Good morning. My name is Robert and I will be your conference operator today. I would like to welcome everyone to the KB Home 2015 Fourth Quarter and Year-End Earnings Conference Call. At this time, all participants are in a listen-only mode. Today’s conference is being recorded and a live webcast is available on KB Home’s website at kbhome.com. Following the Company’s opening remarks; we will open the lines for questions. KB Home’s discussion today may include forward-looking statements that reflect management’s current views and expectations of market conditions, future events, and the Company’s business performance. These statements are not guarantees of future results and the Company does not undertake any obligation to update them. Due to a number of factors outside of its control including those identified in its SEC filings, the Company’s actual results will be materially different from those expressed and/or implied by the forward-looking statements. A reconciliation of non-GAAP measures referenced during today’s discussion to their most directly comparable GAAP measures can be found on the Company’s earnings release issued earlier today and/or on the Investor page of the Company’s website. At this time, I would like to turn the call over to Jeff Mezger, President and CEO for KB Home. Mr. Mezger, you may begin.

Thank you, Rob, and thank you everyone for joining us today for a review of our fourth quarter results. With me are Jeff Kaminski, our Executive Vice President and Chief Financial Officer; Bill Hollinger, our Senior Vice President and Chief Accounting Officer; and Thad Johnson, our Senior Vice President and Corporate Treasurer. This morning, I will start with a brief overview of our fourth quarter and full-year performance followed by an update on our strategic initiatives and sustainability efforts. Then, Jeff Kaminski will provide additional detail on our financial results, after which I will share a few closing remarks regarding the macro environment and our 2016 outlook before opening the call for your questions. We finished 2015 with solid fourth quarter results capping a dynamic year for KB Home. For the quarter, we extended our topline growth trajectory with total revenues up 24% and more than doubled our pretax income from a year ago to $70 million. Our improved profitability in the quarter was broad-based with each of our four regions performing better than the previous year. These results confirm for us that we are in the right markets and our strategies are working to drive our performance to higher levels. Overall, 2015 shaped up to be as we forecasted on our earnings call a year ago, a tale of two halves. In the first half of the year, we grew our community count and built a robust backlog that drove accelerated revenue and earnings growth in the second half. As we anticipated, all of our key metrics reached their peak levels for 2015 in the fourth quarter and with our significantly higher year-end backlog value we believe we are solidly positioned for continued year-over-year growth and profit improvement as we enter 2016. Our business is performing well as we…

Thank you, Jeff and good morning everyone. In the fourth quarter, we continue to realize the benefits from the implementation of our core strategies including the repositioning and measurable expansion of our community count. Among these benefits, we achieved significant, sequential and year-over-year increases in housing revenues, operating margin and pretax income for the quarter. The growth in our operating platform also help drive our backlog at November 30, 2015 to nearly 4,000 homes, a 36% increase from a year ago and approximately $1.3 billion in value up 40% year-over-year. Both backlog measures reached their highest year-end levels since 2007. With this robust backlog, we expect to be able to drive further revenue growth and increase our profitability in 2016. In the fourth quarter, housing revenues increased 25% to $980 million from $784 million in the corresponding period of 2014 reflecting a 16% increase in homes delivered and an 8% rise in our overall average selling price. Despite the strong year-over-year revenue increase our delivery and revenue results came in below our expectations for the quarter as construction delays tempered our conversion rate by about 6 percentage points to 55% of beginning backlog. This shortfall in homes delivered and in the corresponding revenues impacted both our operating income and bottom line earnings. For 2016, we expect to generate housing revenues in the range of $3.35 billion to $3.65 billion for the full-year and in the range of $600 million to $660 million for the first quarter as we convert our sizable backlog into homes delivered and realize continued year-over-year improvement in our overall average selling price. This full-year 2016 result would extend the year-over-year growth trajectory that we have generated over the last four years. The year-over-year increase in our overall average selling price of homes delivered to approximately $380,000…

