Q4 2021 KB Home Earnings Call

Speaker 1: The all I.

Speaker 2: Good afternoon. My name is Alex and I will be your conference operator today. I would like to welcome everyone to the KB home 2021 fourth quarter earnings conference call. At this time, all participants are in a listen-only mode.

Good afternoon. My name is Alex and I will be your conference operator today I would like to welcome everyone to the Kb home 2021 fourth quarter earnings Conference call.

At this time all participants are in a listen only mode.

Speaker 2: Following the company's opening remarks, we will open the lines for questions.

Following the company's opening remarks, we will open the line for questions.

Speaker 2: Today's conference call is being recorded and will be available free at the company's website, kbhome.com, through February 12.

Today's conference call is being recorded and will be available for replay at the company's website Kb home Dot com through February 12.

Speaker 2: Now I would like to send a call over to Jill Peters, Senior Vice President, Investor Relations. Jill, you may begin.

No I would like to turn the call over to Jill Peters Senior Vice President Investor Relations Jill you may begin.

Speaker 3: Thank you, Alex. Good afternoon, everyone, and thank you for joining us today to review our results for the fourth quarter of fiscal 2021. On the call are Jeff Mesger, Chairman, President, and Chief Executive Officer, Nat Mandino, and Rob McGinney, Executive Vice President and Co-Chief Operating Officers.

Thank you Alex good afternoon, everyone and thank you for joining us today to review our results for the fourth quarter of fiscal 2021 on the call are Jeff Mezger, Chairman, President and Chief Executive Officer, Matt Man, Dino and Rob Mcgivney Executive Vice President and co Chief operating officers.

Speaker 3: Jeff Kaminsky, Executive Vice President and Chief Financial Officer, Bill Hollinger, Senior Vice President and Chief Accounting Officer, and Thad Johnson, Senior Vice President and Treasurer.

Jeff Kaminski Executive Vice President and Chief Financial Officer, Bill Hollinger, Senior Vice President and Chief Accounting Officer, and Thad Johnson Senior Vice President and Treasurer.

Speaker 3: During this call, items will be discussed that are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future results, and the company does not undertake any obligation to update them.

During this call items will be discussed that are considered forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

These statements are not guarantees of future results and the company does not undertake any obligation to update them.

Speaker 3: Due to various factors, including those detailed in today's press release and in our filings with the Securities and Exchange Commission, actual results could be materially different from those stated or implied in the forward-looking statement.

Due to various factors, including those detailed in today's press release and in our filings with the Securities and Exchange Commission actual results could be materially different from those stated or implied in the forward looking statements.

Speaker 3: In addition, the reconciliation of the non-GAAP measures referenced during today's discussion to their most directly comparable GAAP measures can be found in today's press release and or on the investor relations page of our website at kbhome.com. And with that, here is Jeff Mesger.

In addition, a reconciliation of the non-GAAP measures referenced during today's discussion to their most directly comparable GAAP measures can be found in today's press release or on the Investor Relations page of our website at <unk> Dot com and with that here is Jeff no Sir.

Speaker 4: Thank you, Joe. Good afternoon, everyone, and Happy New Year.

Thank you Joe.

Good afternoon, everyone and happy new year.

We had a remarkable year in 2021, producing revenue growth in excess of 35% and.

Speaker 4: We had a remarkable year in 2021, producing revenue growth in excess of 35% and an increase in our earnings per share of more than 90%.

And an increase in our earnings per share more than 90%.

We achieved our objective of expanding our scale and profitability.

Speaker 4: We achieved our objective of expanding our scale and profitability.

Speaker 4: driving our return on equity up by over 800 basis points to 20%.

Driving our return on equity up by over 800 basis points to 20%.

Speaker 4: Our results are even more notable considering they were accomplished despite the supply chain challenges and municipal delays that were pervasive throughout the year, as our teams have been successfully navigating these issues.

Our results are even more notable considering there were accomplished despite the supply chain challenges and municipal delays that were pervasive throughout the year as our teams have been successfully navigating these issues.

Speaker 4: As we begin 2022, we are poised to continue delivering returns focused growth.

As we begin 2022.

We are poised to continue deliver delivering returns focused growth.

Speaker 4: Our backlog value of $5 billion, which grew 67% year over year, provides a strong base of support our roughly $7.4 billion in expected revenues in 2022.

Our backlog value of $5 billion.

Which grew 67% year over year.

The strong base of support by roughly seven 4 billion in expected revenues in 2022.

Speaker 4: This represents substantial top line expansion, which combined with our expectation of a dramatic increase in our gross margin to nearly 26% will drive our return on equity meaningfully higher.

This represents substantial top line expansion, which combined with our expectation of a dramatic increase in our gross margin to nearly 26% will drive our return on equity meaningfully higher.

With respect to the fourth quarter, we generated total revenues of $1 7 billion and diluted earnings per share of $1 91.

Speaker 4: With respect to the fourth quarter, we generated total revenues of $1.7 billion and diluted earnings per share of $1.91, representing a year-over-year increase of more than 70% on the bottom line.

Representing a year over year increase of more than 70% on the bottom line.

We achieved an operating income margin approaching 12%.

Speaker 4: We achieved an operating income margin approaching 12%, resulting in a 28% expansion in our operating profit per unit to over $56,000.

<unk> at 28% expansion in our operating profit per unit to over $56000.

Speaker 4: In addition to this significant profit growth, our business is generating a healthy level of cash flow, and we remain consistent in our balanced approach toward allocating this capital.

In addition to the significant profit growth our business is generating a healthy level of cash flow.

And we remain consistent in our balanced approach towards allocating this capital.

Disciplined investment and community count growth is our top priority and in 2021 report over $2 $5 billion to work in land acquisition and development.

Speaker 4: Discipline investment and community count growth is our top priority. And in 2021, we put over $2.5 billion to work in land acquisition and development.

We expanded our lot position to nearly 87000 lots under control, which is almost 30% higher from year end 2020.

Speaker 4: We expanded our lot position to nearly 87,000 lots under control, which is almost 30% higher from year end 2020.

Our lot position is diversified both across and within our regions.

Speaker 4: Our lock position is diversified both across and within our region.

Speaker 4: And we own all of the lots that we need for our anticipated 2022 delivery goal.

And we own all of the lots that we need for our anticipated 2022 delivery goals.

We also know owner control the lots that we need for sustained growth in 2023.

Speaker 4: We also now owner control the lots that we need for sustained growth in 2023.

In addition to reinvesting in our business, we returned over $240 million in cash to stockholders.

Speaker 4: In addition to reinvesting in our business, we returned over $240 million in cash to stockholders through the share repurchases that we completed in our third quarter, along with our quarterly dividend. And we reduced our debt during the year by over $60 million.

Through the share repurchases that we completed in our third quarter, along with our quarterly dividend.

And we reduced our debt during the year by over $60 million.

Throughout 2021 <unk>.

Speaker 4: Throughout 2021, we implemented price increases across nearly all of our communities.

We implemented price increases across nearly all of our communities.

Speaker 4: along with managing lot releases to balance pace, price, and production in order to optimize each asset.

Along with managing lot releases.

Our balance pace price and production in order to optimize each asset.

Speaker 4: Although costs rose as we moved through the year, our pricing strength outpaced the rate of cost inflation, driving our backlog margins higher.

Although costs rose as we move through the year, our pricing strength outpaced the rate of cost inflation driving our backlog margins higher.

Speaker 4: This dynamic continued in our fourth quarter, contributing to a rise in our net order value of 12% year over year, despite net orders decreasing 10%, a level similar to the decline in our community count.

This dynamic continued in our fourth quarter contributing to a rise in our net order value of 12% year over year. Despite net orders decreasing 10% a level similar to the decline in our community count.

Speaker 4: This increase in net order value contributed to a backlog value that is more than 65% higher.

This increase in net order value contributor to our backlog value.

That is more than 65% higher.

Speaker 4: With the extension of our cycle time, most of the pricing power we experienced in 2021 will be reflected in our gross margin beginning in our 2022 second quarter.

With the extension of our cycle times, most of the pricing power we experienced in 2021.

We will be reflected in our gross margin beginning in our 2022 second quarter.

Speaker 4: In addition, our results will continue to benefit from structural tailwinds, including the performance of our more recently opened communities, where margins are running in excess of the company average.

In addition, our results will continue to benefit from structural tailwind <unk>.

Including the performance of our more recently opened communities where margins are running in excess of the company average.

Speaker 4: The ongoing rotation into a higher quality mix of assets as the impact from reactivated communities continues to diminish.

The ongoing rotation into a higher quality mix of assets as the impact from reactivated communities continues to diminish.

A reduction in amortized interest.

Speaker 4: a reduction in amortized interest, and the impact that higher monthly deliveries per community has on field overhead.

And the impact that higher monthly deliveries per community has on field overhead.

Speaker 4: All of these factors combined are driving our expectation of a gross margin of nearly 26% for this year.

All of these factors combined are driving.

<unk> of our gross margin of nearly 26% for this year.

Speaker 4: We successfully opened 130 new communities in 2021, our largest number in many years, including 33 in the fourth quarter.

We successfully opened 130, new communities in 2021, our largest number of many years.

Including 33 in the fourth quarter.

Speaker 4: The higher lot count that I mentioned will enable us to accelerate our new community openings in 2022.

The higher lot counts that I mentioned will enable us to accelerate our new community openings in 2022.

Speaker 4: As a result, we now expect to end 2022 with about 265 communities up over 20% year-over-year and ahead of our initial projection that we shared in September .

As a result, we now expect to end 2022 with about 265 communities.

Up over 20% year over year and ahead of our initial projections that we shared in September .

Speaker 4: in addition to supporting our roughly 30 percent increase in revenue planned for 2022.

In addition to supporting a roughly 30% increase in revenue plan for 2022.

Speaker 4: Our community count expansion will also contribute to our growth in 2023.

Our community Count expansion will also contribute to our growth in 2023.

Speaker 4: Our monthly absorption per community of 5.5 net orders during the fourth quarter reflected a typical seasonal pattern sequentially.

Our monthly absorption per community of five five net orders during the fourth quarter reflected a typical seasonal pattern sequentially.

Speaker 4: for the year. Our absorption pace averaged 6.3 net orders per community per month. The best annual rate we have seen in more than a decade.

For the year, our absorption pace averaged six three net orders per community per month.

The best annual rate, we have seen in more than a decade.

Homebuyers value that choice and personalization inherent in our built to order model, which we believe is the primary reason that we have long generated among the highest absorption rates in the industry.

