David Goldberg - Vice President of Treasury and Investor Relations Allan Merrill - President and Chief Executive Officer Robert Salomon - Executive Vice President, Chief Financial Officer and Chief Accounting Officer.

Susan McClary - UBS Ivy Zelman - Zelman & Associates Michael Rehaut - JPMorgan Chase & Co. Susan Berliner - JPMorgan Jay McCanless - Sterne Agee CRT James Finnerty - Citi Alex Barron - Housing Research Center, LLC.

Good morning and welcome to the Beazer Homes Earnings Conference Call for the Quarter Ended September 30, 2015. Today’s call is being recorded and a replay will be available on the company’s website later today.

In addition, PowerPoint slides intended to accompany this call are available in the Investor Relations section of the company’s website at www.beazer.com. At this point, I will turn the call over to David Goldberg, Vice President and Treasurer. You may begin, sir..

Thank you. Good morning and welcome to the Beazer Homes conference call discussing our results for the fourth quarter of fiscal year 2015. Before we begin, you should be aware that during this call we will be making forward-looking statements.

Such statements involve known and unknown risks, uncertainties and other factors, which are described in our SEC filings including our Form 10-K, which may cause actual results to differ materially from our projections.

Any forward-looking statements speaks only as of the date on which such statement is made, and except as required by law, we do not undertake any obligation to update or revise any forward-looking statements whether as a result of new information, future evidence or otherwise.

New factors emerge from time-to-time and it is not possible for management to predict all such factors. Joining me today are Allan Merrill, our President and Chief Executive Officer; and Bob Salomon, our Executive Vice President and Chief Financial Officer. Following our prepared remarks, we will take questions in the time remaining.

I will now turn the call over to Allan..

Good morning and thank you for joining us. We are happy to report our fourth quarter results which demonstrate the progress we continue to make to what our 2B-10 goals. All review our key accomplishments in the quarter and then move on to the full year. On the profitability front we reported $71 million of adjusted EBITDA up 16% versus the prior year.

Gross margins excluding amortized interest impairments and abandonment’s came in at 21.3% a bit ahead of our August guidance as we benefited from strengthen our Southeast region. Robust topline growth let do improved operating leverage is SG&A as a percentage of revenue declined about 60 basis points versus last year to 10.4%.

We ended the quarter with nearly $670 million of future closings and backlog which was up nearly 30% versus the prior year and provide significant visibility into revenue and profit growth in fiscal 2016 and we were able to release approximately $335 million of the valuation allowance against our deferred tax assets.

Moving on now to our performance for the full year. We achieved $144 million in adjusted EBITDA, up about $11 million versus last year. Adjusting for the benefit we realized in 2014 from the sale of our interest in Beazer Pre-Owned Rental Homes or EBITDA was up $17 million or 13%.

Orders rose 13% versus 2014 driven by a comparable increase in our average community count. Total revenue grew 11% led by a 10% increase in average sales price which rose to $314,000. This topline growth was generated while holding operating margins flat versus the prior year as improved G&A leverage offset the pressure on homebuilding gross margins.

We invested about $450 million in land and land development and we ended the year with plenty of liquidity $252 million in unrestricted cash in on drawn revolver which we recently increased and extended.

Before I turn the call over to Bob and David to review our results in greater depth, I want to highlight an important objective we've established alongside our 2B-10 plan as we move into fiscal 2016.

After discussions with our Board and many of our shareholders we’ve decided to complement our growth ambitions with steps to reduce our leverage over the next couple of years this will accelerate our efforts to reduce both our cash interest paid and our ratio of debt to EBITDA. There are several points I want to emphasize about this decision.

First reducing leverage is not meant as a substitute for or a shift away from 2B-10. Given the land spend we've completed over the past few years we still expect to achieve our 2B-10 goals in fiscal 2017. Our deleveraging will be carried in conjunction with our push $200 million in EBITDA.

Second our strategy while more balanced still includes plans for topline and EBITDA growth beyond 2B-10. Third, this decision should not be interpreted as pessimism about the shape of the housing recovery.

In fact, the opposite we expect the housing recovery to continue want to slow but steady pace for a number of years, but were convinced the deleveraging while the housing market is still improving will create value for shareholders is the risk premium associated with owning our stock diminishes.