Thanks Jeff. As we enter 2016, we believe the housing market is on firm ground and expect housing to continue to be a major catalyst of the economic recovery. We also believe that market conditions will continue to gradually improve supported by employment growth, increased household formation and low inflation. We anticipate demand will be boosted by the large millennial population that is expected to be purchasing more homes in 2016 as well as the so-called boomerang buyers who lost their homes in the downtown and are now returning. In December, the Federal Reserve raised interest rates for the first time in nine years. This is a positive signal that the U.S. economy is stronger. We do not believe that this increase will have an immediate or significant impact on the mortgage market. While mortgage rates are expected to rise in 2016 in most markets buying a home will continue to be a more attractive affordable alternative to renting. Moreover, the Fed’s action is likely a signal that the improvement in the job market is going to lead to increases in household income which will be a positive for the housing sector. We are optimistic as we enter 2016; we’re seeing strong demand supported by the broader economy and are well-positioned for the opportunities ahead. Our backlog levels give us great visibility for a potentially strong first half of the year. We have some exciting new community openings planned ahead of the spring selling season. As is always the case, our full-year results will largely be driven by the spring selling season and we will continue to update you on our progress as the year unfolds. In contrast with the tale of two halves we had in 2015. We expect to have a positive start to 2016 with year-over-year improvement…

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Michael Rehaut with JP Morgan. Please proceed with your question.

Hi, thanks. Good morning everyone. First question I had was on the gross margins. I believe you kind of identified the gross margins this quarter, the difference between the result and the guidance being effectively all driven by the leverage impact from the revenues, lower-than-expected revenues. In looking at first quarter guidance now at 16% I believe versus previously looking for mid-16% I was wondering if you could just walk us through what that reduction was given that you're expecting to - it sounded like you're expecting to make up a lot of the revenue shortfall. You said the closings were coming through so far in the first quarter. A lot of that that was missed. And just more broadly in terms of the 17% number that's still obviously below 13 and 14 despite a much higher revenue base and just thoughts around that 17%, why that maybe isn't at this point getting back to the 18% type of range at least?

Right Mike. I guess I will cover that. Starting with the first quarter at this point obviously we’re quarter further into it. We have better visibility at our backlog and I think more importantly better visibility to what we expect to deliver out of our backlog. If you look at the run rate where we’re at in the fourth quarter compared to the first quarter the step down is basically predominantly due to the lost leverage in the first quarter on lower revenue numbers. So it's really a mixed factor on what we see coming out of the backlog. Visibility for the full-year isn’t quite as clear obviously. The backlog carries us through the second quarter. A lot will depend on the strength of the spring selling season and our ability to price appropriately and continue to control costs, but at this point that’s what we are seeing and we wanted to guide out for the full-year to give everyone a bit of a feel our expectations. Again we’re optimistic about a good strong spring selling season and with that we hope to be improving on the results in the back half of the year.

Great. Thank you Jeff. And then just second question on SG&A, very strong result there in the quarter at 10% and I believe you're looking for something actually closer to like 10.5% to 11% and so you hit that 10% SG&A number despite lower than expected revenues. I was wondering if there was – what kind of drove the results there? Did you cut back on certain areas? Was there any perhaps also if there is any we’ve got in questions if there were any perhaps one-time benefits, any better granularity around that very strong result?

Sure. I think I can help out on that as well. I’ll kind of respond to it in two ways, one on absolute basis and one relative to guidance. So on an absolute basis, we did have some positives and some negatives that were basically offsetting and we had what I’d call fairly normalized quarter on the expense item and we had good expense control in the quarter, we were able to take advantage of the benefits of the higher revenues relative to last year for example or even to the third quarter and drove the ratio down, so that was a nice end result for us. In relation to guidance, we did expect and we were anticipating having to take a couple of one off negatives in the quarter relating to some legal reserves and some other items which we were fortunately able to avoid doing and that drove basically the increase in the quarter.

Thank you.

Our next question is from Susan Maklari with UBS. Please proceed with your question.

Thank you, good morning.

Good morning.

It sounds like you're doing a good job in terms of making up some of the lost deliveries from the fourth quarter. But given the fact that some of these issues seem to be sort of continuing on, how should we think about the conversion as we go through the year and the potential for maybe some further kind of bumps there?

