Q4 2021 Hovnanian Enterprises Inc Earnings Call

Okay.

Good morning, and thank you for joining us today's hovnanian enterprises fiscal 2021 fourth quarter earnings conference call. An archive of the webcast will be available ethic completion of the call and one for 12 months.

This conference is being recorded for broadcast all participants are currently in a listen only mode.

Management will make some opening remarks about the fourth quarter results and then open the line for questions.

The company will also have webcasting, a slide presentation, along with opening comments from management.

The slides are available on the page of the company's website at Www Dot K H O V Dot com.

Who would like to follow along should now log onto the website.

I would like to turn the call over to Jeff O'keefe, Vice President Investor Relations. Jeff. Please go ahead.

Thank you Valerie and thank you all for participating in this morning's call to review the results for our fourth quarter and fiscal year. All statements. In this conference call that are not historical facts should be considered as forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, such statements involve known and unknown risks.

Uncertainties and other factors that may cause actual results performance or achievements of the company to be materially different from any future results performance or achievements expressed or implied by the forward looking statements such forward. Looking statements include but are not limited to statements related to the company's goals and expectations with respect to its financial results for future financial periods.

Although we believe that our plans intentions and expectations reflected in or suggested by such forward looking statements are reasonable we can give no assurance that such plans intentions or expectations will be achieved by their nature forward looking statements speak only as of the date. They are made are not guarantees of future performance or results and are subject to risks uncertainties and assumptions.

That are difficult to predict or quantify therefore actual results could differ materially and adversely from those forward looking statements. As a result of a variety of factors such risks and uncertainties and other factors are described in detail in the sections entitled risk factors and management's discussion and analysis, particularly the portion of MD&A entitled.

Safe Harbor statement.

In our annual report on Form 10-K for the fiscal year ended October 31, 2020, and subsequent filings with the Securities and Exchange Commission, except as otherwise required by applicable securities laws. We undertake no obligation to publicly update or revise any forward looking statements whether as a result of new information future events changed circumstances or any other.

The reason joining me today on the call are Ara Hovnanian, Chairman, President and CEO, Larry <unk> Executive Vice President and CFO, and Brad O'connor Senior Vice President Chief Accounting Officer, and Treasurer, I'll now turn the call over to our CEO Eric go ahead.

Thanks, Jeff I'm going to review, our fourth quarter results and I'll address the current market environment, Larry <unk>, Our CFO will follow me with more detail I'll make a few closing comments and we'll open it up to Q&A.

On slide five we compare our results to our most recent guidance.

Although we experienced supply chain delays, our amazing associates found ways to mitigate many of the issues. We managed to deliver a large number of quality homes in the final months and days of the quarter without spending the incremental costs that concern to us.

This allowed us to achieve higher gross margins than we anticipated while supply chain issues prevented us from closing more homes, we were able to report revenues above the midpoint of our guidance.

During the quarter, we also achieved lower SG&A and lower debt levels, which resulted in lower interest expense all of this allowed us to not only exceed our revised guidance, but also our original fourth quarter guidance for gross margin EBIT and pre.

Tax income.

During our second quarter conference call, we talked extensively about the impact of Phantom stock expense on our SG&A.

During the fourth quarter, our stock price declined which resulted in a $5 million reduction in Phantom stock expense.

And the third column of this slide we show what our results would have been without the benefit of the Phantom stock expense reduction.

As you can see we still exceeded our original and revised guidance for EBITDA and pretax profit.

Further our SG&A ratio would have been within our guidance without the benefit.

Moving on to slide six we show year over year comparisons for fourth quarter.

Given the supply chain disruptions and labor shortages that have been plaguing many industries, including homebuilding, we were pleased with our strong performance in the quarter.

Starting in the upper left hand portion of this slide you can see that our total revenues for the fourth quarter increased 19% to $814 million moved.

Moving to the upper right hand portion of the slide you can see that our adjusted gross margin increased 260 basis points to 22, 8% this year compared to 22% in last year's fourth quarter.

This clearly illustrates that we've been able to raise home prices more than enough to offset the higher labor and material costs that we've incurred.

Keep in mind that these deliveries did not get the benefit of lower lumber prices since they started near peak lumber pricing.

We expect the lower lumber prices to positively impact gross margins beginning in the second quarter of fiscal 'twenty two as we deliver homes that started after lumber prices receded.

In the lower left hand quadrant of the slide you can see that our SG&A was eight 6% for the fourth quarter compared to nine 6% in last year's fourth quarter.

If you ignore the benefit of the Phantom stock expense it still would have improved to nine 2% this year.

In the lower right hand quadrant of the slide we show that adjusted EBITDA increased 39% from $87 million in last year's fourth quarter to $121 million this year.

On slide seven you can see that our adjusted pre tax income improved 80% to $81 million.

Compared to $45 million last year.

Turning to slide eight for the full year, our earnings per share ignoring the benefit of the valuation allowance reduction through 210% from $7 <unk> in fiscal 'twenty, one excuse me in fiscal 'twenty to 'twenty $1 and $70.

<unk> and fiscal 'twenty one.

This is a significant year over year growth and we expect to have continued significant improvement in fiscal 'twenty two.

Okay.

We already have the majority of our first two quarters contracts in backlog about half of our third quarter and we are beginning to fill our fourth quarter pipeline let.

Let me talk about the sales environment on.

On the right hand portion of slide nine we show contracts per community for the fourth quarter in each of the last three years.

You can see that our contract pays jumped from nine five in the fourth quarter of fiscal 19 to a white hot pace of 16 five in fiscal 'twenty that was 74% year over year increase.

For over a year now we've been saying that the sales pace that we achieved in fiscal 'twenty was unsustainable and that year over year comparisons would be challenging.

As we had anticipated with significant home price increases and metered shales. The housing markets return to a more normalized sales pace in fiscal 'twenty one are.

Our contracts per community of $10 two in this year's fourth quarter were below fiscal 'twenty is white hot fourth quarter, but up 7% compared to a more normalized fourth quarter and fiscal 19.

Further to the left we show that the average fourth quarter contract pace from 97 through 2002 was $10 two as.

As we've said many times before that was the time that was neither a boom nor a bust for the housing industry.

While our sales pace in the fourth quarter of 'twenty, one slow to a more typical historical pace, both home prices and gross margins on homes that we sold in the fourth quarter were much higher this year than they were a year ago. We expect this will lead to higher.

Your levels of profitability in future periods as we deliver those homes.

On slide 10, we show contracts per community on a monthly basis from December through November. The most recent month is in dark green the same month, a year ago in light Blue and the same month two years ago is in grey.

For the past seven months, our contracts have been lower than last year's blazing pace. However, we compare favorably every month with 19 more historical typical contract base.

We believe our current sales pace is healthy and much more sustainable than the COVID-19 demand surge pace during fiscal 'twenty.

Further the most recent month of November shows that we're closing the gap on sales pace, notwithstanding significant price and margin increases this year.

Our contract dollars in November of 'twenty, one actually increased 10% over last year.

This is particularly noteworthy as we've raised prices considerably since last November when sales were white Hot. Furthermore, this year's November only had four Sundays compared to five Sundays last year.

The housing market definitely feels to definitely continues to remain really solve it.

On Slide 11, we show what our community count was at the end of every quarter since the last fiscal year end.

You can see primarily due to selling through communities that are significantly higher than normal pace as we discussed before our community count had been declining each quarter up until the end of the third quarter of 2001, when we had a sequential quarterly increase.

We projected the positive trend continued during the fourth quarter. We grew by 20 communities to end the fiscal 'twenty, one with 140 communities.

Not only was this up from the end of the third quarter, but it was also an increase from the end of last year.

We expect our community count is likely to experience up and down quarterly fluctuations during fiscal 'twenty, two including a decrease in the first quarter.

However, given no material changes in market conditions, we expect to end the year with a community count at or slightly higher than we ended fiscal 'twenty. One further we expect to maintain a higher average community count for fiscal 'twenty to compare to.

Fiscal 'twenty one.

On a daily basis, we all continue to see headlines about supply chain disruptions and labor shortages. These problems are not just impacting the homebuilding industry, but they are wreaking havoc on just about every industry across the globe at this point, we're not seeing any relief on construction cycle times.

And we therefore included the current extended cycle times in the guidance that we're going to give you toward the end of our call.

As we have now begun our fiscal year, we had the headwinds of continued supply chain disruptions and the slower sales pace compared to the white hot levels that we achieved in fiscal 'twenty.

However, these negative influences it should be more than offset by our increased community count higher gross margins and higher selling prices, which we expect should allow us to achieve revenue growth and significant profit growth in fiscal 'twenty two.

I will now turn it over to Larry <unk>, our Chief Financial Officer.

Thanks Sarah.

I'm going to start with the progress we've made in growing our lot position turning to slide 12, we show that year over year, our lot count increased by almost 5000 lots or by 19%.

We've been steadily increasing our lot position and we expect to see our lot count continue to rise in fiscal 'twenty two based on fiscal 'twenty. One deliveries this equates to a five year supply.

We believe that the COVID-19 surge in sales demand, we experienced in fiscal 'twenty and fiscal 'twenty. One was unsustainable as a result, we conservatively.

Under wrote all new land acquisitions since July of 'twenty with pre Covid contract paces.

Additionally, when we underwrote the lots controlled between April and September of 'twenty one.

We were using then current construction cost, including lumber costs that were significantly higher than today's cost.

As a result of subsequent declines in lumber prices, we now expect even higher margins on those recently acquired land parcels.

The market for land acquisitions remains rational and we continue to feel very comfortable with all of the acquisitions, we've made over the past year.

Keep in mind, there's a lag between when we place lots under our control and when those lots will be fully developed and we can open the community.

Most of the land, we put under control during our fourth quarter of fiscal 'twenty, one will not be opened for sale until fiscal 'twenty three and beyond.

It's too early to give specific guidance, we do expect to grow our community count in fiscal 'twenty three.

We now control, 100% of the land that community is necessary to achieve our expected growth and profits during fiscal 'twenty, two and control roughly 90% of the lots to achieve our expected additional growth in physical 20 three's profits.

Today, our land acquisition teams are focused on obtaining control of land and communities for home deliveries in fiscal 'twenty three and beyond.

