainty around the timing for community activations and closeouts.

As Allan discussed earlier, we've made a great deal of progress with the execution of our share repurchase program since its announcement in November. Since completing our ASR in the first quarter, we have continued to repurchase shares, bringing our total buybacks to more than 2.1 million shares. Our repurchases have been completed at an average price of $10.84 or 53% of our book value. At these levels, it's an easy decision for us to invest in our existing assets.

Over the last 11 years, we've made significant strides in improving our leverage, having reduced our total indebtedness by more than $500 million. Since fiscal 2015, our net debt to adjusted EBITDA has declined to 5.8 times, and we're targeting net debt to adjusted EBITDA in the 4s by improving our profitability, further reducing debt and activating formerly non-earning capital.

With that, let me turn the call back over to Allan for his conclusion.

Allan P. Merrill -- Chief Executive Officer, President & Director

Thanks, David. As we head into the spring selling season, we are refining our balanced growth strategy to adapt to the current environment. To strengthen our ability to deliver extraordinary value at an affordable price, we're simplifying our product offering to reduce costs, building energy-efficient homes to drive down the cost of home ownership and extending our Mortgage Choice platform to further benefit our buyers. At the same time, to align our capital allocation plan, we are tightening our land underwriting standards, repurchasing stock at a significant discount to book value, and we're increasing the scale of our debt repurchases. I want to thank our team for their ongoing efforts. I'm confident that we have the people, the strategy and the resources to execute our plan over the coming years.

And with that, I'll turn the call over to the operator to take us into Q&A.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Michael Rehaut with JPMorgan. You may go ahead.

Michael Rehaut -- JPMorgan -- Analyst

Hi, good afternoon, everyone.

Allan P. Merrill -- Chief Executive Officer, President & Director

Hi, Mike.

Michael Rehaut -- JPMorgan -- Analyst

First question, I just wanted to focusing on the gross margins a little bit. The -- a little bit of downside relative to your expectations or your guidance in 1Q and I guess, you're expecting 2Q to be a little bit lower sequentially as well. Just wanted to confirm, I believe in your script, you said low to mid 19%. The slide just says, plus or minus 19.5%. So I just want to make sure that where the correct guidance is, the low to mid 19s. And what do you think the risk is to that in terms of incentives coming through at a faster pace. Are there any regions or price points that you feel are particularly vulnerable going in over the next three months?

Allan P. Merrill -- Chief Executive Officer, President & Director

Good afternoon, Mike, I'll take the first stab at this. I think you said it correctly, the margin in the quarter was a little softer than we had anticipated and it really was pretty simple. It was a function of selling and closing more specs as a percentage of our total in the quarter, and those specs carrying slightly higher discounts, that was kind of the environment of Q1.

We did sell specs in Q1 that will close in Q2. We've got those in backlog. And so when I refer to margin and backlog being a little lower than we had anticipated, it's really because of that effort. We were pretty intentional about not getting deep in terms of discounts on to-be-builts in Q1. We wanted to kind of see how the spring season played out before we did that, because as you know that October to December time period in any year is a bit of a challenging quarter just because we run into the fiscal year ends of a lot of our competitors and there's typically some different kind of competitive pressure. So we just didn't -- we didn't feel like getting very deep on the to-be-builts.

As we think about Q2, we've got that Q1 sales environment that we were in coming through the margins, but I would say as we look out a little bit further, there are couple of things that give us a little bit of optimism and you talked about the areas of risk and the fact is, framing costs have come down nicely. We'll start to see some benefit from that in Q3 and Q4. And I think we're also encouraged that some of the discounts that were present in that December quarter as we look around each of our markets, most of them were tied to specific homes and specific periods of time and it feels a little bit different. I can't go through 16 markets, but I would tell you, I've been in nearly a dozen of our markets since Christmas. It feels different.

Michael Rehaut -- JPMorgan -- Analyst

Thank you for that, Allan. And before I ask my second question, I just want to make sure the guidance for 2Q, the slide versus the script, is it in the low to mid-19%, that's how we should think about it?