Susan, let me provide a little color and then I will give Jeff for the projected conversion ratios. It was a very interesting year that evolved for us and as I shared in my comments disappointed that we missed in deliveries. The labor shortages have been around for quite some time and as the year evolved quarter after quarter our build time was within a day in the first, second and third quarter, so we were managing pretty well through the subcontractor stress that’s out there. In the fourth quarter there were heavy rains in both Texas and Colorado where our production stalled for three weeks, maybe four weeks depending on the city. And we called upon the trade base to help us compress and get it back and we just didn't have the capacity to get that done so we missed deliveries and I think as we go forward we’ll be able to sort out and work through the excess units that hung because we couldn't get them done while we’re continuing to start homes behind it. So I think you’ll see us quickly get right back to the rhythm and the typical conversions that we were guiding to and hitting all year really until the fourth quarter, but if you want to walk her through some of your assumptions, Jeff.

Right. Yes, for the first quarter based on the revenue guidance and the ASP guidance, we are looking at conversions in the mid to high 40s, which is down a bit versus prior year, but again with as Jeff commented on the construction times extending out we wanted to take that into account as we guided out. The full-year as we go through the second, third and fourth quarter we hope to compress that further and get back to more normalized levels.

Okay thanks. That's helpful. And then just in terms of you talked about the strong liquidity position that you have and given where the stock is trading and obviously your optimism for 2016 can you talk about perhaps your appetite to do share repurchases or other uses of shareholder returns for your cash?

Like any CEO I think our equity right now is undervalued, but when you’re trading at the level you are at you can ignore that opportunity, but having said that right now we are focused on driving our topline and growing our business. We think that will give us the best return for the shareholders.

Okay, thanks.

Our next question is from Stephen East with Evercore. Please proceed with your question.

Thank you. Good morning. Maybe the first one is for Jeff Kaminski. Jeff, can you talk about a little bit on the miss how much was the labor shortage versus the construction, the weather delays that you were seeing and could you talk a little bit about how much labor cost you're seeing up year over year?

Right, yes, I think those two things are fairly difficult to segregate. The weather issues put more stress on the subcontractor base and it created some issues as far as catch up. So as we evaluated it division by division and went through the delivery miss that we had across several of the divisions the bulk – the vast percentage of it was basically caused by those two factors and it's – I apologize, but it’s a very difficult to segregate. As far as cost increase goes in 2015 there was inflation, we did see inflation at the subcontractor level, we did see some favorability in the material side which helped to offset that. We do believe we offset pretty much all that inflation with pricing as we went through the year. And to put a bit in perspective, it’s difficult at times to evaluate because of changing mix and changing communities and changing plans that you're delivering and et cetera, but we do index certain plans and we index plans that were started at the beginning of the year and then we index those same plans at the end of each quarter actually at the end of each month. So if you look back at the beginning of the year index plans versus the index plans that we started in November overall cost to build are up about 2.7%. So it was more or less a controlled year was better than we saw in 2014 again we think we offset virtually all that with pricing during the year and we’re watchful of it as we move forward as there are continuing concerns in the market, but we thought we had a pretty good year on cost containment.

Yes, okay. I appreciate that. And then if you look at the orders you all had at a lot of moving parts within your different regions, Southeast much better than expected and Central little bit less, I assume that's Houston. Would you all mind just talking a little bit about the trends you all were seeing in the various regions and is there anything that makes you think those are going to change or accelerate?