Turning now to slide 13.

During the fourth quarter of fiscal 'twenty, one our land and land development spend was $167 million, which brought the total spend for the full year to $698 million that is a 12% increase over the $624 million spent during fiscal 'twenty one.

Fiscal 'twenty excuse me.

This further demonstrates we're investing the money needed to grow our community count.

Turning to slide 14, even with that increase in land spend and an early retirement of $181 million of senior secured notes during fiscal 'twenty one.

We ended the fourth quarter with $381 million of liquidity well above the high end of our liquidity target range. We continue to have excess liquidity and today. Our land teams are busy contracting additional land parcels across the country.

Turning to slide 15.

Compared to our peers you see that we still have one of the highest percentages of land controlled via options. We continue to use land options whenever possible to achieve high inventory turns enhance our returns on capital and to reduce risk.

Our use of land options increased from 63% at the end of fiscal 'twenty to 66% at the end of fiscal 'twenty one.

Turning now to slide 16.

Compared to our peers you see we continue to have the second highest inventory turnover rate.

Inventory turns were 20% higher than the next highest peer below us high inventory turns are a key component of our overall strategy.

We believe we have opportunities to continue to increase our use of land options and to further improve inventory turns and our returns on inventory in future years.

On slide 17, we show the dollar value of backlog, including domestic and then consolidated joint ventures increased 17% to $1 $9 billion at the end of the fourth quarter.

The strength of this backlog, including a solid expected gross margin sets us up nicely for even stronger financial performance during fiscal 'twenty two.

Our financial guidance for the first quarter, the second quarter and the full year for fiscal 'twenty two assumes no adverse changes in current market conditions, including no further deterioration in the supply chain.

Further it excludes any impact.

Our SG&A expense from Phantom stock expense was related solely to stock price movements from the $84 26 stock price at the end of fiscal 'twenty, one fourth quarter.

As you review our guidance keep in mind that we are not a builder, who primarily build spec homes.

We already have more than half our full year's projected deliveries and contract backlog, which provides us with an even higher degree of confidence in our projections.

On slide 18, we provide guidance for the first quarter of fiscal 'twenty two.

We expect total revenues for the first quarter of fiscal 'twenty two to be between 640 and $670 million. We also expect gross margins to be in the range of 25% to 22% compared to 27% in last year's first quarter.

SG&A as a percent of total revenues is expected to be between 10, eight and 11, 8%.

Finally, we expect our adjusted pre tax profit for the first quarter of fiscal 'twenty two to grow to between 30 and $35 million up between 40, and 63% compared to a $21 million profit in the same period last year.

On slide 19, we provide guidance for the second quarter of fiscal 'twenty to.

Due to the significant improvement in expected profits during the first half of 'twenty. Two we felt it would be helpful to show two quarters of guidance. However, we do not plan on providing two quarters of guidance in future periods.

We expect total revenues for the second quarter to be between 700 $750 million. We also expect gross margins to be in the range of 23% to 25% up substantially compared to the 21, 3% and last year's second quarter.

SG&A as a percent of total revenues is expected to be between nine and a half and 10, 5% compared with 11, 7% last year.

Finally.

We expect our adjusted pre tax profit for the second quarter of fiscal 'twenty two to grow to between 60 and $75 million up between 93, and 141% compared to $31 million profit in the second quarter last year.

On the next three slides I will provide guidance for all of fiscal 'twenty two but we will also show actual results for fiscal 19, 2020 one to provide context to how our results have significantly improved over the past three years, turning now to slide 20.

In the upper left hand portion we show full year total revenues increased from $2 $2 billion in physical 19 to $2 $708 billion in fiscal 'twenty one.

Fiscal 'twenty two we expect to report another increase with total revenues between two eight and $3 billion.

Last year has been a the last year, it's been a wild rollercoaster ride for cost, particularly for the cost of lumber for most of the homes that we will be delivering during the first half of fiscal 'twenty to not only have we already sold them, but we've already started construction and therefore locked in the cost of <unk>.

Lumber.

This provides us with strong transparency to the expected improvements in gross margins, we're projecting beginning in the second quarter of fiscal 'twenty two after increasing gross margins to 18, 4% in fiscal 'twenty, our gross margin improved another 240 basis points.

21, 8% in 'twenty, one and fiscal 'twenty, two we expect to increase margins to between 23, and a half and 25, 5% up another 170 to 370 basis points compared to fiscal 'twenty one.

On the bottom of this slide we show that our SG&A as a percentage of total revenues has declined steadily since physical 19th 11, 6% to nine 9% in fiscal 'twenty one for fiscal 'twenty. Two we expect SG&A as a percentage of total revenues to be between nine three and $10 three per.

In the bottom left hand quadrant, you can see that adjusted EBITDA grew from $174 million in fiscal $19 million to $364 million in fiscal 'twenty one we.

We show in fiscal 'twenty, we achieved a 35% growth in adjusted EBITDA.

In fiscal 'twenty, one we grew adjusted EBITDA another 55% based on the midpoint of our adjusted EBITDA guidance, we expect to achieve an additional 19% growth in EBITDA in fiscal 'twenty two.

These increases were representative of the progress, we've made and materially improving our operating results.

Turning now to slide 21.

We show adjusted pre tax profit on the left half of the slide after increasing adjusted pretax profits by 288% in fiscal 'twenty. One we expect our adjusted pre tax profit for fiscal 'twenty, two to grow between to between $260 million and $310 million.

Up 32% to 57% compared to fiscal 'twenty one.

On the right hand portion of the slide we show earnings per share for the past three years, assuming a 30% tax rate somewhere to what we saw in the fourth quarter of fiscal 'twenty, one our EPS for fiscal 'twenty two is expected to be between $26 50.

And $32 per share based on yesterday's closing stock price of $107 55 steps. We're currently trading at four nine times, our trailing four quarter's EPS and three seven times the midpoint of our earnings guidance for fiscal 'twenty two.

Turning now to slide 22 on this slide we show our debt maturity ladder at the end of the fourth quarter.

On July 31, we paid off in full one year early $111 million of our 10% senior secured notes due July 22 at par and on August 2nd we paid off in full three years early $70 million of our 10, 5% secured notes due July of 2024.

Call price of 102 and five eights.

We believe that we should be able to refinance our currently undrawn.

Undrawn revolving credit facility ahead of its maturity in the first quarter of fiscal 2003. After that we do not have any debt coming due until fiscal 'twenty six.

Given our $426 million deferred tax asset, we will not have to pay federal income taxes on approximately one $6 billion of future pre tax earnings. This tax benefit will significantly enhance our cash flow in years to come and will accelerate our progress and rapidly.

Proving our balance sheet.

On Slide 23, you can see how our credit our key credit metrics have significantly improved over the past few years.

As well as the further improvement we expect to achieve at the midpoint of our guidance for fiscal 'twenty to total debt to adjusted EBITDA has declined from nine seven times and physical 19 to three eight times in 'twenty, one and a three two times projected for fiscal 'twenty to net debt.

The adjusted EBITDA declined from eight nine times in physical 19 to three one times.

In fiscal 'twenty, one and a two six times projected for fiscal 'twenty two.

Adjusted EBITDA the interest incurred coverage has more than doubled from one time and physical 19th of two three times for fiscal 'twenty, one and down to two point or up to two eight times projected for fiscal 'twenty to.

Turning to slide 24, assuming we hit the midpoint of our fiscal 'twenty two guidance for pre tax profit our shareholders equity is expected to more than double from fiscal 'twenty, one fiscal year end level as of Yesterdays closing stock price were trading at one nine times fiscal 'twenty two's ending book value.

This improvement in our equity position will result in a net debt to capital ratio continuing to decline from 146% at year end fiscal 19% to 87% at the end of fiscal 'twenty, one and at the midpoint of our guidance.

It is projected to reduce further to 76% by the end of fiscal 'twenty. Two we expect to continue improving our balance sheet by reducing debt and growing equity. Our goal is to achieve a mid 30% net debt to capital ratio.

We expect to continue our trend of improving our key credit metrics in future periods. As we continue to post strong results. We believe we should be able to refinance our debt structure at markedly lower rates and better terms in the near future.

Always we will analyze and evaluate our capital structure and explore transactions to further strengthen our balance sheet and our financial performance. Lastly, we were pleased to announce our board of directors approved reinstating a $2 7 million dividend payment on our preferred stock payable and <unk>.

January 'twenty two.

Now I'll turn it back to Ara for closing comments.

Thanks, Larry.

Slide 25.

Looking beyond fiscal 'twenty, two which we recognize as a particularly strong year, we're preparing for improving our performance and then more normalized housing market.

We continue to plan to deleverage our balance sheet and refinance our capital structure with much more favorable terms than we were able to achieve in a difficult period. This should lead to very significant interest savings in the future, helping our performance in a more normalized market.

Strategically we plan to grow the percentage of lots under option further and increase our inventory further excuse me inventory turnover further.

We plan to do more with less we believe this is going to lead to higher returns on inventory and that should be the case, even in a more normalized market.

With our improved balance sheet and focus on greater inventory turnover, we plan to increase our community count and finally with all of the above we plan to continue to operate at higher volumes and grow, allowing us to leverage our SG&A.

We have an operating team that is hitting on all cylinders and is poised to go further we see a path to return to industry, leading performance and growth and look forward to sharing our results in the near future that concludes our formal comments and we will be happy to turn it over to Q&A.

Thank you, ladies and gentlemen, if you'd like to ask a question. Please press Star then one when your Touchstone telephone again, if he would like to ask a question. Please press Star then one.

Our first question comes from Alan Ratner of Zelman and Associates. Your line is open.

Hey, guys, good morning, nice quarter, and a nice job exceeding the revised guidance there.

I guess first question on that point I'm curious if you could maybe just talk through some.

<unk> are things that you and your team were able to accomplish in October that <unk>.

<unk> in the performance coming in ahead of what you I guess feared at that point was a worsening supply chain environment.

Sure.

As you know obviously the supply chain environment was just really.

Tenuous in terms of making the huge number of deliveries, we literally had our teams shipping components from one market to another whether it was garage doors or lights for a variety of factors to make that call.

