David Goldberg - VP, Treasurer and IR Allan Merrill - President & CEO Bob Salomon - EVP, CFO & CAO.

Michael Rehaut - JPMorgan Thomas Maguire - Zelman & Associates Amanda Luper - Credit Suisse Jay McCanless - Wedbush Alex Baron - Housing Research Center.

Good afternoon and welcome to the Beazer Homes Earnings Conference Call for the Quarter Ended March 31, 2017. 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..

Thank you. Good afternoon, and welcome to the Beazer Homes' conference call discussing our results for the second quarter of fiscal year 2018. 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, included our Form 10-Q, which may cause actual results to differ materially from our projections.

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

New factors emerge from time-to-time and 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.

On our call today, Allan will briefly review our results for the second quarter of fiscal 2018 and then discuss our ambitions for the remainder of this year as well as our longer-term strategic objectives.

Bob will cover our second quarter results in greater depth, where we stand relative to our 2B-10 goals and our expectations for the third quarter of this year. And then I'll come back to provide more details about our land spending this quarter and provide an update on our balance sheet, followed by a wrap-up by Allan.

After our prepared remarks, we will take questions in the time remaining. I will now turn the call over to Allan..

Thank you, David and thank you for joining us on our call this afternoon. As you’ve already seen in our press release, we had a very productive and profitable second quarter. We met or exceeded our expectations on every front, highlighted by big increases in our sales pace and EBITDA.

We also improved gross margin, reduced our SG&A ratio and made sizable land investments. All in all, it was a very successful quarter. With our Q1 and Q2 results in the books, we remain on track to meet our 2B-10 goal of generating $200 million of EBITDA this fiscal year, while also retiring $100 million in debt.

Beyond these near-term objectives, we are also executing against our longer-term balanced growth strategy, which we define as the expansion of earnings at a faster rate than our assets, supported by a less leveraged capital structure.

As we've outlined in prior calls, we're driving toward a growing double-digit return on assets without adding operational or financial risk. Our balanced growth strategy is well-suited to the current market environment and will lead to further improvements and returns.

The market for new home sales remains healthy as rising consumer confidence, favorable demographics and strong job and wage growth encounter a limited supply of new and used homes across our footprint. This supportive backdrop has allowed us to increase our sales pace and more than offset rising costs, leading to revenue and profitability growth.

Of course higher home prices, combined with rising mortgage rates, have highlighted affordability as a potential risk within our industry. We've anticipated this for several years, which is why we have been intensely focused on delivering extraordinary value at an affordable price.

Our effort to deliver this extraordinary value takes many forms, including our locations, our achievement of ENERGY STAR recognition, our proprietary mortgage choice platform and our floor plan choices, which allow structural options at no additional cost.

With these and other value-driven initiatives, we believe we will outperform the broader housing market especially in a rising rate environment. On the capitalization side, our focus is on financing our growth with a highly efficient and less leveraged balance sheet.

We're achieving this in a variety of ways including the activation of formerly mothballed assets, the use of land banking, improvements in our sales pace and in the first quarter with a modest, but immediately accretive acquisition within our existing footprint.

These efforts have resulted in consistent increases in our EBITDA without comparable growth in inventory driving substantial improvements in our return on assets. While we continue to drive improvements in the performance of our existing assets, our biggest opportunity to improve ROA is even easier to understand.

We still have more than $500 million in assets that are not generating any returns. That means we're already earning 9% on total assets despite the fact that a quarter of our assets aren’t helping yet. What's exciting to contemplate is that nearly half of these are under active development and will become contributors in the next 12 to 18 months.

As these communities come online we will be improving ROA without adding operational or financial risk and with reduced debt and falling interest expense, those improved returns will directly benefit shareholders. That is exactly what balanced growth is all about. With that, I'll turn the call over to Bob to discuss our results in more detail..

Thanks Alan and good afternoon, everyone. In the second quarter, our sales absorption rate was 3.7 sales per community per month, which was up more than 10% from the healthy sales-pace we posted for the same period last year. This led to net new orders of 1,679 homes, up more than 8% compared to the previous year.

Our year-over-year growth was driven by strong sales in our West region with especially impressive gains in Las Vegas, Sacramento and Phoenix. Homebuilding revenue rose nearly 5% versus the prior year to $441 million. This was a function of modest increases in closings and average selling price, which reached $348,000.