Allan P. Merrill -- Chief Executive Officer, President & Director

Yes, I think the words, we're trying to capture a little bit more complexity, then the plus-minus on the 19.5%, that somewhere in the low 19s to the mid-19s, and I don't know exactly where the mid-19s are. They're probably a little higher than 19.5%. So the range would include numbers above 19% to just about 19.5%.

Michael Rehaut -- JPMorgan -- Analyst

Okay, and thank you for that. And just the second question on -- you had alluded to this at the -- in your comments just now and before in the script, the January feeling a little bit better and January orders stronger than December. Perhaps it might be helpful, if possible, to give us month-by-month what you did in order growth during your first quarter, your December quarter and how January stacks up against that and what you think might be the drivers of that improvement might be.

Allan P. Merrill -- Chief Executive Officer, President & Director

Okay, I'll do that. I'll do it sort of directionally as opposed to precision. What I would tell you is that for us, the first quarter was pretty volatile. October, we were actually very slightly up year-over-year in orders. In November, we were down very low teens and in December, we were down around 20%. So there was a real shift between October and December. Now that's the Company in the aggregate, I will tell you the picture is more complicated underneath. There were some divisions where November was a little weaker than December, but I've described kind of on balance what happened.

In January, I am happy about the fact that we actually outsold January of '16, January of '17. We didn't quite sell what we did in January of '18. But it wasn't down nearly what we were down in November or December.

Michael Rehaut -- JPMorgan -- Analyst

So just to triangulate and I appreciate you let me push at you, see if you answer it, but -- and might have think more of that when you say down modestly, maybe it's that down 5% to 10% that you're kind of pointing to for potentially the overall quarter.

Allan P. Merrill -- Chief Executive Officer, President & Director

Yes and it's shifted -- I think we were very careful on our words around the Q2 pace guidance. We had a monster pace in Q2 last year, which we acknowledge and Bob talked about. What we said is with the community count that we think will be up between 5% and 10%. If we matched the pace reduction of the first quarter and we rounded slightly, it was 14%, if we call it 15%, you sort of offset 5% to 10% on the plus side, with 15% on the downside. Orders would be down in that 5% to 10% range.

Separately, what I just told you was that January, we were down over year not as much as we were in December or not quite where we were in November, but we were down year-over-year. I look at it in a little different context and I mentioned this, we were up over '16 and '17, and in '16, we had quite a few more communities. So I -- that's where I saw some signs and it definitely during the month, that first week of January is never going to be a great week. The second week was OK, but it was a little better in the back half. And I -- we are trying to be extremely careful. I don't want people to extrapolate from a day, from a week. I'm trying to give you the whole picture, October, November, December and January.

I don't know for sure that the pace is going to be down, the same as the pace in the first quarter, but that's kind of the basis that we used to talk about orders for the quarter.

Michael Rehaut -- JPMorgan -- Analyst

Okay. Thank you.

Allan P. Merrill -- Chief Executive Officer, President & Director

Thanks, Mike.

Operator

Thank you. The next question comes from Alan Ratner with Zelman & Associates. You may go ahead.

Alan Ratner -- Zelman & Associates -- Analyst

Hey guys, good afternoon. Thanks for taking the questions here. So I guess, just taking a little bit of a different approach, I'm just thinking a little bit more about the pricing environment through the quarter and into January. Obviously, we've heard from some other builders a real focus on volume and then, effectively margin being the plug and doing whatever they need to do to hit a certain volume targets. So it seems like the incentive environment got pretty difficult, certainly through your fiscal first quarter. Curious thus far into January, have you guys seen any improvement in that? Has there been any pullback on incentives? Any return of some modest pricing power? Just given the fact it seems like most builders are feeling a bit better about activity through the month.

Allan P. Merrill -- Chief Executive Officer, President & Director

Yes, I mean, I think most builders and I -- it's always dangerous, because I'm sure there are exceptions to this, tried to tie their deepest discounts in that December quarter to their older specs, their finished specs, we did that as well. And we were pretty clear about the fact that there would be price increases and that those discounts would expire 12/31. And it didn't lead to a great first week of January, because they did in fact go away, but as things -- as I talked about just a second ago, as they've gotten a little better in January. We haven't gone back to the well like we did in November and December to stimulate sales.

