Q4 2021 Beazer Homes USA Inc Earnings Call
Good afternoon, and welcome to the bees or home earnings call Conference call for the quarter in fiscal year ended September 30th 2021, today's call is being recorded at a replay will be available on the company's website. Later today. In addition, Powerpoint slides and.
To accompany this call are available on the Investor Relations section of the company's website at Www Dot Beazer Dot com at this point I'll turn the call over to David Goldburg, Senior Vice President and Chief Financial Officer.
Thank you could I.
Welcome to the Beazer homes conference call to discuss no results for the fourth quarter and full year of physical 21.
Before we begin you should be aware that during this call will be making forward looking statements such statements involved no no known risks uncertainties and other factors, describing a SEC filings, which may cause actual results to differ materially from our projections.
Any forward looking statements speaks only as of the date. The statement is made we do not undertake any obligation to update or revise any forward looking statement, whether as a result of new information future events or otherwise.
New factors emerge from time to time and is simply not possible to predict all such factors.
Joining me today is Allan metal metal, our chairman and Chief Executive Officer.
I called today I will review highlights from fiscal 21.
And our objectives for physical twenty-two and provide an update on R. E. S G initiatives.
I wouldn't cover a full year results in greater depth, our expectations for the first quarter and the full fiscal year and update or outlook for continued growth in our land positioning community couch bye.
By comments will be followed by a rapid by Allan.
After I prepared remarks, we will take questions in the time remaining I will now turn the call over that one.
Like your day and thank you for joining us on a call. This afternoon.
In the beginning of last year, we establish three strategic objectives for physical 21 related to our profitability.
Lot position and balance sheet as we progress through the year. Our performance continued to improve now the year is over I'm happy to report that we far exceeded our expectations for all three objectives.
First we expected to slightly increase EBITDA and generate double digit earnings per share growth in fact, our EBITDA increased by nearly 30% a P S more than doubled.
We were able to capitalize on a strong demand environment, while managing through the impacts of cost increases in supply chain disruptions.
[noise] and earnings further benefitted from lower interest expense and energy efficient tax credits.
Second we expected to grow or a lot position at.
At yearend are active what position was up more than 25% versus the prior year. Importantly, we also grew our share of lots controlled by option from about 35% to nearly 50 per cent.
And third we expected to reduce debt.
Over the course of the year, we retired more than $80 million, a dead substantially improving our credit profile.
These outcomes are a result of our long standing balanced growth strategy, which is R. Multiyear plan to grow profitability faster then revenue from a less leveraged and more efficient balance sheet.
Over the past five years, we have grown EBITDA at a double digit compound annual growth rate substantially faster than a revenue growth.
[noise] reduced net debt to EBITDA from over seven times to about three times and increased return on equity by more than 15 points.
As we look forward to physical twenty-two there are industry and companies specific factors that provide the basis for our confidence and highlight the risks which are influencing our operational priorities and expectations.
At an industry level, we believe the favourable conditions for housing are likely to endure beyond this year.
Strengthen demand is supported by demographics, a growing economy and rising household incomes.
But the supply of new homes as seriously constrained by entitlement restrictions supply chain challenges and labor shortages.
While this backdrop is generally positive. It also creates several risks first supply constraints make us quite cautious about the likelihood of improvements to cycle times in fiscal twenty-two in fact, we've pulled forward or cut off dates for home starts scheduled to be closed this year.
Second there are clearly affordability risks posed by rising home prices and the potential for higher mortgage rates.
To address this we are obsessive like committed to delivering extraordinary value to homebuyers through innovation simplification and choice among other strategies.
At a company level, we are encouraged by the dollar value and embedded profitability of our backlog the continuing strength in our online and in person traffic and our ability to leverage overheads and further reduce interest expense.
With that background I'd.
I'd like to highlight some of our expectations for physical twenty-two.
First we expect to grow EBITDA by more than 10% leading to earnings per share above $5.
We are beginning physical twenty-two with approximately half of our expected closings for the year already in backlog, giving us visibility into profitability growth driven by higher I S PS and better margins.
Our deleveraging results will also contribute to lower interest expense.
Second we expect double digit growth in our lot position with lots controlled by options remaining around 50 per cent.
Land spending is expected to increase again this year, although we remain highly disciplined in our underwriting.
Third we expect to deliver a return on total equity of about 20% or nearly 25% excluding are deferred tax assets.