Stephen I can give some high level comments and again Jeff can give little more granularity to it. I shared in my prepared remarks that we actually saw the highest traffic levels per store we’ve seen in many years and I think it's a combination of the products and locations we have and also that there's a strong desire among the consumer to be homeowners. That’s very encouraging and that's normally a good indicator of where things are headed. You definitely hit it when you said we have lots of moving parts, if you look for instance in the Southwest in the third quarter we had a soft comp the year before, we had a lot of grand openings and we had an incredible positive sales comp in the third quarter and I think we digesting that some in the fourth quarter in the Southeast if you touched on it we had stronger sales than we’ve seen and that’s very encouraging. In our Central region we had a positive comp for the region, Houston was off, but at the same time Austin and Denver had very strong sales in the quarter so the portfolio of the region still had a positive comp. So I’d say overall demand is good, the dynamics are still good whether it’s demographics, the inventory levels, mortgage rates, job growth all the positive things are there that tell us when coupled with the traffic that things are holding if not going to improve here in the spring, so…

Okay. Yes is the Southeast, do you think that strong Southeast is sustainable and then on Houston are you all seeing that market change quarter-over-quarter any for your lower price points?

Again I’ll make two comments and kick to Jeff.

Okay.

Southeast, we do expect that we’ll continue to grow our sales there it’s been our laggard region we’ve been working to improve the results and improve the sales we've had some nice community openings and we do expect that to continue to improve going forward. If you go to Houston specifically we knew this would be a question. As I already said our region had positive comps and our sales were off in Houston. So we covered it with more than enough strength out of Denver and Austin. But specific to Houston for starters our community count was down year-over-year and it was really with intent. We pulled back on investment early in the year when oil started to slide down and decided let’s take some chips off the table until things stabilize and there’s clarity to the market and as a result to our community count was down. On our last quarter call we shared that for that quarter our sales per community were flat on a per community basis versus the prior year and that we saw some softening in the price points above 300. In the fourth quarter and since that time we've experienced some softening at the lower price point I’d say down to 250. So the slowdown is further down the price band. Our first time and what I would call our affordable first move up communities are continuing to sell well at high margin and solid sales pace below 250. So the communities we have that are above 250 and we do have some we’re quickly rotating to smaller footages, lower spec levels and we’re going to drive our price down hopefully holding our margin percentages. So we’re being pretty proactive there. For the year, or for the quarter, I’m sorry in Houston our ASP delivered was just over 220 so our book of business there is still positioned where there is strength. And we still view Houston as a real opportunity. It’s a large market, it’s a diversified economy. You just have to stay strategic right now until there’s clarity and we’re going to keep working to move our price points down until oil settles and we know where it’s headed.

Right, okay and I think just staying on Houston for a minute since we have the opportunity to add a little more detail you know there’s a lot written on percentage exposure of the company and what our exposure is in the Houston market. And I just want to clarify with some facts, internal-based facts on where we sit today. In the fourth quarter our revenue was about 6.5% of our total revenue was coming out of Houston we had about almost 12% of our community count there and about 11% of our delivery. So it was a relatively you know it’s a significant division for us but it’s not an overwhelming division for the company in total. I think importantly we have a very well run division there and it’s been improving over the years we saw margins improve from the beginning of the year to the end of the year fairly significantly in that marketplace and I think we’re controlling the risk there quite effectively as Jeff mentioned we did ratchet back on investment earlier in the year and we’re very watchful and particularly with what we do with the price points in our open community. So I think that's all positive and risk mitigation factors that we put in place. Splashing back or going back to your sales comps we had single-digit sales comps in the Southwest and Central and pretty strong double-digit comps in California and the Southeast as you mentioned. And we thought it was a reasonably solid quarter for us from the point of view of sales.

Thank you. Our next question comes from Ivy Zelman with Zelman & Associates. Please proceed with your question.

Hey guys good afternoon. Happy New Year.

Hi, Ivy.

When I look at it right now is the stock is getting and has been underperforming and getting crushed and the stock is trading below book value. A lot of people are looking at your balance sheet and recognizing you've got right now a pretty nice situation with $800 million-plus in availability or cash plus what is available on the revolver. But starting in 2017 you've got several hundred million and then in 2018 and thereafter and obviously the capital markets could help refinance that debt as you look out. But the market is saying that you're not going to survive because the economy is going to roll over, we're going to have a recession and you guys are buying land, going into 2016 and to 2017 your gross margins are still well below where they were in 2013 and 2014. So how do you give us comfort that you're going to be able to manage the business if the economy was to slow? And incrementally you're underwriting when you're buying land today without having the same momentum I think Jeff Kaminski you said that pricing is going to moderate. We know costs are inflating so I think when you look at the processes or controls that are in place what can you give us to help us get comfortable that you're going to mitigate the risk that the Company's leverage is not going to catch up right at exactly the time that the economy is going to roll over? So I think that's why the stock is trading where is trading.