We generated a backlog conversion ratio of nearly 67% up from 64% last year. In line with our expectations, average community count for the quarter was 151 and we ended the quarter with 153 active communities.

Our second quarter gross margin excluding the amortized interest, impairments and abandonments was 21.3% up 60 basis points versus the prior year. SG&A as a percentage of total revenue, including both homebuilding revenue and land sales was 12.8% down 50 basis points year-over-year.

Taken together, despite the second quarter, adjusted EBITDA of $39.5 million up more than $6 million or 19% compared to the same period last year.

Total GAAP interest expense, which includes both interest amortized through cost of goods sold and the interest included in other expense was approximately $21 million for the quarter down about $2.5 million versus the prior year.

As a percentage of total revenue, our interest expense for the quarter was down 90 basis points year-over-year and we expect further improvement moving forward. Our tax expense in the quarter was unusually low at about $1 million as we benefited from about $2.3 million of energy efficiency tax credits.

We expect our average tax rate to be approximately 27% for the remainder of this fiscal year and around 24% next year. We recorded net income from continuing operations of $11.6 million, a year-over-year increase of $9.1 million after adjusting for the loss on debt extinguishment and impairments incurred in the second quarter of fiscal 2017.

We continue to make progress toward achieving 2B-10, our goal to get to $2 billion in revenue and a 10% EBITDA margin. On Slide 8, we've provided detailed our performance relative to our 2B-10 metrics. for the trailing 12 months, our total revenue was $2 billion up more than 50% from when we introduced our 2B-10 plan.

Over the same period, our adjusted EBITDA has more than doubled to $189 million leaving us on track to achieve our underlying 2B-10 goal of $200 million of EBITDA by the end of fiscal 2018. Let's move on to our expectations for the third quarter compared to the prior year. Orders should be relatively flat with a similar sakes pace.

Closing should be relatively flat with a backlog conversion ratio around 60%. ASP will be around $370,000. This increase primarily relates to mix shift as well as a larger share of closings in our new San Diego communities.

Gross margin is expected to be just below 21%, which is similar to last year after excluding approximately 30 basis points of warranty-related benefits we experienced in that period. Given the much higher ASP, we will have a meaningful increase in gross margin dollars per closing. SG&A as a percentage of total revenue should be down.

Taken together, we expect EBITDA to be up and finally the cash component of land spend will be up meaningfully to facilitate new community openings in fiscal 2019 and beyond. At this point I'll turn it over to David..

Thanks Bob. In the quarter we spent $143 million on land and development with acquisition spending up more than 40% and development spending up more than 30% versus the prior year. Additionally we activated nearly $10 million of land previously held for future development in Southern California.

Since peaking in 2009, our total land held for future development has declined $420 million to $88 million with further reductions expected this year.

As depicted in Slide 11 and described by Allen earlier, we currently have approximately $230 million of formerly land held assets that are under development and not yet generating revenue and profitability. These assets will begin contributing to our results in the coming quarters.

We are already approaching a 10% ROA with more than $500 million in non-earning assets including the DTA. As we monetize these assets, our return will only get better. While predicting future community count, timing is difficult. You can see that we have a pipeline of 96 new communities coming online in future quarters.

Of these 37 are expected to open in the next six months. Of the remainder, 32 are currently under development including 13, which were previously classified as land held. In addition, we have 27 communities that have been approved and are currently under contract. The harder part us estimating the timing of community close outs.

We currently expect approximately 46 communities to close out over the next six months that we often try to time these closeouts to coincide with the opening of replacement communities. In all events, we continue to expect a gradual expansion of community count over the next 12 and 24 months, including the growing number of gathering sites.

As a result of our debt reduction and refinancing activities, our balance sheet is positioned to support our growth ambitions. We ended the quarter with nearly $160 million in unrestricted cash and approximately $330 million in total liquidity.

Following the retirement of the roughly $100 million remaining on our 2019 senior notes at the end of this fiscal year, our annual cash interest expense will decline by another $5 million resulting in a total reduction of $21 million since the beginning of fiscal 2016. After that repayment, we will have no debt due before 2022.

With the improvement in profitability and a reduction of debt, our net debt to adjusted EBITDA has declined to 6.2 times down from 7.4 times at the end of the second quarter last year and down from more than 11 times just four years ago.