Finally, while paying down debt I won't improve EBITDA it will be very accretive to our earnings per share. Upon achievement of our 2B-10 goals in 2017 we expect to express our targets for improved profitability in terms of EPS.

With that, let me turn the call over to Bob to go through our results for the fourth quarter and our expectations moving forward..

Thanks, Allan. We are updating our 2B-10 metrics to provide ranges instead of point estimates. It’s really not our 2B-10 in November 2013 we have consistently set that there are number pass to achieve our underlying goal.

Generating $200 million of EBITDA and that’s direction we followed with the function of both our internal efforts and broader market conditions. On Slide 7, we summarize our updated 2B-10 ranges. In the balance of my remarks I will be reviewing our fourth quarter and full year results.

I’ll also provide you with some visibility into our operational expectations for the first quarter and how those relate to our 2B-10 goals. While we won't be forecasting quarterly metrics beyond the first quarter you’ll be able to see the path we are on to reach 2B-10.

Our revenue in fiscal 2015 totaled $1.6 billion which is up almost $165 million or 11% compared to last year. Our LTM adjusted EBITDA of a $144 million is up more than 13% versus last year. Excluding the gain associated with the sale of Beazer Pre-Owned Rental Homes.

Sales were a bit disappointed in the quarter although they showed some strength in September. Nonetheless we achieved the sales pace of 2.4 sales per community per month one of the highest levels among national builders for this time period.

For the full-year our sales pace was 2.8 in the range of our 2B-10 targets and easily among the best in our peer group. Just a quick note, excluding New Jersey our fourth quarter sales were actually up about 2% year-over-year.

Traffic levels remain consistent and strong throughout the quarter giving us confident that the broader housing market and continue to grow at a slow and steady pace as we move through next year.

For the first quarter of fiscal 2016 we expect our sales base to be essentially flat year-over-year allowing us to achieve modest order growth versus the first quarter of last year due to a larger community count.

As it relates to our 2B-10 plan, we’ve adjusted our target for absorption to a range of 2.8 to 3.2 sales per community per month as we continue to balance driving sales pace and margins on community-by-community basis. The actual sales space in any quarter will be driven by a combination of seasonality, market trends and our geographic mix.

Turning now to average sales price, our ASP rose 9% this quarter to $332,000, the highest level we have achieved in the company’s history. Each of our regions experienced price improvement relative to last year led by the West where our prices were up 16%.

On a trailing 12 month basis ASPs rose 10% over the year to about $314,000 compared with $285,000 a year ago. Our average sales price came in slightly under our expectations. This reflected the impact of geographic mix as a percentage of closings from some of our more expensive markets was slightly lower than anticipated.

Importantly our ASP and backlog as of September 30 was $328,000 above our prior 2B-10 target, which should lead to higher ASPs in future periods. As such we’re increasing our targeted 2B-10 level to a range of $330,000 to $340,000.

This expectation for further ASP growth is purely a function of continuing geographic and product mix shift does not reflect any home price appreciation. We expect our average sales price in the first quarter to be around $320,000 and to continue to increase through the year.

Our backlog conversion ratio was 69% in the fourth quarter, right in the middle of our estimated range of 67% to 72%. We would remind investor at the inclement weather experienced in Texas in the spring was the significant number of closings into the first and second quarters of fiscal 2016.

In the first quarter we are expecting the backlog conversion ratio slightly under 50% as the larger percentage of yearend backlog is scheduled to close in the second quarter than was the case last year. This reflects the heavier waiting of September sales during the fourth quarter and the labor tightness most builders have discussed.

Rather than continuing to pay our trades extra to save a same couple of weeks. We’ve managed customer expectations; we anticipate slightly longer cycle times in the near term. However we think these trends will improve over the course of the year as our initiatives to reduce cycle times take hold.

Extensive development efforts continue as we prepare to open new communities in the quarters ahead. Our average active community count during the quarter was a 164 or 10% higher than last year. For the full-year our average community count was up 13%.

This year we will emphasize tightening the relationship between sales per community and closing per community. As the communities we added last year move beyond the start phase.

