Q4 2020 Toll Brothers Inc Earnings Call

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Good morning, and welcome to the toll brothers fourth quarter fiscal year end conference call on.

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After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then too.

Please note this event is being recorded.

I would now like to turn the conference over to Douglas Yearley, Chairman and Chief Executive Officer. Please go ahead.

Thank you Gary welcome and thank you for joining us I Hope you your families and colleagues are staying well.

With me today are Marty on our Chief Financial Officer, Fred Cooper, Senior VP of Finance and Investor Relations, when new Marlette, Chief Marketing Officer, and Craig Ziegler Senior VP and treasurer before.

Before I start I ask you to read the statement on forward looking information in our earnings release and on our website at <unk>.

Caution you that many statements on this call are forward looking based on assumptions about the economy growth.

Events held the net financial markets the impact of the COVID-19 pandemic and many other factors beyond our control that could significantly affect future results.

Now, let's begin I will focus primarily on the current sales environment, and then turn it over to Marty and Greg to address our financial results and our guidance.

In these challenging times, our team delivered on all fronts on our fourth quarter exceeding our expectations for sales revenues margins and earnings.

I'm tremendously proud of how we have adapted to a rapidly changing environment.

We are currently experiencing the strongest housing market I've seen in my 30 years of toll brothers and we continue to increase prices in nearly all of our communities as we focus on driving profitability in managing growth.

Strong demand began for us in mid May and that's continued through today.

In our fourth quarter, which ended October 31st net sign contracts for 3407 homes and $2.74 billion, where the highest totals for any quarter in our history up 68% in homes and 63% in dollars compared to one year ago.

In the first six weeks of our quarter through December six are.

Our non binding reservation deposits, which are a precursor to contracts are up for approximately 48 per cent compared to one year ago.

Demand has continued to be very strong in the first quarter and.

In fact, this Saturday, we will raise prices nationwide for the fifth time this calendar year.

Layered on top of these national increases are many more frequent community specific price increases.

As we previously announced midway through our fourth quarter net signed contracts were up 110%.

We strategically moderate into sales pace from the second half for the quarter by increasing prices in nearly all of our communities and limousine lottery leases in about 15% to 20% of our communities.

What this means is that for these communities, we put in place a monthly allocation of homes to sell.

We employ this strategy in some of our hottest selling communities, where there is a limited finished lots supply growth.

For extended delivery times due to prior strong sales.

Of course in these communities, we have some of the best pricing power around the country.

Weve continued its strategy into our first quarter of fiscal 2021.

Our 10.8 contracts per community were our highest fourth quarter ever and the highest for any quarter in 15 years.

Our cancellation rate for the for fourth quarter.

Fourth quarter cancellation is divided by fourth quarter contracts dropped to 5.4% from 8.9% in last years fourth quarter.

Our virus typically provide a non refundable down payment.

Of between seven and 10% of the purchase price.

Its results in the lowest cancellation rate among the major builders.

In fiscal year, 2000, Twentys fourth quarter, our traffic to deposit ratio of 9.9%.

And our traffic to agreement ratio of 6.7%.

For our second highest conversion ratios ever.

Customers, who visited our communities whether in person or online or intent on buying.

We see strength in every region, even our city living urban high rise Division, which is focused on Metro New York City is showing some signs of improvement.

We attribute the strength in demand to a number of factors some of which apply to the homebuilding industry in general and some of which are specific to toll brothers and our customers.

We believe the market is on a solid foundation and have significant room to run.

Historically low interest rates are driving the new home market at all price points, we expect low rates to continue for some time.

Additionally, a very tight resale market is leading more people to the new home market.

Currently there is only 2.5 month supply of resale home on the market for.

The lowest on record.

Resale homes are moving quickly according to redfin in October a record high 35% of all resales nationwide sold above asking for guidance.

Also there remains significant pent up demand due in part to the underproduction of new homes over the past decade, as well as the impact of many millennials delaying home ownership decisions.

We are finally seeing the millennial generation start to transition from renters to home owners.

Based on the annual average rate of new home production over the past 50 years.

And the growth in U.S. households, we estimate the industry has under produced nearly 6 million single family home since the start of the housing recovery in 2008.

That 6 million fewer people that bought a home on the last decade, who would have in prior decades.

Even now production is just reaching historic norms.

In addition to these positive industry trends there are tailwinds supporting toll brothers upscale market segment and build to order strategy.

Since most of our customers have a home to sell the tight resale market gives them confidence they can sell their home quickly and that an appreciated value that can then be reinvested in their new home.

The job picture for our customer base is solid and improving.

The work from home phenomenon is driving demand as well as it allows more buyers to live where they want.

Rather than where their job previously required.

Due to this phenomenon, we're seeing an increase in relocation traffic.

We also believe our more affluent customer will have greater flexibility to work remotely.

And is therefore it out in the market looking for other ideal home.

Our build to order model is particularly well suited to this moment as Americans place more importance on their homes, our expansive flexible floor plans provide buyers with more space for living learning working and entertaining.

Whether it's home offices fitness rooms, multi generational living suites or stunning indoor outdoor living areas. We offer the features that customers desire as they personalize their homes to reflect their lifestyles.

This quarter, our buyers added on average 22% of the delivered price or $183000 in upgrades to their homes.

So as we look for fiscal year 2021, we believe we are well positioned for growth.

With our highest year end backlog in 15 years and continued strong demand.

We expect to deliver the most home that our history in fiscal year 21.

In addition, our longer land position is helping fuel growth.

We ended fiscal year 2020, with 317 selling communities and we expect to grow this by approximately 10%.

On the end of fiscal year 2021.

We also expect our gross margin to improve over the course of the year as the price increases and strong sales since may on.

Reflected in homes, we deliver in the last three quarters of the fiscal year.

And we are very focused on improving our away.

Greg will speak more to this in a moment.

In short we are very pleased with our performance in 2020 and look forward to continued growth in fiscal 2021.

Now, let me turn it over to Marty.

Thanks, Doug.

In fiscal year, 2000, Twentys fourth quarter we.

We delivered 2900, 40 homes and generated revenues of $2.5 billion, which were up 10% on homes and 8.9% and dollars from one year ago.

Average price of homes delivered was $849000.

Delivery total exceeded our guidance. Thanks in large part to great execution by our team.

In addition, our backlog cancellation rate was lower than anticipated we.

We delivered many more spec homes than projected and.

And buyers were more eager than ever to close as soon as possible and move into their new homes.

Fourth quarter net income was $199.3 million.

Or $1.55 per share diluted.

Compared to $202.3 million and a $1.41 per share diluted one year ago.

Our fourth quarter adjusted gross margin was 24% compared.

Compared to 23.9% in both the fiscal 2023rd quarter and one year ago.

Please note that both current and prior period gross margins and SGN a expenses are higher due to a reclassification in sales commissions paid to third party brokers.

For previously included in the home building cost sales and are now in EPS today.

All historical periods.

And future projections presented reflect this reclassification.

This new treatment is consistent with the way, we treat sales commissions paid to our internal sales force and conforms our presentation to that of the majority of our homebuilder peers.

We have filed an 8-K with the FCC too detailed the amount on the room classification, but at a high level. It was approximately two percentage points of revenue in each of the last eight quarters.

Yes, Jana day as a percentage of revenues was 9.9 percentage in the quarter compared to 11.1% in the same quarter one year ago again, both of these amounts reflect the third party broker fee reclassification I just discussed and are there for about two percentage points.

Higher than they otherwise would have fit.

The year over year reduction in SGN day is due to our efforts to streamline operations and become more efficient in ways. We believe will result in permanent cost savings.

Continue to focus on additional steps to further reduce EPS Janet.

Joint venture land sales and other income was $11.2 million during the fourth quarter compared to 48.4 million in the fourth quarter of fiscal year 2019.

Impairments and write offs totaled $33.9 million in the quarter.

$6.8 million of these impairments were from Predevelopment costs on proposed projects, we controlled through options, we chose not to purchase and $18 million was associated with our strategic decision to exit two markets.

Looking forward.

We are projecting first quarter fiscal year 2021 deliveries of approximately 1675 homes with an average price of between 780000 and $800000 for.

First quarter 2021 delivery guidance reflects our team's delivery of about 450 more homes than projected in our fourth quarter of fiscal year 2020.

In addition, with our built to order models buyers contract for their customize homes and we deliver those homes nine to 12 months later nine to 12 months later.

Therefore deliveries in Q1 2021 will reflect the so slow sales environment, we experienced in March through mid May of 2020.

We expect adjusted home sales gross margin in fiscal year 2020 one's first quarter with deliveries from the slow sales period to be approximately 22.4%.

This first quarter adjusted gross margin is expected to be the low point of the year.

We expect interest in cost of sales to be approximately 2.5%.

We expect price increases from contracts signed in our third and fourth quarters of fiscal year 2020.

Positively impact margins over the course of fiscal year 2021.

And we expect adjusted home sales gross margin in fiscal year 2021 to grow steadily after the first quarter.

And be approximately 24.1%.

For the full fiscal year.

We expect interest in cost of sales for the full year to be approximately 2.5%.

We project first quarter SGN day, as a percentage of home sales revenues to be approximately 15.8% versus 16.8% one year ago.

Included in first quarter SGN today.

Is about $11 million or 80 basis points of accelerated stock compensation expense that is not expected to recur in the remainder of the year.

Again, all of these amounts reflect the rate classification of third party broker fees from cost of sales to SGN day.

First quarter other income income from unconsolidated entities and land sales gross profit is expected to be approximately $25 million.

We projected first quarter tax rate of approximately 26%.

Our first quarter weighted average share count is expected to be approximately a 129.5 million shares.

For the full fiscal year 2021.

We are projecting new home deliveries of between 90 610200 homes with an average price of between 790000 and $810000 we.

We expect approximately 60% of our deliveries to occur in our second half of the year and we expect average delivered price to dip in the second and third quarters due to mix.

We project fiscal year 2021, SGN day, as a percentage of home sales revenues to be approximately 12.2%.

We believe there is significant unrealized profits embedded in our stabilized apartment projects.

We are choosing to diverse sales of these assets until markets.

As a result fiscal year 2021, other income income from unconsolidated entities and land sales gross profit is.