And finally, we fully expect to achieve our long standing goal of reducing debt below $1 billion.
Looking beyond this year, we believe that we are positioning the company for more growth and more profitability, leading to higher returns and shareholders' equity.
As we improve our financial and operational performance. We are also focused on creating additional value for stakeholders by extending our leadership position N E. S. G.
On the environmental side, we were pleased to be named and energy star partner of the year for the sixth consecutive year.
And importantly, we continue to make improvements in our designs materials and construction practices in support of our industry first pledge to have every home rebuild designated as net zero energy ready by the end of 2025.
As part of this effort and physical 21, we committed to meeting the E P. As rigorous standards for their indoor Air plus program.
On the social side, we've made significant progress on the roll out of charity title or title business committed to contributing 100% of its profits to charity and.
In fiscal twenty-two we expect this expansion will allow us to donate more than $1 million allocated between our national philanthropic partner Fisher House and other charities in the communities we serve.
Our process of partnering with charities Ah lines are financial country contributions with opportunities for both employee engagement and wellness.
Please philanthropic efforts have added to employee satisfaction and have been very well received by our trade partners and homebuyers.
Finally on the government side are diverse and highly engaged board has earned high ratings from third party rating services, but we aren't resting there later this calendar year, we will publish our first ever tear sheet, where we will provide substantial new ESG disclosures pursuant to the says B framework for.
Homebuilders.
If you are familiar with says b and the types of metrics and disclosure topics. They favor you'll know this has taken a significant effort to prepare and it won't just be a glossy marketing report.
The bottom line is that we believe extending our ESG leadership position will provide real value for each of our stakeholders and we are excited about adopting new processes and products to enhance the sustainability and resiliency of our business.
With that I'll turn the call over to Dave to walk through our results and expectations in more detail.
Thanks, Allan and good afternoon, everyone.
Turning to slide nine we outline the detailed results for fiscal 21 and.
In the appendix we include a comparable slide highlighting results for the fourth quarter.
For the full fiscal year, we generated net income of $122 million or just over $4 of earnings per share, which benefited from $12 million of energy efficient tax credits.
Excluding these tax credits or earnings per share would have been $3.61 more than double the prior year.
Adjusted EBITDA was about $263 million up nearly 30% versus the prior year.
Homebuilding revenue remained relatively flat versus the prior year as the benefit from higher Asp's offset a modest declining closings.
Gross margin, excluding amortize interests impairments and abandonments was up about 200 basis points to 23%.
SG&A as a percentage of total revenue decreased 50 basis points to 11.4%.
Interest amortize as a percentage of homebuilding revenue was 4.1% down 40 basis points as he benefited from lower interest incurred at.
And our tax expense was about $22 million for an average annual tax rate of 15%.
This rate was lowered by energy efficient tax credits primarily related to homes close between fiscal 18 and fiscal 20.
Turning now to our expectations for the first quarter of this fiscal year.
Average monthly sales pace should be in the high twos, which represents an increase relative to our historical first quarter average over the past five years.
Community Count is expected to be around 115, essentially flat sequentially.
Closings should be between 1000, and 1050, reflecting extended cycle times and our emphasis on delivering a spectacular customer experience.
Aspie should be in the high $430000 range.
Gross margin should be up between 125, and 150 basis points versus the same period last year.
SG&A on an absolute dollar basis should be up about $4 million.
Land sale and other revenue should be about $7 million with a margin of about 50%.
Within the ranges, we provided for closings and margins EBITDA should be above $50 million are up around 15%.
[noise] interest amortize as a percentage of homebuilding revenue should be in the mid threes and our tax rate should be approximately 25%.
While precision in EPS forecast and it's difficult we expect earnings per share to be up at least 50% versus the same period last year.
Looking forward to the full fiscal year.
We expect to go EBITDA by more than 10% in fiscal twenty-two and earn more than $5 per share.
Or improve profitability will be driven by the following factors.
A significant increase in our average sales price to about $450000 up over 10% versus fiscal 21.
More than 100 basis points of operating margin improvement arising from a combination of increased gross margin and lower SG&A as a percentage of total revenue.
And interest amortize as a percentage of homebuilding revenue and a low 3% range as the benefit from our efforts to lower our cash interest expense continuing to materialize.
We ended the fourth quarter with nearly $500 million of liquidity comprised of unrestricted cash of approximately $250 million and nothing outstanding a revolver. We have no significant maturities until 2025, and a clear path to bring that below $1 billion in fiscal twenty-two.