Alan Ratner -- Zelman & Associates -- Analyst

Okay, that's helpful. And then I guess just on the spec topic in general. So your spec count is up about 25% year-over-year, completed is up, it looks maybe a little bit more than that. We're seeing similar numbers from other builders, how would you characterize the spec environment today heading into the selling season. Do you think that there is still a little bit more inventory on the ground and that builders would prefer or would you characterize it as healthy?

Allan P. Merrill -- Chief Executive Officer, President & Director

I think every city is a little bit different, Alan. I wouldn't say there is any market where the aggregate level really gives us concern. There is some where it's still on the very low side even with the increases that we've seen, and there are others that are kind of more back into, what I call it, normalized mode. But our view was with prospects for some volatility in rates this year, we wanted to be prepared for a better spring selling season where we could sell right to an earlier closing date. Others probably had a similar motivation, but that's what we were thinking.

Alan Ratner -- Zelman & Associates -- Analyst

Okay. I appreciate that. Thanks guys.

Operator

Thank you. The next question comes from Susan Maklari with Credit Suisse. You may go ahead.

Christopher Kalata -- Credit Suisse -- Analyst

Hi, this is Chris Kalata on for Susan, and thanks for taking the questions.

Allan P. Merrill -- Chief Executive Officer, President & Director

Hi, Chris.

Christopher Kalata -- Credit Suisse -- Analyst

Questions just on -- I was going to ask just inventory levels going into the spring, given that you guys sold through a significant amount of specs this quarter. How do you feel your positioning is going to this year, if we do see demand coming in ahead of expectations?

Allan P. Merrill -- Chief Executive Officer, President & Director

Well, as we were talking about in the prior question, Chris, we're up about 160-ish specs year-over-year, and mix of to-be-under construction and completed. So actually, we've got a little better inventory position today than we did a year ago. Now it's on a slightly larger community count, but we feel pretty good about participating in an improved demand environment.

Christopher Kalata -- Credit Suisse -- Analyst

Okay, great. And then just on the cost side of things. I know you guys are expecting to get some incremental tailwinds from lower lumber prices, but in terms of labor given the slowdown in activity, is there something quantifiable on the labor side that you feel to -- you expect to realize going into 2019?

Allan P. Merrill -- Chief Executive Officer, President & Director

I do think that we will realize cost savings. I think, trying to put it in buckets between product and labor is challenging. What we've tried to do rather than going back to the trade base and demanding things is change the business a little bit. I talked about changing specification levels, which takes cost out of homes. I also talked about making sure that we had exactly the right line up of floor plans in each community. As we have slightly fewer floor plans available per community, we're getting a high return or a higher frequency of individual plans and that really is one of the keys to driving lower production costs.

If we can build the same plan a few more times within a community, in a quarter and then in a year, we definitely generate some savings from that. So I think there are some pricing opportunities, but we're trying to do our bit on the frequency and on the features side.

Christopher Kalata -- Credit Suisse -- Analyst

Got it. Thanks a lot.

Operator

Thank you. The next question comes from Jay McCanless with Wedbush. You may go ahead.

Jay McCanless -- Wedbush -- Analyst

Hi, good afternoon, everyone. First question I had with the can rate even for soft (ph) as the orders where can rate didn't move up that much. So I just -- I wanted to find out, is it more about the price right now? We're getting to that monthly payment number or is there something else out there that's weighing on it more than just simple getting to the right monthly number?

Allan P. Merrill -- Chief Executive Officer, President & Director

Well, right now, it's a little complicated. I think if we're talking about November and December, which is really obviously the period when the cans occurred. First of all, you're right. It didn't move very much. People who are out in October, November and December were looking for a deal, and they negotiated and many of them got a great deal. And so, it didn't surprise me that there wasn't a big spike in the can rate. We pivoted as we talked about and had more spec sales than to-be-built sales. And I think when you get into those homes ready to close in 30, 45, 60 days, you're also dealing in an environment of slightly lower cans.