You said a lot Ivy and I’ll address some of it and then again kick it to Jeff, but we’re only going to make the investments if they are going to hit our returns and they are in line with our strategy and they support our business. And in 2015 we actually had a higher number targeted that we were willing to invest and we didn't hit it because we were having difficulty finding opportunities and places like Houston we stayed cautious. We have seen the land markets come down a bit and the demand has softened and there are opportunities out there in very solid submarkets where we can invest and get our returns. And I think one of the things that’s not understood if you look at our balance sheet is as we are growing the earnings we’re not paying taxes and we’re generating cash through the tax avoidance. And going forward to 2017 right now we think we can support our investment target. We think we can run our business, we think we can continue to improve our balance sheet and deal with the debt in 2017 as it comes.

Jeff, that's helpful. Go ahead, sorry.

Yes, sorry I was just going to add on to that a little bit. I mean I’m surprised I guess to hear some of your comments being so extreme on the Company that particularly the way we’ve been managing the capital structure and the cash flows, we’ve had very strong liquidity for a couple of years, we have just put an expanded revolver in place recently we still haven’t touched it. So I think from that point of view from a liquidity point of view it has been very strong. The next maturity as you point out I mean 2016 is the first year we’ve had since I have been with the Company where we didn’t have maturities coming due this year, so we have a plenty of runway out ahead of us on that. And I think another important factor is given the leverage which is coming down by the way, we’re below 55% on a net basis at the end of the year. Over the last three years we brought down the total interest incurred ratio to revenues by over 220 basis points and that’s also helping I think in many respects the Company and our ability to service the debt and to continue to operate profitably as we have been. So like I said I was a bit surprised by the…

Well no, I think I'm just tried to play devil's advocate. I mean your bonds are trading at Park. I think the bond market is not as worried as the equities and I'm trying to get you address that you are providing strong cash flow and liquidity. On the one hand, though, pricing is moderating; margins again are below where they were in 2013 and 2014. So people are saying okay if prices get hit gross margins are going to be down, this is a levered situation, so I think just putting it in some perspective and I think Jeff as you talk about your being more obviously careful on land purchases today when we think about home prices how much do your home prices in 2016, how much do they have the go up in order for you to hold margin? And maybe giving us some more clarity around what the cushion is so to speak in the gross margin levels that you're at today. I think Michael Rehaut asked the question with revenue significantly higher than where they were in 2013 and 2014, but yet your gross margin is below I'm not sure how you can address that. But I think that's why the stock is weak and we're trying to provide more clarity to investors that are saying hey, the stock is trading below book value, is housing crashing or what? So that's really, Jeff, where it's coming from.

Okay. There’s a couple of factors to operating margin as well the SG&A side is the other one, we've seen big improvements in the SG&A side over the last few years which is also helping on that basis. More specific to your question when you look at where we expect margins to be, we do expect margins north of 17% next year, we do expect pricing to moderate and that’s baked into our margin estimates for the year. We’ve had on the cost side, like I said we had our very good year actually in 2015 as materials offset some of the other increases that we saw on the marketplace. So we’re reasonably confident in being able to expand our operating margin in 2016 despite market conditions or because of market conditions in fact. So that’s kind of where we’re – how we see it looking out at this point in time.

Okay. Good luck thanks guys.

Thanks, Ivy.

Our next question is from Stephen Kim with Barclays Bank. Please proceed with your question.