It is expected to be approximately $65 million versus $51 million in fiscal year 2020 with this concentrated in the first is for.

We project full year fiscal 21 tax rate of approximately 26%.

Our weighted average share count for the full year is expected to be approximately 129.5 million share.

Now, let me turn it over to Greg.

Thanks, Marty are we is improving and should continue to improve over time.

We expect to improve our return on beginning equity in fiscal 2021 by approximately 350 basis points compared to fiscal 2020.

As we seek to drive improvement in our financial metrics, we continue to apply more rigorous underwriting threshold to new land deals to achieve both a higher gross margin.

And higher ROI.

We're focused on controlling more land through options landbank arrangements.

Joint ventures and other strategies.

We grew our owned and controlled lots to approximately 53200 lots at fiscal year end 2020.

Compared to approximately 59200 at fiscal year end 2019.

We spent 603 million in fiscal 2020 on land acquisitions come.

Compared to 1.1 billion in fiscal 2019.

So in other words with our more capital efficient land buying strategy.

We were able to acquire control of essentially the same number of high quality losses in fiscal 2020.

As we did in fiscal 2019 for about half the cash outlay.

We executed land banking transactions in fiscal 2020 that deferred approximately $190 million on land spend.

We improved our options on owned land ratio at fourth quarter end to 43% option.

Compared to 38% options at fiscal year end 2019.

We ended our fourth quarter with a very strong balance sheet.

We have $3.16 billion of liquidity.

Including 1.37 billion of cash.

And $1.79 billion available under our $1.9 billion revolving bank credit facility, which we recently extended out until November 2025.

We have no significant debt maturities until fiscal year 2022.

At fourth quarter end, our net debt to capital ratio was 33.3% from.

Compared to 32.9% one year ago.

This relatively flat net debt to capital ratio was achieved even while we repurchased approximately.

634 million of stock in fiscal 2.1.

We generated approximately $1 billion on cash flow from operations in fiscal 2001.

This was a record.

With our strong balance sheet and focus on capital efficiency.

We believe we're well positioned for growing our business, while also improving from borrowing.

Now, let me turn it back to Doug.

Thanks, Greg before I open it up to questions I want to thank the entire toll brothers team and our trade partners for.

The results, we produced together this quarter and in fiscal 2020.

This was a year like no other.

A required that we think can operate in new ways.

We had to adjust to dramatically changing conditions, while maintaining on an unwavering focus on providing our customers for the superb quality value on service mix.

We expect on demand from toll brothers.

To all of you you went the extra mile worked harder than ever before and truly extended yourselves to proved once again by our company is so special.

I'd say, thank you and especially for those of you on the front lines, who are responsible for selling and building our homes and communities the resilience and commitment our inspiring.

As we look forward to fiscal year 2021, with our record fourth quarter backlog continued strong demand community count growth improving gross margins and our focus on improving our early we are well positioned for growth in fiscal year 2021 and beyond.

Now Gary let's open it up for questions.

We will now begin the question and answer session to.

To ask a question you May press Star then one on your telephone keypad.

If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

Our first question is from Stephen Kim with Evercore ISI. Please go ahead.

Yeah, Thanks, very much guidance.

Fighting times.

I was wondering if you could talk about the difference between tolls gross margin structure generally today versus lets say 15 to 20 years ago.

Totally ignoring this reclassification issue.

It seems to me that there's generally went three main drivers right prevailing home prices.

Construction efficiency and the value add from land acquisition.

Let's let's take home prices and put them to decide because everybody can make on assumption for us what thats going to do and so I really want to look at the construction efficiency on land acquisition I would assume you're building or homes more efficiently than you did in the past, particularly relative to the private guys you compete against.

On on the land acquisition side I imagine you probably have a little bit more on a little less value add because of the move to affordable luxury and quicker turn on land and all that.

Can you help me understand how big of a drag is this move to quicker turning on land net of your better efficiency I mean, it would be reasonable to think that the net of those two factors. There's like a drag on maybe a couple of hundred basis points relative to other 10 15 years ago.

Sure I'll I'll do my best Stephen It's a big question, it's taken me back in time, which I enjoy doing.

It's hard to keep price out of it I know you asked we keep price out of it because as you know.

Back.

Back in the early two thousands there was tremendous pricing power.

And we were obviously able to drive margins very very high but on your two points, which are construction efficiency in land back. Yes, we are better builders today than we were 15 years ago. This company has matured.

There is no question that we bring efficiencies and I think you're going to see more of them as we are optimizing and rationalizing our home designs to make them much more efficient we're trying to cure rate the.

Upgrades that our clients can have so less is more it's less the contract.

It allows us to buy trades better when they have 10 or 15 structural changes to a home as opposed to 30 or 40. So we're spending a lot of time on home.

Home design and a rationalization process that is pretty.

Pretty deep into it right now we're starting to see the results of that.

On on the land acquisition side.

We are certainly not.

Tying up as many farms in the suburbs of Philadelphia.

For the suburbs of Washington, DC, or you pick the market and going through with three for five year approval process on coming out on the back end. After the market has appreciated over that time with land that is significantly under market. We still do that that's part of our mix, but as we have grown geographically.

And in many markets that have land developer that feed lots to us.

Or maybe the entitlement process isn't as Tds.

So that you don't have.

Quite quite the level of gold when you come out the back end is as you have in the places that we started this company and were bigger like the northeast mid Atlantic on shore that has had.

On a bit of a negative effect on on the margin because we don't have as much land development.

Profit that is flowing through with respect to affordable luxury.

Quite the contrary the gross margin coming out of affordable luxury the last few quarters is right there with our luxury business.

On that market has done well, we're extremely efficient on the construction side for the reasons I gave with rationalizing plans on the affordable luxury we actually offer less upgrades.

Think we're buying trades even better.

GAAP market has been strong we've seen significant pricing power.

And.

While we underwrote some of that to a little bit lower gross margin as we've discussed because it was driving a higher ROI, we because in a lot of cases, the affordable luxury land could be purchased just in time on.

On quite the contrary the gross margin has outperformed our underwriting and is right there with our luxury business.

Yeah, that's that's really encouraging so it doesn't seem like the headwind for the offset on land is all that all that great.

Great. So.

Given that Hum.

Like to delve a little bit into your comment about the strongest housing market and 30 years, you and I both go back on ways and.

Certainly not would seem to encompass the period.

Well, we all think about the housing level when time Warner and good not with the new info for rents and then I was just looking at their data, which is up 17% in the most recent week home price is up 17% and in the last three months that absolutely matches the tax for the highest level of price appreciation that we saw in the house.

Moving bubble so when you say that it should be from the environment today is stronger than it was I would assume back then.

Some commentary that would give us some contact or perspective things that you're seeing in the marketplace that would lead you to say that even relative to that period of time things are stronger now.

Sure well toll brothers is very different today than we were back then and we have many more markets to look at we have places like Boise, Idaho in Jacksonville, Florida, and we're now in Atlanta doing incredibly well I'm not going to go waste. Your time go around the country you know our business. So I have a much wider lab.

Yes.

And then I had an old five.

And what I see nationwide.

Yields stronger.

And it feels better.

And let's focus on the better part because by no means one last comment on the call I think we have a long runway on does not resemble the market.

Echo or EPS money.

Oh, what blew out of five of six was very very loose underwriting.

And I've told the story of it on meeting that blackjack dealer Invega. So on three houses and those six and.

That just can't happen today, we don't see investors in the market.

We obviously have lots of investors back then there.

Theres very low supply of used and new home.

They're huge pent up demand as I mentioned.

6 million less people buying a home in the last 12 years.

It appears we have bought in the prior decades going back for 50 years.

And we have this millennial generation.

That is now becoming home owners that is driving a lot of this activity and low interest rate that we think will be around for a long time. So.

When I say for the best market I've seen.

Because I feel so good about the sustained strength.

I'm not talking about one moment in time for you want to go there.

Last week with Red pins data with some weak in 2005.

You know I'm sure, they're comparable Stephen but I'm talking about what I'm feeling over the last six months and for all of these reasons, what I think is the sustainability of.

Of this market for a longer period of time I do not expect a 110% order growth I do not expect raising price in every other week, but I think we're going we're entering a period.

Sustain significant order growth.

Pricing power that AD for later on.

All right yes.

Great. Thanks very much on.

Appreciate it.

Thank you.

The next question is from Truman Patterson with Wells Fargo. Please go ahead.

Hi, good morning, guys.

I've been getting a little bit of.

Feedback on the call so.

For the first Doug.

I wanted to touch on on your orders decelerated from on 110% from the first half for the quarter.

40, and you said you intentionally.

You have for that growth rate for pricing limited lot releases et cetera, I'm, hoping you can help us triangulate a little bit what was pricing when you push pricing from the beginning on the quarter.

In the quarter and you said you limited lot releases and about 15% to 20% community what on trying to understand is how much to new or.

Intentional actions.

Hi, guys deceleration versus we're starting to see no.

A little bit award for me understanding.

On a bit of organic deceleration can you help us triangulate on that.

Sure.

The the move from 110% that we mentioned mid quarter to the balance of the year.

Was primarily strategic and self induced by us.

It.

We raised price is more significantly as the quarter per crest, and I talked about in 15% to 20% of our communities.

We limited.

The.

Though for lots that are available on the typical way. It works is we'll give a community.

Let's say three lots from month to sell.

And when the month begins we raise the price and when the month begins they already have people are working with because we certainly don't close the sales office by any means.

We'll we'll sell those three on the first weekend.

And then they're shut back down until the next month and then we do it again at a higher price and that has helped moderate sales only in that 15%, 15% to 20% of the communities.

Which tend to be our hot communities and they may have the biggest backlogs where the next home sold is going to be a very extended delivery and they may also have.

On you know less finished lots available we have to get land development caught out to get more asphalt on the ground. So there's a lot of different reasons why it happens, but thats the basic premise behind it.

What I am encouraged by is that I look at these six weeks of December where we continue the same strategy and we mentioned 48% up in deposits. The last couple of weeks or the last couple of weeks or stronger than the prior couple of weeks.

So overall can I tell you, it's 100% self induced of course, not we headed into Thanksgiving and now we're into December.