Your broader question is a great one, and it's something we talk about all the time with our sales team, which is the structure of incentives and what are you trying to incent, putting more stuff in a house, that's not a great incentive in the current environment. But incentives that get to depending on the buyer and depending on the community either less cash to close or more frequently, the monthly payment, that is where we find success with directing our incentive dollars.

Jay McCanless -- Wedbush -- Analyst

Got it. And thank you for that. So the next question I had, it looked like the Southeast after having a really good 4Q in order growth, kind of fell down in 1Q was a pretty big decline. Which areas in the Southeast really drove that weakness and what have you seen from those areas that with January?

Allan P. Merrill -- Chief Executive Officer, President & Director

Our Southeast is the Carolinas, Florida and Atlanta. And they were very volatile intra-quarter, surprising as it is. The Southeast for us was actually up in November, which tells you a little bit about how tough December was. So that week-to-week, month-to-month dynamic makes it a little bit difficult to sort of paint with a broad brush. What I'd say is the characteristic of January that I've described where it didn't feel like December anymore was absolutely true in those markets as well. And I think we have pretty high expectations, both for Atlanta and Orlando this year.

Jay McCanless -- Wedbush -- Analyst

The next one I had, could you talk about with the 120 basis point decline in the gross margin? How much of that was the spec mix versus higher input cost?

Allan P. Merrill -- Chief Executive Officer, President & Director

So going into the quarter, Jay, we had kind of guided in the range of 20%, which would get you most of the 120 basis points. What we talked about in the script was there was probably 30-extra basis points of margin pressure that arose specifically because of the product of a higher percentage of specs sold and closed in the quarter and below our margin than anticipated on those specific sales. That's where that extra 30 basis points came from.

The broader picture is more complicated because there were a number of things going on. I mean, we knew coming into this year and it's what was in our guidance that we had more land held for future development assets that were becoming active, more land banking assets and we had just a little bit of Venture headwind in the quarter, which we had exactly what we expected. So those were all factors that were kind of into the guidance. It was that extra 30 basis points around the spec mix and the spec margins that I called out.

Jay McCanless -- Wedbush -- Analyst

Last one from me and I'll hand it over. The -- we've heard several builders talk about moving their underwriting standards up, just like you guys talked about for higher mortgage rates. I guess, number one, how much of your current land holdings would -- do you think could sustain higher mortgage rates, and the second part of it, will your land held for future development assets that you're bringing out, is there a threshold in terms of mortgage rates where it doesn't become viable to bring most of those assets out anymore?

Allan P. Merrill -- Chief Executive Officer, President & Director

To the last question, there is no reasonable scenario where the change in mortgage rates is really going to have a big impact of bringing them out. When they come out, they typically have margins that are below the Company average, maybe well below and then, we work them. And we've had pretty good success at being able to work up those margins over time as those communities gain traction.

I think in terms of the portfolio at large, I think the portfolio is fine. The issue is in a higher mortgage rate environment. We may have margin pressures and it can have an effect on pace, but in terms of -- is there some portion of the portfolio that can't perform in a higher rate environment? No, it's a question of what offsets and what adjustments can we make to deal with that. And the new deals that we're underwriting to those prospectively and potentially higher mortgage rates is just effectively a little bit more cushion in those deals.

Jay McCanless -- Wedbush -- Analyst

Got it. Thanks. Thank you.

Allan P. Merrill -- Chief Executive Officer, President & Director

Thanks, Jay.

Operator

Thank you. The next question comes from Alex Barron with Housing Research Center. You may go ahead.

Alex Barron -- Housing Research Center -- Analyst

Yes, thank you. I was curious if you can comment on how many orders came from the Venture acquisition?

Allan P. Merrill -- Chief Executive Officer, President & Director

I don't actually have that number. Atlanta is still a relatively small division for us, and we don't break out individual divisions, let alone that one transaction. It was a portion of Atlanta, which is a portion of the Southeast. It's worth playing out that we are very happy with the land that we bought and things are going well in terms of integration. So we're very pleased with the integration and the M&A activity we completed.