Speaker 4: Homebuyers value the choice and personalization inherent in our built-order model, which we believe is the primary reason that we have long generated among the highest absorption rates in the industry.

Speaker 4: With the expectation that interest rates will rise this year, and with the strong home price appreciation the market has experienced, it is appropriate to spend a moment addressing...

With the expectation that interest rates will rise this year and with a strong home price appreciation the market has experienced.

It is appropriate to spend a moment addressing affordability.

Speaker 4: Our strategy is to target the median household income of a sub-market, positioning our homes to be attainable by the largest segment of buyers.

Our strategy is to target the median household income of the Submarkets.

Additionally, in our homes to be attainable by the largest segment of buyers.

We strive to be below the median new home price.

Speaker 4: We strive to be below the median new home price and at a reasonable premium to the median resale price when we open a community, and then the opportunistic and raising price based on demand at that location once open.

And at a reasonable medium reasonable premium to the median resale price when we open a community.

And then be opportunistic in raising price based on demand at that location once opened.

Our average selling price on deliveries rose about 9% year over year in 2021, well below the reported increase for overall pricing levels nationally.

Speaker 4: Our average selling price on deliveries rose about 9% year over year in 2021, well below the reported increase for overall pricing levels nationally, highlighting the affordability of our location and products.

Highlighting the affordability of our locations and products.

Speaker 4: As we have discussed on previous calls, we track a number of internal key indicators to gauge changes in consumer behavior that could signal affordability challenges, which we are not seeing at this time.

As we've discussed on previous calls we track a number of internal key indicators.

<unk> changes in consumer behavior that could signal affordability challenges, which.

Which we are not seeing at this time.

One of the most telling of these is the square footage of homes that buyers are selecting.

Speaker 4: One of the most telling of these is the square footage of homes that buyers are selecting, as they will typically rotate down to a smaller home if they need to in order to achieve homeownership.

As they will typically rotate down to a smaller home if they need to in order to achieve homeownership.

Speaker 4: Although we offer floor plans below 1600 square feet in about 80% of our communities, buyers continue to choose larger footage homes.

Although we offer four plants below 600 square feet.

And about 80% of our communities buyers.

Buyers continue to choose larger footage homes.

Speaker 4: Over the past year, our deliveries have averaged between 2,000 and 2,100 feet, consistent with our historical trends.

Over the past year, our deliveries have averaged between 2000 2100 feet consistent with our historical trend.

Speaker 4: and our homes in backlog are slightly above that range.

And our homes in backlog are slightly above that range.

Speaker 4: We also look at our studio revenues and lot premiums, which we view as discretionary spending for our buyers.

We also look at our studio revenues and lot premiums, which we view as discretionary spending for our buyers.

Speaker 4: We would expect to see a decline if fires are stretched, but our studio revenues and lot premiums have increased. Even—

We would expect to see a decline if buyers are stretched.

But our studio revenues and lot premiums have increased.

Even as base prices have risen.

Speaker 4: On a combined basis, buyers spent about $48,000 per home in these two categories in the fourth quarter. A solid enhancement to our revenue.

On a combined basis buyers spent about 48000 per home in these two categories in the fourth quarter.

Solid enhancement to our revenues.

Speaker 4: Finally, and perhaps most importantly, is the credit profile of our buyers.

Finally, and perhaps most importantly is the credit profile of our buyers.

Speaker 4: Their average FICO score in the quarter was 732, an all-time high.

The average FICO score in the quarter was 732, an all time high.

Speaker 4: In addition, about two-thirds of our buyers qualified for a conventional mortgage.

In addition, about two thirds of our buyers qualified for a conventional mortgage.

Speaker 4: And our wires overall are averaging a down payment of over $67,000.

And our buyers overall are averaging a downpayment of over $67000.

Speaker 4: Taken together, these metrics illustrate our buyer's strong credit.

Taken together these metrics illustrate our buyers strong credit.

I'll also note that the recent increases in loan limits, both conventional and FHA should help with mortgage financing provided an incremental benefit to the industry.

Speaker 4: I'll also note that the recent increases in loan limits, both conventional and FHA, should help with mortgage financing, providing an incremental benefit to the industry.

We started over 3800 homes during the quarter as we work to position our production for growth in 2022 deliveries.

Speaker 4: We started over 3,800 homes during the quarter as we worked to position our production for growth in 2022 delivery.

Speaker 4: At year end, we had over 9,100 homes in production, with 90% of these homes already sold.

At year end, we had over 9100 homes in production with 90% of these homes already sold.

Speaker 4: Generally, our cancellation rate once we start the home is extremely low, and at 5% in the fourth quarter, it remains so.

Generally.

Our cancellation rate once we start the home is extremely low.

And a 5% in the fourth quarter it remains so.

Speaker 4: We're fighting our customers' strong desire to purchase their personalized home.

Reflecting our customers' strong desire to purchase their personalized homes.

Speaker 4: At the build time, while they extended about two weeks sequentially in the quarter, we are encouraged to see some signs of stabilization.

As to build times, while the extended about two weeks sequentially in the quarter. We are encouraged to see some signs of stabilization.

Speaker 4: Construction times in November and December were consistent with September and October , pointing to a leveling out over the last four months.

Construction times in November and December were consistent with September and October .

Pointing to a leveling out over the last four months.

Speaker 4: Our projections for this year assume that we hold at these levels, and depending on timing, any improvement in build times could increase our expected closings in the latter part of this year.

Our projections for this year assume that we hold at these levels and depending on timing any improvement in build times could increase our expected closings in the latter part of this year.

Speaker 4: Our backlog is comprised of over 10,500 homes with a value of $5 billion, representing the bulk of our revenues expected for 2022.

Our backlog is comprised of over 10500 homes with a value of $5 billion, representing the bulk of our revenue is expected for 2022.

Speaker 4: One aspect of our built to order business model that tends to get overlooked is the dynamic between our revenue growth and community count.

One aspect of our built to order business model that tends to get overlooked is the dynamics between our revenue growth and community count.

Speaker 4: In our count, we do not include communities that we consider to be sold out, meaning that they have less than five homes left as well.

And our count we do not include communities that we considered to be sold out.

Meaning that they have less than five homes left as well.

Speaker 4: That doesn't mean the community is closed out, and that those communities will continue to contribute to our revenues and profits.

That doesn't mean the community is closed out and that those communities will continue to contribute to our revenues and profits.

Speaker 4: In fact, our backlog includes almost 1,900 homes from 150 sold-out communities that will deliver approximately $1 billion in 2022 revenue.

In fact, our backlog includes almost 1900 homes from 150 sold out communities that will deliver approximately $1 billion in 2022 revenues.

Speaker 4: Since we are well into our first quarter at the time of this call, we typically provide an update on net orders.

Since we are well into our first quarter at the time of this call. We typically provide an update on net orders.

Speaker 4: While we have not seen a slowdown in demand across our geographic footprint in the past couple of months, and we foresee a strong spring selling season ahead.

While we have not seen a slowdown in demand across our geographic footprint in the past couple of months.

And we foresee a strong spring selling season ahead.

Speaker 4: A combination of factors has resulted in a negative year-over-year net order comparison for the first six weeks of this quarter at 17 percent.

A combination of factors has resulted in a negative year over year net order comparison for the first six weeks of this quarter at 17%.

Speaker 4: In the prior year, net orders throughout December and into 2021 were particularly strong, creating a difficult comparison.

In the prior year net orders throughout December and into 2021 were particularly strong creating a difficult comparison.

As the first quarter progresses, and we benefit from the additional community openings, we have scheduled along with easier weekly comparison.

Speaker 4: As the first quarter progresses, and we benefit from the additional community openings we have scheduled along with easier weekly comparison, we expect to end the quarter with net orders down about a mid single digit percentage year over year, similar to our anticipated decline in average community count for the quarter.

We expect to end the quarter with net orders down about a mid single digit percentage year over year similar to our anticipated decline in average community count for the quarter.

Speaker 4: Market conditions remain very healthy, as favorable demographics, low mortgage interest rates, and an extremely limited supply of homes, particularly for first-time buyers, continue to drive demand.

Market conditions remained very healthy.

Favorable demographics, low mortgage interest rates and an extremely limited supply of homes.

Secondly for first time buyers continue to drive demand.

Specific to Kb home.

Speaker 4: Specific to KB Home, we believe the location of our communities, price point of our products, and the ability to choose and personalize homes in our built to order approach are compelling for buyers.

We believe the location of our communities price point of our products and the ability to choose and personalized homes and our built to order approach are compelling for buyers.

Shifting gears for a moment 2021 was also marked by solid progress and our environmental social and governance initiatives.

Speaker 4: Shifting gears for a moment, 2021 was also marked by solid progress in our environmental, social, and governance initiatives.

Speaker 4: Katie home was once again recognized with multiple honors from the U.S. Environmental Protection Agency leading our industry with the Energy Star Partner of the Year Award. A record number of Energy Star Market Leader awards and once again being the only home builder to receive the Water Sense Sustained Excellence Award.

<unk> home was once again recognized with multiple honors from the U S Environmental Protection Agency.

Leading our industry with the energy star partner of the year Award.

A record number of energy Star market leader Awards, and once again being the only homebuilder to receive the water <unk> sustained Excellence award.

Speaker 4: Our environmental program is robust, and we are proud that our homes have the lowest national average herd score among production builders, with a long track record of annual improvement in this key metric, which we expect to continue in 2022.

Our environmental program is robust and we are proud that our homes have the lowest national average turn score among production builders with a long track record of annual improvement in this key metric, which we expect to continue in 2022.

Our ESG leadership is being recognized.

Speaker 4: Our ESG leadership is being recognized as KB Home is the only national builder named to Newsweek's list of America's most responsible companies for the second year in a row.

As Katie home as the only national builder named to Newsweek's list of America's most responsible companies for the second year in a row.

Speaker 4: Before I wrap up, I would like to recognize and thank all of our employees for an incredible year.

Before I wrap up I would like to recognize and thank all of our employees for an incredible year.

Speaker 4: We've significantly increased our volume in 2021 amidst the most challenging and fluid operating conditions that I have seen in my home building career.

We significantly increased our volume in 2021 amidst the most challenging and fluid operating conditions that I have seen in my homebuilding career.

Speaker 4: These results came about from the determined and relentless efforts of our entire team.

These results came about from the determined and relentless efforts of our entire team.