Thanks very much guys. Yes, just sort to follow-up on the land spend commentary, I think you had indicated the level of land spend that you're targeting next year, which would imply something close to the low 40s as a percentage of revenues next year that is quite high. In the fourth quarter you only did 27% for example and we've observed a lot of the other builders in the industry curtailing their land buying activity. I think Jeff you mentioned that you saw land prices starting to come down. I think that's a function of the fact that you're not the only ones that have been cautious in tightening the purse strings on land. Next year the land spend that you've talked about from the $1.5 billion I think you said that that was primarily for 2017 growth. So I wanted to explore that a little bit. If you were to let's say spend $1 billion or less materially below the level you are guiding to. Can you shape out for me what impact that would have on your ability to grow in 2017? Because my feeling would be that land spend of about $1 billion which should be sufficient for you to maintain the momentum in the business but you seem to be implying that you sort of need to spend closer to $1.5 billion in order to be able to maintain the momentum in 2017. So just if you could help me understand what a lower level of land spend like about $1 billion or so, what that would do to your business?

Sure, like as we shared in our prepared remarks, Stephen, we own everything for 2016, we own the majority of 2017, we feel we have a lot of upside in our served markets if we can identify and take advantage of opportunities that come our way to grow our business beyond our current growth track, if they don't materialize we still have a growth story today. So when you look at land spend and the builders all reported little different, our number includes land development and the fees we pay and as you know in California you can have a pretty intensive fees structure in parts of the state where the fees alone can be [$100,000] a unit. And as you look around our business in Texas we could grow all day long spending 30% of revenue on land in California where your cost is often 50% of revenue, you have to spend more to have a growth trajectory there as well and then it’s quicker deal when you close and your margins are typically higher, so you still get the returns, but we have a pretty broad range of cost off as a percent of revenue and then in turn investment as a percent of revenue depending on where we decide to invest.

Great.

Just to give a little clarity on that on the cost off side the range for us sort of in the low 20s to low 40s is cost off depending on the market as Jeff said.

Okay, that's helpful. Let's talk about California if we could a little bit. How much of the land spend that you would sort of talked about that $1.5 billion would we think is primarily on the West Coast and can you give us a sense also if you're willing to break out California specific or just the Western region if you could talk about whether you anticipate gross margins to be up and prices to be up in that region into 2016?

I can talk to the strategy side and Jeff can share on the assumptions on price and margins. California is about 50% of our business so in rough terms we’d spend 50% of our investment dollars within the state of California. The market remains good here, it’s continuing to expand, there's more opportunity inland in addition to the coast that are so land constrained and the land spend can be lumpy. One dealer in California can move your number a lot and you can close in the fourth quarter versus the first quarter which is what happened in 2014 versus 2015 that moves the number around quite a bit, but the market remains good and I’d say whatever our investment number ends up being for the year it will be 50% to 55% California.

Great and Jeff price trends, gross margin trend in Cali?

Price trends we expect to see – to be honest there are some big fluctuations quarter-to-quarter in our ASPs just based on opening of new communities and some very high price point product that will be a little bit lumpy as we go through the year. We are baking that into the guidance and we’ll try to help you guys as far as model building by baking that into the overall company guidance because some of those openings and communities that we will be delivering out in future quarters will have a little bit of a lumpy impact and particularly so if you just look at the West region on a standalone basis. We do believe the margins in the region have been strong for us and we believe we will continue that strength as we go through the year many of the markets in California are still very strong markets for us and we’ve been pretty successful in land acquisition. So that’s – it’s a price spot for the company its half of our business and we see it as strategically strong area for us.

Okay great. Thanks very much guys.

Our next question is from Megan McGrath with MKM Partners LLC. Please proceed with your question.

Thanks for taking my call. I wanted to start with your community count comments into 2016. If I look at 2015 you had strong community count growth which basically mimicked your order growth for the year. So as we think about a flattening out of community count growth this year are you doing things to increase your absorption pace? Because I'm certain you don't want to end 2016 with flat order growth and flat backlog. So with a flat community count growth or low community count growth how do you get your order growth up? How do you get that absorption pace growth up so you're ending this fiscal year in as good a spot as you ended 2015?