Alex Barron -- Housing Research Center -- Analyst

Got it. Okay. And then, I guess my other question was, it seems like the bigger builders have kind of expressed that they want to take other builders market share and they're willing to sacrifice margin. So I'm kind of curious how you guys are approaching that level of competition? And what kind of incentives are you finding that are the most effective in that type of mindset?

Allan P. Merrill -- Chief Executive Officer, President & Director

So, as I talked about, I mean we've been preaching this for some time. We want to be great value, and the question is do we have an equation that translates into value for our customer. There is a price component to it for sure. But value is also I can make structural changes to a Beazer Home at no additional cost. Value is also, we've got an incredibly competitive and transparent mortgage process, which is a huge differentiator for customers and then the energy efficiency side. So for us, a big part of the discussion is we're going to compete in the marketplace, but we are absolutely going to lead with our value proposition, not just price.

Alex Barron -- Housing Research Center -- Analyst

Got it. Okay, thank you so much.

Operator

Thank you. (Operator Instructions) Our next question comes from Michael Rehaut with JPMorgan. You may go ahead.

Michael Rehaut -- JPMorgan -- Analyst

Hi, thanks for taking my follow-up. I just wanted to get a sense in obviously understanding -- there's certainly many different variables month-to-month, week-to-week. And so, perhaps it's hard to gain too much of a understanding of the underlying market when you're talking about weeks. But it was interesting to me that you said that you had a little bit of higher incentives toward the end of the fiscal first quarter and your order growth was the -- had the biggest year-over-year decline in December, yet you didn't reup some of those incentives in December and your January order decline was less.

So I'm just kind of curious on what you would ascribe some of that -- some of those better trends that you saw started to see emerge in the back half of January. If it's perhaps rates have pulled back a little bit or just affirming of some of the markets, maybe less jitters out there from consumers, any type of insights around what drove that lesser decline in January?

Allan P. Merrill -- Chief Executive Officer, President & Director

Well, we definitely have what we're hearing from our sales team, and I've spent a fair bit of time, as I talked about out in the field this month or in January. And now it's tough, you get an anecdote here and an anecdote there. But over time, it starts to kind of resonate. What our sales team told me is that what they heard in November and December, so their buyers were saying things like, hey, it's OK to wait, prices and incentives may get better from here. What they were hearing in January and what they were kind of excited about is you pointed out, rates are better, but also, the buyers that have come back have found out that those incentives are no longer available. And that has the effect of sort of focusing the mind.

Now If it was here in November, and we said it was gone in December, and here we are in January and either that home sold to someone who took that incentive or that incentive is no longer available, that's one of those things that we can't dictate the market, but I think more broadly, it was that kind of dynamic that played out a little bit that we're experiencing. Now, how far that goes, what that means for February and March, which are clearly bigger and more important months in the spring selling season. I'm cautious, but without -- with some -- a measure of optimism.

Michael Rehaut -- JPMorgan -- Analyst

Okay, great and I appreciate that Allan. Thank you.

Allan P. Merrill -- Chief Executive Officer, President & Director

Thanks, Mike.

Operator

Thank you, and please standby for any further questions. (Operator Instructions). One moment please.

Allan P. Merrill -- Chief Executive Officer, President & Director

Sounds like that's it.

Operator

There are no further questions at this time.

Allan P. Merrill -- Chief Executive Officer, President & Director

All right. Well, thank you very much. And thank you all for participating in our call. We look forward to visiting with you again either during the quarter on our next earning call in early May. Thank you.

Operator

Thank you. That does conclude today's conference. All participants may disconnect.

Duration: 39 minutes

Call participants:

David I. Goldberg -- Vice President & Treasurer

Allan P. Merrill -- Chief Executive Officer, President & Director

Robert L. Salomon -- Chief Financial Officer and Executive Vice President

Michael Rehaut -- JPMorgan -- Analyst

Alan Ratner -- Zelman & Associates -- Analyst

Christopher Kalata -- Credit Suisse -- Analyst

Jay McCanless -- Wedbush -- Analyst

Alex Barron -- Housing Research Center -- Analyst

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