We are targeting a net debt to adjusted EBITDA below five times as we continue to improve our profitability and redeployed formerly dormant capital. With that let me turn the call back over to Allan for his conclusion..

Thanks David. At the midyear mark we are on track to achieve our goals for this fiscal year, including reaching 2B-10. We're also executing against our longer-term balanced growth objectives, characterized by a double-digit return on assets as well as reduce leverage.

Before we go to Q&A I'd like to take just a moment to acknowledge the efforts of two different teams of employees we feel that this past weekend.

Through fundraisers tied with two day bike race in Texas in the Marathon in Nashville, our employees raised over $100,000 for two very worthy causes; MS and the Fisher House foundation for military families. These events were huge successes combining teamwork, fitness and of course charitable giving.

We look forward to making both events even larger and more philanthropic next year. It's because of our employees that I'm so confident we have the people, the strategy and the resources to reach our objectives in the coming year. With that, I would like to turn the call over to the operator to take us into Q&A..

Thank you. [Operator Instructions] And we do have a question from Michael Rehaut from JPMorgan. Your line is open..

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

Thanks Mike..

First I just wanted to delve into the gross margin a little bit, came in I believe a bit better than guidance, which was I believe around the low 21% mark I'm sorry the low 16% mark after interest, if I have that right.

What drove the upside there and I guess you're looking for a little bit of on a pre-interest basis going a little bit below 21 in the third quarter, just how to think about that over the next, perhaps over the next 12 months even..

Well Michael on the gross margin we had a pretty strong sales quarter. We felt pretty comfortable that margins were going to be closer to 21, but we're pretty happy with where they wound up.

As it relates to the 16%, we just had a little bit better leverage on our interest expense and as you know how that functions through the inventory build and a quarter we think that will continue going forward..

You know, Mike I think the other part of the question really gets to kind of where we're going.

As we've said repeatedly, quarter-to-quarter there is some uncertainty as to the exact mix of closings and that relates to geography and it also it also relates to the proportion of closings in a given quarter that were either land bank to formerly land held. So within tens of basis points it's challenging to be highly prescriptive.

I'll tell you that we're in our 2B-10 range and we don't see any reason we can't stay in our 2B-10 range over the next year..

No. That's helpful.

I guess just on one part of that answer, Bob's answer around interest expense kind of leaves me to my next answer and obviously it's hard to give with an exact sense due to a lot of variables that would require additional guidance, but what I am getting at is the total amount of interest amortization plus directly expense through the balance sheet.

Obviously, you’ve done a lot in the debt reduction side, but in terms of from an accounting standpoint it looks like for roughly this might be the third year of still $100 million plus interest, amortization plus direct expense.

So just from a timing standpoint and obviously kind of alluded to an increase in land spend and perhaps one the capitalization side, capitalized side, how should we think about that $100 million number over the next couple years provided some I guess it implied some amount of inventory growth, but how should we think about that..

I think that the easiest way Michael is just think about the cash interest first. The cash interest when we pay off certainly the $100 million at the end of this year will be just $100 million of interest expense annually going forward. You know when you know you can't capitalize more than you incur.

So I think if you kind of look at that on a go forward basis the cash interest expense will be under $100 million will continue to leverage that as we move forward and certainly you’ve seen this, this year so far and last year and I think that will continue with a direct interest expense will continue to decline over time ..

Okay. Just one last one if I could and I understand it's hard to do this quarter to quarter but you talk about your outlook of gradual community count expansion over the next 12 months. It seems like though in the near-term, you have more over the next six months I guess more expected to close than open.

So should we expect, should we be expecting a little further slip in the next couple quarters within a reversal in the second six months out?.

Michael its David.

I wouldn't say it's down in the next few months, I think it's going to fluctuate a little bit and obviously we alluded to in the script, you know the timing of the close out is difficult to predict , but really where focuses is we've been making a increasing our land spend in land acquisition spend and that's going to lead the community count growth as we get out.

So I identity wouldn't say the outlook in the near term down. We would say it's kind of bounding around fluctuating a little bit and then as you get up 12 and 24 months, certainly up would be the plan..

Great. Thank you..

Thank you..

The next question comes from Thomas Maguire from Zelman & Associates. Your line is open..