Speaker 4: In closing, 2021 was a rewarding year for KB Home.

In closing 2021 was a rewarding year for Kb home.

Speaker 4: In addition to generating significant revenue and earnings growth, we also produce substantial increases in our book value per share and our return on equity. Alongside these meaningful

In addition to generating significant revenue and earnings growth. We also produced substantial increases in our book value per share and our return on equity.

Alongside these meaningful financial results.

Speaker 4: We maintain our leadership in providing the highest customer satisfaction levels among large production home builders and continued to drive innovation through the introduction of energy efficient and healthier home features.

We maintained our leadership in providing the highest customer satisfaction levels among large production homebuilders.

And continued to drive innovation through the introduction of energy efficient and a healthier home features.

Speaker 4: As a result of these and many other factors, KB Home was named to the list of the 250 most effectively managed companies in the U.S.

As a result of these and many other factors Kb home was named to the list of the 250, most effectively managed companies in the U S.

Speaker 4: a ranking that was developed by the Drucker Institute in conjunction with The Wall Street Journal.

A ranking that was developed by the Drucker Institute in conjunction with the Wall Street Journal.

Speaker 4: As we look to the year ahead, during which we will celebrate our 65th anniversary, we anticipate another year of remarkable growth, which we expect will ultimately drive a return on equity of more than 26 percent.

As we look to the year ahead.

During which we will celebrate our 65th anniversary.

We anticipate another year of remarkable growth, which we expect will ultimately drive a return on equity of more than 26%.

Speaker 4: We look forward to sharing our progress with you as 2022 unfolds. With that, I'll now turn the call over to

We look forward to sharing our progress with you as 2022 unfolds.

With that I'll now turn the call over to Jim.

Jeff for the financial review, Jeff Thank.

Thank you, Jeff and good afternoon, everyone I'll now cover highlights of our financial performance for the 2021 fourth quarter and full year as well as provide our outlook for the 2022 first quarter and full year.

Speaker 4: We finish 2021 with strong fourth quarter results.

We finished 2021 with strong fourth quarter results, including significant year over year growth in revenues and a 310 basis point expansion in our operating margin. They drove a 71% increase based supply chain issues that extended our cycle times as well as construction cost inflation challenges during 2002.

Speaker 4: including significant year-over-year growth in revenues and a 310 basis point expansion in our operating margin that drove a 71% increase. We faced supply chain issues that extended our cycle times as well as construction cost inflation challenges during 2021. Our exceptional portfolio of communities and solid operational execution, along with the strong housing market, generated impressive full-year results that I will summarize in a few minutes.

One our exceptional portfolio of communities and solid operational execution, along with the strong housing market generated impressive full year results that I will summarize in a few minutes.

Speaker 4: With a robust 2021 ending backlog value of Roblox owned or controlled.

With a robust 2021, ending backlog value of lots owned or controlled.

Speaker 4: We are well positioned for continued meaningful growth in revenues, community count, earnings per share, and returns in 2022.

We are well positioned for continued meaningful growth in revenues community count earnings per share and returns in 2022.

Speaker 4: In the fourth quarter, our housing revenues of $1.66 billion were up 39% from a year ago, reflecting a 28% increase in homes delivered and a 9% increase in their overall average selling price.

In the fourth quarter, our housing revenues of $1 $66 billion were up 39% from a year ago, reflecting a 28% increase in homes delivered and a 9% increase in their overall average selling price.

Speaker 4: Housing revenues were up significantly in all four of our regions, ranging from a 28% increase in the central region to 114% in the southeast.

<unk> revenues were up significantly in all four of our regions ranging from a 28% increase in the central region to 114% in the southeast.

Looking ahead.

Speaker 4: of the 2022 first quarter, we anticipate housing market conditions will continue to be favorable with strong home buyer demand while we navigate expected continued supply chain challenges.

The 2022 first quarter, we anticipate housing market conditions will continue to be favorable with strong homebuyer demand, while we navigated expected continued supply chain challenges for.

Speaker 4: For the 2022 first quarter, we expect to generate housing revenues in the range of 1.43 to 1.53 billion dollars.

For the 2022 first quarter, we expect to generate housing revenues in the range of 143 to 153 billion.

Speaker 4: For the 2022 full year, assuming no change in supply chain dynamics, we are forecasting housing revenues in a range of $7.2 to $7.6 billion, up over $1.7 billion, or 30%, at the midpoint as compared to 2021.

For the 2022 full year, assuming no change in supply chain dynamics we.

We are forecasting housing revenues in a range of seven two to seven 6 billion.

Up over one $7 billion or 30% at the midpoint as compared to 2021.

Having ended our 2000.

Speaker 4: 2021 fiscal year with our highest year-end backlog level since 2005, along with our expectations for a higher community count and continued strong housing market conditions.

Sales in 'twenty, one fiscal year with our highest year end backlog level since 2005, along with our expectations for a higher community count and continued strong housing market conditions. We believe we are well positioned to achieve this top line performance for 2000.

Speaker 4: We believe we are well-positioned to achieve this top-line performance for 2022.

Two.

Speaker 4: In the fourth quarter, our overall average selling price of homes delivered increased to approximately $451,000, reflecting our higher average selling price.

In the fourth quarter, our overall average selling price of homes delivered increased to approximately $451000 reflecting.

Reflecting our higher average selling price per network.

Speaker 4: order in recent quarters, we are projecting an average selling price of approximately $472,000 for the 2022 first quarter.

Order in recent quarters.

Our projecting an average selling price of approximately $472000.

For the 2020 to first quarter.

Speaker 4: For the 2022 full year, we believe our $480,000 to $490,000.

For the 2022 full year, we believe our over 480 to $490000.

Speaker 4: Home bills up 85% as compared to $115.7 million for the year earlier quarter.

Homebuilding up 85% as compared to $115 7 million for the year earlier quarter.

Speaker 4: The current quarter included inventory related charges of approximately $700,000. The turning margin was 12.8%, up 310.

The current quarter included inventory related charges of approximately $700000.

Operating margin was 12, 8%.

Up 310 basis.

Two points from the 2024th quarter.

Speaker 4: excluding inventory related charges. Our operating margin was 12.9 percent.

Excluding inventory related charges, our operating margin was 12, 9%.

SG&A expense ratio.

We anticipate our two.

Speaker 4: 2022 first quarter home building operating income margin, excluding the impact of any inventory related charges, will be approximately 12% compared to 10.4% for the year earlier quarter.

1022 first quarter homebuilding operating income margin, excluding the impact of any inventory related charges will be approximately 12% compared to 10, 4% for the year earlier quarter.

Speaker 4: For the 2022 full year, we expect this metric to be in the range of 15.7 to 16.5%, which were

For the 2022 full year, we expect this metric to be in the range of $15 seven to 16, 5%, which.

Speaker 4: represents a significant year-over-year improvement of 450 basis points at the midpoint, reflecting continued positive momentum in both our gross margin. Our 2021 four-quarter housing gross profit margin improved 230 basis points from the year earlier quarter to 22.3 percent.

That's a significant year over year improvement of 450 basis points at the midpoint, reflecting continued positive momentum in both our gross margin.

Our 2021 fourth quarter housing gross profit margin improved 230 basis points from the year earlier quarter to 22, 3%.

Speaker 4: Excluding inventory related charges, our gross margin for the quarter reflected a year-over-year increase of 140 basis points to 22.4%

Excluding inventory related charges, our gross margin for the quarter reflect the year over year increase of 140 basis points to 22, 4%.

Speaker 4: The year-over-year improvement primarily reflected the impact of higher selling prices and lower amortization of previously capitalized interest, partly offset by higher costs for lumber and other construction materials.

The year over year improvement, primarily reflected the impact of higher selling prices and lower amortization of previously capitalized interest, partly offset by higher costs for lumber and other construction materials.

Sales and labor.

Speaker 4: We are forecasting a housing gross profit margin for the first quarter in the range of 22.0 to 22.6 percent, representing the low point for the year.

We are forecasting a housing gross profit margin for the first quarter in the range of 22.0 to 22, 6% representing the low point for the year.

Speaker 4: We anticipate significant sequential expansion in quarterly gross margin during 2022, mainly driven by price increases that have outpaced cost pressures in our established communities, strong selling margins in our recently opened communities, and an expected reduction in amortization of previously capital. The metric will be in the range of 25.4 to 26.2 percent, an increase of 400 basis points.

We anticipate significant sequential expansion in quarterly gross margin during 2022, mainly driven by price increases that have outpaced cost pressures in our established communities strong selling margins and our recently opened communities and an expected reduction in amortization of previously capitalized trick will be in the range of 25.

Five four to 26, 2% an increase of 400 basis.

Speaker 4: ratio of 9.8 percent for the fourth quarter, improved 50 basis points from a year ago.

Hence ratio of nine 8% for the fourth quarter improved 50 basis points from a year ago.

Speaker 4: leverage due to higher revenues partly offset by increased prices and costs to support. We are forecasting our

Leverage due to higher revenues, partly offset by increased.

And costs to support.

We are forecasting our 2000.

22 first quarter SG&A.

The 10, 4%.

Since the prior year as expected favorable leverage impact from an anticipated year over year increase in housing revenues are partially offset by increased investments in personnel and other resources to support a projected meaningful expansion in community count.

Speaker 4: as the prior year, as expected favorable leverage impacts from an anticipated year-over-year increase in housing revenues are partially offset by increased investments in personnel and other resources to support a projected meaningful expansion in community counties.

Speaker 4: We expect that our 2022 full year SNCA expense ratio will be in the range of 9.4 to 9.9 percent.

We expect that our 2022 full year SG&A expense ratio will be in the range of $9 four to nine 9%.

Speaker 4: Our income tax expense of $49.7 million for the fourth quarter, which represented an effective tax rate of approximately $22.5 million,

Our income tax expense of $49 7 million for the fourth quarter, which represented an effective tax rate of approximately 22.

Speaker 4: impacted by $7 million of federal energy tax credits reflecting another benefit of our industry leading sustainability initiatives.

Impacted by $7 million of federal energy tax credits, reflecting another benefit of our industry, leading sustainability initiatives.

Speaker 4: We currently expect our effective tax rate for the 2022 first quarter and full year to be approximately 25 percent, both excluding any favorable impacts from energy tax credit.

We currently expect our effective tax rate for the 2022 first quarter and full year to be approximately 25%, both excluding any favorable impacts from energy tax credits.