Are substantial deleveraging combined with higher earnings has led to significantly better credit metrics for our business.
This trend to continue as we move through fiscal twenty-two and by year end, we anticipate our net debt to EBIT will be in the low twos and our net debt to net cap in the forties.
In the appendix to this presentation, we provided the longer term view of our improvement in these statistics, which we've accomplished while growing the profitability of our business.
We spent over $245 million on land and development in the quarter, bringing our full year total spend to almost $600 million up from less than $450 million in fiscal 2020.
This increase land spending combined with our efforts to increase the percentage of our lots control through options has allowed us to grow our active lot positioned over 21000 loss.
Looking forward, we expect to again increase our spend on land acquisition and development in fiscal twenty-two which should generate at least 10% growth in our total locked position.
As you can see on slide 12, we've already driven or total active law positions back to a level that supported a much higher community count.
To further demonstrate the relationship between growth in our law position in our community count on Slide 13, we've shown this data on an index basis. In addition, we've also wagged our community count by one year to roughly refract beef.
Reflect the normal timing difference between controlling new laws and opening communities.
As he planned for community Count is headed there are a couple important things to consider.
In fiscal 21, the growth in our law position was driven by the approval of more than 100 communities for acquisition.
This was about double the run rate of new community approvals and fiscal 19, and 20 and did not reflect any material change in community size.
But as you would expect the supply chain disruption that we're experiencing are also impacting the timing of land development activity as.
As such Blag, we typically experience from the time of controlling new lots to activating new communities has extended and become less predictable.
Accordingly.
We are very good visibility into substantial lifting our community count, which will start later this year and accelerate during fiscal twenty-three.
On a final note our profitability expectations for fiscal twenty-two are not meaningfully dependent on new community openings.
With that let me turn the call backward Allan for his conclusion.
Thanks again, Dave.
Fiscal 21 was a very successful year, but it's in the rearview mirror and in fact, I'm, even more excited about physical twenty-two.
Here's why.
The housing market remains quite strong, but demographically driven demand confronting structural supply constraints.
We have a terrific backlog to jumpstart, our year, giving us visibility into improvements in pricing and margins to be realized in the near term.
We're also investing for the future with a growing but risks balanced land position, creating longer term growth opportunities.
We have the best balance sheet, we've had more than a decade with far less debt and plenty of liquidity and we're expanding our capabilities across the entire spectrum of ESG, resulting in clear easily observed achievements.
Taken together these factors have is better position than ever to create growing and durable value for shareholders customers partners and employees and positively impact every community where we operate.
Ultimately credit for our results and our optimism about our future prospects is attributable to our team I.
I am sincerely grateful for their dedication their efforts the resiliency and their success.
That's why I remain confident we have the people the strategy and the resources to accomplish our goals in the coming years.
With that I'll turn the call over to the operator to take us into Q&A.
Thank you Sir it is now time for the question and answer session of today's call. If you would like to ask a question. Please press star followed by one please make sure that your phone is on muted and record your name clearly when prompted if you withdraw. Your question you can press star two please allow a moment for questions to come.
I'm in.
Thank you. Our first question comes from Hulio Romero from Sedona Ian Company. Your line is open Sir.
Hey, good afternoon, Allan David six taking the questions.
Problem, though.
Hey, guys. So just to start off on the land spend can you just talk about that fourth quarter sizeable deployment Hum.
It was really impressive I mean talk about.
How much was in and options versus traditional land spend how much was in land.
Land, that's maybe further along in the development process versus earlier on and.
And then secondly, I'm not sure if I missed a Ah Ah land spend target for 22.
I will take the second one first we did not give a dollar amount. We said, we expect land spending to go up in.
In 2022, but but we don't have a hard and fast dollar amount associated with that.
Turning to the first question.
It's sort of interesting that we struggled a little bit with 30 21 was in the first second and third quarters deals seemed to slip a little bit and it's amazing deadlines.
Activity and we were able to to realize a lot of what had slipped for.
For a week or a month or a quarter. During the course of the year. So that the bulking up of that spend was really just.
<unk> matic idiosyncratic.
Results of individual transaction details. So there wasn't some fourthquarter, we're going to spend a quarter of a million dollars. It was really related individual deals and it really was a good mix across bulk deals option take downs. So there really is nothing.
Unusual in the mix it just clearly the dollar amount was quite significant.
Understood and I guess.