Hey guys good afternoon and great quarter. Wanted to just quickly touch on the volume side of the business if I could. The second quarter narrow was stronger than expected volume and kind of better than the flat results you guys alluded to or expected.

What are you guys seeing on the demand with rates increasing? Any change in consumer behavior through the quarter and just more probably what's driven the upside relative to expectations..

Well there is a lot in that. I think that through the quarter the profile didn't change the weather got better and that always helps. The West was quite strong and I think we've seen in our results and in peer results that that has had a positive effect.

Las Vegas and Phoenix and Sacramento for us really did stand out as being stronger-than-expected performers, but there's been a lot of pent up demand particularly in Sacramento and Las Vegas.

Those markets were slow to recover out of the significant downturn of 7 to 10 years ago and I think that there has been a rate of household formation of both of those places that has been far ahead of with the new home supply has been and I think that continues to be in place there.

But in terms of at a little higher level, I think we see a bit of a balance between things that would concern us around interest rates at home prices and on the other hand wage growth and confidence in jobs. And that does for us appear to be sustainable over the next couple quarters..

Got It. Thanks. Really appreciate it. And then just quickly on the profitability side anyway, to help us think about the impact of the mothball projects coming online, moving forward, understanding the accretion of the returns.

But should the composition of that or the headwind to the gross margin line changes more those come online?.

It's really interesting question. And I promise, we spend a lot of time thinking about it, modeling it.

But one of the things that you've got to realize is a new formerly mothballed community comes online and has margins typically below and maybe well below the company average, the communities that were formerly the new ones to come online have been experiencing significant margin appreciation. So it's not static.

So that you've got kind of a moving target in the sense that we can kind of estimate, hey, a new community from that category might be a bit of a headwind. But on the other side, we've been pretty successful in pushing margins through the ones that were previously activated.

So we haven't really seen an accumulating impact as much as a shifting impact, if that makes sense..

Tom, - I'd also point you to slide 25 in the slide deck that shows our expectations for the impact on formerly land-held assets for the year. We laid it out before for the full fiscal year 2018. I give you some additional kind of insight into how it's going to affect us..

Got It. Thanks guys..

The next question comes from Susan Maklari from Credit Suisse. Your line is open..

Hi, this is actually Amanda on for Su.

Given the rising rate environment, you guys have significant order growth in the quarter, as affordability gets more constrained and buyers are moving down, does this leave you better positioned for future growth?.

Well, Amanda, I guess better positioned is in the eye of the beholder We have been focused on affordability as far back as I've been here. It's not about having just the lowest price, but having a mix of characteristics that align with the income that is available to purchase the home.

So I like the position that we have a, we are not at the absolute entry level and we're comfortable not being there. We're at a level where we've got levers to work with, home size included features are energy efficiency. I mean there's total cost of ownership is a big deal for us.

And it was really important for us to be hyper attuned to household incomes at the community level, not at the MSA level, but at the community level and understand within a fairly rigid underwriting environment, front end and back end debt to income ratio is exactly what affordability looks like.

And make sure that we can deliver into that envelope of income. And I think we've done a very good job at that. I feel that we are well positioned. Whether we're better that position, I guess that's up to you..

Okay, great. Thanks. And then you also mentioned significant strength in the West.

Can you just provide some color on the different demand trends you're seeing in some of your other markets?.

Yeah. When coastal California picks up, it tends to have a ripple effect and we've certainly seen that in Sacramento and in Las Vegas. It's – that’s a simple sound-bite. It's obviously a lot more complicated than that. But we do tend to see coastal demand and pricing move first and then it moves inland.

Las Vegas in particular is kind of having a moment, job growth is good. I think the hockey team, the coming football team, there's something different in Las Vegas right now, then has been true for the last eight or nine years and we are very well positioned in that market. So those would be a couple of characteristics that we benefited from.

And I think are nice trends that are appear to be in place for a while..

Great. Thanks so much..

[Operator Instruction] And our next question comes from Jay McCanless from Wedbush. Your line is open..

Hey, good afternoon everyone..

Hi Jay..

First question I had on the other expense line coming down to roughly 1.5 million this quarter is, is that a good run rate to use going forward and once you pay off the 19, should that decline a little bit more?.

Well Jay, it's really - probably more of a function of the asset side, but I think if you look at the way it's been, the rate of decline over the last couple quarters and you kind of run that going forward, I think that's a pretty reasonable way to think about it..