Speaker 4: Federal legislation extending the availability of tax credits for building energy-efficient homes in 2022 has not yet been enacted. If the Section 45L tax credit is extended at its current level, our 2022 effective tax rate would be favorably impacted by approximately 200 basis points.

Federal legislation extending the availability of tax credits for building energy efficient homes in 2022 has not yet been enacted.

This section 45 tax credit is extended at its current level. Our 2022 effective tax rate will be favorably impacted by approximately 200 basis points.

Overall.

$74 2 million or $1 91 per diluted share for the fourth quarter.

Speaker 4: $174.2 million or $1.91 per diluted share for the fourth quarter, a notable improvement from $106.1 million or $1.12 per diluted share for the prior year period.

A notable improvement from $106 1 million or $1 12 per diluted share for the prior year period.

Speaker 4: Reflecting on the full year, we're very pleased with their strong 2021 financial results.

Reflecting on the full year, we're very pleased with our strong 2021 financial results.

Speaker 4: We increased our housing revenues by 37% to nearly $5.7 billion, expanded our operating margin by 400 basis points to 11.6%, with measurable improvements in both our gross margin and SG&A expense ratio, and reported $6.01 of diluted earnings per share.

We increased our housing revenues by 37% to nearly $5 $7 billion.

Standard our operating margin by 400 basis points to 11, 6% with measurable improvements in both our gross margin and SG&A expense ratio and reported $6 <unk> of diluted earnings per share.

We also completed $188 million of share repurchases refinanced $390 million of our senior notes, resulting in annualized.

Speaker 4: We also completed $188 million of share repurchases, refinanced $390 million of our senior notes, resulting in annualized.

Speaker 4: incurred interest, and improved our year-end leverage ratio by 380 basis points.

Incurred interest and improved our year end leverage ratio at 380 basis points.

Turning now to community count.

Speaker 4: Our fourth quarter average of 214 was down 9% from 234 in the corresponding 2020 quarter and up 4% sequentially. We ended the year with 217 communities down 8% from the year ago and up 3% sequentially.

Our fourth quarter average of 214 was down 9% from 234 in the corresponding 2020 quarter and up 4% sequentially.

We ended the year with 217 communities down 8% from the year ago and up 3% sequentially.

Speaker 4: We expect our 2022 first quarter ending community count to remain relatively flat sequentially and represent the low point for 2022.

We expect our 2022 first quarter ending community count to remain relatively flat sequentially and represents a low point for 2022.

Speaker 4: On a year-over-year basis, we anticipate our 2022 first-quarter average community count will be down by a low single-digit percentage.

On a year over year basis, we anticipate our 2022 first quarter average community count will be down by a low single digit percentage.

Speaker 4: We expect your quarter in Community County to increase sequentially through the remainder of the year, starting in the second quarter, as openings each quarter are expected to outpace sellouts.

We expect your quarter end community count to increase sequentially through the remainder of the year starting in the second quarter as openings each quarter I expected to outpace sellouts we.

Speaker 4: We anticipate ending the year with a 20 to 25% increase in our community count, supporting additional top-line growth in 2023 and beyond.

We anticipate ending the year with a 20% to 25% increase in our community count supporting additional topline growth in 2023 and beyond.

Speaker 4: During the fourth quarter to drive future community openings, we invested $622 million in land and land development, with $258 million, or 41% of the total representing land acquisition.

During the fourth quarter to drive future community openings, we invested $622 million in land and land development with $258 million or 41% of the total representing land acquisitions.

Speaker 4: In 2021, we invested over $2.5 billion in land acquisition development, compared to $1.7 billion in the previous year.

In 2021, we invested over $2 $5 billion in land acquisition development compared to $1 7 billion in the previous year.

Speaker 4: At year end, our total liquidity was approximately $1.1 billion, including $791 million of available capacity under our unsecured revolving credit facility.

At year end, our total liquidity was approximately $1 1 billion, including $791 million of available capacity under our unsecured revolving credit facility.

Speaker 4: Our debt-to-capital ratio improved to 35.8% at year-end 2021, compared to 39.6% the previous year. We expect to generate significant cash flow in the current year to fund land investments supporting our targeted 2022 and future years growth in community count and housing revenue.

Our debt to capital ratio improved to 35, 8% at year end 2021, compared to 39, 6% the previous year.

We expect to generate significant cash flow in the current year to fund land investments supporting our targeted 2022 and future years' growth in community count and housing revenues.

Speaker 4: Our 2021 year-end stockholder's equity was $3.02 billion as compared to $2.67 billion a year ago, and our book value per share increased by 18 percent to $34.23.

Our 2021 year end stockholders' equity was $3.02 billion as compared to $2 $67 billion, a year ago, and our book value per share increased by 18% to $34 23.

Speaker 4: Finally, one of the most notable 2021 achievements was their significant improvement in return on equity to 19.9% for the full year, a year-over-year expansion of over 800 basis points.

Finally, one of the most notable 2021 achievements was a significant improvement in return on equity to 19, 9% for the full year a year over year expansion of over 800 basis points.

Speaker 4: Given our current backlog in community opening plans and the expected continued strength in the housing market, we are confident that we will generate significant year-over-year improvements in our key 2022 financial metrics.

Given our current backlog and community opening plans and the expected continued strength in the housing market. We are confident that we will generate significant year over year improvements in our key 2022 financial metrics. We plan to continue to execute on the principles of our returns focused growth strategy with an emphasis.

Speaker 4: We plan to continue to execute on the principles of our returns-focused growth strategy with an emphasis on meaningfully improving our returns by increasing our community count and top line while producing further expansion in our operating margin.

<unk> on meaningfully improving our returns by increasing our community count and top line, while producing further expansion in our operating margin in.

Speaker 4: In summary, using the midpoints of our guidance ranges, we expect a 30% year-over-year increase in housing revenues and significant expansion of our operating margin to 16.1% driven by improvements in both gross margin and our SG&A expense ratio.

In summary, using the midpoint of our guidance ranges, we expect a 30% year over year increase in housing revenues and significant expansion of our operating margin to 16, 1% driven by improvements in both gross margin and our SG&A expense ratio. These.

Speaker 4: These, in turn, should drive a return on equity of over 26%, up in excess of 600 basis points from 19.9% in 2021.

These insurance should drive a return on equity of over 26% up in excess of 600 basis points from 19, 9% in 2021.

Speaker 4: This outlook reflects our view that with our returns focus growth strategy, attractive business model, seasoned leadership team and continued favorable housing market conditions, we will be able to further and meaningfully enhance longterm stockholder value in 2022.

This outlook reflects our view that with our returns focused growth strategy attractive business model.

The leadership team and continued favorable housing market conditions, we will be able to further and meaningfully enhance long term stockholder value in 2022.

Speaker 4: We will now take your questions. Alex, please open the line.

We will now take your questions Alex Please open the lines.

Speaker 2: Thank you. At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tool will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue.

Thank you.

At this time, we'll be conducting a question and answer session.

I would like to ask a question. Please press star one on your telephone keypad apart formations will indicate your line is in the question queue you.

You May press star two if you'd like to remove your question from the queue.

Speaker 2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please limit to one question and...

For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.

Please limit to one question and one follow up.

Speaker 2: Our first question comes from the line of Truman Patterson with Wolf Research. Please proceed with your question.

Our first question comes from the line of Truman Patterson with Wolfe Research. Please proceed with your question.

Speaker 4: Hey, good afternoon everyone. Thanks for taking my questions. So, first on your 22 gross margin guidance of about 26%

Hey, good afternoon, everyone. Thanks for taking my questions.

So.

First on your 22 gross margin guidance of about 26%.

Speaker 4: I think the highest in 15 plus years.

I think the highest in 15 plus years.

Speaker 4: Just trying to understand, this might be an unfair question, but trying to understand how much of the improvement is being driven by pricing out stripping costs.

Just trying to understand this might be an unfair question, but trying to understand how much of the improvement is being driven by pricing out stripping costs.

Speaker 4: and you know versus some of your internal initiatives such as working down the legacy land, streamlining SKUs, simplifying you know offerings and partnering with the national suppliers.

And versus some of your internal initiatives, such as working down the legacy land streamlining skus simplifying offerings and partnering with the national suppliers.

Speaker 4: Right, Truman. Yeah, there's, as you point out, there's a number of levers impacting 2022. You know, as we went through the details, certainly the decreased interest amortization in the driver.

Right Truman yes.

As you point out there's a number of levers impacting 2022.

As we went through the details certainly the decrease interest amortization as a driver.

Speaker 4: We have I would say the number one driver is just the performance of the communities with our existing communities. We have seen

Have I would say the number one driver is just the performance of the communities with our existing communities, we have seen pricing outstrip.

Speaker 4: pricing outstrip clocks increases as we've gone through the year and a lot of that is coming.

Cost increases as we've gone through the year and a lot of that is coming.

Speaker 4: to the deliveries in 2022, but I think also importantly, I think it's very important actually to point out that we opened 130 new communities in 2021.

Through the deliveries in 2022, but I think also importantly, I think it's very important actually to point out that we opened.

130, new communities in 2021, and the performance of those communities have been very very encouraging as youre seeing the backlog build and nice margins coming off those communities. So that we.

Speaker 4: and the performance of those communities have been very, very encouraging as we're seeing the backlog build and nice margins coming off those communities. So that...

Speaker 4: Rotation of communities from 21 to 22, I think, will have a large impact on the margins.

The location of communities from 'twenty, one to 'twenty two I think we'll have a large impact on the margin. So.

Speaker 4: You know, at the point in time when we underwrote, we're seeing those communities open at much higher margins.

The point in time, when we underwrote were seeing those communities open at much higher margins.

Speaker 4: and nice pace. In fact, in most cases, higher pace than where we were on the road, and those are the main drivers for the 2022 improvement.

Nice pace in fact in most cases higher pace than where we underwrote and those are the main drivers.

For the 2022 improvement.

Speaker 4: Terminus, this is Jeff, if I could expand on it a little bit.

A terminal this is Jeff if I could could expand on it a little bit.

Speaker 5: And we are not spiking a football here because we have a lot of work to do and we have our eyes set on even better results.

And we're not spiking football here, because we have a lot of work to do and we have our eyes set on even better results.

Speaker 5: But the transformation of the company is pretty much complete now. You were with us back in 16 when we went on the returns focused growth initiative. And part of that was to shore up and really strengthen the balance sheet.

But the transformation of the company pretty much complete now.

With us back in 2016, when we went on a returns focused growth initiatives.

And part of that was to shore up and really strengthened the balance sheet.