Having said that we do expect to have a modest year-over-year growth in our full year community count, though there will likely be some variability quarter-to-quarter based on the timing of new community activations. For the first quarter we forecast average community count to be up 7% to 8% versus the first quarter of 2015.

Looking forward we’ve raised our 2B-10 target for community count to a range of 170 to 175, which we expect to obtain in early 2017. Turning now to our gross margins we recorded a 21.3% gross margin for the quarter and 21.5% for the full-year.

At segment level, gross margins were up nicely in the Southeast relatively flat to East and down in the West due to both weather and labor issues. As expected, our exit from New Jersey cost us about 40 basis points in gross margin in the fourth quarter.

As shown on the chart on the right side of Slide 13, we continue to make progress toward our goal of generating more gross profit dollars for closing. The fourth quarter gross profit dollars were $68,900 up over $3000 from last year. In the last few quarters, we have talked about our efforts to increase efficiency of our capital allocation.

We know it is the right thing to do, but being more efficient as an impact on our gross margins. Specifically, most listeners will recall our discussions about the benefits of activating our land held for future development, putting these assets to work generates additional EBITDA and cash flow that comes with margins below the company average.

Activating the Sacramento division last year which consists entirely of former land held parcels allowed us to start monetizing more than $50 million in assets that were previously stranded, but as expected these deliveries will carry lower gross margins. The capital efficiency factor affecting our margins is our increased use of land bank financing.

The margins on these deliveries are also less in the company average, but allow us to generate a substantially higher return on our invested capital and to incrementally expand our business. As shown on Slide 14, we estimate how the increased number of these closings will impact gross margins and something like 50 basis points compared to 2015.

However, the EBITDA and cash flow benefits from these strategies far outweigh this modest impact. As it relates to our 2B-10 goals, we are targeting a gross margin between 21% and 22% with the first quarter around 21%.

In spite of the increasing cost pressures the industry is facing, we don't expect much if any margin change beyond our capital efficiency strategies. This reflects the continued success we are having in improving our operational performance.

Our G&A for the quarter came in better than expected to $40.7 million as we continue to manage our overhead spending to align with the targeted profitability. SG&A was 10.4% of total revenue for the quarter down almost 60 basis points compared to the prior year as rise in ASPs help drive operating leverage.

The results are similar for the full year as SG&A as a percentage of revenue was 12.8% representing an improvement of 50 basis points versus the comparable period last year. We always like to remind investors that revenue related to land sales is included in our SG&A ratio calculation.

We expect our SG&A ratio to improve throughout the year with the first quarter down approximately 50 basis points compared to last year. As it relates to our 2B-10 targets, we are now forecasting SG&A as a percentage of total revenue to be in a range of 11% to 12%.

Remember, the underlying goal of our 2B-10 plan is achieving a 10% EBITDA margin and will continue to manage our overhead spend to a level that allows us to achieve this profitability goal. Moving now to our land investments shown on Slide 16.

In total, we spent about $100 billion on land and land development during the quarter, bring our spend for the year to about $450 million. This was a little less than expected mostly as a function of the timing of some of our upcoming projects.

We remain optimistic about the path of the housing recovery and continue to find opportunities to invest in new projects that meet or exceed our required rates of return. Revenue for land sales during the quarter was $21 million bringing the total for the year to $57 million just ahead of our expectations.

Looking forward, we expect total land spend in the first quarter to be around $150 million. For the full-year, land spend is expected to be approximately $600 million about 80% of which we expect to do ourselves with the balance spread of among several land bankers.

In addition to this spending, we anticipate the activation of one or more additional land held assets which will further support our community count growth. We currently forecast around $5 million land sales in the first quarter with minimal impact on profits.

At the end of September, we had nearly 26,000 owned and controlled lots and about $1.7 billion of total inventory up $137 million or 9% from last year and up almost $600 million since the end of 2012. Turning now to our deferred tax assets.

As we anticipated last quarter, a cumulative improvement in our results of the past several years allowed us to release a substantial majority of the valuation allowance against our deferred tax assets at yearend. In total, we reverse $335 million, or $10 per share of the allowance.

This has been a long time in coming and it is nice to finally have a balance sheet that reflects the huge improvements we've made in our profitability. With that, let me turn the call over to David to review our capital structure..