And then just looking at the orders by region, first quarter you guys had really strong growth across all three regions, and then this quarter the west really carried you guys.

What, what's going on with the community count in the southeast and the east and what you all thinking about for community development and openings in those two markets for the rest of the year?.

No, it's a great question. I think we don't get into individual division level, community counts and even segment level, but it is the case that in all three segments, our sales pace, sales per community per month was up, which is a way of acknowledging that, what the order patterns in the east look like. It was really a function of community count.

And that in turn, is really a function of the fact that the Maryland and Virginia market in particular, those are bigger deals. They're lumpier deals and they're there -- as a result, we can have bigger quarter to quarter swings in community count. We're fully committed to those markets.

We've got significant investments in those markets, but we found ourselves with a reduction in that segment’s community count this quarter. The good news is, our teams there did a bang up job, drove pace literally in every single division within the segment. And the community count is coming, the cavalry is on its way.

Those are communities that you can see in the 96 that we have in front of us. There's a disproportionate number that are going to be sort of refilling that, so sort of timing more than anything..

Then the last question I had, the land sales this quarter from a dollar perspective on the highest land sale totals we've seen out of you guys in a while.

Is that something we should expect going forward to see a little bit more land sales or was this just more of a one-off event?.

Hey Jay, it's Bob. No, those are really more deal specific from a timing standpoint. I don't think you'll see, I wouldn't model anything to that leg, that amount on a go forward basis..

We bought a land parcel during the quarter and I don't want to get into again in assets specifics, but we bought a bigger deal than we needed. We closed it, but with an expectation, excuse me, an expectation that we'd lay off a good size of it.

We had a couple of different builders that we were talking to and shortly after we closed we were able to sell on a chunk of it. And will jointly develop the site with them. So that will happen from time to time. I wouldn't read more into it than that..

Okay. And then, sorry, one other one that I thought of, we've heard a lot of your competitors talking about being able to raise prices essentially in line, maybe slightly below in certain cases where cost inflation is running.

How is that going for Beazer? And what are you all thinking about pricing power for the rest of the year?.

I think we said in the script that we've been able to move prices at a rate at or slightly above where our cost pressures have been. And I think we're in that zone still. We can have a given trade in a given market where that's not the case.

But if we look at it at an aggregate level for the company, we've been able to get just enough pricing to cover the cost increases..

Really appreciate it. Thanks..

Thanks Jay..

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

Yeah, thanks. Hey guys, great job.

I wanted to see if you could spend some time talking about gatherings and give us a bit more of an update, like how many communities have you guys, gets identified or started? And what percentage of your business will that look like in a year or so?.

Well, I will start with the last question, not so much a percentage. I will tell you that every quarter from here on out, as far as I can say you're going to see gatherings become a larger part of our business. It's still a small, it takes awhile to buy the deals, develop the deals, build the building, sell the buildings.

So there's a bit of a latency between this, the initiative and the closings. But just in the last, since last we visited with you, we’re under construction in Dallas. We own multiple sites in that market. We're sending to break ground in Atlanta on a really significant community here. We'll have our first closings in Orlando this coming quarter.

The quarter ended June 30. So I would say if we just go back a year, none of those three things were remotely close to being true and it's kind of a big deal that it's Dallas, that it's Atlanta, that it's Orlando those are major markets.

And there is, we believe a lot of pent up demand for this active adult product and that complements our Mid-Atlantic footprint. I'm not prepared today to announce the other divisions, but there are at least two other divisions where we have either acquired or approved through our committee process acquisitions.

So by the time we're on our next call, there'll be two more cities on the list. You're going to see this just a very persistent rate of improvement in terms of the impact that it has on the organization. I think this becomes a big business.

But I think it's just quarter to quarter small movements and we'll look back on it a couple of years and say, geez, how to gatherings get to be such a big part? It's because we were very intentional and we build a scale infrastructure to grow this as meaningful component of our company..

Got It.

And then, if we can spend a little bit of time on these lots are – that you are on mothballing, the ones that you're under development, what region or regions are they mostly in? And as I'm looking at your slide, are we only talking about 1200 lots or so?.

Well that's what's left. If it's still in the land health category that's under $90 but what we're really talking about is $230 million of assets that are land and land development for communities that were previously in that category.