Speaker 5: and create a growth platform. And we did very well at that. We laid out a plan, shared it with the analyst community, and off we went and we delivered on what we said we would do. And coming out of 19, it was about quality growth and continuing to refine and enhance and retool. And we were on that path. The pandemic hits, you deal with that, you manage through that. And I would say

And create a growth platform and we did very well is that we laid out a plan shared it with the analyst community and and off we went and we delivered on what we said, we would do and coming out of 19, it was about quality growth and continuing to refine and enhance and retool and we were on that path to pandemic had to deal with.

That <unk>.

You manage through that and I would say.

Speaker 5: The two-step transformation is now complete.

The two step transformation is now complete and it's all about running the business with quality growth and continuing.

Speaker 5: And it's all about running the business with quality growth and continuing.

Speaker 5: to improve profitability and there's things I touched on in my comments like our studios are performing better and we know how to

To improve profitability and there's things I touched on in my comments like our studios are performing better.

And we know how to.

Speaker 5: we get a good idea in one studio and we can share it across the system and boom, everybody enhances their studio revenue. Then we come up with some ideas on lot premiums, we share it across the company, boom, you get more lot premium across the system through a best

We get a good idea in one studio and we can share it across the system and boom everybody enhances their studio revenue then we come up with some ideas on lot premiums we shared across the company boom you get more lot premium across the system through a best best.

Speaker 5: that idea that's shared across the footprint. Your absorption per community is up a couple a month from where it was three, four years ago. That helps your financial performance. We're out of the old communities and into the new, and as Jeff shared, they're performed at well above our average.

The best idea that shared across the footprint youre absorption per community is up a couple of months from where it was three or four years ago that helps your financial performance, we're out of the old communities and into the new and as Jeff shared there theyre performed that well above our average.

Speaker 5: Is it the location? Is it the product? Is it the strength of the market? I think it's all the above. So I wouldn't just pin it on riding the wave from the pricing environment that we're in. We structurally changed how this company is operating. And I think we've taken ourselves to a new level and it's reflected in our guide for this year.

Is it the location is it the product is it the strength of the market I think it's all the above so I wouldn't just pin it on.

Riding the wave from the the pricing environment that we're in we've structurally changed how those companies operating and I think we've taken ourselves to a new level and it's reflected in our guide for this year.

Speaker 4: Yeah, no, thank you for that, and I remember that call in 2016 well. My next question, just a two-part question, you know, Omicron has clearly been flaring up here. Hopefully this is the last wave.

Yeah, no. Thank you for that and I remember that call in 2016 well.

My next question just.

Two part question.

Omicron has clearly been flaring up here hopefully this is the last wave, but just hoping first part just hoping to get an idea of how thats impacted labor availability and if you could quantify any impact that might be baked into first quarter closings guide.

Speaker 4: Just hoping, first part, you know, just hoping to get an idea how that's impacted labor availability and if you could quantify any impact that might be, you know, baked into first quarter closings guide. And then, you know, Omicron and the COVID flare up aside, had you all started to see any incremental improvement in availability of certain products by the end of 2021.

And then.

Omicron and the Covid flare up aside.

Have you all started to see any incremental improvement in availability of certain products by the end of 2021.

Speaker 5: I can kick that to Rob and Matt Truman. Obviously, we're seeing a little flare-up in Omicron, like you're reading about in the media, whether it's in the subcontractor base, we've seen some within our own business where

I can kick that to Rob and Matt term or not.

Obviously, we're seeing a low flare up and omicron like you're reading about in the in the media whether it's in the subcontractor base, we've seen some within our own business where.

We have a very good playbook and we locked it back down and people go away for five days or 10 days of dependent on symptoms.

Speaker 5: we have a very good playbook and we locked it back down and people go away for five days or 10 days, depending on symptoms and what state they're in, and then they come back to work. So you have these little flare-ups and then they go right away and you move on to the next one. What's unknown for me is whether it's having an impact on the supply chain relative to manufacturing or not.

What state they're in and then they come back to work so yeah, Theres little flare ups and then they go right away and you move on to the next one what's unknown for me is whether it's having an impact on the supply chain relative to manufacturing or not.

Speaker 5: And I don't think that's that's played out yet. And the thing keeps moving along. I think as a society we're getting smarter about how to manage through it and we're sensitive to it. And companies are responding better than we were when it first hit back in 20. But Rob you want to give any thoughts on what you're seeing out in the field.

And I don't think Thats, that's played out yet.

Is it keeps moving along I think as a society, we're getting smarter about how to manage through it and we're sensitive to it and companies are responding better than we were.

When it first hit back in 'twenty.

Rob do you want to give any thoughts on what youre seeing out in the field.

Speaker 5: Yeah, you know, I'll just touch on, you know, outside of Omicron, some of the things that we're seeing, I mean, we're almost two years into this, 18 months, two years into it.

Yes.

I'll just touch on your outside of AUM across some of the things that we're seeing I mean, we're almost two years into this 18 months two years into it.

Speaker 5: You know we are seeing some improvements in several areas. But a lot of that's just because we're far more experienced in developing workarounds for the supply chain gaps. You know we've developed methods for continuing to progress our homes despite missing parts and pieces and.

We are seeing some improvements in several areas, but a lot of that is just because we are far more experienced in developing workarounds for the supply chain gaps we've developed methods for continuing to progress our homes, despite missing parts and pieces and we've adjusted our processes to sync sync up with the delayed.

Speaker 5: We've adjusted our processes to sync up with the delays and extended lead times, and we're in lockstep with our trade partners and suppliers and communication around our future needs, what their capacities are. But we are seeing some areas improve, but at the same time, others

Delays in extended lead times, and we're in lockstep with our trade partners and suppliers and the communication around our future needs what their capacities are but we are seeing some areas improve but at the same time others.

Speaker 4: know, get worse. For example, you know, in Q4, garage doors is one of our biggest challenges.

Get worse for example in Q4, our garage doors as one of our biggest challenges and there are still still real issues around garage doors that we've taken some actions to minimize the disruptions from that through finding alternate suppliers and manufacturers.

Speaker 5: There are still still real issues around garage doors, but we've taken some action to minimize the disruptions from that through finding alternate suppliers and manufacturers.

Speaker 5: We work to minimize the door styles that we offer.

We've worked to minimize the door styles that we offered.

Speaker 5: match what's more readily available in the supply chain and allows our

What's more readily available in the supply chain and allows our <unk>.

Speaker 5: suppliers and partners to focus on producing a smaller range of those products, but then on the flip side, you know, when we solve one issue or one issue improves, another one tends to pop up. Like earlier in the year, the foam that we used for Stucco Laff wasn't really an item on our radar, but now the supply of that has become scarce. So while one issue kind of gets traded for another, we'll claw back time in one area and lose some in another.

Suppliers and partners to focus on producing a smaller range of those products.

But then on the flip side you know when we solve one issue or one issue improves another one tends to pop up like earlier in the year. The foam that we used for stucco lath wasn't really an item on our radar, but now the supply of that is because of scare. So one issue kind of gets trading for another well, we'll claw back time in one area and lose some in another.

Speaker 5: That's led to what we're seeing is a stabilized cycle time just at an elevated level.

That has led to what we're seeing in the stabilized cycle time, just at an elevated level.

Speaker 2: Thank you. Our next question comes from the line of Alan Ratner with Zellman & Associates. Please proceed with your question.

Thank you.

Our next question comes from the line of Alan Ratner with Zelman <unk> Associates. Please proceed with your question.

Hey, guys happy new year, and nice job on the quarter and the year congratulations.

Speaker 5: Hey guys, Happy New Year and nice job in the quarter and the year. Congratulations.

Yes.

Speaker 6: You know, first question, you know, obviously very strong gross margin guidance and you guys have a lot of visibility into that based on your backlog and, you know, bill to order model.

First question.

Obviously very strong gross margin guidance and you guys have a lot of visibility into that based on your backlog and.

Built to order model I'm, just curious when you look at kind of the cost and pricing environment today as it sits.

Speaker 6: I'm just curious, when you look at kind of the cost and pricing environment today as it sits, you know, we're obviously seeing a ton of inflation across the board. You know, lumber has spiked back up close to those peak levels we saw six, nine months ago.

Obviously seeing a ton of inflation across the board lumber has spiked back up close to those peak levels we saw.

Six nine months ago and.

Speaker 6: Presumably, those costs won't roll through as much this year, maybe towards the tail end, but that's probably more of a 23, early 23 dynamic. So in the current environment, do you have pricing power that's sufficient to offset what seems like accelerating cost pressures we're facing today? Just talk a little bit about how you're faring on the pricing side, if it's as strong as it was earlier in 21.

Presumably though.

These costs won't roll through as much this year, maybe towards the tail end, but thats probably more of a 'twenty three early 'twenty three dynamics so.

In the current environment do you have pricing power thats sufficient to offset the what seems like accelerating cost pressures. We're facing today can you just talk a little bit about.

How does your family on the pricing side, if it's as strong as it was earlier in 'twenty one.

Speaker 5: Yep. Lumber is is moving back up, which is interesting to me. And I think you'll see it bounce around some. But at this point in time, as I shared in the comments, we're seeing price ahead of cost. So costs are going up at a different level in every city, but we've been able to move pricing up more than the cost of increase.

Yep.

The al lumber is moving back up which is interesting to me and I think youll see it bounce around some but at.

At this point in time as I shared in the comments, we're seeing price ahead of cost.

So costs are going up at a different level in every city, but we've been able to move pricing up more than the cost of increase.

Speaker 6: Great, that's good to hear. Your second question on the community count growth, again, very bullish outlook there. And I think a lot of your peers have similar growth outlooks, maybe not to the same extent. I'm just curious if you have any sense for what the community growth outlook looks like in your MSAs on a competitive landscape. And do you think...

Great that's good to hear.

Second question on the community count growth again, very bullish outlook, there and I think a lot of your peers have similar growth outlooks, maybe not to the same extent.

I'm just curious if you have any sense for.

What the community growth outlook looks like in your Msas.

On a competitive landscape and do you think the six six and a half per month absorption pace that you guys put up in 'twenty, one can be sustained with 20% plus more communities hitting the market over the next 12 months.

Speaker 6: The six, six and a half per month absorption pace that you guys put up in 21 can be sustained with.

Speaker 6: 20% plus more communities hitting the market over the next 12 months.

Okay.

Speaker 5: Our internal goal, Alan, is to have community count growth of at least 10% a year, and obviously this year we're going to do a little better than that.