There has been some sticker shock out there from some clients as we've been raising prices no question, but I think it is primarily self induced on your question about incentives were up on price increase on site.

My apologies the on drivers of incentives.

We did less incentives, but the price increases.

Sure Wendy Yes, we're Ics.

From a we've been fortunate so for this year, we've been able to raise price.

Calendar year on for one for one customer for degree of new.

On the already just announced another one and so goodness in this most recent quarter you asked about yes, we are shown on a good strength.

As we look across you know for tried to sell approximately the same amount for the same house. We are we are showing somewhere in that ballpark.

Even if it's a $20000 it's not a perfect science because again, we're looking for.

For the exact how for sold but if you're looking for a rough ballpark hopefully, though give you enough contact from on now.

From the marketing.

Okay.

Good day.

No no go ahead Doug.

I was just going to say that.

It's important to understand that in addition to these nationwide price increases. We are also in most cases in most of the price increases you see or community specific.

Based on local demand.

And that is that is the driver of most of the increases but we are in the market, where we have felt comfortable and confident that nationwide.

We can take the company up and we'll have our fits one this Saturday.

Okay. Okay. So 20000 on generally an 800000, ASP, so kind of 2% to 3%.

Thank you that was for the for the expense for the quarter rate regular rate on that.

That's that's helpful.

And you know.

Your absorptions are up massively I think over 70% rate and you're still reiterating that 350 community count target are up 10% ending 2021.

But you're also discussing limiting your lot releases you know as we think about.

Your finished lot constraints, maybe even throw in labor.

But also assuming that demand.

Demand remains extremely robust through 2021.

For what do you think would be the theoretical upper limit.

Your order growth on.

Assuming that you could kind of fill.

Everybody that comes in.

Oh, we have capacity right now we are selling on the low 30.

Sales per community go back to.

Go back to Steven Kansas time, 15 years ago, we are in the mid to high Thirtys.

We're more efficient.

I talked about our plans, becoming optimized and easier to build we've come down in price with affordable luxury we've expanded geographies that have more trade base.

So theres absolutely capacity on.

Based on the sales environment that that is put in front of US we opened 110 new communities in 2020.

Obviously, there was more sellouts than we expected due to the market. We are projecting we are projecting to open between 150 and 160 new communities in 2021 so.

I'm not worried about improved lots I'm not worried about.

Capacity in the field in most divisions.

I think our ability to continue to manage and balance.

Price increases with controlled are manageable growth.

As our focus right now and I'm proud of how we're doing with it.

Okay that is extremely helpful. On just for clarity on 2020, I think the average absorption was right around 30 year, just a touch over.

You think Theres no reason, there's no constraints that you could maybe hit mid to high Thirtys in absorption race.

Rate over the next year so.

Thats correct.

We've done it before on.

Thank you appreciate it guys.

Very well from Trevor Thanks.

The next question is from Alan Ratner with Zelman and Associates. Please go ahead.

Hey, guys. Good morning, Congrats on the really strong results on this Ah interesting environment, we're in today.

My first question I was hoping to dig in on a little bit on.

Just thinking about net.

Sure.

[noise] activity curious if you could rank order maybe some of the bottlenecks you're seeing that are leading you to take those actions is it more on the land side and kind of obviously, you're expecting big community count growth through the year, but you don't want to GAAP out earlier in the year ahead of the spring orders it more on the construction side and making sure that.

That you have some accurate not only pricing on on your cost inputs, but also telling your consumers a realistic delivery date. So I'm just curious if the current quarter those bottlenecks for us.

Alan if you could repeat the first half of your question, let stay out there.

Yes for sure so.

Marty when I when I was asking about was on when you think about those 15% to 20% of communities, where you're intentionally slowing things down. Okay. So was hoping you could kind of rank order what the bottlenecks are that's causing you to take those actions that land is it construction both.

It is.

I would say number one is the length of the size of the backlog.

That is leading to the delivery date on the next home sold.

Being so far out that we need to bring it back. So if we are been so hot in a community too.

Have a backlog that is so big where the next home sold is getting a quoted delivery date of 12 13 14 months, even if it's a big complicated house.

We would rather get debt down at that community to 10, 11 months and that means raising the price slowing this sales until we get a little bit caught up.

Where we can open things back on that's number one number.

Number two would be.

On the sales have led us to get out ahead of land development.

And while we may have plenty of lots remaining in a community we need to get the roads and so that we have enough inventory of roads to build houses, we don't like selling on home.

If there's not a street in front of that lot.

Because that adds one more wrinkle aware.

Not only use have to build the house for the client for you have to get their road in for them before you can start building a house.

And there is weather delays in permitting issues and whatever else can be thrown at land development, where that adds a layer of risk as to when we can really deliver that home is being sold without a rate. So we and Thats unlimited case revenue the entire.

On on the extent of this concept a lot allocation of 16 to 20 per cent. Most of that is driven by long backlog a lesser amount of that is being driven by land development need to catch up because a faster sales.

Got it Okay, that's helpful Doug and I.

I guess.

Kind of transitioning a little bit, but somewhat related you know one of the pillars are one of the on the Lake City, we're kind of on highlighting.

Highlighting in the past as an opportunity to improve your returns is obviously inventory turnover in improving cycle times and I think that the move to affordable luxury the idea there was the diagnose overtime to bring your company wide cycle times lower obviously, the the environment from a labor perspective, probably as a headwind.

New York terms so.

How are you thinking about are we mentioned improving at 300 plus basis points, but youre.

Our buybacks back on the table or are there other things you could do recognizing that perhaps cycle times is moving in the wrong direction or are there. Other things you can do to maybe accelerate that returning even even more so in the near term.

Sure. So even in this tough market with trades being stressed and the issues that we all hear about with some.

On materials like washing machines or windows were down one week in delivery and cycle time to build on home in Q3 to Q4 and affordable luxury is a bit more than 30 days faster delivery faster construction cycle and our traditional luxury.

And I am going on.

On committed of course on committed it's my job, but I've seen.

Through our operations teams and we prove some of this is last quarter with our tremendous results.

Real strength.

In production and part of it is the affordable luxury line, we brought in some new builders that come from that background that come from more production builders part of it is this rationalization and optimization and cure rating of our plans or less is more on the houses are simpler with less upgrades.

So we are headed in the right direction the.

Now there will be some headwinds with the labor issues that are going to come to the industry.

But I'm really pleased with not only how affordable luxury is proving to be significantly shorter, but our core business in itself is coming down also.

But other initiatives along that line.

On include putting more land under option. So we can buy it just flow we need it.

Getting some seller financing doing some land banking again that gets us the land just when we need it.

Few instances doing some joint ventures will add often with other Billboard.

And Marty on him.

Just curious on buybacks, if you want to make a comment on that that has been a big driver.

Right right accounts.

We're very pleased with our liquidity position right now it gives us significant flexibility.

Certainly buybacks debt pay downs and dividends are all on the table or dividend increases all on the table, but our primary objective is to grow the commodity.

Land acquisitions, just dive in CAD and builder acquisition.

Understood. Thanks, a lot guys. Good luck.

The next question is from Michael rate Hot with JP Morgan. Please go ahead.

Thanks, Good morning, everyone and congrats on the results.

Thanks, Mike.

First question I had was just kind of circling back to your comments around pricing and gross margin, obviously very encouraging around price increases net you're able to execute rate.

When you mix earnings would properly.

They're talking about.

For what.

Right.

Non.

Would be.

800000, net would you know.

You talked about.

Little over for $30000.

Okay.

As well as many on a community level as well.

At the same time, you're talking about $20000 higher for the quarter.

Am I to think about it right that perhaps one or two of those occurred outside of fiscal fourth quarter and those are the price increases that should show up in back half 21 margins, which here.

Here are kind of back into it would be like.

Hi, Adam.

Year over year.

Right.

Your price.

Yes.

Several of those five there was there have been five price increases this calendar year.

In fact.

All of them.

No. There was there was one in the fourth quarter now there is one in the first quarter and the other one's occurred one occurred in January when the market was hot.

So the other ones have occurred before either.

For the fourth quarter orders or the one were just mentioning but again I.

Those national increases for other off a base price.

And they are not they generally run lets call it 1% as a way of just continuing to move the company.

And sort of make that corporate decision, but the bigger part of this is the weekly discussions we have and decisions we make community by community to raise price I can't emphasize enough that thats really been the driver.

Of of where Weve seen most of our price increases and we.

We came out of the early stages of the pandemic on.

Were not good to us.

We didnt have $300000 spec inventory for the renter.

To trade a similar monthly payment for running into ownership with rate and.

And so in March and April through mid May.

We were not seeing the results that the other big builders were speaking up for the reason I just gave and then.

Mid may for.

For did we see a common but we were careful on the beginning.

This was new we Didnt know how long it would last and so.

Our.

For May and June we trended we took the for sale and then in July we started taking price August we took more price September we took more and it has accelerated into on the second half for the fourth quarter and now these for six weeks of Q1.

Okay. Okay.

Thank you for that I appreciate it.

I guess secondly, I just wanted to circle back to cash.

Cash flow generation and.

Uses of that cash flow.

How we should be thinking about 2021.

If you could just kind of review what your your operating cash flow generation was this year and.

How you would expect 21 to compare to that and again.

Yes, obviously, you can be doing still a lot of investment in land and rolling out growing year community count.

And how with your balance sheet, where it is right now from a leverage standpoint.

The share count guidance looks to be roughly flat.

How any share repurchase.

May or may not may or may not play into.

Your thoughts on the next 12 months, particularly as you had some accelerated share count repurchase or share repurchase price.

Prior to the Pan debt.

So.

Michael We think 2021 will be a no other positive cash flow year significantly positive cash flow year.

[music].

Because of uncertainty in the world and the growth we're seeing.

Any buybacks are likely to be back ended.

Rather than.

If we were to do it similar to the prior year, where we did it in the front half.

But as I mentioned previously.

Our first objective is to grow the company for land opportunities in builder opportunities.

We have a bit elevated.

Debt debt debt to cap compared to other builders, we have $420 million due next.

Sorry, that's in the back of our mind and so we want to maintain flexibility to address leverage address buybacks, but mostly to buy land and builders next February 22, Yes, 22 excuse me.