Thanks Bob. As Allan and Bob discussed we've established as an objective the improvement of our balance sheet. In that regard we’ve repurchased $8 million of our 2016 senior notes in the open market since June 30. We ended the quarter with approximately $252 million of unrestricted cash nothing drawn in our revolver.

Given the reversal of the valuation allowance the profitability achieved in 2015 and early benefits from improving the efficiency of the balance sheet our net debt to net capitalization declined 67% down from 81% year before. At the same time our book value per share rose about $20 up from approximately $9 at the end of last year.

We are pleased to announce that our lenders have agreed to increase and extend our existing credit revolver through January 2018. We’ve increased in line to $145 million, up from $130 million previously, which together with our cash, arms us with nearly $400 million in liquidity.

Looking forward in addition to our focus on reducing leverage of balance sheet priorities remains consistent. Extend maturities, reduce interest expense and eventually moved to an unsecured capital structure. Finally, as we’ve previously stated we have no appetite issue equity to pay down debt at our current valuation.

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

Thanks David. On Slide 20, we summarize the three main themes for 2016. First we are going to generate significant EBITDA growth as we continue to march down the path toward achieving 2B-10. Second we’re going to improve the efficiency of our assets both the community level and with our capital allocation.

And finally, will be focused on reducing our debt and interest expense as we continued to improve the health of our balance sheet. I want to thank you team for their continued diligence and resiliency against challenging backdrop with their efforts we remain on track to reach our profitability and balance sheet objectives.

With that, I’ll turn the call over to the operator to take us into Q&A..

Thank you. [Operator Instructions] Our first question is from Susan McClary from UBS. Your line is open..

Good morning..

Good morning, Susan..

Good morning..

First question is, you guys very clearly walked through a lot of the updated 2B-10 goals and initiatives for the next few years.

Why not give earnings guidance along with that?.

Well, thank you for asking the question. I think we we've given you two things we told you in a lot of detail what we things going to happen in the next quarter and we've also told you where we expect to be with 2B-10 which is really a fiscal 2017 goal.

Trying to pick arbitrary way stations or stop points along the way to predict the level of individual metrics didn't seem very point or fruitful to us. We want to manage the business to get to our profitability targets not to hit particular metrics at random or arbitrary points in time.

So our view was we've given you a lot of visibility into the next 90 days we told you were going over the next 18 months or so and we told your objectives around profitability asset efficiency and delivering that's what we’re accountable for, that’s we’re going to do..

Okay.

And with that, Allan, should we expect any targets in terms of the leverage, and maybe near-term or just looking further out, where you'd like to get that to?.

Sue, we are not going to giving specific targets in terms of the leverage, but I think just think about it generally or deleveraging is going to follow our cash conversion cycle which as you know is more back and waited.

We have kind of set $100 million minimum of unrestricted cash and as we kind of lookout we don't see a lot of benefit to carry more cash in at the end of the year.

So if you kind of think about that in some perspective deleveraging will follow the cash conversion cycle and excess cash you know we have kind of given you somewhat guidance and our thinking about is moved to the end of the year..

Okay thank you..

Thank you. Our next question is from Ivy Zelman from Zelman & Associates. Your line is open..

Thank you. Good morning, guys.

Unless I missed it, I don't think anyone, nor did you guys, address Houston? I know you have pretty significant exposure to that market, so maybe you could just give a framework for how you're doing there, especially because you're in a higher end-price point, which we're hearing is much more competitive? How does that feed into your expectations in 2016 and hitting your goals in 2B 2017 - I mean, your 2B-10 in 2017? But with your portfolio, and obviously, in New Jersey, as you've made the decision to exit, people like to - the overall performance, even if Houston remains below average and weak, can you still hit your goals and where does that come into your forecast?.

All right, Ivy. Good morning. So I guess first of all we do like our position relatively in Houston and I want to make a few points about that and I’ll talk about 2016 and 2017. Our price point is at and below $300,000 predominantly.

So I feel like we are in the lower half and in many of the submarkets in the lower quartile of price points, we have a very few communities about 350 in fact I think two. So it's not a big waiting of our business.

I think also we look at the map within Houston we are somewhat less exposed to the energy quarter and that's not to argue that Houston won't in general move as a market but there are certainly areas that are more related to chemicals and to healthcare and we have big investments in places that have those as the principal job drivers.