Our internal goal is to have community count growth of at least 10% in the year.

Obviously this year, we're going to do a little better than that.

Speaker 5: it's it's a not dynamic right now because the markets are so supply constrained. I don't know that there's a lid on how many communities you could open in a city. It's more about how many you can get get approved and developed and brought to market. It's not that the demand isn't there because it is today. So I couldn't tell you what the community count growth is per city. And it's.

It's an odd dynamic right now because the markets are so.

Supply constrained.

I don't know that Theres, a lid on how many communities you could open in the city. It's more about how many you can get get approved and developed and brought to market.

It's not that the demand isn't there because it is today.

I Couldnt tell you what the community count growth as per city.

Speaker 4: It could be with our rate that we're taking share. Maybe the markets aren't getting larger, but we'll take share because we've successfully brought more communities to market. When you look at our absorption.

It could be with our rate that we're taking share maybe the markets arent getting larger that will take share because we've successfully brought more communities.

Two market.

When you look at our absorptions.

Speaker 5: rate right now. If the world stayed where it is today and the margins were generating each week and our sales stayed where they are today, you'd see us continue to run at six a month. It's a healthy pace. We like to turn the

Great right now if the world stayed where it is today and the margins, we're generating each week and our sales stayed where they are today you'd see us continue to run at six a month.

A healthy pace, we would like to turn the assets there is benefit to having that kind of volume per.

Speaker 4: There's benefit to having that kind of volume per... I think that's what we do. If the markets were to slow up a little bit, you could see our pace drop back down. Maybe margins move a little bit, I don't know. But right now, heading into 23, we like how we're positioned and what we're seeing in price and pace.

I think thats, what we do if the markets were to slow up a little bit you could see our pace dropped back down maybe margins move a little bit I don't know, but.

Right now heading into 'twenty, three we like how we're positioned and what we're seeing in price and pace.

Sure.

Speaker 4: Thank you. Our next question. Yeah, thanks a lot, guys. Appreciate the gross margin guide. Makes a makes a lot of sense, but it's certainly nice to hear.

Thank you our next question yes.

Yes. Thanks, a lot guys I appreciate the gross margin guide makes it makes a lot of sense, but it's certainly nice to hear something.

Sort of.

<unk>.

Speaker 6: bigger picture question regarding what the potential ability of housing demand to remain robust in a rising rate environment obviously that's a question.

Bigger picture question regarding.

What the potential.

Ability of housing demand to remain robust.

In a rising rate environment, obviously, that's a question.

Speaker 4: that all of us are wrestling with and getting all the time. And the presumption is that demand is extremely, shall we say, my own personal view, and I'd be curious as to yours.

All of US are wrestling with and getting all the time and the presumption is that demand is extremely say my own personal view on it.

Curious as to yours.

Speaker 6: is that demand right now is much more need-based than it was in 2018. I mean, if you look at the surveys, it seems like everybody thinks it's a horrible time to buy a house, and most people are very, you know, mistrustful of actually where home prices are. And so I think that unless you actually need a house, you're probably not looking to buy one right now, which means by extension that if rates rise, you probably won't see as much of a, you know, a sticker shock or a buyer strike like you did in 2018. How do you think?

Is that demand right now is much more need based than it was in 2018 I mean, if you look at the survey if it seems like everybody thinks it's a horrible time to buy a house and most people that are very mistrustful.

Trustful of actually where home prices are and so I think unless you actually need a house, you're probably not looking to buy one right now which means by extension that if rates rise you probably won't see as much of a.

Sticker shock or a buyer strike.

You did in 2018, how do you think.

Think about that.

Speaker 5: Yeah, I would agree with you, Steven. And if you put it in the context of the demographic, you've heard everything about the millennials and how large it is. A group are not seeing their needs met.

I would agree with you Stephen.

To put it in the context of the demographics.

<unk> heard everything about the millennials and how large it is a group are not seeing their needs met.

Speaker 4: They're getting married. They're getting better jobs. They're relocating. They're working from home. All these things you hear about that are creating strong demand. And then right behind that you have another generation.

They're getting married they're getting better jobs are relocating they're working from home. All these things you hear about that are creating strong demand and then right behind that you have another generation.

Speaker 5: of 70 million people are now hitting the home buying years.

270 million people that are now hitting the homebuilder home buying years.

Speaker 4: that are just now starting their homeownership journey. So we see demand very strong right now. And if rates go up a little bit, I think you'll see demand stay strong. We've analyzed

That are just now starting their homeownership journey, so we'd see.

Demand very strong right now.

And if rates go up a little bit I think you'll see demand stays strong.

We've analyzed.

Speaker 4: um our backlog and if rates went up a percent it's it's um not um everything stayed the same and rates went up a point is think of the

Our backlog.

And if rates went up a percent its not.

Everything stay the same.

Rates went up a point that I think of the product.

Speaker 4: Here we are, predominantly a first-time builder, and our

We'll file I shared with you here, we are predominantly a first time builder and our.

To navigate a little bit higher.

Speaker 7: interest rate and they all want a house and at the same time you go to the resale side.

Interest rates and they all want a house and at the same time.

Go to the resale side.

Right.

Speaker 7: there is no inventory. There's metropolitan areas in a city of four to five million, so there's no communities to

There is no inventory.

Metropolitan areas.

The city of $4 million to $5 million. So there is no spring communities too.

There are in each of these cities.

Speaker 7: triplets, I'll say three, four, 500 people waiting. It's not unique to just one sub market, it's a national phenomenon.

Triple S. I'll say 345 hundred people waiting.

It's not unique to just one submarket, it's a national phenomenon.

Yes, that's great.

Speaker 4: you would be related to market share gains that we seem to be in a unprecedented period where scale really matters and I'm curious as to what

It would be related to market share.

Share gains, but we seem to be an unprecedented pace.

Period, where scale.

It really matters and I'm curious as to what.

Speaker 6: that some of the smaller builders are actually able to

At the some of the smaller builders are actually able to exit.

Speaker 6: to accelerate their product or starts and who you are.

Tolerate their product.

Our starts in guar.

Or what.

Speaker 8: This is going to be yet another year of significant market share growth for builders such as yourself.

So this is going to be yet another year of significant market share growth for for builders such as yourself.

Speaker 7: Yeah, I think you'll continue to serve if you're a plumbing contract.

I think youll continue to sort of material plumbing contract.

Speaker 7: the whole family. They're going to be going to the hospital. They're going to the doctor. Would you rather get a commitment for five to 10 homes a week or one home every other week? And they're

Victor would you rather get a commitment for five to 10 homes, a week or one home every other week.

Theyre going where the volume is in the the relationships.

Speaker 7: large builders have created with the trade partners, and we certainly have a great, great relationship nationally. It helps you and within our own business, our larger division

Large builders are created with.

The trade partners and we certainly have a great great relationship nationally.

Helps you and within our own business our larger divisions.

Speaker 7: definitely having better success navigating the supply chain challenges where we're just getting going in Charlotte.

<unk> are definitely having better success navigating the supply chain challenges, we're in Vegas as opposed to where we are just getting going in Charlotte compare the two youre well down the list in Charlotte.

Speaker 7: in Vegas or at the top of the list. they're struggling compared to what we can get done.

But for a framing contractor in Vegas, we're at the top of the list.

I think if you use that as a proxy for what's going on out there with the small privates, there theyre struggling compared to what we can get them.

Speaker 2: Thank you. Our next question comes from the line of Matthew Boulay with Barclays. Please proceed with your question.

Thank you. Our next question comes from the line of Matthew Bouley with Barclays. Please proceed with your question.

Speaker 8: Good afternoon, everyone. Thank you for taking the questions and congrats on the results. So on the 2022 outlook, you know, clearly guiding a significant step up in net income, just purely on a dollar basis, you've always reinvested a large portion of the cash generation back into the business, thought sort of excess capacity from a balance sheet and cash perspective that could be deployed.

Good afternoon, everyone. Thank you for taking the questions.

And congrats on the results so on the.

2022 outlook clearly guiding a significant step up in net income just purely on a dollar basis.

You've always reinvest at a large portion of the cash generation back into the business at sort of excess capacity from a balance sheet and cash perspective that could be deployed to something more shareholder friendly, perhaps a more programmatic share.

Speaker 8: something more shareholder-friendly, perhaps a more programmatic share.

Speaker 8: every purchase, just, you know, sort out how do you harvest the type of cash flow you'll be generating this year. Thank you.

Share repurchase just Saudi.

How do you harvest.

A cash flow you'll be generating this year. Thank you.

Speaker 7: I'll let Jeff pile on, Matt. It's a good question, and we share in our comments that it's a balanced approach just like we had over the last.

Ill, let Geoff pile on Matt. It's a good question and we shared in our comments that it's up a balanced approach just like we have over the last.

Speaker 7: five or six years. First and foremost is to keep profitably growing, quality investments, quality growth.

Five or six years first and foremost is to keep profitably growing quality investments quality grow and take market share.

Speaker 7: take market share and grow our EPS and in turn improve our returns. But we always will look to the balance just like we did in.

Grow our EPS and in turn improve our returns, but we always will look to the balance just like we did in <unk>.

Speaker 7: 21 where we bought back some shares at a good price.

'twenty, one where we bought back some shares.

Good price.

Speaker 7: We upped our dividend, paying more in dividend, and we took down debt while investing $2.5 billion in growing our company. So it's a very balanced approach, and I'd rather stay.

We upped our dividend paying more in dividend and we took down debt, while investing $2 5 billion and growing our company. So it's a very balanced approach and I would rather stay and keep putting the periscope up as the year unfolds and see how things are going in and where we're headed and how are we doing in R. R.

Speaker 7: Keep putting the periscope up as the year unfolds and see how things are going and where we're headed and how are we doing in our.

Speaker 7: our growth initiatives and our profit projections and

Growth initiatives and our profit projections.

Speaker 7: And then we'll make a call on how our cash is running and what we should do with it.

And then we'll make a call on how our cash is running and what we should do with it.

Speaker 4: But I think that's a better approach for us than to declare we're going to buy back so many shares of stock a quarter. We're going to do this or we're going to do that. I don't know if you want to add any. Yeah I'd only add a couple of comments. I think you know first and foremost increasing our scale and expanding our returns by as much as we're looking at. I think it's extremely shareholder friendly and we're open to see.

Think that's a better approach for us than the.