Thinking.
A little bit longer term you are obviously set up for a very very strong garlic and and fiscal 22.
You know as the backlog.
As a strong backlog you have now as the maybe the margin levels kind of level off beyond 22.
Does the benefit you'll see.
From improved community counted twenty-three and SG&A leverage and lower interest expense does that have enough of a base, that's kind of large enough to offset any normalization and current backlog levels.
That is a great question is it really complicated question because you articulated about six different variables a year plus from now but the truth is I think so I think there is enough volume I think there's enough normalization on the cost side that even F. As new communities open they have a higher law.
<unk> cost basis, which they will and that creates a.
A different comparison from a gross margin perspective, I think are enough enough other things going on and you listed them fairly effectively.
That that I'm not concerned about running out of opportunity for profit growth in 2022.
Sounds exciting very nice quarter and best of luck in fiscal 22.
Okay. Thank you very much.
Thank you. Our next question comes from Susan Mcclary with Goldman Sachs. Your line is open.
Thank you congratulations on a great quite earn a great year.
Thank you Sue my.
My first question Allan is it going back to to the land market. You know obviously all the filters are out there expanding their lot counts you know really trying to position for the growth that AC coming through the market in the next several years now, but do you have any concerns or any signs of the industry at all at all repeating you know.
Some of the things that we saw that contributed to the last housing downturns. How do you think about walking the line between having a certain level of risk management and conservatism relative to wanting to capture the gruff that's out there.
Another really great question, so that the truth is that I don't see any scenario or any.
Evidence that there is a community count opportunity, even with all of our growth ambitions that put us back in the context of producing or.
Or attempting to produce 1 million seven 2 million homes a year. So when we talk about the last time there was a big downturn. We were at production levels that were double where we are right now and I just I don't think despite community count growth, we all burn through so much of our inventory or our land position over the last 18 months, we're having to run fast.
<unk> just to replenish let alone grow but I do think a slightly more nuanced question is is it a submarket level and that's where the the walking the line as you put it that we're trying to do is to be really really focused.
In existing submarkets existing lot with existing product types and I can have very good visibility on 40 foot lots for Frontloaded product single story ranch plans in a sub market and I can no really is a high degree of confidence with the competitive scenario looks like an twenty-three and.
24.
If I drive for exits out of town.
Lance cheaper, but I have almost no visibility into how many communities I'm going to be competing with in 23 and 24, so for us sort of the balance of risk and opportunity is to do what we know how to do where we know how to do it.
Okay. That's very helpful. And then my next question is going back to your commentary around your ESG efforts in your net zero ready program you know a lot of the.
The materials that go into these homes in order to make them more energy efficient and to achieve these targets inherently end up costing more than their higher costs relative to some of the alternatives that are in there.
[noise] about weighing that relatives to affordability just given the focus that's inherent on that as well.
Yeah. It's another excellent question, Dave We got Lucky today, we're getting great questions. So.
The the first thing I would tell you and this may be controversial, but the fact is it resonates with our homebuyers.
Some of our homebuyers, probably a minority of them are focused on emissions and carbon and so they really like the fact that it's a a home that has a different energy contribution or a different greenhouse gas contribution a larger share look at it and say you know what I'm going to have $50 $60 $70 electric bills.
Instead of $150 electric bills and they see value in that.
Another group of our buyers looks at the home and says one of the things we worry about is buying a home and it being functionally obsolete the day, we bought it.
Barring a beazer home you're not at any risk of that because you are buying next year's home were twenty-three home. This year, because we are doing things that other people aren't doing and that does resonate with homebuyers. The other part of it is and again people may roll their eyes at his energized our team our team knows.
That tackling this is difficult, but it is something that is different and it is better and it excites them and let me tell you there's nobody in our industry or any industry for that matter, who doesn't want and engaged enthused employee population is really committed culturally to achieving things that are awesome and I think those two reasons.
Stand.
On their own and are wholly supportive of what we're doing.
I will tell you, there's a third piece to it and it's a little bit more prosaic and that is I like getting their first.
The things that we are doing are ultimately going to roll through building codes and energy codes over the next five to 10 years and rather than waiting until the 11th hour and then being in a panic to figure out how to qualify a much prefer to be early to be able to experiment to practice to substitute different products to figure out what works at scale in <unk>.
Aren't climate zones, rather than having standards dictated to us and frankly, finding ourselves not first in line.