Quarter's deliveries and it was right up until the last week or so.

Before we had any real guidance as to whether or not we can make it.

Very difficult conditions. The good news is that we made the midpoint of our guidance and deliveries and did better than all the other factors for the reasons, we mentioned, including the fact that we didn't spend as much as we thought we would need to beat the supply chain problems.

Got it.

That's great and I appreciate the color there.

Second I would love to dig in a little bit to the gross margin guidance for next year. So obviously, it's a very strong pricing environment and.

When I look at your guidance, obviously implies a pretty pretty sharp ramp in margins in the back half of next year and Larry I know you kind of walk through the backlog and the fact that you already have some deliveries third third quarter deliveries and backlog, but it would seem like that's going to be predominantly driven on homes you are selling in the upcoming months here.

You mentioned lower lumber, which is obviously a benefit for a period of time, but lumber has the features have doubled off of those those recent lows in August. So I'm curious when does that move higher begin to show up in the margin is that reflected in the back half margin and youre just more than able to offset that or is that something we should think about heading into 'twenty three.

At this point.

Just trying to think through the moving pieces on margin because obviously that that's going to dictate whether you hit those numbers or not is the back half performance.

So.

The first thing I'd say is that we have as I mentioned in the.

My formal comments, we really have virtually all of our homes expected to close in the first two quarters not only.

Already in contract backlog, but we know what our costs are because of those homes.

Every one of them is already started.

So we're very confident in the increasing margins that we're projecting in the second quarter and then as we look forward we have quite a few homes in the third quarter and a smattering of the fourth quarter already sold as well.

No what our cost.

And what our home prices are there and we've taken into account our.

Our expectations and our margin projections for the full year. So we're still very confident.

Without any further deterioration.

And market conditions, including cost we're confident in those margin projections that we're providing for the full year.

Al.

We do have.

30 to 90 day locks on our lumber we've used the current lumber pricing and that protected for another almost a quarters worth of starts.

So again.

While we know we have some exposure.

For the fourth quarter, we also have pricing opportunities.

I can just tell you the market just feels really strong regarding pricing opportunities. So.

We're comfortable there is always risk.

And that's why we were conservative.

Last year in <unk>.

We've been sufficiently conservative to deliver some great results this coming year.

Great. Thanks, a lot guys I appreciate the color.

Yeah.

Thank you. Our next question comes from Alex Barron of housing Research. Your line is okay.

Yes, thank you and congrats on the.

The improved performance this fiscal year.

I just wanted to verify if I heard you right that the expected guidance gross margin for the full year was $23 five to 25 and a half.

That's correct.

Okay.

Okay, great. So obviously that suggests a pretty nice.

Gross margin improvement in the back half.

I guess.

My question is at this point.

Do you feel that those types of margins in the back half.

How many years of land I guess do you guys still have the pre COVID-19 type pricing.

Like does it covered through 2023.

Well.

We mentioned specifically we have five years at last year's number of deliveries we've got five years.

Sure.

Deliveries lots and land.

We didn't comment specifically on what pricing, but <unk>.

Last year, we had a big chunk of 23 deliveries already locked so we're feeling reasonably good I do want to add that the homes. We just deliver had we generally presell most of our homes. So the homes that we deliver.

<unk> in the fourth quarter were sold before that.

Order or two quarters, plus before that those were at lower prices or prices have been going up quite a bit that's what gives us part of the confidence regarding our future gross margins secondly, the homes, we just delivered.

Lumber pricing the homes that we had been starting over the last couple of quarters have been a much better prices regarding lumber. So price home prices are going up costs are at least lumber costs have been going down and that's what's driving our gross margins too.

The increase from where we've been.

Okay.

How about on the first quarter, the low end of that margin guidance.

Youre, saying the peak lumber costs already happened and we're still seeing higher prices to what drivers that first quarter first quarter homes, but the deliveries were started two quarters before that so those still had higher lumber costs as we mentioned in the call it's not until.

The second quarter deliveries were those homes were started at lower lumber prices will where youll start to see the juicy your margin so to speak.

Got it okay, great and then on the Phantom stock.

Up and down adjustment.

I thought that ended in 2021 am I wrong does it go through 2022 as well.

Can you repeat the question.

The adjustments you make to the SG&A due to the Phantom stock do those adjustments.

<unk> continue into fiscal 'twenty, two as well every quarter yes.

Yes, what happens is until the Phantom stock has been paid out which are 60% of that Phantom stock plan will be paid out in January.

And then a year later, another 20% and then a year after that another 20% so it'll be a declining impact on SG&A for many stock price movements, but it's still there until it's actually paid out the first pay out I think it was mid January of 'twenty two.

Okay, great and if I could ask one more.

So you guys haven't you've been reporting a lot of orders for this KSA.

Component, but no deliveries so when are those units going to start delivering.

We expect well first of all it's an interesting.

The environment in Saudi and the sales have been exceptional and we've got a huge backlog not only backlog, but the customers in that market.

Big stage payments.

We've received our venture has received much of the cash for a lot of our backlog already we are waiting until final occupancy which has some.

Administrative hurdles in.

In Saudi.

For that to occur, but we're making great progress. So we anticipate that's going to be happening in the next few quarters, but.

We're we're waiting on that.

Nonetheless, it's not a hugely material number we're doing very well there and returns on inventory are great but.

But it's not a big needle mover in terms of our overall performance.

Okay. Thanks, I'll get back in the queue.

Okay.

Thank you. Our next question comes from Jordan Hymowitz.

Philadelphia Financial your line is open.

Thanks, guys. Let me just first follow up with Alex's question on Saudi I mean, most people probably don't know, but Saudi is having a giant mortgage boom. The government subsidizing mortgages heavily homebuilding is a big part of the 2030 plan I mean, even though it's not a needle mover and now the visibility and uptick on Saudi homeownership rate is.

<unk> ignored mentioned could that be expanded or are there limits. I mean can you talk a little bit more about what that could be four or five years.

Sure we think.

It's a huge market. We think there is a lot of opportunity there.

As we said we've done very well, we got a lot of experience and we think we're really well poised.

To be in the center of that recovery. They are a big baby boom generation in that market.

The government has been hell.

Helping the homebuyers with mortgage costs.

Housing for their middle class is a big priority in the Kingdom. So again, we think there is a lot of upside in future opportunity for us there.

Okay.

This domestic stuff do you have numbers assume any global refinance going on.

Not all of our projections don't assume any.

Refinance of our debt.

Though we certainly continue to monitor the market.

Carefully and we believe it or not.

Too distant future.

We should be able to convince.

Bond investors to refinance.

Our debt structure at materially lower rates than we're currently saying none of that.

You're paying an average of over 10% on over $1 billion the rate would seem to be sub seven today or at least close to 7% so that could be material savings thats not built into your guidance correct.

Great great.

Okay final question is because you're not paying any taxes for the foreseeable future book value grows with the pretax number right not the the the diluted EPS number, which I think is closer to $40 again, that's even before does that savings correct is that the way to think about it.

Right right right.

I'm sorry, I missed the specific question you are asking on a cash basis EPS.

Well I mean, you're going to be put book value per share, but it is at book value since youre not paying taxes.

Shouldn't you add backs.

The tax effect of the DTA to be comparable you see what I'm, saying.

Because you're not paying any taxes. So book value is a measure of liquidation youre going to earn next year closer to $40 not 26 to 32 by your guidance on a cash basis, that's correct, but the DTA as.

The DTA is on our balance sheet as an asset.

I don't disagree with that.

But good value will grow faster.

What I'm, saying.

Yes, that's correct.

Okay.

Thank you.

Again, ladies and gentlemen would you like to ask a question. Please press Star then one on your Touchtone telephone.

Our next question comes from Kwaku Buffalo.

Goldman Sachs. Your line is open.

Thank you so much and congrats congratulation guys my questions were mostly answered but I'll just.

Follow on us to sort of what youre anticipating the timing of the refi of the revolver.

We don't have a specific date in mind, obviously it comes due I think the December of 'twenty two so sometime this year.

Yeah December 'twenty two.

So sometime this year, we will address that but given that it's the tippy top of our capital structure. It's the least of my concerns on being able to refinance that at this point.

Thank you so much for that and just as a follow up on that.

The refi of the capital structure of the re filing of the 2026 maturity wall contingent on refined the revolver at all.

Are those two first.

Distinct issues.

I think there are two separate issues.

I appreciate it thank you so much and congrats.

Thank you.

Thank you. Our next question comes from Alex Ban of housing Research Center. Your line is open.

So we're taking my follow ups.

So I noticed in your slides that the November orders were down 5% year over year.

<unk> is a very solid improvement versus the last couple of quarters.

So is that indicative that.

You guys are not.

Uh huh.

Holding back sales as much anymore is that things are kind of.

Caught up a little bit more or how should we interpret that and also is that number roughly across all the markets or how does that playing out well first.

Ill reiterate that were actually up 10% in dollars, but we do continue to meet or sales in many of our communities.

There.

Construction is pacing.

Pacing on a metered way and many of our communities and we're metering sales to match that.

Yes.

The short version Alex is as the market continues to remain very strong.

And.

Demand.

For new homes remains strong it's not at the White Hot pace that we saw in the fourth quarter a year ago on a per community basis, but demand remains very strong across really all of our markets.

Yeah.

Right. So I mean, I guess, if we look at last year. It would seem like the only tough comp you guys have a head is.

Two months from now I guess that would be January.

So I think the market slowed to a more rational pace starting in May last year calendar month of May the <unk>.

<unk> selling season, I would still Saudi was was pretty hot from the Covid surge.

And pace per community began to slow to more rational pace and.

In may.

Right now you guys made a comment that you don't.

Build so many specs I guess compared to other builders, but.

Even even many companies that traditional good unbilled spec has kind of switched into current.

Supply chain issue environment to building more specs. So I'm just kind of curious if you guys can comment on your have you guys. Adjusted your strategy or is that something that's in process or are you just going to continue the way you always have and can you elaborate on it.

Okay.

We haven't really changed our strategy, we have about $2 billion.

Clog so.

We are focused on starting those homes.

We do build some specs, but it's not.

Dominant part of our strategy and at the current time, we're not planning on shifting there.