I think thirdly and this is sometimes overlooked when people analyze Houston from a far, there's a big difference in operating flexibility between developing your own way and having total flexibility for product offering and feature levels and elevations compared to building in big master planned communities where many of those parameters are more or less dictated to you.

The substantial vast majority of our businesses is on self-developed parcels and as a result of that I think we have a lot more degree of freedom in making the adjustments to remain competitive in what we absolutely expect will become an increasingly competitive market.

So being in the right places at the right price points with an awful lot of operating flexibility gives us comfort. And I also say and it's not entirely gratuitous, the fact is we have a very experienced management team in Houston they’ve got a good track record over a long period of time and I think that obviously helps.

Now all of that said we are expecting Houston to be challenging in 16 compared to 15 and I think that we will see slower paces. And I think we may see some price competition in the marketplace.

So that some element of that is baked into our forecast for the year, so I get to your - the last part of your question last, in the environment that we see in Houston given the position that we've got, we think it will contribute to our profitability nicely in 2016 and is a part of us getting to 2B-10 in 2017..

That's very helpful. My thought is, Allan, it's a long road ahead and recognizing consistency and credibility is very important part of investors willing to put new money to work.

Recognizing this quarter, your sales were weaker than expected, and it feels like in each quarter, we look back over the last few years, it feels there's been something wrong with the quarter.

There's always a reason, whether it was New Jersey, or there's some margin that came under pressure, whatever the timing - and a lot of times, it feels like the stock overreacts.

But it's really today about consistency and credibility, and looking at your goals and delevering and appreciating that doing it during the upward trajectory of the cycle makes sense, and there is a negative overhang about the leverage ratios.

I just think that people are like, why should we trust them? How do I know every quarter they are just not going to keep missing? So how low do you lower the bar, Allan that we can actually tell people to buy the stock? And I've gotten basically my butt handed me for recommending your stock, and people are pissed off?.

Well, Ivy I’ve been among the biggest buyers of the stock with my own after-tax dollars and I don't know any other CEOs who can say that. So I share the pain I'm personally experiencing we’re committed to a course of profitability improvement over multiple years.

And I take your comments seriously about something wrong with each quarter but I’ve got to give you a slightly different context than it's something that we live with every day in that you live with. Over the four years that this management team has been in place, we’ve improved EBITDA on a run rate basis by $170 million, okay.

I think we’re 500 closings up in that four year time period. And we got a $170 million improvement in EBITDA run rate. We are about $55 million short of our 2B-10 target right now and we’ve got the better part of two years to get there.

And I think our track record over the last four years taken in the aggregate to give investors a lot of confidence between the metrics that we have managed to we have the ability to get to 2B-10.

The intra-quarter hits and misses I think is absolutely been a challenge and I take a lot of responsibility for trying to be overly prescriptive for individual metrics a 180 and 270 and 360 days out in the future and I tried to learn from that this year and deal with what we have a lot of visibility into which is Q1 and the path for on to get the 2B-10..

That was a great answer.

I was just - finally to say, those - the believer in you and the believers in the turnaround, being public is different than being private, and having the improvement in EBITDA, and getting to the four years of achievement, that just hitting a quarter and what you say you're going to be able to do is going to be critical in getting people to be believers, because the investors in housing don't have any patience for bumps along the roads.

So my final question was how far have you lower the bar that you feel that you've given yourself enough of a conservative platform? Do you feel like you've really taken down, with the pushing out to 2017 being achieving 2B-10, do you feel like there's really no down-side growth for (laughter)? I know you can't say, so I'm glad to hear you are the biggest buyer of your after-tax dollars.

That should boost people's confidence, but are you being really, really conservative?.

Well, Ivy I don't have any better crystal ball than anybody else for 2017 Q2, Q3, Q4 of next year. What I can tell you is we've given I think very manageable expectations for Q1 and a path if we go metric by metric that we clearly can achieve between now and 2017.

We’ve tried to be careful about which quarter in 2017 I'm not that smart, but our goal is to get to 2B-10 in 2017. And if you look at the five components, if you look at gross margins and SG&A, pace community count and ASP, it's right there for us to go execute against.