Why thank you.

Well. The next question is from Anthony Pettinari with Citi. Please go ahead.

Hi, good morning.

From what when you look at buyer urgency are you seeing any meaningful difference in how consumers in your different regional markets are behaving are responding to call that I.

I think earlier in the year, you talked about community count maybe being 60 40 more insulated versus more impacted by co that just given new cases are sort of surging nationwide I am wondering if you're seeing any.

Regional differences that are noteworthy.

Early on as we talked about the northeast was certainly hit harder.

There was even construction shutdowns, which affected production, but on the sales side we were.

We were almost 100% remote for.

For a long time.

On the sales centers were by appointment only or in some cases completely closed.

Right now construction is thankfully open everywhere and we anticipate that will be the case we.

We have gone to by appointment only in certain sales offices.

On around the country, but it is not affecting.

Activity.

This is the second time for us so we're better at virtual selling.

On the website is more.

Videos for.

For photography. The sales teams are better were all better sales in other ways.

Bob.

Managing our loans.

We're very confident.

That notwithstanding some tightening of coated restrictions in zone.

Stricter stay at home orders that were going to continue.

On to see good activity I can't point to anywhere right, now, including California, which I know is very tight and Pennsylvania, and New Jersey, where the governors have been extremely conservative and the rules are very tight we're still seeing really really good activity.

So I think from.

That certainly makes us feel good the active adult buyer, which has come back nicely.

On they could certainly.

For more cautious and maybe not venture out or certainly not get on an airplane to go to a destination active adult community for.

For a couple of months, so I think that that's a that's a fair assumption on we haven't seen net debt at the moment, but I would not be surprised if you know that.

Outside of the business was to slow down a little bit.

But overall the other thing is very interesting with this.

Because people didn't travel as much for Thanksgiving and it doesn't feel like they're going to travel as much for winter holiday vacations.

And because their home working in other words the traffic during the week is higher we don't we're not just selling homes on Saturdays and Sundays on their off of work and we're selling we sold a whole bunch on homes on Thanksgiving weekend.

Many years ago, we were closed on Black Friday now Black Friday is it.

It is a big selling day people are around I think it's really changed I mean, there's still going to be a spring season.

I think mid January to mid April is still alive, and well as a new home season, but I think the highs and lows have been changed because.

People are.

Staying in place a bit more.

So I hope that answered for you.

No that's very helpful.

Apologies if I missed this on the remarks, but what level of land and development spend is implied in the outlook for 21 or what degree of spending is necessary to hit your.

10% community count growth goal.

Anthony we have all of that land.

Owned or controlled right now.

So it.

It is not a significant expenditure to to get the idle off the top my head know how many of those planned openings or controlled and require a bit of spend but we have that land.

A land bank, yes. They are currently other owner in control for fiscal 2001 openings.

Okay. That's helpful I'll turn it over.

Thanks.

The next question is from Mike Dahl with RBC capital markets. Please go ahead.

Hi, Thanks for taking my questions first one I wanted to follow up on the again on kind of the pricing Sutton.

Dynamics and just thinking about.

Tracking kind of the all in pricing when you consider kind of the cumulative effect, including local level and potentially even.

Incentives are lot premiums I think we've been tracking more and kind of like the mid maybe even high single digits cumulatively over the past.

Five six months compared to.

Yeah, I'm not sure if that like for like number is comparable to that.

For those numbers you were talking about earlier, but is that is that the ballpark that seems kind of fair value. When do you think all in net like for like pricing.

From first Mike can I just ask is the.

Are we still distorted or things better with the sound.

Right now better, but it's just a little tough so ask couple of questions.

All these years I don't know if it's our end or for the.

So for the full service, but we'll.

Sincere apologies on that where our ICEE people or at least looking into our end I'm not on.

Sure what happened.

On your question.

You're on the right ballpark, we have certain divisions.

That have had a bit of a runaway price increases that is.

Inefficiently into double digit and we have that other divisions that.

Our our lower.

123, 4% range, but.

Hi, well call the mid to high single digit growth.

Price increases is right in the right in the rate ballpark.

Okay. Thanks segment sales and my second question.

Is going back to kind of the absorption comment and yes.

I mean for new this kind of a clarification on when we think about the potential capacity to do mid thirtys or high Thirtys on.

On absorption as you've seen in home.

Prior cycles.

I guess.

When I marry that with your comments about pushing price limited lot releases is that actually the level of absorption that you view as optimal for today's positioning or is that simply just kind of a more theoretical capacity.

On to sell that I'm trying to understand where you'd really have book to run the business versus what the what the theoretical would be.

Sure, Yes, I answered the question in the context on whether we can do better and sell more homes and actually deliver them.

I'm comfortable.

Getting this company on average to the mid Thirtys.

Now that every division is different the size of the homes dictates that theres certain communities selling 2 million dollar homes, where.

That would be difficult, there's other affordable luxury communities, where we can do 40.

But but I am comfortable that we have the infrastructure to get up to the mid Thirtys and we're managing the business accordingly.

Okay, great. Thanks.

Well.

The next question is from John Lovallo with Bank of America Merrill Lynch. Please go ahead.

Hi, guys. Thank you for taking my question as well.

Starting with the base of 120 communities opened in 2020 and moving to 150 to 160 targeted this year.

Is there a rule of thumb that we can think about incremental EPS unity dollars.

Typically associated with each other.

And as they come on.

What well I think.

The first rule of thumb is many of those dollars happen nine to 15 months before you see deliveries.

As you hire a construction team menu hire a sales team that on our site specific project manager.

Et cetera.

I think the cost.

Probably run in the 75050 to $75000 per month range.

Got you that's helpful.

And then maybe changing gears to keep on capital allocation one of the things that you mentioned a couple of times Marty was the potential for strategic M&A curious when you. When you do think about that strategy are you considering potentially moving using this as a method of moving downstream and price point.

Perhaps buying a builder with lower price quite focused.

We we've evaluated those opportunities that that is.

Certainly something that we would consider if it was the right builder in the right location in it and it added value to us.

I think we've learned a lot about how to build affordable luxury I mentioned, bringing in construction teams and purchasing teams, where they didnt mentioned, but purchasing teams from bigger production home builders.

That are really good at counting every nail and every scrap of lumber.

Lumber that sits on a dumpster.

And so I don't think we need to buy a builder to learn the business and take their expertise from their local market to our national platform. I think we are now mature enough and have learned enough that that is not we don't need to pay a premium to do that but if there is an opportunity to expand our business.

Yes.

Locally or regionally.

Through an acquisition as you described then we would certainly take a hard look.

Thank you very much guys.

You're welcome.

The next question is from Susan Maklari with Goldman Sachs. Please go ahead.

Hi, Thank you good afternoon, everyone.

Hi. This is my first question thinking about.

The conference we're expecting next year is there any color that you can give us in terms of day cadence is expecting those hundred 50 years no communities to come online and on we think we should be thinking about in terms of the geographic mix in there.

Sure hold on one second.

We will get that for you.

I Love I Love on your questions get into the weeds.

[laughter].

I mean that genuine for getting to that point on the call.

Okay. So the cadence.

Okay. This looks good it's.

A few less in Q1, and then Q2 Q3 and Q4 pretty even.

Call it sort of a 35 to 45 for.

Range.

Of openings.

Per community.

On the locations are.

Spread throughout the country.

With strategically as you.

You would think.

South and west having more as more and more people chase the Sun and chase.

The jobs in the lifestyle.

So there is less coming out of the northeast.

There is less coming out of the mid Atlantic.

Although I.

We're now in Atlanta, which will contribute a bit down there and then there's cash.

Quite a bit coming out of.

The sales and the mountain states in the West.

So on as I looked as I looked at this over on not only pleased with cadence.

Not all jammed into the fourth quarter.

And I'm very pleased with the geographic.

This version.

Okay, all right that's helpful.

On on my next question Ral, There's obviously been a lot of inflation over the last.

Couple of quarters, especially in terms of lumber pricing can you maybe talk a little bit for how you are factoring that into the margin outlook on how we should be thinking about inflation generally as we look to for next year.

Okay.

So our cost.

Our up $17000.

This quarter.

And it's all lumber.

And as.

Big a number that is on.

I'm happy because it for a short window it was close to double that.

Maybe not quite double that but it was a lot more.

It has come down nicely so.

We've been very smart, we we buy lumber per as far out as we can we have panel plants.

That are on rail lines, where we're buying for.

Vinyl lumber right out of the mill Pacific Northwest and the South.

Brings that rate in on a rental railcar and drops it at our yard.

We went to very short term contracts on lumber nationwide when the price despite.

And so I'm I'm pleased with how well we manage these price increases.

And obviously I'm pleased that it feels like it's beginning to come down and we.

We hope continue to come down.

But our gross margin guidance reflects price increases to date less budgeted increases in lumber and labor.

It does not have a factor for inflation of price or inflation of labor.

And it also impacts the negative impact of mix driven by the specific region, becoming a smaller percentage of our total.

Okay got it. Thank you guys. Good luck.

Thank you.

The next question is from Ken Zener with Keybanc. Please go ahead.

Good afternoon, so afternoon everybody on.

My question is going to be focused on your rights from cash flow, which is tied basically tier lowered land intensity on.

And gets offset by vertical investments. So my first question is units under construction first backlog on many.

Many builders report units under construction, which gives us a sense of how new year backlog is so I don't know if you could.

I think you've done it before but if you could comment on how many units you have under construction.

That's going to be the first question and then for Marty land.

Land efficiency, if you look at it own land its down about 5% year over year, if you do it on a trailing.

On supply years supply basis is that a reasonable number.

To think about or I mean is there is some.

Something that could drive that more or was there something unique which led to your high percentage improvement this year.

Thank you.

And I don't have a specific number for the number of our 7800 homes in backlog that are under construction I do know that our backlog is almost a month younger than normal based on.

When the sales happened this year versus the 10 31, new your rent.

In terms of the owned land coming down that is part of our return on equity strategy to get a bit more efficient.

I think.

We don't necessarily want to see the Oneblade and go below three years of supply and so.

As we put more under option to build by quite as much as our volume goes up we are making progress in our.

Landholding officials.