Got it.

I can ask one more on the refinance.

The issue is is the is the only thing that is holding that up basically that you guys are waiting to get the <unk>.

You are trying to get is that the only main.

Main thing or is there anything else no.

That's the primary issue is I mean, our current capital structure.

It is pretty unusual and.

Many of the slices.

Maturities don't have a lot of liquidity to them. They are small in size. So that they're just not actively traded so we have been educating bond investors about our improved performance and.

Educating the rating agencies about our improved performance and as the market recognizes our improved performance and is willing to give us.

Rates closer to what similarly, situated homebuilding peers have gotten we'll pull the trigger but we don't have a gun at our head.

Because we really don't have any material amount of debt coming due to 26. So we can afford to wait but we think we've made good progress in that educational.

Process that I, just described and we're optimistic that we'll be able to do something.

And in the not too distant future.

I will add we do have.

The substantial reduction in our call premiums in February.

So that certainly.

Plays into our thinking.

No.

I appreciate everything you're saying and you guys. Obviously have made a lot of progress.

Does this have to be like the all or nothing or could it be done in stages or is there something that prevents that in other words.

Can you just take one that stood out at a time.

There's nothing structurally that would prevent us from that other than size.

Some of our current issues are pretty small so I don't think you could do it an issue at a time, but you still could do a chunk at a time.

To get to a liquidity size call it $400 million plus or minus that the market probably would want to see.

Really have strong liquidity and a new issue. So we wouldn't have to do everything all at once we could do it in steps, but I don't think we could do it.

Each each individual issue that we currently have couldn't be refinanced easily.

Got it and lastly, I know last year or this year.

Fiscal 'twenty, one you guys reversed most of your DTA, but there was some portion that was not reversed.

Are there any.

Update on when that might get fully reversed.

Right.

Likelihood that won't get fully reversed the reason that still reserved as that state Nols in states that we don't have a lot of operations remaining for example, Pennsylvania or Illinois, and so at the current time, we don't anticipate being able to use those and Thats why there.

<unk> reserves, if that changes and at some point, we can anticipate generating profit in those states. We would consider would have would be able to reverse it but at the moment, we don't anticipate that occur.

And then one at a time rather them out once the time runs out for those Nols, both the asset and the reserve would just be written off.

But having no net effect on our books.

Our reserves.

Right understood.

Okay, very well and congrats and best of luck for this year. Thank you.

Thank you Alex.

Thank you. Our next question comes from Vincent following of Barclays. Your line is open.

Good morning, guys. Thanks for taking my questions a couple more on the balance sheet.

Larry I think you talked a little bit about.

Looking for the right rate to do a refinance and something similar to.

To your peers.

Should we read that to mean that.

A secured debt issuance is not what you are looking to do here, which would clearly come with a much lower cost of capital and it's your intent to.

Take the capital structure and make it essentially all unencumbered.

I don't think we have any hard and fast line that would say we wouldn't do a secured deal if that was the most advantageous way too.

Proceed we think we deserve to be able to refinance on an unsecured basis. It may take two steps rather than one step to accomplish that.

So we're not ruling out.

Doing.

Secured refinance.

But at the same time, we think our credit.

Thanks.

Our ability to do it on an unsecured basis, but.

We'll just see what the market will accept.

That was helpful.

Secondly, I think it's on page 24 of the deck you talked about a mid 30% net debt to cap target, which is clearly.

Optimistic given where you are right now can you kind of walk us through what sort of a timeframe, we should think about here.

And how do you get there is this.

Strictly through growth in your equity or how should we think about like a longer term targets for absolute.

That balance here.

Well since you are looking at that slide.

We took it from 146%.

86% and a couple of years, so that's a pretty significant improvement and we're projecting to get.

The 75%, so we really cut it in half and just a few short years. So I don't think it's going to take forever for us to get to a mid 30%.

Debt to cap so, although it's not a next year and maybe not a year after that kind of thing it isn't five or 10 years from now that we're talking about it it's nearer term than that but we don't have a specific timeframe, we're going to do it through a combination of continuing to grow earnings.

And which will enhance our book value.

By that with continuing to reduce debt.

And those two things together are powerful tools on improving our balance sheet and getting us.

Closer and closer to the mid 30% debt.

<unk> goal.

I think.

As discussed during the call our cash flow is better than our reported net income.

Because of the Nols so that.

Really enhances our opportunity to reduce debt more than the growth in book value coming up might imply.

Thank you I certainly didn't mean to imply that wasn't passive certainly going from 150% to where youre going to be next year was.

Well, it's pretty amazing two more from me.

As part of any potential refinancing transaction any consideration to.

<unk> and equity raise along side.

But at current time.

We're not contemplating that we always look at everything but.

We're pretty.

Pretty optimistic about our earnings outlook.

We think our stock is selling at a pretty low multiple of this year's earnings let alone the earnings power with more improved balance sheet and financial foundation. So at this point, while we always consider everything thats not.

On our front burner.

Okay and last one for me.

The your rationale behind starting to pay a preferred dividend again and why not use some of that cash to delever even further.

I would answer it this way and that is that.

Although.

Covenants for the last 15 years or so have prevented us from from playing that preferred dividends. So we had no choice in the matter.

We're prohibited from paying it and it was.

Non cumulative preferred.

I think we had a moral obligation once covenants no longer prevented us from paying it.

To actually reinstated and so once we were able.

Two.

You see that our credit statistics have improved that would allow us without violating any covenants to pay it and we can look forward and say that we're going to continue to have strong performance.

We're just the type of company.

We issued debt preferred debt and promise to pay it.

We're going to honor our obligations, even if we may not have been absolutely legally required to do it we still think that we were morally obligated and happy too.

Reinstate that dividend for our preferred holders.

Okay. Thank you for your time.

Yeah.

Thank you. Our next question comes from Jordan Hymowitz, Philadelphia Finance Your line is open.

Thanks, two quick follow ups, one I want to follow up on the last Gentleman's question, because I actually think by putting that cumulative preferred I think it substantially improves your ability to issue debt at a much lower cost because I think it serves the integrity.

You guys have I mean, it shows that a bond investor knows that even if things get tough you guys are not going to try and not on your obligation. So I compliment you dramatically on that on the ethics all of it.

The second thing is on the preferred.

Our preferred today has a much lower coupon than seven and a half thing is that ever callable at par.

Or hypothetically might that continue to trade up through par because the comps are trading at much lower yields.

I would the real honest answer to that is I, just haven't thought about it or looked into it. So I don't have a great answer for you.

In terms of what the procured might might trade at.

We just reinstated that and we just haven't spent any time thinking about that aspect at this point.

Is it a callable.

I don't know the answer Brad.

I'll cover that.

Yeah, we will certainly look into it we just haven't been focusing on the preferred so unlike all the rest of our debt we could.

Tell you off the top of our heads to answer the most questions on the preferred we would happy to get back with the Jordan is a real answer.

I just want to make sure I'm doing my numbers right. If your guidance is 26% to 32 next year, but if you tax effect that that adds another 25% on top of that and then if you hypothetically did a 7%.

So 10 plus percent debt refinance in February you'd be hurting more of a $40 per share and cash earnings next year.

Is that generally correct.

Well, we haven't I mean, I cant check your math that quickly, but what youre trying to do Directionally sounds correct.

Okay.

I mean at three times earnings it's definitely the cheapest homebuilder in the group.

Book value grows very quickly.

I think there is any other homebuilders that grow as rapidly their book because we've been growing our book.

Don't think the market's fully appreciated.

That nor do I think certain analysts have appreciated that.

And we certainly agree and Thats part of why we answered the question regarding any potential equity offering.

Yeah.

We think were.

We're still a really really good value.

The other thing is there any rating agencies reevaluating their ratings at this point.

Who knows where they're going to do but given the improved cash flows. When is the next time that someone's looking because if there'll be a rating upgrade it would clearly help the ability to raise capital as well.

Great.

We certainly plan to conversations with.

Both rating agencies in the very near future.

We promise them previously we would after we've reported earnings.

Okay. Thank you.

Thank you. Our next question comes from Kwaku Blah Blah blah.

On the SaaS your line is open.

Yes.

Just two follow ups a quick question on your attempt to refi what is the biggest pushback beyond the rate that you get is it your attempt to educate new investors on utilizing debt to EBITDA or some of the newer metrics almost like the.

EBITDA metrics versus the more.

But more traditional metrics.

Debt to capitalization, which is which is high but as you said that youre going to it's going to come down over time.

Our crew value.

What are the biggest pushback are you getting in terms of the Investor education.

I don't think were really getting pushed back but I think it's more a rate issue I think that we could have refinanced our debt two quarters ago.

We just havent liked the rate that the market is telegraphing that they would do but it continues to get better and.

I'm optimistic we'll be able to refinance.

As we mentioned call premiums dropped substantially in.

In the coming months.

And we are eager to show the performance.

And we feel very good about our upcoming performance let alone. This quarter's performance. So we think all of that will play nicely to our opportunities for refinancing.

And just one last follow up on the on the preferred dividends. Thus the covenants also apply to your common common stock.

Can you.

<unk> instituted a common stock dividend at this time given the cubbies.

Let me answer it this way in the history of the company.

As a public company, we've never issued the preferred dividend. We went public in the early 1980 has just never been part of our strategy.

I do not believe there is anything that would prevent us from deciding.

The issue.

Dividend on our common stock, but I would say, it's a safe bet until we have a much stronger balance sheet that we have no intention of declaring a dividend on our common stock.

Perfect. Thank you so much guys.

I'm sorry go ahead.

No, it's just going to add that.

We do want to Delever and that very high plus we're earning very high returns on equity so $1.

Remaining that are reinvested in the company, we're earning some good returns on that so.

Part of the reason for not focusing on dividends to common right now.

Thank you so much take care.

Thank you.

I'm showing no further questions at this time I'd like to turn the call back over to.

None of them for any closing remarks.

Thank you very much.

As we said we're pleased with our results.

But we're even more excited about.

The quarters to come in fiscal 'twenty two.

And we'll look forward to reporting thanks.

Thanks, so much.

Yeah.

This concludes the conference call for today. Thank you all for participating and have a nice day.