To accommodate the those adoptions. So that's another practical reason, but I would tell you it's enough for me that our customers like it in our employees love it.
Okay. Thank you Allen that's very helpful color and good luck.
Thank you. Thanks so.
Thank you. Our next question comes from Taylor, Victoria from Jannie. Your line is open.
Good afternoon. Thanks for taking my my questions I appreciate all the the commentary so far here just first one for me on the guidance sort of things about $5 of EPS in fiscal 2002.
Multipart question here I've been quite a bit above some.
Some of the the guidance through the comments are you provided in terms of 2022 previous do since you just wanted to understand a little bit more with Delta in terms of what you were expecting now versus what you were expecting perhaps a couple of months ago and then I'm also curious supply chain is such a key topic of discussion.
To hit that $5 target or are you expecting that things remained relatively consistent in terms of the supply chain cycle times, or you or perhaps expecting to get a little bit better as you move through the year.
So Tyler let me handle the first question first and thank you for that I wouldn't say that anything has changed in terms of our expectations. We've tried to lay out kind of the high level guidance for how you get there in terms of ASP growth and some margin accretion that we talked about between gross margin in SG&A I would say, we have continuing better visibility as we go and that's part of the reason for the guidance.
But I think what you can see and I'm sure you'll see this as you go through your own model.
A little bit on the top lines may aspie growth in some significant NASP gross margin expansion. Some lower interest expense. It has a significant impact on the EPS line as we kind of talked about so.
No change in terms of what we're seeing in the market, but still very good overall.
In terms of the second question was was supply chain and where we are from that perspective, we basically baked and no improvement in the supply chain and our numbers now and talked about that changing the cut off date for starts to be very clear that were bacon and what we're currently seeing in terms of cycle times and not improvement as we move through the air.
Okay very helpful. And then also interested.
On the on the gross margin side of things. If my math is right in terms of the guidance you're looking at some sequential progression from the fourth quarter to the fiscal first quarter. There. So just interested what your expectations are in terms of input costs, an awful interested in your perspective on the lumber side of the equation as well.
Yeah. So we've talked about this a little bit the price cost mix in the fourth quarter of this year and the kind of sequential change that had and you can see from the guidance that we have some improvement as we move into Q1 as we benefit from the lower lumbar costs that we experience as we move through last year. So you can see lumber cost improvement rolling through and certainly some price appreciation driving.
Some of the Martin Guy margin guidance that we have for Q1.
Q for Israel, Tyler type Kotila Q4 is really where we experienced the runup last spring didn't affect us last spring and affected us through the summer and into the fourth quarter. So we knew in Q3 that Q4 was going to be the point, where we were carrying the heaviest lumber costs, but as we roll into Q.
One.
We were we were careful we were pretty long in terms of days before prices spiked and then we got ultra short we didn't panic and we didn't get long again, so as prices came down we were able to to capture that improvement pretty quickly.
Okay. Just last one for me if I could on the the pricing side of things you want to go.
Last quarter, you talked about perhaps expecting some some some moderation on the market. So curious about something that's planning out and then also interested.
Your perspective on incentives out there just strong yourselves or from from competitors as well.
So.
I don't know I'm reading from right to left today for some reason I will take the second question first.
Tyler and Dave is about to make a face at the thing about the incentive question that I think is a little tricky is that incentives by themselves tell you a little bit, but you've really got to put them in a context of based prices and included features I mean, we've seen dimunition in in incentives. So.
There isn't anything that we're saying as an early warning indicator that is of great concern, but it's really the aggregation of base price included features and incentives and I would tell you. It's played out as we thought last quarter is definitely not as euphoric.
From a price action standpoint.
And seasonally it wouldn't normally be either.
But it's very stable.
Demand is strong both online and offline and I feel like the pricing environment is good.
We're cautious about this we understand there is a very important tether between incomes in house prices and that is at a more taut.
Relationships and it was 12 months ago and so for that reason alone, we just not allowing ourselves to assume hope for planned for underwrite any price appreciation because we understand that relationship.
Okay excellent. That's ultimately appreciate all the details thank you.
Thanks Tyler.
Thank you. Our next question comes from Allan Ratner Zellman and Associates. Your line is open.
Hey, guys good afternoon.
Nice job in a tough operating environment out there. So I appreciate all the guidance I know, it's not an easy environment to give us a lot of visibility.
Visibility into but.