Declarer, we're going to buy back so many shares of stock a quarter or we're going to do this or we're going to do that now if you want to add any yes, I'd only add a couple of comments I think.

First and foremost increasing our scale and expanding our returns by as much as we're looking at I think is extremely shareholder friendly and we are hoping to see.

Speaker 8: some repricing the shares obviously and the multiples and everything else reflecting the strong return potential of the business and

Some re pricing and the shares obviously and the multiples and everything else, reflecting the strong return potential of the business.

Speaker 9: So I think that's a really good use of capital. We're always open to it. We've opportunistically made sure we've purchased in the past with excess cash, and we probably look at doing the same in the future. We don't have the huge goal that we have right now.

So I think that's a really good use of capital.

We're always open to it we've opportunistically made share repurchases in the past with excess cash and we probably look at doing the same in the future we don't have the.

The <unk>.

Huge goal.

Okay.

Net scale in which.

Turn expansion I think is.

Speaker 7: is really meaningful for the company and should be very meaningful for a shareholder.

It's really meaningful for the company and should be very meaningful for our shareholders.

Got it that's really helpful.

Speaker 8: Got it. Now that's really helpful. So second question

So second question.

You zoom.

Speaker 8: you know, zooming in on the near term, you gave kind of that quarter to date.

Zooming in on the near term you gave kind of that quarter to date.

It's a difficult year over year.

Speaker 8: Obviously, we're talking about December and January here, so how much we really read into all that.

Parison, obviously, we're talking about December and January here, so how much should we really read into all of that.

Speaker 8: And clearly, you gave the assumption around Q1 orders. But it just simply begs the question, given there is a relatively large decline in orders.

And clearly you gave the assumption around Q1 orders, but it just simply begs the question given there is a relatively large decline in orders.

Speaker 5: Can you just kind of elaborate a little bit on that? Why, you know, do you look at all that and say that, you know, you're still, that there isn't some kind of signal around underlying demand there over the past six weeks? Thank you. Yeah. Okay. Matt, the one, you kind of touched on one thing that I didn't include in my shared comments. It's the softest five or six.

Can you just kind of elaborate a little bit on that why.

Do you look at all that and say that Youre still that there isn't some kind of signal around underlying demand there over the past six weeks. Thank you.

Okay.

Matt why don't you kind of touched on one thing that I didn't include in my shared comments, it's the softest.

Five to six weeks of the year.

Speaker 5: in the industry. So a negative comp there versus February , March or April is a much smaller number.

The industry saw a negative comp there versus February March or April is a much smaller number.

Speaker 5: and it's really the timing of weeks and how many communities we have open. One thing I'd like everybody to take away on the call, we are seeing no weakening in demand and home buyer interest right now. The markets remain very strong. We have a lot of waiting lists. We're continuing to balance price and pace like we have been for the last year, and we think we're going to see a very strong spring selling season. It's very good out there right now on the demand side.

It's really the timing of weeks and how many communities we have opened.

One thing I'd like everybody to takeaway on the call we are seeing no.

Canadian demand in Homebuyer interest right now the markets remain very strong we have a lot of waiting list, we're continuing to balance price and pace like we have been for the last year and we think we're going to see a very strong spring selling season is very good out there right now on the demand side.

Speaker 2: Thank you. Our next question comes from the line of Susan McClary with Goldman Sachs. Please proceed with your question.

Thank you.

Our next question comes from the line of Susan Mccoy with Goldman Sachs. Please proceed with your question.

Thank you good afternoon, everyone and congrats on a nice ended the year.

Speaker 3: Thank you. Good afternoon, everyone, and congrats on a nice end of the year.

My first question is you've talked in the past about reducing the skus in the design centers by about half inch taking down some of the structural options in the business as well can you talk a little bit to where you are within that process and how youre thinking about the contribution of that simplification Q.

2020.

The team.

Speaker 5: Sure, Susan, Rob's the owner of our studio, so he can provide the insight, what I can share from my lens.

Sure Susan Rob Rob is the owner of our studios so.

He can provide the inside what I can share from Ireland.

Speaker 10: Strategically, we're dropping SKUs right now to help ease the supply chain.

Strategically we are dropping skus right now to help ease the supply chain and it.

Speaker 10: If you're offering three or four of an item, take it down to one or two and you reduce choice a little for the customer, but you improve your ability to get the product and, and compress build time. So our mantra right now is to retain the personalization that's required.

If your offer in three or four of an item take it down to one or two and you'll reduce choice a little for the customer, but you improve your ability to get the product in and compressed build time. So our mantra right now is to retain the personalization that's required to give the customer choice.

Speaker 10: to give the customer choice, but it has to be something that doesn't get in the way of the supply chain and build times, and that's what Rob is working on. So Rob, do you want to provide some color for Susan?

But it has to be something that doesn't get in the way of the supply chain and build times and Thats, what Rob is working so Rob you want to provide some color from Sweden.

Speaker 5: Sure, Susan. I mean, you know, I would just say that it's an ongoing process. It's not an event, you know, and it's something that we're going to continue to be focused on, just simplification and speed throughout the whole organization. And, you know, as Jeff mentioned, part of that's just finding the right or the appropriate balance or the sweet spot between.

Sure Susan.

I'd just say, it's an ongoing process, it's not an event.

Something that we're going to continue to be focused on just simplification in speed throughout the whole organization and as Jeff mentioned part of that is just finding the right or the appropriate balance of the sweet spot between personalization for our customers and construction speed, but.

Speaker 5: personalization for our customers and construction speed, but

Speaker 5: Um, you know, they're not some of them are win wins all the way around. An example with Whirlpool, our appliance supplier, we converted to

Some of them are win wins, all the way around.

For example, with Whirlpool, our appliance supplier, we converted to stainless steel appliances will be including feature in all of our homes and just that action alone minimize the SKU count from over 400 appliances to under a 150, which significantly.

Speaker 5: stainless steel appliances is the included feature in all of our homes. And just that action alone minimized the SKU count from over 400 appliances to under 150, unforgers wanna approach.

Speaker 5: It significantly improved our lead times, it simplified our internal processes, and it also adds value for our customers because they're getting a better product.

<unk> significantly improved our lead times and simplified our internal processes.

It also adds value for our customers. So we're getting a better product.

Speaker 3: Yeah, and I guess just following up on that, does this suggest that even as the supply chain normalizes and some of these headlines debate, that perhaps you can stick to something that is just a bit more refined for the consumer, because it doesn't seem like you're having any pushback on it from the consumer's perspective, you're sort of getting to still that personalization that they're looking for, but at the same time just making things a bit more efficient for everyone?

Yeah, and I guess, just following up on that does it suggest that even if the supply chain normalizes and some of these headwinds to date that perhaps you can stick to something that is just a bit more refined for the consumer because it doesn't seem like you are having any pushback on it then the consumer's perspective, you're sort of getting to scale.

Personalization that theyre looking for but at the same time, just making things a bit more efficient for everyone.

Speaker 5: Yeah, I think that's a good way to look at it. I mean, it's, you know, it's almost a necessity right now because of the supply chain issues and, you know, we're focused on maintaining the SKUs that are most readily available in the supply chain, but even once those supply chains and the cycle time issues go away, it allows us to run a more efficient operation. So, again, it's just finding the right balance between what our customers want and personalization and what's efficient for our business.

Yes, I think thats, a good way to look at it I mean, it's.

Its almost a necessity right now because of the supply chain issues and we're focused on maintaining the skus that are most readily available in the supply chain, but even once those supply chain when the cycle time issues go away. It allows us to run a more efficient operation. So again, it's just finding the right balance between.

What our customers want and personalization will sufficient for our business.

Thank you.

Speaker 2: Our next question comes from the line of Michael Rehart with J.P. Morgan. Please proceed with your question.

Our next question comes from the line of Michael Rehaut with Jpmorgan. Please proceed with your question.

Speaker 4: All right. Good afternoon, everyone. Congrats on the results.

Hi, good afternoon, everyone. Congrats on the results.

Speaker 7: First question, I just wanted to circle back a little bit to the gross margin trajectory, and it makes a lot of sense that, you know, aside obviously from a lot of the hard work that you guys have done over the last couple years repositioning the company, you know, from a timing perspective, you know, looking for gross margins to start expanding in the first quarter, I'm sorry, second quarter.

First question I, just wanted to circle back a little bit to the gross margin trajectory and.

It makes a lot of sense that.

Obviously from a lot of the hard work that you guys have done over the last couple of years repositioning the company.

From a timing perspective looking for gross margins to start expanding in the first quarter I'm, sorry second quarter.

Speaker 7: uh... it's pretty important to me uh... you can't in our view of the coincides with potentially some of that lumber benefit coming down uh... coming through the pike uh... and i was hoping it's possible uh...

It's pretty important to me.

Yes.

In our view at least coincides with potentially some of that lumber benefit coming down.

Coming through the Pike.

And I was hoping if possible.

Speaker 7: to try and isolate that particular 3Q of 22 and also, you know, Jeff, Kay, you had mentioned lower interest amortization. If you had a sense of, from a basis point perspective, what type of differential that might be in 22?

To try and isolate.

At particular.

In <unk> of 'twenty, two and also.

Jeff K, you had mentioned lower interest amortization, if you had a sense of from a basis point perspective, what type of differential that might be in 'twenty two.

Speaker 9: Sure, Mike, I can help you out with those.

Sure Mike I can help you out with those.

Annual year.

That.

Relating to the <unk>.

Cadence.

Speaker 7: cadence. Um, you know, second quarter, we're looking at a pretty nice step up the margin right now through what we're seeing in the backlog that obviously always

Second quarter, we're looking at a pretty nice step up in margin right now through what we're seeing in the backlog that obviously always.

Speaker 7: changes depending on mix and what we deliver out in Q1 and supply chain and construction cycle time and everything else. But we should start seeing that nice step up beginning in Q2. You know, if you think about those Q2 and Q3

Changes, depending on mix and what we deliver out in Q1.

Supply chain in construction cycle time, and everything else, but we should start seeing that nice step up beginning in Q2.

You think about both Q2 and Q.

Three deliveries when those sales were booked in those homes are started.

Speaker 7: deliveries when those sales were booked and those homes were started, you know, lumber was at a relatively low point as we saw it dip down and now coming back up again. So there's probably more risk I'd say in the fourth year and I think very importantly with the new sort of portfolio, the portfolio that we're seeing coming through

Lumber was at a relatively low points as we saw it dip down and now coming back up again, so there's probably more risk I'd say in the fourth year and I think very importantly, with the new sort of portfolio that portfolio or that we're seeing coming through.