You may disconnect.

Okay.

[music].

[music].

[music].

Good morning, and thank you for joining us today's Albanian is about in fiscal 2021 fourth quarter earnings conference call. An archive of the webcast will be available after the completion of the call and one for 12 months.

This call is being recorded for rebroadcast and all participants are currently in a listen only mode.

Management will make some opening remarks about the fourth quarter results and then open the line for questions.

The company will also have webcasting, a slide presentation, along with opening comments from management.

The slides are available on Investor page of the company's website at Www Dot K H O V Dot com.

Who would like to follow along should now log onto the website.

I would like to turn the call over to Jeff O'keefe, Vice President Investor Relations. Please go ahead.

Thank you Valerie and thank you all for participating in this morning's call to review the results for our fourth quarter and fiscal year. All statements. In this conference call that are not historical facts should be considered as forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, such statements involve known and unknown risks.

Certainties and other factors that may cause actual results performance or achievements of the company to be materially different from any future results performance or achievements expressed or implied by the forward looking statements such forward. Looking statements include but are not limited to statements related to the company's goals and expectations with respect to its financial results for future financial periods.

Although we believe that our plans intentions and expectations reflected in or suggested by such forward looking statements are reasonable we can give no assurance that such plans intentions or expectations will be achieved by their nature forward looking statements speak only as of the date. They are made are not guarantees of future performance or results and are subject to risks uncertainties and assumptions.

That are difficult to predict or quantify.

Therefore, actual results could differ materially and adversely from those forward looking statements as a result of a variety of factors such risks and uncertainties and other factors are described in detail in the sections entitled risk factors and management's discussion and analysis, particularly the portion of them DNA entitled Safe Harbor statement.

And our annual report on Form 10-K for the fiscal year ended October 31 2020.

And subsequent filings with the Securities and Exchange Commission, except as otherwise required by applicable securities laws. We undertake no obligation to publicly update or revise any forward looking statements whether as a result of new information future events changed circumstances or any other reason joining me today on the call are Ara Hovnanian, Chairman, President and CEO Larry <unk>.

<unk> is the executive Vice President and CFO, and Brad O'connor, Senior Vice President and Chief Accounting Officer, and Treasurer, I'll now turn the call over to our CEO Eric go ahead.

Thanks, Jeff I'm going to review, our fourth quarter results and I'll address the current market environment, Larry <unk>, Our CFO will follow me with more detail I'll make a few closing comments and we'll open it up to Q&A.

On slide five we compare our results to our most recent guidance.

Although we experienced supply chain delays, our amazing associates found ways to mitigate many of the issues. We managed to deliver a large number of quality homes in the final months and days of the quarter without spending the incremental costs that concern to us.

This allowed us to achieve higher gross margins than we anticipated while supply chain issues prevented us from closing more homes, we were able to report revenues above the midpoint of our guidance during the quarter. We also achieved lower SG&A and lower debt.

Levels, which resulted in lower interest expense all of this allowed us to not only exceed our revised guidance, but also our original fourth quarter guidance for gross margin EBITDA and pretax income.

During our second quarter conference call, we talked extensively about the impact of Phantom stock expense on our SG&A.

During the fourth quarter, our stock price declined which resulted in a $5 million reduction in Phantom stock expense.

And the third column of this slide we show what our results would have been without the benefit of the Phantom stock expense reduction.

As you can see we still exceeded our original and revised guidance for EBITDA and pretax profit.

Further our SG&A ratio would have been within our guidance without the benefit.

Moving on to slide six we show year over year comparisons for our fourth quarter.

Given the supply chain disruptions and labor shortages that have been plaguing many industries, including homebuilding, we were pleased with our strong performance in the quarter.

Starting in the upper left hand portion of the slide you can see that our total revenues for the fourth quarter increased 19% to $814 million moved.

Moving to the upper right hand portion of the slide you can see that our adjusted gross margin increased 260 basis points to 22, 8% this year compared to 22% in last year's fourth quarter.

This clearly illustrates that we've been able to raise home prices more than enough to offset the higher labor and material costs that we've incurred.

Keep in mind that these deliveries did not get the benefit of lower lumber prices since they started near peak lumber pricing.

We expect the lower lumber prices to positively impact gross margins beginning in the second quarter of fiscal 'twenty two as we deliver homes that started after lumber prices receded.

In the lower left hand quadrant of the slide you can see that our SG&A was eight 6% for the fourth quarter compared to nine 6% in last year's fourth quarter.

If you ignore the benefits of the Phantom stock expense it still would have improved to nine 2% this year.

In the lower right hand quadrant of the slide we show that adjusted EBITDA increased 39% from $87 million in last year's fourth quarter to $121 million this year.

On slide seven you can see that our adjusted pre tax income improved 80% to $81 million.

Compared to $45 million last year.

Turning to slide eight for the full year, our earnings per share ignoring the benefit of the valuation allowance reduction grew 210% from $7 <unk> in fiscal 'twenty, one excuse me in fiscal 'twenty to 'twenty $1 70.

In fiscal 'twenty one.

This is a significant year over year growth and we expect to have continued significant improvement in fiscal 'twenty two.

Okay.

We already have the majority of our first two quarters contracts in backlog about half of our third quarter and we are beginning to fill our fourth quarter pipeline let.

Let me talk about the sales environment on the right hand portion of slide nine we show contracts per community for the fourth quarter in each of the last three years, you can see that our contract pace jumped from nine five in the fourth quarter of fiscal 19 to a white hot pace of <unk>.

16, 5% in fiscal 'twenty that was 74% year over year increase.

For over a year now we've been saying that the sales pace that we achieved in fiscal 'twenty was unsustainable and that.

Year over year comparisons would be challenging.

As we had anticipated with significant home price increases and metered sales the housing markets return to a more normalized sales pace in fiscal 'twenty one.

Our contracts per community of 10, two in this year's fourth quarter were below fiscal 'twenty is white hot fourth quarter, but up 7% compared to a more normalized fourth quarter and fiscal 19.

Further to the left we show that the average fourth quarter contract pace from 97 through 2002 was $10 two.

As we've said many times before that was the time that was neither a boom nor bust for the housing industry.

While our sales pace in the fourth quarter of 'twenty, one slow to a more typical historical pace, both home prices and gross margins on homes that we sold in the fourth quarter were much higher this year than they were a year ago. We expect this will lead to <unk>.

Higher levels of profitability in future periods as we deliver those hubs.

On slide 10, we show contracts per community on a monthly basis from December through November. The most recent month is in dark green the same month, a year ago as in light Blue and the same month two years ago is in gray with.

For the past seven months, our contracts have been lower than last year's blazing pace.

However, we compare favorably every month with 19 more historical typical contract base.

We believe our current sales pace is healthy and much more sustainable than the COVID-19 demand surge pace during fiscal 'twenty.

Further the most recent month of November shows that we're closing the gap on sales pace, notwithstanding significant price and margin increases this year.

Our contract dollars and November 'twenty, one actually increased 10% over last year.

This is particularly noteworthy as we've raised prices considerably since last November when sales were white hot.

Furthermore, this year's November only had four Sundays compared to five Sundays last year.

The housing market definitely looks to depth.

Definitely continues to remain really solid.

On Slide 11, we show what our community count was at the end of every quarter since the last fiscal year end.

You can see primarily due to selling through communities at a significantly higher than normal pace as we discussed before our community count has been declining each quarter up until the end of the third quarter of 'twenty, one when we had a sequential quarterly increase.

As we projected.

Positive trends continued during the fourth quarter. We grew by 20 communities to end the fiscal 'twenty, one with a 140 communities not only was this up from the end of the third quarter, but it was also an increase from the end of last year.

We expect our community count is likely to experience up and down quarterly fluctuations during fiscal 'twenty, two including a decrease in the first quarter.

However, given no material changes in market conditions, we expect to end the year with a community count at or slightly higher than we ended fiscal 'twenty. One further we expect to maintain a higher average community count for fiscal 'twenty, two compared to <unk>.

Fiscal 'twenty one.

On a daily basis, we all continue to see headlines about supply chain disruptions and labor shortages. These problems are not just impacting the homebuilding industry, but they are wreaking havoc on just about every industry across the globe at this point, we're not seeing any relief on construction cycle times and.

We therefore included the current extended cycle times in the guidance that we're going to give you towards the end of our call.

As we have now begun our fiscal year, we had the headwinds of continued supply chain disruptions and the slower sales pace compared to the white hot levels that we achieved in fiscal 'twenty.

However, these negative influences should be more than offset by our increased community count higher gross margins and higher selling prices, which we expect should allow us to achieve revenue growth and significant profit growth in fiscal 'twenty two.

I'll now turn it over to Larry <unk>, our Chief Financial Officer.

Thanks Sarah.

I'm going to start with the progress we've made in growing our lot position turning to slide 12, we show that year over year, our lot count increased by almost 5000 lots or by 19%.

We've been steadily increasing our lot position and we expect to see our lot count continue to rise in fiscal 'twenty two based on fiscal 'twenty. One deliveries this equates to a five year supply.

We believe that the COVID-19 surge in sales demand, we experienced in fiscal 'twenty and fiscal 'twenty. One was unsustainable as a result, we conservatively underwrote all new land acquisitions since July of 'twenty with pre Covid contract paces.

Additionally, when we underwrote the lots controlled between April and September of 'twenty one.

We were using then current construction cost, including lumber costs that were significantly higher than today's cost.

As a result of subsequent declines in lumber prices, we now expect even higher margins on those recently acquired land parcels.

The market for land acquisitions remains rational and we continue to feel very comfortable with all of the acquisitions, we've made over the past year.

Keep in mind, there's a lag between when we place lots under our control and when those lots will be fully developed and we can open a community.

Most of the land, we put under control during our fourth quarter of fiscal 'twenty, one will not be opened for sale until fiscal 'twenty three and beyond.

It's too early to give specific guidance, we do expect to grow our community count in fiscal 'twenty three.

We now control, 100% of the land and communities necessary to achieve our expected growth and profits during fiscal 'twenty, two and control roughly 90% of the lots to achieve our expected additional growth in fiscal 'twenty threes profits.