So I don't know about lowering the bar, we don't give earnings guidance two years out, but I think we've established a very credible platform. And look just on this point, we had initially thought we could get to 2B-10 in 2016 and mid-year 2015 we reset that partly because of New Jersey, partly because of what was happening in Texas into 2017.

Since May of last year we haven't change that expectation so I understand that there was a bit of a reset and we pushed it out into the following fiscal year, but we’ve been executing against that for the last six months..

Good luck, Allan. Thank you very much for frankly answering. Appreciate it..

Thanks Ivy..

Our next question is from Mr. Michael Rehaut from JPMorgan. Your line is open..

Thanks. Good morning, everyone. First, just a clarification question on the guidance for next year about SG&A, for 1Q, and apologize if you didn't give this, I believe you gave a FY16, as well.

Just your expectations of land and lot sales? You said it for 1Q was $5 million, what about the full year, because most people think of SG&A more as a percent of core homebuilding revenue of just closings times ASPs?.

Hey Michael, it’s Rob. What we said was we would for the full-year we expect to have continued leverage in our SG&A cost as we continue to grow revenue. We did lower our 2B-10 range from 11% to 12% through 2B-10, but we expected in the first quarter about a 50 basis point improvement year-over-year for the first quarter.

We didn’t give any specific 2016 leverage guidance, but it will be lower than 2015..

Okay, I appreciate that. And just also around, more granularly, you highlighted your focus on reducing the leverage, and as a benefit of that, reducing the interest expense and interest expense amortization.

Any thoughts around 2016, in terms of - I believe this year, you finished up around 3.5% of revenue in terms of interest expense amortization, and you also had some that was running through the - not through COGS.

Any thoughts around what that should look like for 2016, obviously tough with the inventory balances, but directionally, at least, how to think about that?.

Sure. And we’ve talked about this a lot and it is a complex calculation I know it’s hard for analyst to wrap their heads around the moving parts, but let’s kind of set the table encouraging 2015 were about $120 million. I think there will be roughly the same amount in 2016 prior to any capital markets activities or any deleveraging activities.

We had about $85 million hit the interest expense in 2015, about $55 million was in COGS and $30 million was in the direct expense.

I think if you think about 2016, we think the increase will be somewhere to $100 million in the income statement which is substantial increase but I think what you see is we expect COGS to grow faster than eligible assets.

So we will continue to amortize a little bit more of the capitalized balance, but I also think that eligible assets will continue to grow. So the direct expense below the line will also decline as well, so you have a continued shifting of the interest up into COGS..

Okay, that's helpful. And just lastly, as you think about the increased investment or dollars spend, however you think about shifting among regions in terms of your mix, you actually ended 4Q relatively - the east still lagging, obviously because of some of the issues in New Jersey, but both the west and the southeast remaining fairly solid.

You've lowered marginally your gross margin outlook. It appears that, from a mix, from an investment standpoint, relative markets, the gross margins, if perhaps you strip out New Jersey, is relatively stable across most regions.

Is that just the outlook for 2016, that continued stability, or you talked about Houston becoming a little tougher, are there any other regions that you'd expect that could offset that, because certainly you're looking for roughly stable gross margins overall?.

Hey, Michael its Allan I will take a swing of that, I think a couple of things go into thinking about capital allocation and margins are clearly one of them, but I think Bob laid out for you and for everyone as we think about margins we want to make sure investors understand that land making has an effect on margins and orders activating land held.

That's relevant because when you look at segment margins the land banking tariff if you will or the cost of that capital is embedded in those margins. We have historically and just to this date a slightly disproportionate share of our land banking has been in the East.

So when you look at our East margins bear in mind that there bearing a larger share of a land backing. As we think about the West going forward that's been more of the land held is and so is the land held comes through in larger percentages that will put some pressure on segment margins.

So I just want to be careful about projecting off of the segment side because you do have these mixes within segments that relate to the very items that Bob talked about. So that’s maybe in the category of health warning and when you think about sequential progressions and margins of the segment level because those two factors will affect that.

Now we've absorbed in our expectations for flattish gross margins and 2016 this extra load from a higher percentage of land bank in a higher percentage of land held at an aggregate level, but what we haven't done is try to give you segments specific weighted averages in 2016. So just word to the wise.