Dave I guess my first question on the $5 per share number guidance and all the inputs that go along with it yeah. I'm curious if you could just kind of talk through the areas, where you feel like if things were to go sideways, where there could be some risk to that and on the flip side, maybe which and puts you feel like your ear being.
Conservative given the environment, where if things ultimately do improve there could be some upside. So just curious kind of how you think about the and you know.
Maybe the conservative and perhaps more aggressive inputs there.
Yeah.
You know Allan I would tell you in in terms of the forecast.
With more than or about approximately half the closings already in backlog in the margin confidence that we have it feels pretty good I mean in terms of rest of the forecast we still have sales to make their still a production environment Allan talked about and I mentioned the question before about assuming that we have kind of flat cycle times I think that's <unk>.
Concerning the rest of the one that we think we've managed an incorporated properly into the forecast as we move through the year. So I would tell you to me that's probably the biggest risk, but again I think we properly captured the risks and we've incorporated kind of the current environment and looking forward.
In terms of upside I think we'll see as we play through the year I think it's a tough question to answer right now I'm kind of at this point in the year Allan talked about prices being stable and I think that's a good way to think about it I think as we move through the year, we'll talk about kind of how things are fairing and if there's potential upside.
From the actual operating results will have a better sense as we move through the selling season.
Got it that's very helpful. They have.
Your second question Allan you've been I think one of the more pragmatic Ceos that I've heard at least as far as recognizing the potential affordability constraints that are out there, especially if if rates were to to rise at all from current levels given how much home prices have gone up and you know over the last month or two we have seen some volatility in mortgage rates for awhile.
We got a little bit of a head fake looked like rates might be starting to creep higher I think they actually climbed 30 40 basis points or so you know in the back half of your quarter into October.
Moderated a little bit here, the last few weeks, but but I'm curious if you can ascertain any interesting consumer behavioral trends when rates were starting to creep higher did you see any.
Any activity that would suggest maybe buyers for perhaps jumping off the fence in anticipation at rates would continue going higher was it a fairly muted reaction.
What are you hearing from the field in response to that.
It felt pretty muted honestly Allan we've certainly lived through environments before where.
Trajectory of rising rates pulls forward some demand I don't think we saw that I also didn't see any effect on our backlog Oh jeeze rates are higher how is that going to affect me maybe this isn't the right time.
To become a homeowner.
So I would say it was it was very muted and.
And I would I would tell you one of the things that gives me a little bit maybe more comfort around that topic is we've.
We've essentially created a hunger games for lenders for every buyer there is competition to win business from our buyers for multiple mortgage lenders and that proves to be a pretty good buffer for small moves in rates.
I'm, certainly not suggesting we aren't exposed as everyone is to risks associated with higher rates, but having a.
Consumer value proposition, where there are multiple lenders trying to win that business that that's a help.
A rising rate environment.
You might have to switch that reference to a squid green games reference in the future they're Allan [laughter].
I haven't finished I haven't finished the series so I'm a little afraid to quoted because you don't know how it ends yet so.
I thought I'd better be careful but I think the reference.
Right well I appreciate it thanks, a lot alright.
All right. Thanks.
Thank you again, if you would like to ask a question. Please press star followed by one please make sure your phone is uneven and record your name clearly when prompted our next question comes from Alex bearing with housing Research Center. Your line is open.
Good afternoon, gentlemen, and a great job, it's great to see where you guys ended up seeing where you started your guidance at $2 50 for the year.
So hopefully this year will be a repeat of that [laughter].
I wanted to focus in I guess on your DTA.
Probably something you guys don't refer too much but.
My understanding is that you won't be paying taxes for for awhile and some of the earnings. So can you give us a sense of.
If you get other years like 2022, how many years out does your D. T cover you from paying taxes.
Well, we'll look out.
The answer Alex is that you can kind of work on the pretax income and you can look at the federal tax rates and kind of do the math what I would tell you is the deferred tax asset is very meaningful to us and as the profitability is growing in the present value. If you think about it in those terms is getting bigger because where she'll be more taxes more quickly so it.
Still incredibly meaningful we need to protect it it is incredibly valuable and the values, becoming more and more clear given the profitability were generated in the timing.
And in terms of your you're five dollar number what tax rate or you guys, implying given that there's the proposal by the Democrats to to raise taxes are you guys have some last year's tax xrayed or a higher tax rate.
We're using a similar to actually we haven't assumed a different tax rate in the numbers.
Got it and.
Given that you guys are are.