Thank you.

The next question is from Jade Rahmani with KBW. Please go ahead.

Thank you very much.

Question I, usually ask just wanted to see if you could give an update as to how much capital is invested in each of the multifamily city living.

Mrs. There's been quite a few announcements on the joint venture side.

And just wanted to see if you could provide an update for that.

Greg, Yes, I do.

So it looks like year on year end 2020.

For the apartment living business. This is for our rental platform our investment in that business is approximating, let's call it $770 million.

And.

The good thing about that number is on we're actively spending a lot of time, forming joint ventures.

To recap on to recoup our investment in nothing on those.

And those and those assets on.

And bring them to market. So we're looking out over the next 12 to maybe 24 months, we'll probably bring 400 million back do.

Via JV formations.

And then if we move on to our city living platform.

Looks like we have at year end 2020 somewhere around just north of 400 million.

From a for in $10 million invested in apt on and on platform.

So we usually like to break that out just three categories for you just you have a sense of what that number means and so.

Our development assets are about 170 million and then on land for future projects is about 200 million and then on joint ventures or about $40 million.

Ill.

Yes that does and just to clarify the numbers you gave seven to 70 million 410 day in both of those are equity capital not gross capital inclusive of debt financing.

Non inclusive of debt financing right that is our cap on our capital.

Okay.

And then just secondly, you said that spec sales came in higher than expected I think last quarter. It was 18% quick delivery homes, what was the percentage this quarter.

Yes.

Q for Q4 settlement this 20% with specs on claims on the total settlements perspective. It was around 225 more spec units than in the third quarter.

Okay. Thank you very much for taking the questions.

Welcome.

The next question is from Jack Micenko was S.G. Please go ahead.

Hi.

And from a follow on to Jades question.

Okay.

On the on the fact that the 450 units.

We will put on hold or are you, saying that 225 of those were spec and then I.

I guess my question would be when we look forward to the 21 guidance.

Are you contemplating a higher mix of.

I guess quick.

Quick delivery or spec for how we will refer to them.

Next year.

Versus what we saw on fiscal 2000.

No we have less spec homes now because of how rapidly they have sold.

So I think part of it.

A part of 21 story is as we mentioned in the backlog is younger.

About almost a month younger than normal because it was sold in the second half of the year. After the market picked up for us in mid May.

And so that makes.

The homes in backlog.

Just shy of 30 days younger than a typical year.

For of course that for younger I mean, there are not as far along in construction on average as prior years, because they were sold a bit later to the lumpiness of the year.

And we also have anticipate having less spec deliveries.

We will have.

Many but we will not have that we do not expect to have that 20%. We just mentioned because we have the very strong sales we've seen.

Over the.

For the summer and this and the fall.

Okay Thats helpful Day for one to the maybe the volatility from who delivery guide as much other than we did this quarter.

The bigger question for your question for you.

Very bullish commentary.

In the press release from Weve.

Weve methods, we want to improve our lead by.

350 basis points.

Capital allocation around the build.

Versus the rental were.

City living development change I mean, it's hard to.

You got to plan these things through cycles, given that the construction timing, but.

His toll pivoting more towards.

You know traditional.

It maybe maybe less on the rental side.

Hearing that or is it just maybe the way you on that business is going to change more on a more pronounced basis.

You're hearing that we have no intention right now of buying a city living.

Property.

On that.

It will come a time when that changes for right now we're on the sidelines.

We have Greg mentioned $200 million of the city living investment is in land and.

None of that land has started so we have.

What are really good high rise sites, one in Manhattan, one in Philadelphia, one in Seattle, and one in Los Angeles that.

That are not starting right now we need to we need to get through this winter we need to see what things look like in the spring I am very encouraged by the last.

Six weeks of activity in Manhattan.

I'm not I'm not telling you it's back but it is improving.

We're hearing that buyers on with the talk of vaccines are now thinking about.

Living in New York, We are hearing a few stories on some that ran to the suburbs that are coming back to take a look but on that doesn't mean I'm ready to start a high rise in New York, because it's very different from the farm fields in the farm fields on the market roles you can do to stop build in the next day sales down the road and the highlight busy.

As once you start you are going.

And you are going to the top.

So we are being very cautious both in starting dose for buildings I mentioned and on the sidelines for new opportunities on the apartment side, our Mark our business is good for our locations are good new apartments are holding up.

Our rental rates, while they're down a little bit are hanging in there our occupancy rates are up our delinquency rates have not moved.

So overall, while the business is good.

We're being cautious.

There are not frozen out the way I'd call city living at the moment, the frozen out but were being highly highly selective on new opportunities under our apartment living platform until we have we have some more perspective and visibility on on where the multifamily business has had.

Yes, we are asking the apartment team to produce slashed digest what they have.

As quickly as they can before we pay.

Before we look to many more future opportunities.

And Marty commented in the prepared script on.

Our other income in joint venture income is guided down a bit in 21 from what we've talked about in prior years and we we have that income it's in some really good stabilized apartment buildings, but.

But we don't think right now is the time to sell those.

If that time comes in the spring or the summer, we may surprise ourselves and all of you with some more other income for the year, but thats not what were strategically planning right now, but we don't have to go out and find that other income it's there.

It will be monetized its just a question of when the best time to do that is and we don't think its right now.

Okay appreciate the color.

For your very welcome. Thank you.

The next question is from Matt Bao Li with Barclays. Please go ahead.

Hi, good afternoon, thanks for taking the questions I have another one on our.

Our OE.

2020, obviously a.

Major disruption in the spring and new halted share repurchase, but you know the market did accelerate.

Closings grew I imagine you mix for their two affordable luxury or I think I heard you say earlier that the return profile is.

Accretive to our away.

But our ROE for the full year was still down.

My question is what were the biggest challenges to our OE in 2020, and as you look forward I heard you discuss a lot of levers you're pulling which of these levers do you think are going to be kind of the incremental changes to our are we in 2021 relative to what was the challenge in 2020. Thank you.

I think the challenge in 2020.

Was our gross margin, which.

Came down from 29 team and was reflective of the sales environment.

We saw 12 months prior.

And mix shift out of some of our really high margin.

California product.

So that was the biggest challenge on return on equity in 2020.

As we move forward.

The pricing power, we have is allowing us to drive volume and drive growth.

Gross margin expansion that is improving our operating margin and.

Improving our return.

While at the same time, we are carefully managing our equity through land acquisitions, changing product mix changing and capital allocation.

And on the land buying which I think longer term is will be the number one driver I mean, there will certainly be stock buybacks.

There will certainly be dividends issued we.

We will certainly have strong markets for the AR VR OE is outsized because of pricing power and and great sales, but longer term that from.

The primary driver.

Is a obsessive focus on.

On underwriting land deals.

At a high ROI, we call. It ROI internally return on investment is how operations works around here.

The high threshold.

And I'm on wavering on it we are committed it takes a while to turn a cruise ship. Some of these deals that we approve now that have to get some entitlements or have to get some roseanne and then opened a sales center at sell a home and deliver on home.

That can take some time.

But its common.

And.

And that I think from my perspective is will be the number one long term driver.

Is this disciplined.

And the focus we now have on driving.

ROI on through the underwriting of the next piece of land bought.

Got it okay that that's very helpful color.

Second one I had was just on the closings guide.

I think I heard you say earlier that 60% of deliveries will be in the in the second half for the year and I think that number is for maybe a little elevated but not particularly unusual on a relative to prior years for toll so I'm just curious.

Just given what we're seeing in labor and cycle times is the expectation that even within that.

I don't know if you can get this detailed but it should to be even more acute for weighted than usual or is that kind of typical cadence of closings that still the right way to think about it. Thank you.

I think I think Q fuel for weighted is the right way to think about it.

Particularly based on the rapid increase in sales, we just had in the existing Q4.

Okay. Thank you Marty Thanks, Doug.

Welcome.

And the last question comes from Alex Barron with housing Research Center. Please go ahead.

Yeah. Thanks, guys appreciate it good job.

I wanted to sorry, if I missed if I missed this but the margin guidance in the per quarter was that just related to the market conditions on you.

Those orders on the back in the spring.

Yes.

For March March April have on that.

Okay got it.

And then my second question was as you've been shifting the product mix to the more affordable luxury.

Have you guys been able to.

Shorten I guess loans delivery cycle, just on the guidance it would in appearance on but maybe on businesses.

We had said earlier, Alex said taking.

30 days less to build the more affordable luxury homes.

I hope that even gets better but thats, what the number is right now.

Have there been any other offsetting factors like taking longer to get the permits or something else.

No actually it's shorter.

Because our clients don't go spend 30 day that design studio.

And figure out how they can spend a couple of hundred thousand dollars on.

Portuguese tile.

Got it okay, well best of luck for Tony on Thanks.

Thank you you're welcome.

This concludes our question and answer session I would like to turn the conference back over to Douglas Yearley for any closing remarks.

Gary Thank you very much thanks, everyone for your interest and support.

Have a wonderful holiday season.

And I hope when we speak next though we're in for sensible times.

Thanks, all take care.

The conference is now concluded. Thank you for attending today's presentation you may now disconnect.

[music].

And.

[music].

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[music].

Good morning, and.

Welcome to the toll brothers fourth quarter fiscal year end conference call.

All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then too.

Please note this event is being recorded.

I would now let's turn the conference over to Douglas Yearley, Chairman and Chief Executive Officer. Please go ahead.

Thank you Gary welcome and thank you for joining us I Hope you your families and colleagues are staying well.

With me today for Marty on our Chief Financial Officer, Fred Cooper, Senior VP of Finance and Investor Relations, when new Marlette, Chief marketing officer and credit they can work senior VP and treasurer before.

Before I start I ask you to read the statement on forward looking information on our earnings release and on our website at <unk>.

I caution you that many statements on this call are forward looking based on assumptions about the economy world.

Events held the net financial markets.

Packed other COVID-19 pandemic and many other factors beyond our control that could significantly affect future results.

Now, let's begin I will focus primarily on the current sales environment, and then turn it over to Marty and Greg to address our financial results and our guidance.

In these challenging times, our team delivered on all fronts on our fourth quarter exceeding our expectations for sales revenues margins and earnings.