In terms of capital allocation which is really where your question started there is no question that there are markets that we are emphasizing in any given period of time and deemphasizing it comes back to an affordability metric around income and home prices at the market level and then the supply demand characteristics.

I would tell you that a number of our market screen pretty well for that right now and I kind of hate to give our competitors are playbook, but the fact is the Southeast in general, scores pretty highly right now. And those are markets that are gathering and have really through 2015 more capital as we think about our investment.

Because the investment we are making now for 2017, 2018 and 2019 they are not really for 2016. So I hope it gives you a little bit color on how we are thinking about it just and just a little bit of background on the margin side..

And I appreciate that, Allan.

Just to clarify, with the expectation in 2016 of an incrementally, modestly at least, negative impact from the activation of older land and land banking, what is the rough offset to that from either a mix standpoint or there are certain markets that you're expecting to do better because you also said, Houston, you're expecting to do a little worse?.

So there are a few things in the real difficulty and kind of gets back to the question that Ivy asked which is guys why don't you guys do what you say or going to do three quarters in advance of the metric level and I'm trying to avoid making that mistake. But there are a couple of obvious factors that work the other direction that are in our favor.

The New Jersey headwind and Bob quantified that at about 40 bips in the fourth quarter well a few more New Jersey closings in Q1 and then will be done with that that won't be a drag on gross margins in 2016.

The other thing we talked about this last quarter was we had I use the word concessions it was maybe not the most artful word but we ate some costs for both trade partners and customers to achieve some closing commitments that we've made the buyers in the third and the fourth quarter.

We don't depend to build those into our cost structure on a go forward basis. And so I think those things kind of burning off are some of the things that give us confidence that we can absorb some of the extra load as we think about the capital efficiency strategies..

Great, thank you..

Thanks Mike..

Our next question is from Susan Berliner from JPMorgan. Your line is open..

Hi, I guess still good morning.

I wanted to start - I know you guys talked about deleveraging, and I was hoping you could give us various options you're contemplating with regards to that? And then if you could also talk about - I know you have callable bonds and you talked about refinancing your secures, as well as your higher coupon bonds?.

Well we are looking at each everybody wants to say something. First of all good morning Sue it is still morning. In terms of options let's talk about sources and the maybe I’ll let David and Bob talk about uses, because we have a lots of choices on the user side.

I think one of the things that we’ve talked about is a land spend in the aggregate that's a number that allows us to maintain a growth trajectory but a portion of that being ours and a portion of that being with land bankers, I think the level that were talking about spending and 2016 is going to allow us generate some cash from the business.

And so that plus our expectations for enhanced EBITDA I think will give us some direct liquidity.

Than as we look to land held assets run a particularly long-lived assets and we think about how can we be more efficient with the capital that we've got those are all the areas where I think we have access to capital that can be used for deleveraging without putting a real cramp in our ability to also grow the business.

That's kind of the where can it come from side in terms of where it might be applied, Dave, why don’t you respond to that..

Sue, and we kind of highlighted the 2016 and just given the maturity been must in the year has been the priority between the other issuances I would tell you we are not really signaling between the 2018 to 2019 at this point.

We are going to be opportunistic with what we do and kind of see what the able plus in the market is so not a lot of specifics outside the 2016 is being the priority for my perspective..

Great, thank you..

Our next question is from Jay McCanless from Sterne Agee. Your line is open..

Hi, good morning, everyone. Three questions for you. First, on the slide about the deferred tax assets, it shows about $57.6 million still outstanding.

How much of that do you think is recoverable over the next couple of years?.

I think Jay this is Bob obviously its hard thing to estimate, but you know with continue to profitability an improvements in profitability we think will be able to remove the rest of that DA over time. I don't think it's completely lost to us..

Okay. All right. I didn't know. I saw the total number came down.

I didn't know if you all just pared it down to what you thought was realizable in that September 30, 2015 column?.

Yes, well what was realizable was what we took in less than 335 and then we used about 10 with our earnings in the quarter.

So that's how you get your net 325 the remaining there’s some federal pieces or some state pieces so it gets a little tricky when you talk about the state is to which state you are going to earned the money in order to get to a point where you can reassess your estimates but I think over the next couple years we feel confident that we’ll have the improvement in profitability to release the VA..