Today, our land acquisition teams are focused on obtaining control of land and communities for home deliveries in fiscal 'twenty three and beyond.

Turning now to slide 13 during.

During the fourth quarter of fiscal 'twenty, one our land and land development spend was $167 million, which brought the total spend for the full year to $698 million.

That is a 12% increase over the $624 million spent during fiscal 'twenty one.

Fiscal 'twenty.

With further demonstrate we're investing the money needed to grow our community count.

Turning to slide 14, even with that increase in land spend and an early retirement of $181 million of senior secured notes during fiscal 'twenty one.

We ended the fourth quarter with $381 million of liquidity well above the high end of our liquidity target range. We continue to have excess liquidity and today. Our land teams are busy contracting additional land parcels across the country.

Turning to slide 15.

<unk> our peers you see that we still have one of the highest percentages of land controlled via options. We continue to use land options whenever possible to achieve high inventory turns enhance our returns on capital and to reduce risk.

Our use of land options increased from 63% at the end of fiscal 'twenty to 66% at the end of fiscal 'twenty one.

Turning now to slide 16.

Compared to our peers you see we continue to have the second highest inventory turnover rate our inventory turns were 20% higher than the next highest peer below us high inventory turns are a key component of our overall strategy.

We believe we have opportunities to continue to increase our use of land options and a further improve inventory turns and our returns on inventory in future years.

On slide 17, we show the dollar value of backlog, including domestic and then consolidated joint ventures increased 17% to $1 $9 billion at the end of the fourth quarter.

The strength of this backlog, including a solid expected gross margin.

Up nicely for even stronger financial performance during fiscal 'twenty two.

Our financial guidance for the first quarter, the second quarter and the full year for fiscal 'twenty two assumes no adverse changes in current market conditions, including no further deterioration in the supply chain.

Further and excludes any impact.

Through our SG&A expense from Phantom stock expense was related solely to stock price movements from the $84 26 stock price at the end of fiscal 'twenty, one fourth quarter.

As you review our guidance keep in mind that we are not a builder, who primarily built spec homes.

We already have more than half our full year's projected deliveries and contract backlog, which provides us with an even higher degree of confidence in our projections.

On slide 18, we provide guidance for the first quarter of fiscal 'twenty. Two we expect total revenues for the first quarter of fiscal 2002 to be between 640 and $670 million. We also expect gross margins to be in the range of 25% to 22% compared to 27%.

In last year's first quarter.

G&A as a percent of total revenues is expected to be between 10, eight and 11, 8%.

Finally, we expect our adjusted pre tax profit for the first quarter of fiscal 'twenty two to grow to between 30 and $35 million up between 40, and 63% compared to $21 million profit in the same period last year.

On slide 19, we provide guidance for the second quarter of fiscal 'twenty two.

Due to the significant improvement in expected profits during the first half of 'twenty. Two we felt it would be helpful to show two quarters of guidance. However, we do not plan on providing two quarters of guidance in future periods.

We expect total revenues for the second quarter to be between 700 $750 million. We also expect gross margins to be in the range of 23% to 25% up substantially compared to the 21, 3% and last year's second quarter.

SG&A as a percent of total revenues is expected to be between nine and a half and 10, 5% compared with 11, 7% last year.

Finally.

We expect our adjusted pre tax profit for the second quarter of fiscal 'twenty two to grow to between 60 and $75 million up between 93, and 141% compared to a $31 million profit in the second quarter last year.

On the next three slides I will provide guidance for all of fiscal 'twenty, two but will also show actual results for physical 19, 2020 one to provide context to how our results have significantly improved over the past three years, turning now to slide 20.

In the upper left hand portion we show full year total revenues have increased from $2 $2 billion in physical 19% to $2 $708 billion in fiscal 'twenty one.

Fiscal 'twenty two we expect to report another increase with total revenues between two eight and $3 billion.

Last year has been a the last year has been a wild roller coaster ride for cost, particularly for the cost of lumber.

For most of the homes that we will be delivering during the first half of fiscal 'twenty to not only have we already sold them, but we have already started construction and therefore locked in the cost of lumber.

This provides us with strong transparency to the expected improvements in gross margins, we're projecting beginning in the second quarter of fiscal 'twenty two after increasing gross margins to 18, 4% in fiscal 'twenty, our gross margin improved another 240 basis points.

21, 8% in 'twenty, one and fiscal 'twenty, two we expect to increase margins to between 23, and a half and 25, 5% up another 170 to 370 basis points compared to fiscal 'twenty one.

On the bottom of this slide we show that our SG&A as a percentage of total revenues has declined steadily since physical 19th 11, 6% to nine 9% in fiscal 'twenty one for fiscal 'twenty. Two we expect SG&A as a percentage of total revenues to be between nine three and $10 three per.

In the bottom left hand quadrant, you can see that adjusted EBITDA grew from $174 million in fiscal 19 $364 million in fiscal 'twenty one we.

We show in fiscal 'twenty, we achieved a 35% growth in adjusted EBITDA.

In fiscal 'twenty, one we grew adjusted EBITDA another 55% based on the midpoint of our adjusted EBITDA guidance, we expect to achieve an additional 19% growth in EBITDA in fiscal 'twenty two.

These increases were representative of the progress, we've made and materially improving our operating results.

Turning now to slide 21.

We show adjusted pretax profit on the left half of the slide after increasing adjusted pretax profits by 288% in fiscal 'twenty. One we expect our adjusted pre tax profit for fiscal 'twenty, two to grow between to between $260 million and $310 million.

Up 32% to 57% compared to fiscal 'twenty one.

On the right hand portion of the slide we show earnings per share for the past three years, assuming a 30% tax rate similar to what we saw in the fourth quarter of fiscal 'twenty, one our EPS for fiscal 'twenty two is expected to be between $26 50.

And $32 per share based on yesterday's closing stock price of $107 55 steps. We're currently trading at four nine times, our trailing four quarter's EPS and three seven times the midpoint of our earnings guidance for fiscal 'twenty two.

Turning now to slide 22 on this slide we show our debt maturity ladder at the end of the fourth quarter.

On July 31, we paid off in full one year early $111 million of our 10% senior secured notes due July 22 at par and on August 2nd we paid off in full three years early $70 million over 10, 5% secured notes due July of 2024.

Call price of 102 and five eights.

We believe that we should be able to refinance our currently undrawn.

Undrawn revolving credit facility ahead of its maturity in the first quarter of fiscal 2003. After that we do not have any debt coming due until fiscal 2006.

Given our $426 million deferred tax asset, we will not have to pay federal income taxes on approximately $1 $6 billion of future pre tax earnings. This tax benefit will significantly enhance our cash flow in years to come and will accelerate our progress and rapidly.

Improving our balance sheet.

On Slide 23, you can see our credit our key credit metrics have significantly improved over the past few years.

As well as the further improvement we expect to achieve at the midpoint of our guidance for fiscal 'twenty to total debt to adjusted EBITDA has declined from nine seven times and physical 19 to three eight times in 'twenty, one and a three two times projected for fiscal 'twenty to net debt.

The adjusted EBITDA declined from eight nine times in fiscal 19 to three one times.

In fiscal 'twenty, one and a two six times projected for fiscal 'twenty two.

Adjusted EBITDA the interest incurred coverage has more than doubled from one time and physical 19 to two three times for fiscal 'twenty, one and down to two point or up to two eight times projected for fiscal 'twenty to.

Turning to slide 24, assuming we hit the midpoint of our fiscal 'twenty two guidance for pre tax profit our shareholders equity is expected to more than double from fiscal 'twenty, one fiscal year end level as of Yesterdays closing stock price were trading at one nine times fiscal 'twenty two's ending book value.

This improvement in our equity position will result in a net debt to capital ratio continuing to decline from 146% at year end fiscal 19% to 87% at the end of fiscal 'twenty, one and at the midpoint of our guidance.

It is projected to reduce further to 76% by the end of fiscal 'twenty. Two we expect to continue improving our balance sheet by reducing debt and growing equity. Our goal is to achieve a mid 30% net debt to capital ratio.

We expect to continue our trend of improving our key credit metrics in future periods. As we continue to post strong results. We believe we should be able to refinance our debt structure at marketable at lower rates and better terms in the near future.

As always we will analyze and evaluate our capital structure and explore transactions to further strengthen our balance sheet and our financial performance. Lastly, we are pleased to announce our board of directors approved reinstating a $2 7 million dividend payment on our preferred stock payable.

In January 'twenty two.

I'll now turn it back to Ara for closing comments.

Thanks, Larry.

Slide 25.

Looking beyond fiscal 'twenty, two which we recognize as a particularly strong year, we're preparing for improving our performance and a more normalized housing market reach.

We continue to plan to deleverage our balance sheet and refinance our capital structure with much more favorable terms than we were able to achieve in a difficult period.

This should lead to very significant interest savings in the future, helping our performance in a more normalized market.

Strategically we plan to grow the percentage of lots under option further and increase our inventory further excuse me inventory turnover further ensure we plan to do more with less we believe this is going to lead to higher returns on inventory and that should be the case even in a.

More normalized market.

With our improved balance sheet and focus on greater inventory turnover, we plan to increase our community count and finally with all of the above we plan to continue to operate at higher volumes and grow, allowing us to leverage our SG&A.

We have an operating team that is hitting on all cylinders and is poised to go further we see a path to return to industry, leading performance and growth and look forward to sharing our results in the near future that concludes our formal comments and we will be happy to turn it over to Q&A.

Thank you, ladies and gentlemen, if you'd like to ask a question. Please press Star then one when you touch tone telephone.

Again, if you would like to ask a question. Please press Star then one.

Our first question comes from Alan Ratner of Zelman and Associates. Your line is open.

Hey, guys, good morning, nice quarter, and nice job exceeding the revised guidance there.

I guess first question on that point I am curious if you could maybe just talk through.

Some examples of things that you and your team were able to accomplish in October that resulted in the performance coming in ahead of what you I guess feared at that point was worsening supply chain environment.

Sure.

As you know obviously the supply chain environment was just really.

Tenuous in terms of making the huge number of deliveries, we literally had our teams shipping components from one market to another whether it was garage doors or lights for a variety of factors to make that.