Trading very near book value has there been any thoughts to buying back stock rather than just paying down the debt.
Well, we've had a long term focus on getting our leverage into a much healthier place and when we start talking about where it will be at the end of this year.
Estimate to be down in the two times debt to EBITDA arrange an in the forties on that to cap.
That's a different environment than the one that we have been in historically, so I think that's probably a conversation for next year right now we've got a tremendous growth opportunity in front of US. We've got deal flow that is underwriting to our satisfaction. So you don't have to say right now that doesn't seem to be the best allocation of <unk>.
Capital of it's on the table we've done it before.
There were serious dislocations in the share price or in share prices generally would potentially be back on the table. We've got the capacity to do it but I think we've prioritized correctly to derisked the company substantially by getting that down and then creating the growth trajectory for the future.
Shareholders have told US those two things are really valuable and I think that's where we've we've emphasized from a capital allocation perspective.
Alright, guys keep up the good work thanks.
Thanks, Alex.
Thank you. Our next question comes from Jane Mccann.
My advice.
Hey, good afternoon, David at the end of your comment commentary did you say that you believe.
These are believes that you can get to the $5 without seeing meaningful community growth through sheer did I hear you correctly.
Good.
Okay.
Amount of number of closings are you anticipating to get to this $5.
Well today, we didn't give an exact number on the call and we're not going to your exact guidance, but we did say is part of alan's comments that approximately half of our approximately half or closings or backlog. Currently that you can do some math around that pretty easily.
Got rid of the old chart.
Actually pretty helpful but.
He showed the amount of communities coming open versus the ones that were closing out I.
I mean, what is there any plan B, if you don't get if community development run so because that right now is what everybody's what everybody is telling us from your competitors that it's slower to get communities out of the ground.
So I guess I'm, just trying to back into if if if.
2800.
Number of units backlog is about half your production. This year I guess, what's plan B, if you can't get more community so but.
Well first of all J, it's Allan we don't need to get a lot of communities open. This year, we're going to have communities open but our profitability is really not dependent on that are closings will come from our existing communities because if we get a community opened in the spring the likelihood he gets open for sales and we generate closings by September.
30th the chances of that are essentially zero. So that's why I, Dave said, what he said, which is our profitability forecast is not in any meaningful way dependent on new community openings.
We do still have the chart it's in the appendix.
27, and it shows the number of of communities, we expect to get open in the next six months. The number that are going to be closing out those that have been approved but not yet closed. So all of that data is still in there.
Just for your reference.
Apologies on and flipped far enough.
Why set the bar so high this early in the year Allan.
Well.
Honestly in most years, taking the September 30th backlog multiplying it roughly by two and saying that's R closings forecast would be incredibly conservative.
We normally turn that inventory a lot more quickly and so there'll be a lot more operational risk from sales, we've yet to make so when we talk about setting at high we're actually relative to the year that we expect to deliver we've got a much larger share of it already contracted so high.
Hi, I guess as a matter of opinion and I appreciate the characterization, but the fact is there is less risk in that number then there would normally be at this time during the year because of the things. We've said that we've assumed about the cycle times not improving.
And the understanding that it does it is it is not crucial for your guidance or it's not necessary to hit for your guidance, but when do you think the community counts can input.
I think we will see growth in the spring.
For sure we'll see some growth in the spring.
Just the amount of growth the specific number of communities you said at our peers have said it it's tough so it's nice to not have a year were hanging by a thread based on gosh, We think will get it opened in March and if we do we can get some specs out there and we can close those by September we're not wrapped up in that drama.
For 2022.
Okay. Thanks for taking my question.
Thanks Jay.
Thank you our next question.
And.
Your line is open.
Hi, Thanks for taking my question.
My question relates to liability management, and how you're thinking about your cap structure and I know in the prepared remarks, you talked about having a nice runway two 2025 in terms of your next maturity, but when I look at the 25 that is fairly expensive at least from a coupon perspective.
And then when I look at where your bonds are currently trading we're probably talking two to 300 basis points.
Inside of where the coupon is for your 20 fives.
Bonds are callable now and I step down a bit in March. So how are you thinking about addressing those in the future.
Look I would tell you the math unit has the same math, we're doing we're making sure that we're being thoughtful and timely with the market.
But the Matthew said is not lost on us we get it.
We just want to make sure we make a timely and good decision.
Understood.
Thank you.
Thank you.
Thank you and there are no further questions in queue at this time.
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