Megan, we always try to be careful to avoid the trap of the averages because an average doesn’t always tell the full story. And a good example would be our community count ended the year yet our backlog is up so much. And I say that because the community opens in the first month of a quarter versus the third it can drive a lot of sales up or down in either direction. So the sales will range with the community growth we’re still loading in some deals that are finished lot deals that we can open get open for business in 2016 and we expect to have sales growth that will be aligned or slightly better with whatever our community count ends for the year.

Okay. And then I want to go back to basics a little bit on the gross margin because I do think there is some confusion about the drivers there. So if we take the full-year 2015 ex-impairments and compare it to the full-year 2014, you are down about 200 basis points. You said that you offset higher prices or higher costs with higher prices and your volume was up, so that leads me to believe that the 200 basis point decline was mix related. Am I talking about that correctly and if so where did that happen, where did that mix impact you the most.

That’s correct Megan. I mean we had tremendous community count shifts going on with closeouts and openings over the last 12 months to 18 months, which accounted for the majority of it. We talked a lot about it earlier in the year where we had some very, very high margin communities in the Northern California region that closed out in 2014 and impacted margins across the business; they were high price points and high margin communities. So that was the bulk of it. With the new communities coming online and starting to mature, we believe we can continue to drive some level of gross margin improvement as we go into 2016.

Okay, thanks. That's helpful.

Our last question is from Nishu Sood with Deutsche Bank. Please proceed with your question.

Thanks. I wanted to go back to the land spend trends for a minute. 2014 you spent $1.5 billion against a $1.6 billion targeted. Last year came in at $1 billion and as you mentioned that was lower than the 1.1 to 1.4 you had targeted. And now you're targeting $1.5 billion for next year. So I just wanted to get a sense of broader sense of why the pullback in 2015 and then the re-acceleration in 2016. Earlier questions have touched upon some of the potential issues, perhaps a balance sheet constraints. Jeff M., you mentioned that opportunities were a little bit less in 2015 as compared to 2016, but just wondering if you could take a step back and help us understand the main drivers behind first pulling back and now re-accelerating heading into 2016.

Sure. One of the things I failed to mention before Nishu is my analogy would be it’s not a straight diagonal line when you're fueling growth where it’s just keep the jets on and keep investing in a community count all hits and you have a straight line. My analogy would be it’s more of a stair step. And in 2014 we spent more on land than we did on development and fees, in 2015 it slipped, we weren’t finding as many land opportunities, but we were spending money to improve communities that we had acquired at the end of 2014. So we are spending dollars on development and bringing things to market and that's what drove the community count growth. So now those are all open. I think the profile that communities that we acquired in 2013, 2014 and 2015 were higher lot counts than in 2010, 2011 and 2012 when we were opportunistically buying a lot of finished lots and those are all gone so you have a bigger lot count in a community, you spend the dollars to develop it and then you can run it longer before you have to reload it in 2015 it tilted to development I think in 2016 we still have development tranche, but you will see it tilt to a little more land.

Yes, to clarify one of your comments to Nishu definitely was not a balance sheet or liquidity constraint that cause the under spend in 2015, ending the year with over $800 million of liquidity I think takes out and raises their concept.

Got it. That's very helpful. And then a second question, cancellation rate trends using the typical percentage of gross orders has had a pretty nice trend throughout 2015 and improving you had 500 basis points roughly of improvement year-over-year in the fourth quarter. So I wanted to get a sense of what's been driving that, most builders have been seeing relatively flat cancellation trends. So is that a function of the sorts of communities, because obviously you had massive community count opening in 2015, is that a function of the sort of communities or is that a reflection of changes to sales strategies or something to do with the mortgage side of the business? What's driven that those gains in 2015?

I think you touched on it Nishu, we have a better book of business today with the communities we've opened where they're located the quality of the buyers we are attracting and it’s having a positive impact on our can rate. So I’d agree with that. It's more that than the mortgage world is different than it was a year ago.

Got it. Thanks a lot. End of Q&A

At this time, I would like to turn the call back over to management for any closing remarks.

Thank you for joining us for today's call and we look forward to sharing our continued progress with all of you in the future. Have a great day and a great weekend. Thank you.