Quarter's deliveries and it was right up until the last week or so.

Before we had any real guidance as to whether or not we could make it.

Very difficult conditions. The good news is we made the midpoint of our guidance and deliveries and did better than all the other factors for the reasons, we mentioned, including the fact that we didn't spend as much as we thought we would need to beat the supply chain problems.

Got it.

That's great and I appreciate the color there.

Secondly, I would love to dig in a little bit to the gross margin guidance for next year. So obviously, it's a very strong pricing environment and.

When I look at your guidance at all.

Obviously implies a pretty pretty sharp ramp in margins in the back half of next year and Larry I know you kind of walk through the backlog and the fact that you already have some deliveries.

Third quarter deliveries and backlog, but it would seem like that's going to be predominantly driven on homes you are selling in the upcoming months here and you mentioned lower lumber, which is obviously a benefit for a period of time, but lumber has the features have doubled off of those those recent lows in August so I'm curious when does that mean.

Move higher begin to show up in the margin is that reflected in the back half margin and Youre just more than able to offset that or is that something we should think about heading into 'twenty three at this point.

Just trying to think through the moving pieces on margin because.

Obviously that that's going to dictate whether you hit those numbers or not.

Back half performance.

So the first thing I'd say is that we have as I mentioned in my formal comments.

We really have virtually all of our homes expected to close in the first two quarters not only.

Already in contract backlog, but we know what our costs are because of those homes. Almost every one of them has already started.

So we're very confident in the increasing margins that we're projecting in the second quarter and then as we look forward we have quite a few homes in the third quarter and a smattering of the fourth quarter already sold as well.

No what our cost.

And what our home prices are there and we've taken into account our.

Our expectations and our margin projections for the full year. So we're still very confident.

That without any further deterioration.

And market conditions, including cost we're confident in those margin projections that we're providing for the full year.

Al and I will add we do have.

30 to 90 day locks on our lumber we've used the current lumber pricing and thats protected for another almost a quarters worth of starts.

So again.

While we know we have some exposure.

For the fourth quarter, we also have pricing opportunities.

I can just tell you the market just feels really strong regarding pricing opportunity. So.

We're comfortable there is always risk.

And that's why we were conservative last year and hopefully we've been.

Sufficiently conservative to deliver some great results this coming year.

Great. Thanks, a lot guys I appreciate the color.

Yeah.

Thank you. Our next question comes from Alex Barron of housing Research. Your line is open.

Yes, thank you and congrats on the.

The improved performance this fiscal year.

Just wanted to verify if I heard you right that the expected guidance gross margin for the full year was $23 525 and a half.

That's correct.

Okay, great. So obviously that suggests pretty nice.

Gross margin improvement in the back half.

I guess.

My question is at this point.

Do you feel that those types of margins in the back half.

How many years of land that you guys still have it pre COVID-19 type pricing.

Like does it covered through 2023.

Well.

We mentioned specifically.

We have five years at last year's number of deliveries we've got five years.

Deliveries locked in land.

Didn't comment specifically on what pricing but.

Last year, we had a big chunk of 'twenty threes deliveries already locked so.

We're feeling reasonably good I do want to add that the homes. We just deliver had we generally pre sell most of our homes. So the homes that we delivered in the fourth quarter were sold before that.

A quarter or two quarters, plus before that those were at lower prices or prices have been going up quite a bit that's what gives us part of the confidence regarding our future gross margins secondly, the homes, we just delivered.

Peak lumber pricing the whole.

Homes that we've been starting over the last couple of quarters have been a much better prices regarding lumber. So price home prices are going up costs are at least lumber costs have been going down and that's what's driving our gross margins to increase from where we've been.

Okay.

And how about on the first quarter. The low end of that margin guidance. If you are saying the peak lumber costs already happened and we're still seeing higher prices. The drivers of that first quarter first quarter homes that deliveries were started two quarters before that so those still had her.

Higher lumber cost as we mentioned in the call. It's not until the second quarter deliveries were those homes were started at lower lumber prices with where youll start to see the juicy your margin so to speak.

Got it okay, great and then on the Phantom stock.

Up and down adjustment.

Thought that ended in 2021 am I wrong does it go through 2022 as well.

Hi.

Can you repeat the question.

The adjustments you make to the SG&A due to the Phantom stock to do those adjustments continue into fiscal 'twenty, two as well every quarter.

Yes, what happens is.

Tell the.

Phantom stock has been paid out which 60% of that Phantom stock plan will be paid out in January.

And then a year later, another 20% and then a year after that another 20% so it'll be a declining impact on SG&A for many stock price movements, but it's still there until it's actually paid out the first pay out I think it was mid January of 'twenty two.

Okay great.

If I could ask one more.

So you guys haven't you've been reporting a lot of orders for this KSA.

Ponant, but non deliveries so.

When are those units going to start delivering.

We expect well first of all it's an interesting.

The environment in Saudi and the sales have been exceptional and we've got a huge backlog not only backlog, but the customers in that market.

Big stage payments.

We've received our venture has received much of the cash for a lot of our backlog already.

Our waiting until final occupancy which has some.

Administrative hurdles in.

In Saudi.

For that to occur, but we're making great progress. So we anticipate that's going to be happening in the next few quarters, but.

We're waiting on that.

Nonetheless, it is not a hugely material number we're doing very well there and returns on inventory are great.

But it is not a big needle mover in terms of our overall performance.

Okay, Thanks, I'll get back into queue.

Okay.

Thank you. Our next question comes from Jordan Hymowitz.

Philadelphia Financial your line is open.

Thanks, guys. Let me just first follow up with Alex's question on Saudi.

Most people, probably don't know, but Saudi is having a giant mortgage boom. The government subsidizing mortgages heavily homebuilding is a big part of the 2030 plan I mean, even though it's not a needle mover now the visibility and uptick on Saudi homeownership rate is chegg enormous and could that be expanded or are there limits. I mean can you talk a little bit more about what.

That could be in four or five years.

Sure we think.

It's a huge market. We think there is a lot of opportunity there.

As we've said we've done very well, we got a lot of experience and we think we're really well poised.

To be in the center of that recovery, they have a big baby boom generation in that market.

The government has been.

Helping the homebuyers with mortgage costs.

Housing for their middle class is a big priority in the Kingdom. So again, we think there is a lot of upside in future opportunity for us there.

Okay back to us.

Domestic stuff do your numbers assume any global refinance going on.

Not all of our projections don't assume any.

Refinance of our debt.

Though we certainly continue to monitor the market.

Carefully and we believe.

Not too distant future.

We should be able to convince the.

Bond investors to refinance.

Our debt structure at materially lower rates than were currently doing none of that.

Okay.

You're paying an average of over 10% on over $1 billion the rate would seem to be sub seven today or at least close to seven so that could be material savings that's not built into your guidance correct.

Alright, great.

Okay final question is because you're not paying any taxes for the foreseeable future book value grows with a pre tax number right not the the.

The diluted EPS number, which I think is closer to $40 again, that's even before the debt savings correct is that the way to think about it.

Go ahead Greg.

I'm, sorry, I missed the specific question that you're asking on a cash basis, EPS, though as well.

Well, I mean, youre going to be put book value per share, but it is at book value since youre not paying taxes.

Shouldnt you add backs.

The tax effect of the DTA to be comparable you see what I'm, saying.

Could you not paying any taxes. So book value is a measure of liquidation youre going to earn next year closer to $40 not 26% to 32 by your guidance on a cash basis, that's correct, but the DTA DTA.

<unk> is on our balance sheet as an asset.

I don't disagree with that.

Good value will grow faster so.

So what I'm, saying.

Yes, that's correct.

Okay.

Thank you.

Again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchtone telephone.

Our next question comes from Kwaku Blah Blah blah.

Goldman Sachs. Your line is open.

Thank you so much and congrats congratulation guys my questions were mostly answered but I'll just.

Follow on us to sort of what is your anticipated timing of the refi of the revolver.

We don't have a specific date in mind, obviously it comes due.

At December of 'twenty, two so sometime this year.

Yes, yes.

'twenty two.

So sometime this year, we will address that.

Given that it's the top of our capital structure, it's the least of my concerns on being able to refinance that at this point.

Thank you so much for that and just as a follow up on that.

The refi of the capital structure, the refile of the 2026 maturity wall contingent on refined the revolver at all.

Are those two first.

Distinct issues.

I think they are two separate issues.

I appreciate it thank you so much and congrats.

Thank you.

Thank you. Our next question comes from Alex Barron Housing Research Center. Your line is open.

So we're taking my follow ups.

So I'm wondering if in your slides that the November orders were down 5% year over year.

Which is a very solid improvement versus the last couple of quarters.

So is that indicative that.

You guys are not.

Holding back sales as much anymore that things are kind of.

Caught up a little bit more or how should we interpret that and also is that number roughly across all the markets or how does that play out.

Well first of all.

We reiterate that we are actually up 10% in dollars, but we do continue to meet or sales in many of our communities.

Sure.

Construction is.

Pacing on a metered way in many of our communities and we're metering sales to match that.

Yes.

Thank the short version Alex is as the market continues to remain very strong.

And.

Demand.

For new homes remains strong it's not at the White Hot pace that we saw in the fourth quarter a year ago on a per community basis, but demand remains very strong across really all of our markets.

Right. So I mean, I guess, if we look at last year. It would seem like the only plus comp you guys have ahead is.

Two months from now I guess that would be January.

So I think the market slowed to a more rational pace starting in May last year calendar month of May.

<unk> selling season, I would still Saudi was was pretty high from the Covid surge.

And pace per community began to slow to a more rational pace and.

In may.

Right now you guys made a comment that you don't.

<unk> built so many specs I guess compared to other builders, but.

Even even many companies that traditional good unbilled spec has kind of switched in the current.

Supply chain issue environment to building more specs. So I'm just kind of curious if you guys can comment on your have you guys. Adjusted your strategy or is that something that's in process or are you just going to continue the way you'll always have and can you elaborate on.

Okay.

We haven't really changed our strategy, we have about $2 billion of bass.

Backlog so.

We are focused on starting those homes.

We do build some specs, but it's not the predominant part of our strategy and at the current time, we're not planning on shifting there.

Got it.