I'm tremendously proud of how we haven't debt into a rapidly changing environment.

We are currently experiencing the strongest housing market I've seen in my 30 years of toll brothers and we continue to increase price isn't nearly all of our communities as we focus on driving profitability on managing growth.

Strong demand began for us in mid May and that's continued through today.

In our fourth quarter, which ended October 31st net signed contract for 3407 homes and $2.74 billion for the highest total for any quarter in our history up 68% in homes and 63% in dollars compared to one year ago.

For the first six weeks of our current through December since our.

Our non binding reservation deposits, which are a precursor to contracts are up approximately 48 per cent compared to one year ago.

Demand has continued to be very strong in the first quarter.

In fact, this Saturday, we will raise price is nationwide for the fifth time this calendar year.

Layered on top of these national increases are many more frequent community specific price increases.

As we previously announced mid way through our fourth quarter net signed contracts were up 110%.

We strategically moderate into sales pace on a second half for the quarter.

Increasing prices in nearly all of our communities and eliminating lot releases in about 15% to 20% of our communities.

What this means is that for these communities, we put in place a monthly allocation of homes to sell.

We employ that strategy in some of our hottest selling communities, where there is a limit it finished lots supply.

Or extended delivery times due to prior strong sales.

Of course in these communities, we have some of the best pricing power around the country. We've.

Moving to continue this strategy into our first quarter of fiscal 2021.

Our 10.8 contracts per community were our highest fourth quarter ever and the highest for any quarter in 15 years.

Our cancellation rate for the for fourth quarter on.

For the quarter cancellation, it's divided by fourth quarter contracts.

Dropped to 5.4% from 8.9% in last year's fourth quarter on.

Our virus typically provide a non refundable down payment.

Between seven and 10% on the purchase price.

Which results in the lowest cancellation rate among the major builders.

In fiscal year, 2024th quarter, our traffic to deposit ratio of 9.9%.

And our traffic to agreement ratio of city.

Next 0.7% for our second highest conversion ratios ever.

Customers, who visited our communities whether in person or online or intent on volume.

We see strength in every region.

Even our city living urban high rise Division, which is focused on Metro New York City is showing some signs of improvement.

We attribute the strength in demand to a number of factors some of which apply to the home building industry in general and some of which are specific to toll brothers and to our customers.

We believe the market is on a solid foundation that has significant room to run.

Historically low interest rates are driving the new home market at all price points, we expect low rates to continue for some time.

Additionally, a very tight resale market is leading more people to the new home market.

Currently there is only 2.5 month supply of resale home on the market.

On the lowest on record.

Resale homes are moving quickly according to redfin in October a record high 35% of all resales nationwide sold above asking for guidance.

Also there remains significant pent up demand due in part to the underproduction of new homes over the past decade, as well as the impact of many millennials delaying homeownership decisions.

We are finally seeing the millennial generation start to transition from.

Renters to home owners.

Based on the annual average rate of new home production over the past 50 years.

And the growth in U.S. households, we estimate the industry has under produced nearly 6 million single family home since the start of the housing recovery in 2008.

That 6 million fewer people that bought a home on the last decade, who would have in prior decades.

Even now production is just reaching historic norms.

In addition to these positive industry trends there are tailwinds supporting toll brothers upscale market segment and build to order strategy.

Since most of our customers have a home to sell the tight resale market gives them confidence they can sell their home quickly and that an appreciated value that can then be reinvested in their new home.

The job picture for our customer base is solid and improving.

The work from home phenomenon is driving demand as well as it allows more buyers to living where they want rather than where their job previously required.

New to this phenomenon, we are seeing an increase in relocation traffic.

We also believe our more affluent customer will have greater flexibility to work remotely.

And is therefore out in the market looking for their ideal home.

Our build to order model is particularly well suited to this moment as Americans place more importance on their hopes on.

Our expansive flexible for plans provide buyers with more space for living learning working and entertaining.

Whether it's home offices fitness rooms, multi generational living suites or studying indoor outdoor living areas.

We offer the features that customers desire as they personalize their homes to reflect their lifestyles.

This quarter, our buyers added on average 22% on the delivered price or $183000 in upgrades to their homes.

So as we look for fiscal year 2021.

We believe we are well positioned for growth.

Our highest year end backlog in 15 years and continued strong demand we expect to deliver the most home that our history in fiscal year 2001.

In addition, our longer land position is helping to fuel growth.

We ended fiscal year 2020, with 317 selling communities and we expect to grow this by approximately 10% by.

On the end of fiscal year 2021.

We also expect our gross margin to improve over the course of the year as the price increases on a strong sales since may.

Reflected in home as we deliver and the last three quarters of the fiscal year.

And we are very focused on improving our away.

Greg will speak more to this in a moment.

In short we are very pleased with our performance in 2020 and look forward for continued growth.

In fiscal 2021.

Now, let me turn it over to Marty.

Thanks, Doug.

In fiscal year, 2000, Twentys fourth quarter we.

We delivered 2900, 40 homes and generated revenues of $2.5 billion, which were up 10% in homes and 8.9% in dollars from one year ago.

Average price of homes delivered was $849000.

Delivery total exceeded our guidance. Thanks in large part to great execution by our team.

In addition, our backlog cancellation rate was lower than anticipated we.

We delivered many more spec homes than projected.

And buyers were more eager than ever to close as soon as possible and move into their new homes.

Fourth quarter net income was $199.3 million.

Or a $1.55 per share diluted.

Compared to $202.3 million and $1.41 per share diluted one year ago.

Our fourth quarter adjusted gross margin was 24% compared.

Compared to 23.9% in both the fiscal 2023rd quarter and one year ago.

Please note that both current and prior period gross margins and SGN a expenses are higher due to a reclassification in sales commissions paid to third party brokers.

For previously included in home building cost of sales and are now on SK.

All historical periods.

And future projections presented reflect this reclassification.

This new treatment is consistent with the way, we treat sales commissions paid to our internal sales force.

Conforms, our presentation to that of the majority of our homebuilder peers.

We have filed an 8-K with the SEC too detailed the amount on the room classification, but at a high level. It was approximately two percentage points of revenue in each of the last eight quarters.

Yes, Jay as a percentage of revenues was 9.9% in the quarter compared to 11.1% in the same quarter one year ago again, both of these amounts reflect the third party broker fee reclassification I just discussed and are there for about two percentage point.

It's higher than they otherwise would have fit.

The year over year reduction and SGN day is due to our efforts to streamline operations and become more efficient in ways. We believe will result in permanent cost savings.

Continue to focus on additional steps to further reduce SGN.

Joint venture land sales and other income was $11.2 million during the fourth quarter compared to $48.4 million in the fourth quarter of fiscal year 2019.

Impairments and write offs totaled $33.9 million in the quarter.

$6.8 million of these impairments were from Predevelopment cost on proposed projects, we controlled through options that we chose not to purchase an $18 million was associated with our strategic decision to exit two markets.

Looking forward.

We are projecting first quarter fiscal year 2021 deliveries of approximately 1675 homes with an average price of between 780000 and $800000.

First quarter 2021 delivery guidance reflects our team's delivery of about 450 more homes than projected in our fourth quarter of fiscal year 2020.

In addition, with our build to order models buyers contract for their customize homes and we deliver those homes nine to 12 months later nine to 12 months later.

Therefore deliveries in Q1 2021 will reflect the so slow sales environment, we experienced in March through mid May of 2012.

We expect adjusted home sales gross margin in fiscal year 2020 one's first quarter with deliveries from the slow sales period to be approximately 22.4%.

This first quarter adjusted gross margin is expected to be the low point of the year.

We expect interest in cost of sales to be approximately 2.5%.

We expect price increases from contracts signed in our third and fourth quarters of fiscal year 2020.

Positively impact margins over the course of fiscal year 2021.

And we expect adjusted home sales gross margin.

In fiscal year 2021 to grow steadily after the first quarter.

And be approximately 24.1 per cent for the full fiscal year.

We expect interest in cost of sales for the full year to be approximately 2.5%.

We project first quarter SGN day, as a percentage of home sales revenues to be approximately 15.8% versus 16.8% one year ago.

Included in first quarter SGN day.

Is about $11 million or 80 basis points.

Accelerated stock compensation expense that is not expected to recur in the remainder of the year.

Again, all of these amounts reflect the classification of third party broker fees from cost of sales to SGN day.

First quarter other income income from unconsolidated entities and land sales gross profit is expected to be approximately $25 million.

We project the first quarter tax rate of approximately 26%.

Our first quarter weighted average share count is expected to be approximately 129.5 million shares.

For the full fiscal year 2021.

We are projecting new home deliveries of between 90 610200 homes with an average price of between 790000 and $810000.

We expect approximately 60% of our deliveries to occur in our second half of the year and we expect average delivered price to dip in the second and third quarters due to mix.

We project fiscal year 2021, SGN day, as a percentage of home sales revenues to be approximately 12.2%.

We believe there is significant unrealized profit embedded in our stabilized apartment projects.

We are choosing to defer sales of these assets until margins from.

As a result fiscal year 2021, other income income from unconsolidated entities and land sales gross profit is expected to be approximately $65 million versus $51 million for fiscal year 2020.

This concentrated in the first and fourth one project full year fiscal 21 tax rate of approximately 26%.

Our weighted average share count for the full year is expected to be approximately 129.5 million shares.

Now, let me turn it over to Greg.

Thanks, Marty are we is improving and should continue to improve overtime.

We expect to improve our return on beginning equity in fiscal 2021.

Hi, approximately 350 basis points compared to fiscal 2020.

As we seek to drive improvement in our financial metrics, we continue to apply.

More rigorous underwriting threshold to new land deals to achieve both a higher gross margin.

And a higher ROI.

We are focused on controlling more land through options landbank arrangements joint.

Joint ventures and other strategies.

We grew our owned and controlled lots to approximately 53200 lots at fiscal year end 2020 compared to approximately 59200 at fiscal year end 2019.

We spent 603 million in fiscal 2020 on land acquisitions.

Compared to 1.1 billion in fiscal 2019.

So in other words with our more capital efficient land buying strategy.

We were able to acquire control of essentially the same number of high quality lots in fiscal 2020.