Okay.

This year in the performance.

Speaker 7: That exit rate will be a really nice indicator for strong margins in 2020.

Net exit rate will be a really nice indicator for strong margins in 2020.

Speaker 7: So, you know, we're not, obviously he's going to guide out that far at this point.

Three so we're not obviously the guide out that far at this point, there's a lot of things.

Speaker 7: now and the end of the year to consider but I'm really quite happy to see sequential improvement as we move through the year because it just gives you a nice exit rate for future years. So that's the way we're seeing it.

Between now and the end of the year.

To consider but.

I'm really quite happy to see sequential improvement as we move through the year because it just gives you a nice exit rate.

For future years, so that.

The way, we're seeing it right now and just to be clear.

Speaker 7: And just to be clear, you know, what you're implying and

What youre implying.

Yeah.

Speaker 9: perspective obviously makes all the sense is that, you know, four Q gross margins would be high. And correct me if I'm wrong there, but the second question...

Math perspective, obviously makes all the sense is that.

<unk> gross margins would be.

And you're correct.

If I'm wrong, there, but the second question.

Speaker 9: going back to sales pace, obviously, that, um, you know, roughly six or six and a half for the full year of, uh, of 21.

Going back to sales pace obviously.

Roughly six.

Six five for the full year.

'twenty one.

Speaker 7: extremely impressive, and I believe, Jeff Mesger, you said earlier that you'd think

Extremely impressive and.

I believe Jeff Mezger, you said earlier that you would think.

Speaker 7: I was curious if, you know, in the most recent quarter, you know, what, roughly what percent of communities might have been still on restriction or, you know, restraining.

Sure.

Was curious if in the most recent quarter.

What roughly what percentage of communities might've been still on restriction or.

We are screening.

Speaker 9: match production capacity and cost matching and things of that nature. Because if you're doing the rate that you've done in 21 with those sales restrictions,

Match.

Production capacity and cost matching and things of that nature.

Yes, it does.

If youre doing the rate that you've done in 'twenty, one with those sales restrictions.

Yes.

Speaker 9: certainly adds confidence to the statement that, you know, you could have sold at even better rates and therefore, you know,

Certainly.

Adds confidence to the statement that.

You could have sold at even better rates.

And therefore.

Speaker 7: kind of add confidence to a view that maybe six, six and a half is still you know the right number for the next 12 years.

Kind of adds confidence in it.

To a view that maybe six to six 5% still.

The right number for the next one.

Speaker 10: Well, Michael, it's it's a good observation. It's what I shared in my comments. You can say we're limiting releases because we're managing to no more than than six a month. And that's the average. Every app has got a different.

But Michael.

Good observation and it's what I shared in my comments you can say we're limiting.

<unk>, because we are managing to no more than than six a month and thats. The average every asset has got a difference.

Speaker 10: story. If it's a high end community with limited number of lots and you're not going to replace it, you have a lower sales rate because you want to mine all the price you can. In that location, if it's easily replaceable out in the suburbs and there's vacant land.

Sorry, if its up.

The high end community with limited number of lots and youre not going to replace it you have a lower sales rate because we want to mine all the price you can in that location, if it's easily replaceable out in the suburbs and theirs.

It can land near year end.

Speaker 10: You know, it's not a cost intensive market, say it's in Texas, you go and you let it run and then you go replace it with the next one. And my comment was if the market stayed where it is today, and we sustain the margins we are today, which we think we are, you can run this thing at over six a month and it's a real sweet spot. You get to leverage everything, you get the benefit of scale, and you grow your business.

It's not a cost intensive market say, it's in Texas.

And you let it run and then you go and replace it with the next one.

I kind of was that the market stayed where it is today and we sustain the margins. We are today, which we think we are you can run this thing.

<unk> six a month and is.

That's a real sweet spot you get to leverage everything you can get.

The benefit of scale and you grow your returns there is a lot of benefit to doing it took us a month instead of four months in our business model. So we.

Speaker 10: there's a lot of benefit to doing six a month instead of four a month in our business model.

We think a sustainable rate.

Speaker 2: Thank you. Our final question comes from the line of Mike Dahl with RBC. Please proceed with your question.

Our final question comes from the line of Mike Dahl with RBC. Please proceed with your question.

Thanks for.

On some of the cadence.

Speaker 10: I mean, it not only looks like 4Q exit rate would be, you know, about...

So I mean.

Not only it looks like <unk> exit rate would be.

Bob.

Speaker 10: the full year average, but it seems like you're targeting something like a 28, 29 percent as you kind of ramp through the year and having to get to that level to reach your full year. And then within that, I know someone asked about kind of what you're seeing on cost currently, but maybe just what is the net inflation number that's guide?

The.

Full year average, but it seems like youre targeting something like a 28, 29%.

As you kind of ramp through the year and having to get to that level to reach your full year and then within that someone asked about kind of what youre seeing on cost currently but.

Maybe just what is what is the net inflation number.

Guide.

Sure.

Speaker 4: Sure. So, first of all, on the exit right, you're probably a point high in the range.

First off on the exit rate you'd probably a point higher in your range.

Can you go through the year and the quarters.

Speaker 7: Obviously, we haven't sold a lot of those homes yet, most of them in the fourth quarter, so.

Obviously, we haven't sold a lot of those homes yet.

Most out in the fourth quarter so.

It's still a little bit of a patient.

Speaker 7: forecast as opposed to looking at our backlog, but we'll see. The second part of your question, remind me, Mike? Just what is the net inflation assumption embedded in that? Right. Yeah. So what we do on the cost and on the margins, on anything in backlog, where we have locked costs and locked price, we just look at our backlog margins. And so... ... ... ... ... ... ... ...

The forecast as opposed to looking at our backlog, but it's.

But we'll see.

The second part of your question was remind me.

Yeah.

Just what is the net net inflation assumption embedded in that.

Right, yes, so what we do on the cost and on the margins on anything in backlog.

We have lot costs and walk price, we just look at our backlog margins. So.

Speaker 7: you know, in essence, there's no further cost inflation assumed on those, on those sales. You may be making assumptions on a little bit of, you know, sold and delivered spec inventories who goes for the year and what's happening there and what's happening on pricing, but we're not.

No.

Since there is no further cost inflation assumed.

On those.

On those sales.

Taken assumptions on a little bit of.

Sold and delivered spec inventory as we go through the year and what's happening there and what's happening on pricing, but we're.

We're not.

Speaker 4: You know, because of the way we lock the cost, we really don't have to be very concerned about cost inflation on our backlog.

Because of the way we'd like the costs were really we really don't have to be very concerned about cost inflation on our backlog.

Speaker 7: We have five billion dollars in backlog, so we're pretty safe on that. Yeah, and certainly for the year...

5 million cars in backlog, so we're we're pretty safe on that.

Certainly for the year.

Speaker 7: It's mainly in the back half and especially in the fourth quarter. It involves, you know, some of the pricing coming off new.

This is mainly in the back half and especially in the fourth quarter.

It involves some of the pricing coming off mute.

Speaker 7: open communities during the spring selling season, and what happens with costs as they move, particularly over the next three or four months, being today and what we've seen

Open communities during the spring selling season.

And what happens with costs as they move, particularly over the next three or four months being today and what we've seen.

Week after week after week as we gone through particularly over the last six to nine months.

Speaker 7: week after week after week as we've gone through, particularly over the last six or nine months, we're seeing margins expanding almost every single week. So we're pretty excited about where the markets are. We're very excited about the portfolio.

<unk> margins expanding almost every single week so.

We're pretty excited about it.

Markets and very excited about the port.

Before we can use that we have right now.

Yes that makes sense. Thanks for that Jeff and then my follow up question.

Speaker 10: Yeah, that makes sense. Thanks for that, Jeff. And then my follow-up question is, you know, I know you're

<unk>.

No.

Okay.

Speaker 10: that you look at which aren't showing any signs of stress from an affordability standpoint.

Is that you look at which arent showing any signs of stress from an affordability standpoint.

Speaker 10: you know, Jeff, Jeff, and I think your opening comments still said, you know, you, you, you do.

Jeff Jeff.

Your opening comments.

Still said.

You too.

Speaker 10: you still want to be watchful around affordability. So the question is, you've got pricing power today, clearly, how do you expect to approach your pricing decision?

Do you still want to be watchful around affordability. So the question is.

<unk> got pricing power today, clearly how do you expect to approach your pricing decisions.

Speaker 11: through the spring, through the year, keep an eye on that, and how much may or may not be governed by what you end up seeing on rates. Well, that's a weekly one.

Through the spring through through the keep an eye on that.

And how much may or may not be governed by what you end up seeing on rates.

So are we.

Equally.

Every community like we always do Mike.

Speaker 10: We work through what's the right run rate at this community, at this margin.

We worked through what's the right run rate at this community at those margin.

Speaker 10: to give us the highest return with how many lots we have left and what's coming behind it. And there's a process that we literally go through every week. In today's environment.

To give us the highest return with how many lots we have left and whats.

It's come in behind it and there is a process that we literally go through every week in today's environment.

Speaker 11: It's been a nice combination where we're lifting pace and lifting margin at the same time. If rates go up, we'll have real-time feedback on what that means, if anything, with this customer today. And part of what I was trying to get across, the challenged buyer, and that's absolutely not the case with the amount of equity that our buyers are putting into the home.

It's been a nice combination where we're lift in pace and lift in margin.

At the same time.

If rates go up.

We will have real time feedback on what that means if anything with this customer today and part of what I was trying to get across the challenge buyer and Thats, that's absolutely not the case with the amount of equity.

Our buyers are putting into that.

So their home the high credit.

Speaker 10: FICO score that they have and their desire to be homeowners. This is nowhere near even close to a stress fire today. They have a lot of flexibility to navigate this thing with us and we'll have indications along the way. So we'll continue to toggle price and pace and as I've said a few times now, we really expect a strong spring, really strong spring selling season. Demand is very strong on that.

FICO score that they have and their desire to be homeowners. This is nowhere near even close to express buyer today. They have a lot of flexibility to navigate this thing with us.

And we'll have indications along the way so we'll continue to toggle price and pace and.

And as I've said, a few personnel, we really expect a strong spring really strong spring selling season demand is very strong.

Speaker 2: Thank you. Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may now disconnect your lines.

Thank you.

Ladies and gentlemen. This concludes today's teleconference. Thank you for your participation you may now disconnect your lines.

Yes.