I can ask one more on the refinance.

The issue is is the is the only thing that is holding that up basically that you guys are waiting to get the rate youre trying to get is that the only.

Main thing or is there anything else no. That's that's the primary issue is I mean, our current capital structure.

It is pretty unusual in many of the slices.

Maturities don't have a lot of liquidity to them. They are small in size. So that they're just not actively traded so we have been educating bond investors about our improved performance and.

Educating the rating agencies about our improved performance.

As the market recognizes our improved performance and is willing to give us.

Rates closer to what similarly, situated homebuilding peers have gotten we'll pull the trigger but we don't have a gun at our head.

Because we really don't have any material amount of debt coming due to 26. So we can afford to wait but we think we've made good progress in that educational.

Process that I, just described and we're optimistic that we'll be able to do something.

And in the not too distant future.

I will add we do have a substantial reduction in our call premiums in February.

So that certainly.

Plays into our thinking.

No.

I appreciate everything you're saying and you guys. Obviously have made a lot of progress.

Does this have to be like all or nothing or could it be done in stages or is there something that prevents that in other words.

Can you just take one is allowed at a time.

There's nothing structurally that would prevent us from that other than size.

Some of our current issues are pretty small so I don't think you could do it an issue at a time, but you still could do a chunk at a time.

To get to a liquidity size call, it 400 million plus or minus that the market probably would want to see.

Really have strong liquidity and a new issue. So we wouldn't have to do everything all at once we could do it in steps, but I don't think we could do it.

Each each individual issue that we currently have couldnt be refinanced easily.

Got it and lastly, I know last year or this year.

Fiscal 'twenty, one you guys reversed most of your DTA, but there was some portion that was not reversed.

There are any.

Update on when that might get fully reversed.

Right.

Likelihood that won't get fully reverse the reason that still reserved as that state Nols in states that we don't have a lot of operations remaining for example, Pennsylvania or Illinois, and so at the current time, we don't anticipate being able to use those and thats why they are.

<unk> reserves.

That changes and at some point, we can anticipate generating profit in those states, we would consider or would have would be able to reverse it but at the moment, we don't anticipate that occurred.

And then one at a time right now once the time runs out for those Nols.

The asset and the reserve would just be written off.

But having no net effect on our books.

As a reserve.

Alright, understood, Okay, very well and congrats and best of luck for this year. Thank you.

Thank you Alex.

Thank you. Our next question comes from Vincent following of Barclays. Your line is open.

Good morning, guys. Thanks for taking my questions a couple more on the balance sheet.

Larry I think you talked a little bit about.

Looking for the right rate to do a refinance and something similar to.

To your peers.

Should we read that to mean that.

A secured debt issuance is not what you are looking to do here, which would clearly come with a much lower cost of capital and it's your intent to.

Take the capital structure and make it essentially all unencumbered.

I don't think we have any hard and fast line that would say we wouldn't do a secured deal if that was the most advantageous way too.

Proceed we think we deserve to be able to refinance on an unsecured basis. It may take two steps rather than one step to accomplish that.

So we're not ruling out.

Done.

Secured refinance.

But at the same time, we think our first.

Thanks.

Our ability to do it on an unsecured basis, but.

We'll just see what the market will accept.

That was helpful.

Secondly, I think it's on page 24 of the deck you talked about a mid 30% net debt to cap target, which is clearly.

Optimistic given where you are right now can you kind of walk us through what sort of a timeframe, we should think about here.

And how do you get there is this.

Strictly through growth in your equity or how should we think about longer term targets for absolute.

That balance here.

Well since Youre looking at that slide.

We took it from 146%.

86% and a couple of years, so that's a pretty significant improvement and we're projecting to get to.

The 75% so we're really cut it in half and just a few short years. So I don't think it's going to take forever for us to get to a mid 30%.

Debt to cap so, although it's not a next year and maybe not a year after that kind of thing it isn't five or 10 years from now that we're talking about it it's nearer term than that but we don't have a specific timeframe, we're going to do it through a combination of continuing to grow earnings.

And which will enhance our book value and combined that with continuing to reduce debt.

And those two things together are powerful tools on improving our balance sheet and getting us.

Closer and closer to the mid 30% debt to cap coal.

As I think.

As discussed during the call our cash flow is better than our reported net income.

Because of the Nols so that.

Really enhances our opportunity to reduce debt more than the growth in book value coming up might imply.

Thank you I certainly didn't mean to imply that it wasn't impressive certainly going from 150% to where you're going to be next year.

It was pretty amazing two more from me.

As part of any potential refinancing transaction any consideration to.

Doing an equity raise along side.

But at current time.

We're not contemplating that we always look at everything.

Yes.

We're pretty.

Pretty optimistic about our earnings outlook.

We think our stock is selling at a pretty low multiple of this year's earnings let alone the.

Earnings power with more improved.

Alex sheet and financial Foundation. So at this point, while we always consider everything thats not on our front burner.

Okay and last one for me.

The your rationale behind starting to pay a preferred dividend again and why not use some of that cash to delever even further.

I would answer it this way and that is that.

Although.

Covenants for the last 15 years or so have prevented us from from playing that.

Deferred dividends, so we have no choice in the matter.

Prohibited from paying it.

Our non cumulative preferred.

I think we had a moral obligation once covenants no longer prevented us from playing at.

To actually reinstated and so once we were able to.

See that our credit statistics improved that would allow us without violating and governments to pay it and we can look forward and say that we're going to continue to have strong performance.

We are just the type of company that.

We issued debt preferred debt and promise to pay it and we're going to honor our obligations. Even if we may not have been absolutely legally required to do it.

I think that we were morally obligated and happy too.

To reinstate that dividend for our preferred holders.

Okay. Thank you for your time.

Thank you. Our next question comes from Jordan Hymowitz of Philadelphia Finance Your line is open.

Thanks, two quick follow ups, one I want to follow up on the last Gentleman's question, because I actually think by putting that cumulative preferred I think it substantially improves your ability to issue debt at a much lower cost because I think it serves the integrity.

You guys have I mean, its ensures that a bond investor knows that even if things get tough you guys are not going to try and.

On your obligation so I compliment you dramatically on that on the ethics all of it.

The second thing is on the preferred.

Our preferred today has a much lower coupon than seven and a half thing is that ever callable at par.

Or hypothetically might that continue to trade up through par because the comps are trading at much lower yields.

No.

Good.

Real honest answer to that is I, just haven't thought about it or looked into it. So I don't have a great answer for you.

In terms of what the preferred might might trade at.

We just reinstated that and we just haven't spent any time thinking about that aspect at this point.

Is it carnival.

I don't know the answer Brad to you.

Now I'll cover it has.

We will certainly look into it we just haven't been focusing on the preferred so unlike all the rest of our debt.

Tell you off the top of our head the answer the most questions on the preferred we would happy to get back with the Jordan is a real answer.

Alright, and then just to make sure I'm doing my numbers right. Because your guidance is 26% to 32 next year, but if you tax effect that that adds another 25% on top of that and then if you hypothetically did a 7%.

First so 10 plus percent debt refinance in February you'd be hurting more of a $40 per share and cash earnings next year.

Is that generally correct.

Brad do you want to practically all of them haven't I mean, I cant check your math that quickly, but what youre trying to do Directionally sounds correct.

Okay.

Three times earnings it's definitely the cheapest homebuilder in the group.

Book value grows very quickly.

I don't think Theres any other homebuilders this grow.

Acidly their book as we've been growing our book.

I don't think the market is fully appreciated.

Nor do I think certain analysts have appreciated that.

And we certainly agree and Thats part of why we answered the question regarding any potential equity offering.

Yes.

I think we're.

We're still a really really good value.

The other thing is there any rating agencies reevaluating their ratings at this point I mean.

Who knows where they're going to do but given the improved cash flows. When is the next time that someone's looking because if there'd be a rating upgrade it would clearly help the ability to raise capital as well.

Capital Great.

We certainly.

Lamb to conversations with.

Both rating agencies in the very near future.

We promised them previously we would after we've reported earnings.

Okay. Thank you.

Thank you. Our next question comes from Kwaku Abba.

Well I must ask your line is open.

Just two follow ups a quick question on your attempt to refi what is the biggest pushback beyond the rate that you get is it your attempt to.

Educate new investors on utilizing debt to EBITDA or some of the newer metrics almost like the.

EBITDA metrics versus the.

But more traditional metrics.

Debt to capitalization, which is which is high but as you said youre going to it's going to come down over time.

Our crew value.

What are the biggest pushback are you getting in terms of the Investor education.

I don't think we are really getting pushed back. So I think it's more a rate issue I think that we could have refinanced our debt two quarters ago.

We just havent liked the rate that the market is tough.

<unk> that they would do but it continues to get better.

I'm optimistic we'll be able to refinance.

Yes, as we mentioned call premiums dropped substantially in.

In the coming months.

And we are eager to show the performance.

And we feel very good about our upcoming performance let alone. This quarter's performance. So we think all of that will play nicely to our opportunities for refinancing.

Perfect and just one last follow up on the on the preferred dividends. Thus the covenants also apply to your common common stock.

Can you.

Instituting a common stock dividend at this time given the economy.

Let me answer it this way in the history of the company.

As a public company, we've never issued the preferred dividend we went public in the early 1980 has never been part of our strategy.

But I do not believe there is anything that would prevent us from deciding.

The issue.

<unk>.

Dividend on our common stock, but I would say, it's a safe bet until we.

Have a much stronger balance sheet that we have no intention of declaring a dividend on our common stock.

Perfect. Thank you so much guys.

I am sorry go ahead.

I was just going to add that.

We do want to Delever and that very high plus we're earning very high returns on equity. So dollars in remaining that are reinvested in the company, we're earning some good returns on that so.

Part of the reason for not focusing on dividends to continent right now.

Thank you so much take care.

Thank you.

I'm showing no further questions at this time I'd like to turn the call back over to.

Aaron Donovan for any closing remarks.

Thank you very much.

As we said we're pleased with our results.

But we're even more excited about the quarters to come in fiscal 'twenty two.

And we will look forward to reporting on thanks, so much.

Yes.

This concludes the conference call for today. Thank you all for participating and have a nice day.