As we did in fiscal 2019 for about half the cash outlay.

We executed land banking transactions in fiscal 2020.

That deferred approximately $190 million on land spend.

We improved our options on owned land ratio at fourth quarter end to 43% option.

Compared to 38% options for fiscal year end 2019.

We ended our fourth quarter with a very strong balance sheet.

We had $3.16 billion on liquidity.

Including 1.37 billion of cash.

And 1.79 billion available under our $1.9 billion revolving bank credit facility, which we recently extended out until November 2025.

We have no significant debt maturities until fiscal year 2022.

At fourth quarter, and our net debt to capital ratio was 33.3% from.

Hair for 32.9% one year ago.

This relatively flat net debt to capital ratio was achieved even while we repurchased approximately 634 million of stock at 4.1.

We generated approximately $1 billion on cash flow from operations in fiscal 2002 on.

This was a record.

With our strong balance sheet and focus on capital efficiency. We believe we are well positioned to continue.

Growing our business, while also improving our weighted.

Now, let me turn it back to Doug.

Thanks, Greg for I open up for questions I want to thank the entire toll brothers team on our trade partners for.

For the results, we produced together this quarter and in fiscal 2020.

This was a year like no other.

A required that we think can operate in new ways.

We had to adjust to dramatically changing conditions, while maintaining an unwavering focus on providing our customers with a superb quality value and service mix.

We expect on demand from toll brothers.

To all of you you went the extra mile worked harder than ever before and truly extended yourselves to prove once again by our company as a special item.

I'd say, thank you and especially for those of you on the front lines, who are responsible for selling and building our homes and communities the resilience and commitment our inspiring.

As we look forward to fiscal year 2021, with our record fourth quarter backlog continued strong demand community count growth improving gross margins and our focus on improving our early we are well positioned for growth in fiscal year 2021 and beyond.

Now Gary let's open it up for questions.

We will now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.

Our first question is from Stephen Kim with Evercore ISI. Please go ahead.

Hi, Thanks, very much guidance.

Finding time.

Doug I was wondering if you could talk about the difference between toll is gross margin structure generally today versus lets say 15 to 20 years ago toll.

Totally ignoring this reclassification issue.

It seems to me that there is generally what three main drivers right prevailing home prices.

Construction efficiency and the value add from land acquisition.

Let's take home prices and put them to decide because everybody can make there on assumptions with what thats going to do and so I really want to look at the construction efficiency on land acquisition I would assume you are building your homes more efficiently than you did in the past, particularly relative to the private guys you compete against.

But on the land acquisition side I imagine you probably have a little bit more little less value add because of the move to affordable luxury and quicker turn on land and all that.

Can you help me understand how big of a drag.

This move to quicker turning on land net of your better efficiency I mean, it would be reasonable to think that the net of those two factors. There's like a drag on maybe a couple of 100 basis points relative to other 10 15 years ago.

Sure I'll I'll do my best Stephen That's a big question. It's taken me back in time, which I enjoy doing.

It's hard to keep price out of it I know you after we keep price out of it because as you know.

Back.

Back in the early two thousands there was tremendous pricing power.

And we were obviously able to drive margins very very high but on your two points, which are construction efficiency in land back yeah.

Yes, we are better builders today than we were 15 years ago. This company has matured.

There is no question that we bring efficiencies and I think you're going to see more of them as we are on.

Optimizing and rationalizing our home designs to make them much more efficient we're trying to cure rate for the upgrades that our clients can have so less is more it's less the contract.

It allows us to buy trains better when they have 10 or 15 structural changes to a home as opposed to 30 or 40. So we're spending a lot of time on home.

Home design and a rationalization process that is pretty.

Pretty deep into it right now we're starting to see the results of that.

On the land acquisition side.

We are certainly not.

Tying up as many farms in the suburbs of Philadelphia.

For the suburbs of Washington, DC, or you pick the market and going through a three for five year approval process and coming on on the backend after the market has appreciated over that time.

Land that is significantly under market, we still do that that's part of our mix, but as we have grown geographically and debt in many markets that have land developer that feed lots to losses.

Or maybe the entitlement process isn't as Tds.

So that you don't have.

Quite quite the level of gold when you come out the back end is as you have in the places that we started this company and were bigger like the northeast mid Atlantic I'm sure that has had.

A bit of a negative effect on on the margin because we don't have as much land development.

On profit that is flowing through with respect to affordable luxury.

Quite the contrary the gross margin coming out of affordable luxury the last few quarters is right there with our luxury business.

That market has done well, we're extremely efficient on the construction side for the reasons I gave with rationalizing plans on the affordable luxury we actually offer less upgrades.

I think we are buying trades even better.

That market has been strong we've seen significant pricing power and.

While we underwrote some of that to a little bit lower gross margin as we've discussed because it was driving a higher ROI, we because in a lot of cases, the affordable luxury land could be purchased just in time.

On quite the contrary the gross margin has outperformed our underwriting and is right there with our luxury business.

Yeah, that's that's really encouraging so it doesnt seem like for the headwind for the offset on land is all that all that great great.

Great. So.

Given that Hum.

Like to delve a little bit into your comment about the strongest housing market and 30 years, you and I'll go back on ways and.

Certainly not seem to encompass the period.

Well, we all think about the housing level when times were very good I was just you and threats and then I was just looking at their data, which is up 17% in the most recent week home price is up 17% and in the last three months that absolutely matches. The eight tax for the highest level of price appreciation that we saw in the house.

For example, so when you say that it should be strong the environment today is stronger than it was I would assume back then.

Some commentary that would give us some contacts to perspective things that you're seeing in the marketplace that would lead you to say that even relative to that period of time things are stronger now.

Sure well toll brothers is very different today than we were back then we have many more markets to look at we have places like Boise, Idaho in Jacksonville, Florida, and we're now in Atlanta doing incredibly well I am not going to go waste. Your time, we go around the country you know our business. So I have a much wider lens.

Yes.

Then I had I know five.

And what I see nationwide.

[noise] feels stronger.

Deal better and.

And let's focus on the better part because by no means for what comments on the call I.

I think we have a long runway.

Is that while the market share.

Ago Orange money.

What below five out of six was very very loose underwriting and I've told the story of it on meeting the blackjack dealer in Vegas, So on three houses and no six and.

That just can't happen today, we don't see investors on the market.

We obviously have lots of investors back then.

There is very low supply of use and new home.

There's huge pent up demand as I mentioned.

6 million less people buying a home in the last 12 years.

It appears we have bought in the prior decades going back 15 years.

And we have this millennial generation.

It is now becoming home owners that is driving a lot of this activity and low interest rate that we think will be around for a long time. So.

When I say for the best market I've seen it.

Yes, because I feel so good about the sustained strength.

I'm not talking about one moment in time, if you want to compare.

Last week with the Redskins data with some weak in 2005.

You know I'm sure, they're comparable Stephen but I'm talking about what I'm feeling over the last six months and for all of these reasons, what I think is sustainability.

Of this market for a longer period of time I do not expect a 110% order growth I do not expect rate the price in every other week, but I think we're going we're entering a period.

Sustain significant order growth.

All in pricing power.

Add on runway.

All right yes.

Great. Thanks very much on.

Appreciate it.

Thank you.

The next question is from Truman Patterson with Wells Fargo. Please go ahead.

Hi, good morning, guys.

It's been getting a little bit of on it.

Feedback on the call so.

For the first Doug I wanted to touch on on your orders decelerate as you know from up 110% from the first half for the quarter.

40, and you said you intentionally.

Cap for that growth rate through pricing limited lot releases et cetera, I'm, hoping you can help us triangulate a little bit orders.

What was pricing.

Pricing from the beginning on the quarter.

In the quarter and you said you limited lot releases and about 15 to 20 per cent communities, what I'm trying to understand is how much the new or.

Intentional actions.

Rate that deceleration versus we're starting to see you know a little bit of on demand or value.

A bit of other organic deceleration can you help us triangulate on the that.

Sure.

The the move from 110% that we mentioned mid quarter to the balance of the year.

Was primarily strategic and self induced by us.

It.

We raise price is more significantly as the quarter per press and I talked about in 15% to 20% of our communities.

We limit.

Limited.

For the.

So for lots that are available on the typical way. It works is we'll give a community.

Let's say three lots from month to sell.

And when the month begins we raise the price and when the month begins they already have people are working with because we certainly don't close the sales office by any means.

We'll we'll sell those three on the first weekend.

And then they're shut back down until the next month and then we do it again at a higher price and that has helped moderate.

Sales only in that 15%, 15% to 20% other communities.

Which tend to be our hot communities and they may have the biggest backlogs where the next home sold is going to be a very extended delivery and they may also have.

You know less finished lots available we have to get land development caught out to give more asphalt on the grounds for there's a lot of different reasons why it happens, but thats the basic premise behind it.

What I am encouraged by is that I look at these six weeks of December where we continue that same strategy and we mentioned 48% up in deposits. The last couple of weeks or the last couple of weeks or stronger than the prior couple of weeks.

So overall can I tell you, it's 100% self induced of course, not we headed into Thanksgiving and now we're into December.

For has been some sticker shock out there from some clients as we've been raising prices. There is no question, but I think it is primarily self induced on your question about incentives were up on price increase on site and.

I have my apologies the reverse on incentives.

Weve less incentives, but the price increases through.

Sure Wendy Yes, we're next.

From a we've been fortunate so for this year, we have been able to raise price.

Calendar year on for one or 1% growth New group.

On the already just announced another one and so it is in this most recent quarter you asked about yes, we are shown on a good strength.

As we look across for trying to sell approximately the same amount for the same house. We are we are showing somewhere in that ballpark.

Even if we said $20000, it's not a perfect science because again, we're looking for.

For the exact out the toll, but if you're looking for a rough ballpark hopefully, though if you are not context on on how from the market.

Okay.

Good day.

[music].

No go ahead Doug.

I was just going to say that.

And it's important to understand that in addition to these nationwide price increases we are also.

In most cases and most of the price increases you see or community specific.

Based on local demand.

And that is that is the driver of most of the increases but we are in the market, where we have felt comfortable and confident that nationwide.

We can take the company up and we'll have our fifth one this Saturday.