Got it. Okay. Thank you for that.

And then in terms of the tax provision for next year? I believe you guys are going to be paying probably little to nothing in cash taxes, but in terms of your income statement provision, what rate should we use for 2016?.

Yes, I think the rate the mix rate will be about 40% for next year and you're right we won't pay very much in cash taxes?.

Okay. 40%.

And then - and I apologize, I got on late - but on slide 14, where you are talking about the gross margin impact from some of the mothballed land, and then also the land banking transactions, what exactly is the gross margin guidance for 2016 and can you relate it back to this chart on 2014 for me?.

What we’ve said Jay is that we expect Q1 to be in the range of 21% that we have talked about the 2B-10 guidance which is really the guidance to get this from here to 2017 between 21% and 22.

And you can see that the mix shift that were expecting because of these assets puts a little pressure on what 2015 margins were, but as I said just a minute ago we won't have New Jersey and we won't have some of the extraordinary cost that arose from dealing with the weather issues and you know we have other initiatives underway as well.

So we’re not trying to give you a point estimate in fact we’re doing the opposite as it relates to the full year of 2016 we've given you some of the parts and pieces and we’ve absolutely given you kind of the right way to think about the first quarter?.

Okay, any color on order trends or traffic for October?.

Yes, it was okay nothing that happened in October though caused us to think that our pace or sales per month per community would be better in Q1 of this year than Q1 of last year, which is why we gave a guidance to kind of flat face up against a slightly larger community count..

Okay, sounds good. Thanks guys..

Thanks, Jay..

Our next question is from Mr. James Finnerty from Citi. Your line is open..

Hi, good morning. Just going back to the debt reduction just want to be sure I am clear on it.

Is the idea by the end of 2016 to actually have less total debt outstanding? If so can you sort of quantify gives an idea how much debt reduction?.

No. I think we got a lot of homes to sell in close between now and then James, it would be difficult for us to try and put a point in the dollar amount but I would absolutely tell you we expect to have less debt on the balance sheet at the end of the year.

And then, Allan, in terms of the sources, you mentioned long-lived land assets, and you also mentioned land banking.

Could that imply that there's potential for some of your assets to be used in land banking or you would go to - give those assets to a land banker and potentially generate liquidity that way?.

No, we are not using it that way and in fact we are largely using it for growth purposes. I mean land banking for us is an offset to cash that we would otherwise spend that helps us grow community count. We have no intentions at all to use existing assets and land banking transactions..

Okay. Thank you very much..

Our last question is from Alex Barron from Research Center. Your line is open..

Thank you, guys. I wanted to ask - I don't know if I heard anything on some type of guidance for deliveries.

Should we assume a similar backlog conversion to last year or lower given all these labor issues going on in the industry or how are you guys thinking about that?.

The only guidance we gave was for Q1 and we said we expected it to be slightly below 50% partly because of the labor issues and partly because as I described our Q4 sales pattern was a little unusual.

There was a lot more activity in September and it's still a very high mix of 2B builds in our sales and as a result the percentage of our backlog at 930 that was actually scheduled to closing Q1 was at a historically low-level and that's what’s leading that just below 50% conversion rate in the first quarter.

And I think at a higher level Alex we talked a bit about closing the gap between sales per month per community and closings per month per community and that’s possible because remember in 2015 there was very significant growth in community count for us and it's inherent that you are going to sell the units before you close the unit.

So as you are growing community count materially you are going to see a gap open up between that sales and closing per community. I think most of those communities are now beyond the startup phase so we are to be able to narrow that gap.

That’s different from giving you backlog guidance in terms of conversion and Qs two, three and four, but clearly we expected to more closely match what our sales for community will be over the balance of the year..

Okay, great.

And then any kind of guidance on your tax rate now that you reversed the DTA?.

Yes, Alex our tax rate, I think we talked to Jay McCanless about this about 40% will be the income statement rates, but remember we won’t be paying very much in a way of cash taxes..

Got it. Okay and thanks so much guys..

All right. Well, I think that concludes today's call. We want to thank our investors and analysts for listening and we’ll talk to you in about 90 days. Thank you..

Thank you for joining today’s conference call. You may disconnect..