And I think the chart, what slide is that Dave? Slide six, that kind of shows, and I don't know, you may not be right in front of the screen, but you can see we go back three or four years and we had over 400 million in that category. That's down under a 100.

It's about 90 in property, land held for future development and $9-or-so million property held for sale. But that 231 that has come from that land health category, it is largely in the west segment. It is in northern and southern California in insignificant part and it's in the Sacramento market in particular among other places.

And I'll tell you that based on the number of inbound phone calls that we receive from other builders hoping to acquire some of those lots, I feel pretty good about the position that we're in. It has taken awhile for the Natomas flood levee issues to be resolved. In fact, that was five or six years. We couldn't do anything with those assets.

But the improvements in the Bay area that has spilled right up by 80 to Sacramento have created a pretty robust environment for those communities. And that's going to be a big part of 2019 and 2020 for us..

Now, again, focusing on those communities let's say, we talk about the ones in California, what price points are those add relative to where you are currently at, are they same? Are they going to come in more affordable? I'm just trying to get a sense..

They'll be very affordable relative to alternatives. But as you would expect within California, affordability is a little different equation. We’ll be in the threes and the fours and in a couple of price points in the fives, those will be accretive to our current ASP. Not dramatically, but they will certainly skew a bit above our current positioning.

But when I look at it in the context of the markets that they're in, we're going to be in about the same place we are today in each of our markets. We don't really aspire to be at that riskier level price point. And we certainly have no ambition to move very far up the value chain from a discretionary purchase and luxury product category.

So these are similarly positioned, but their location in California means that there'll be slightly a pull factor on our ASP..

Okay.

And if you could sustain the current sales page that you're seeing, for example, in California, over what timeframe would you basically go through this land? Are we talking a couple years or five years or what are we talking about?.

Well, this was thousands of lots, so we'll be working through these communities for a number of years. And I think that a few of the communities are going to have very high paces and well make individual asset decisions about pace and price and margin dynamics.

But I'm pretty confident that for the next several years, we've got a nice reservoir to tap into from those communities that will provide a pretty good runway of closings and profitability for us..

Okay, great. Look forward to it. Thanks..

Thanks Alex..

We do have one more follow-up question from the phone from Michael Rehaut from JPMorgan. Your line is open..

Thanks. Appreciate the - squeezing me in at the end here. Just wanted to, and I don't know if you're prepared to talk about it yet, but maybe even just give us a sense of timing. Obviously with the expected achievement of the 2B-10 goals this year.

I don’t know if you can kind of give us a sense of if you're going forward, if you're going to be kind of putting out additional, multiyear goals over the -- if that might occur at the end of this upcoming year.

Or how should we think about your expected guidance over the next two or three years?.

So it's a good question. Michael. We want to do 2B-10 before we get too precise about what comes after 2B-10. But I think we've laid a pretty good map out in terms of a return on asset trajectory into the double digits. That should help a lot with how you think about that.

If we go just a little deeper, think about the slide in the deck that shows kind of a breakout of the balance sheet, which is slide 11. Now there's about $325 million of land assets, 230 of which is actively under development.

Now you can figure out roughly a return on assets that we might be able to earn on that, and I'm not going to give you that number today, but it's not zero. We will earn a return on those assets. As we do that, think about the fact that our interest expense next year is lower than our interest expense this year.

So the combination of return on assets that haven't previously generated to return and less interest expense is pretty darn accretive to our shareholders. And that's really the story that we want to focus on is that we don't have to go do dramatic things with the existing assets.

And then we're going to keep turning the dials to improve return on assets within that existing billion for that we have invested, but getting our hands into that 320 million and making it produce.

And then overtime, the other thing that happens is the deferred tax asset turns into cash, right? As we're offsetting that tax liability and we are converting that into a cash that becomes a further driver for improving return on assets.

So I think what we're kind of excited about is when we get all $2 billion of assets actually doing something and interest expense has gone down, there's pretty good leverage for shareholders..

Great. Thank you..

That concludes the question-and-answer portion of our call today. We will not turn back for closing remarks..

Thank you everybody for joining the call. We will talk to you soon and we appreciate your participation. Thanks, Jennifer..

Thank you. That concludes today's call. Thank you for participating. You may disconnect at this time..