Okay. Okay. So 20000 on generally an 800000, ASP, so kind of 2% to 3%.

That was for the political that's for the quarter right regular rate.

That's that's helpful.

And you know.

On your absorptions are up massively I think over 70% rate and you're still reiterating that 350 community count target are up 10% ending 2021.

But you're also discussing limiting your lot releases you know as we think about your.

Finished lot constraints, maybe even throw in labor.

But also assuming.

Demand remains extremely robust through 2021.

What do you think would be the theoretical upper limit.

Your order growth on.

Assuming that you could kind of fill.

Everybody that comes in.

Well, we have capacity right now we are selling in the low 30.

Sales per community go back to.

Go back to Stephen Kim This time for 15 years ago, we are in the mid to high Thirtys.

We're more efficient.

I talked about our plans to becoming an optimized and easier to build we've come down in price with affordable luxury we've expanded geographies that have more trade base.

So theres absolutely capacity.

Based on the sales environment that that is put in front of US we opened 110 new communities in 2020.

Obviously, there was more sellouts than we expected due to the market. We are projecting rate we are projecting to open between 150 and 160 new communities in 2021 so.

Im not worried about improved lots I'm not worried about cash.

Pasadena field in most divisions.

I think our ability to continue to manage and balance price.

Price increases with controlled are manageable growth.

As our focus right now and I'm proud of how we're doing with it.

Okay that is extremely helpful. On just for clarity on 2020, I think the average absorption was right around 30 year, just a touch over.

You think Theres no reason, there's no constraints that you couldn't maybe hit mid to high thirtys in absorption rate rate over the next year. So.

Thats correct.

Got it before on.

Thank you appreciate it guys.

You are very well from trailer thanks.

The next question is from Alan Ratner with Zelman and Associates. Please go ahead.

Hey, guys. Good morning, Congrats on the really strong results from this Ah interesting environment. We're in today.

My first question I was hoping to dig in on a little bit on.

You can about net.

Sure.

Moving.

Activity.

Various if you could rank order maybe some of the bottlenecks you're seeing that are leading you to take those actions is it more on the land side and kind of obviously, you're expecting day community count growth through the year, but you don't want to GAAP out earlier in the year ahead of the spring or is it more on the construction side and making sure that you have some accurate not only pricing on New York.

Costs input, but also telling your consumers a realistic delivery dates I'm just curious if you could rank order those bottlenecks for us.

Alan if you could repeat the first half of your question Lids day out there.

Yes for sure so.

Marty, but what I was asking about was on when you think about those 15% to 20% of communities, where you're intentionally slowing things down. Okay. So was hoping you could kind of rank order what the bottlenecks are that's causing you to take those actions that land is it construction both.

It is.

I would say number one is the length of the size of the backlog.

That is leading to the delivery date on the next home sold.

Being so far out that we need to bring it back. So if we are been so hot in that community too.

Have a backlog that is so big where the next homes sold is getting a quoted delivery date of 12 13 14 months, even if it's a big complicated house.

We would rather get that down at that community to 10 11 months.

And that means raising the price slowing this sales until we get a little bit caught up.

Where we can open things back on that's number one number.

Number two would be.

On the sales have led us to get out ahead of land development.

And while we may have plenty of lots remaining in a community.

We need to get the roads and so that we have enough inventory of roads to build houses, we don't like selling on home.

If there is not a street in front of that lot.

Because that adds one more wrinkle aware.

Not only does have to build the house for the client for you have to get their road in for them before you can start building the house.

And there is weather delays on permitting issues or whatever else can be thrown at land development, where that adds a layer of risk as to when we can really deliver that home is being sold without a rate. So we and thats in limited cases from everything the entire.

On the extent of this concept a lot allocation of 15% to 20% most of that is driven by long backlog a lesser amount of that is being driven by land development need to catch up because a faster sales.

Got it Okay Thats helpful Doug and.

I guess kind.

Kind of transitioning a little bit, but somewhat related one of the pillars are one of the on the likes of new you were kind of.

Highlighting in the past as an opportunity to improve your returns is obviously inventory turnover and improving cycle times and I think that the move to affordable luxury the idea there was the day overtime to bring your company wide cycle times lower obviously, the the environment from a labor perspective, probably as a headwind.

New York terms so.

How are you thinking about are we mentioned improving at 300 plus basis points, but.

Our buybacks back on the table or are there other things you could do recognizing that perhaps cycle times is moving in the wrong direction are there other things you could do to maybe accelerate that returning even even more so in the near term.

Sure. So even in this tough market with trains being stressed and the issues that we all get on here about with some.

On materials like washing machines or windows were down one week in delivery and cycle time to build a home from Q.

For three to Q4 and affordable luxury is a bit more than 30 days faster delivery faster construction cycle than our traditional luxury.

And I am on.

On committed of course on committed it's my job, but I've seen.

Through our operations teams and we prove some of this is last quarter with our tremendous results.

Real strength.

In production and part of it is the affordable luxury line, we brought in some new builders that come from that background that come from more production builders part of it is this rationalization and optimization and share rating of our plans or less is more on the houses are simpler with less upgrades.

So we are headed in the right direction the.

Now there will be some headwinds with the labor issues that are going to come to the industry, but.

But I'm really pleased with not only how affordable luxury is proving to be significantly shorter, but our core business in itself is coming down also.

Other initiatives along that line.

On include putting more land under option. So we can buy it just when we need it.

Getting some seller financing doing some land banking again that gets on the land just when we need it.

New instances from joint ventures, Melphalan, often with other build on.

And Marty.

Just curious on buybacks for you want to make a comment on that that has been a big driver.

Right right past.

We're very pleased with our liquidity position right now gives us significant flexibility.

Certainly buybacks debt pay downs and dividends are all on the table or dividend increases all on the table, but our primary objective for other companies.

Land acquisitions, adjusted so I have been cash.

And builder acquisition.

Understood. Thanks, a lot guys. Good luck.

The next question is from Michael rate Hot with JP Morgan. Please go ahead.

Thanks, Good morning, everyone and congrats on the results.

Thanks.

First question I had was just kind of circling back to your comments around pricing and gross margin, obviously very encouraging around right net.

That you're able to execute rate.

Just wanted to make sure that properly.

On their talked about.

What's that.

Right.

With me.

800000 net would.

You're talking about.

Little over for $30000.

As well as many on a community level as well.

At the same time, you're talking about $20000 higher for the quarter.

Am I to think about it right that perhaps one or two of those occurred outside of fiscal fourth quarter and those are the price increases that should show up in back half 21 margins, which here.

Here are kind of back into with the.

Like maybe.

Moving on from Battle.

Year over year thing right the balance.

Balance.

Hi, Brian.

Yes.

Several of those five there was there have been five price increases this calendar year.

In fact.

All of them.

No. There was there was one in the fourth quarter now there is one in the first quarter and the other one's occurred one occurred in January when the market was hot.

So the other ones have occurred before.

Fourth quarter orders or the one were just mentioning but again I.

Those national increases first of all other off a base price.

And they're not they generally run lets call it 1% as a way of just continuing to move the company.

And sort of make that corporate decision, but the bigger part of this is.

Is the weekly discussions we have and decisions, we make community by community to raise price I can't emphasize enough that that's really been the driver of where weve seen most of our price increases and.

We came out of the early stages of the pandemic, we're not good to us we.

We didnt have $300000 spec inventory for the renter.

To trade a similar monthly payment for running into ownership with rate.

And so in March and April through mid May.

We were not seeing the results that the other big builders were speaking up for the reason I just gave and then.

Mid may for.

Our weighted we see a comment but we were careful on the beginning.

Does this was new we didnt, how long it will last and so our approach.

For May and June we trended we took the sale and then in July we started taking price August we took more price September we took more and it has accelerated into the second half for the fourth quarter and now these for six weeks of Q1.

Okay.

Yes, thank you for that I appreciate it.

I guess, secondly, I just want to circle back to cash.

Cash flow generation and you.

Uses of that cash flow.

How we should be thinking about 2021.

You know if you could just kind of review what your your operating cash flow generation was this year and.

How you would expect 21 to compare to that.

And again.

Obviously, you can be doing still a lot of investment in land and rolling out growing your community count.

And how with your balance sheet, where it is right now from a leverage standpoint.

The share count guidance looks to be roughly flat.

How any share repurchase.

On may or May not may or may not play into.

Your thoughts on the next.

Last month.

Similarly, as you had some accelerated share count repurchase or share repurchase per.

Prior to the planned debt.

So.

Michael We think 2021 will be a no other positive cash flow year for significantly positive cash flow year.

Because of uncertainty in the world and the growth we're seeing there.

Many buybacks are likely to be back ended.

Rather than.

If we were to do it's similar to the prior year, where we did it in the front half.

But as I mentioned previously on.

Our first objective is to grow the company through land opportunities in builder opportunities.

We.

I have a bit elevated.

Debt debt debt to cap compared to other builders, we have $420 million. Due next February that's in the back of our mind and so we want to maintain flexibility to a day.

Address leverage address buybacks, but mostly to buy land and builders next February 22, Yes, 22 excuse.

Why thank you.

While the next question is from Anthony Pettinari with Citi. Please go ahead.

Hi, good morning.

Well when you look at buyer urgency are you seeing any meaningful difference on how consumers in your different regional markets are behaving are responding to covance I.

I think earlier in the year, you talked about community count maybe being 60 40.

For insulated versus more impacted by co that just given cases are sort of surging nationwide I'm wondering if you're seeing any.

Regional differences that are noteworthy.

Early on as we've talked about the northeast was certainly hit harder.

There was even construction shutdowns, which affected production, but on the sales side we were.

We were almost a 100% remote for.

For a long time.

And the sales centers were by appointment only or in some cases completely closed.

Right now construction is thankfully open everywhere and we anticipate that will be the case are.

We have gone to by appointment only in certain sales offices.

On around the country, but it is not affecting.

Activity.

This is the second time for us so we're better at virtual Sally.

On the website is.

For videos for.

For photography. The sales teams are better were all better sales in other ways.

He is either.

We're very confident.

That notwithstanding some tightening of coated restrictions in some.

Stricter stay at home orders that were going to continue.

You know to see good activity I can't point to anywhere right now, including California.