Erin Willis - Director, IR & Corporate Communications Sheryl Palmer - President & CEO Dave Cone - VP & CFO.

Ivy Zelman - Zelman and Associates Michael Rehaut - JPMorgan Adam Rudiger - Wells Fargo Stephen East - Evercore Michael Dahl - Credit Suisse Rob Hansen - Deutsche Bank Jay McCanless - Sterne Agee Alex Barron - Housing Research Center Jim Krapfel - Morningstar.

Welcome to Taylor Morrison's Fourth Quarter 2014 Earnings Conference Call. [Operator Instructions]. I would now like to introduce Miss Erin Willis, Director of Investor Relations and Corporate Communications..

Thank you Vanessa and welcome everyone to Taylor Morrison's Fourth Quarter 2014 Earnings Conference Call. With me today are Sheryl Palmer, President and Chief Executive Officer and Dave Cone, Vice President and Chief Financial Officer. Sheryl will begin the call with an overview of our business performance and our strategic priorities.

Dave will take you through a financial review of the fourth quarter, as well as our guidance for 2015. Then Sheryl will conclude with the outlook for the business after which we will be happy to take your questions.

Before I turn the call over to Sheryl, let me remind you that today's call including the question-and-answer session includes forward-looking statements that are subject to the Safe Harbor statement for forward-looking information that you will find in today's news release.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

These risks and uncertainties include but are not limited to those factors identified in the release and in our filings with the Securities and Exchange Commission and we do not undertake any obligation to update our forward-looking statements. Now, let me turn the call over to Sheryl Palmer..

Thank you, Erin and good morning everyone. We appreciate you joining us today. I'm pleased to announce our financial results for the fourth quarter and fiscal year 2014. Before we jump in, I would like to take a moment to thank our team who continues to impress me with their dedication and hard work.

Because of their unrelenting efforts, it was a record year for Taylor Morrison in several metrics including sales, closings, revenue, community openings, SG&A and net operating profit. We had net home sales of 6393, closed 6796 homes and had annual revenue inclusive of Canada of $3.1 billion, driving earnings per share of $2.17.

We are a business with a disciplined long term strategy that has proven successful. We are also nimble in nature in order to capitalize on market opportunities and mitigate market risk, while maintaining the integrity of our long term strategy.

To that end, we announced the opportunistic sale of our Canadian operations and last Wednesday closed the transaction. Through this strategic, timely sale, we were able to capture an attractive valuation for this asset at a time when Canadian market dynamics are changing. By exiting the Canada business, we will focus solely on U.S.

operations, where we believe we can invest sales proceeds in new and existing markets to generate significantly higher returns to maximize shareholder value. We believe this bold action navigates the right course for Taylor Morrison at the right time to generate long term profitable growth.

Although we will present our consolidated results later, I think it makes sense to focus most of my comments today on the U.S. business results and comparisons to the prior year. Now let me begin with some color on our U.S. operations for the quarter. In the fourth quarter, we increased community count in the U.S.

by an industry leading 33% year-over-year to an average of 220 communities. The company's U.S. traffic in the quarter increased by 31% year-over-year. U.S. net sales orders totaled 1295 in the quarter, up 24% year-over-year. U.S. sales per outlet were as expected and we ended the quarter with an average of two sales per outlet and 2.3 for the year.

This resulted in a net sales order value increase of 12% to nearly $563 million. Prices during the period continued to increase in the U.S. and our average sales price of closed homes increased 16% in the quarter to $491,000.

Sales during the fourth quarter were generally flat from month to month and so far in the current quarter, January sales were up approximately 30% year-over-year and 20% sequentially from December. As we have discussed in prior quarters, conditions continue to vary across the markets. As such, let's spend some time on the U.S. geographies.

Starting in the east, we continue to execute well in Florida. In 2014 we opened 32 communities across the state, expanding our offerings and product lines to appeal to a more diverse consumer set, resulting in an increase of nearly 60% in traffic year-over-year. Both sales and closings also showed strong increases.

Our average sales price increased 32%, generally driven by our higher proportion of closings from our 55-plus communities. These communities continue to be an increasing part of our business plan and represented a third of our closings in Florida in the fourth quarter.

We are launching our newest 55 plus community in the Orlando market, Esplanade Highland Ranch later this quarter which represents our sixth Esplanade in Florida opened over the last 24 months. Given the recent decline in oil prices, Houston of course has been top-of-mind for the investment community.

As I'm sure you all recall, we faced similar trepidation regarding the health of the Phoenix market last year. We believe the results we drove in Phoenix despite tough market conditions provide context for our strategy and expectations in Houston.

Although 2014 total Phoenix market closings slipped by approximately 10% and the builder community expressed how difficult market dynamics were, our Phoenix sales orders only saw a 4% decline from a record 2013. Our closings were flat, while we grew both our home growth margin dollars and EBIT by more than 22%.

It's worth repeating how pleased I'm with our team's performance and persistent investment strategy of core locations.

Ending 2014 as the number one builder in Phoenix, especially given our higher price points, validates our strategy and reinforces that even as markets ebb and flow, well-located communities will continue to outperform the overall market. Turning back to Texas, we continue to see strong pace, traffic and sales prices.

Similar to Phoenix, this is due to our strategy that is laser-focused on well-positioned communities matched with consumer preferences. Let me share a couple of Houston data points that we find interesting. On a more macro level, economic research points to a diversity in the labor market that many may not be aware of or don't seem to appreciate.

In fact, a recent study by Myers Research found that only 6% of the employed population in Houston is in oil-related fields. More importantly, as it relates to us and relatively consistent with the research we have seen a diverse employment background in our buyers and prospective buyers.

Houston has developed into an economy fueled by medical services, technology, education, construction as well as oil. Through January, we continued to see strong sales attributable to our strategy of core locations. We are very pleased with our Houston portfolio and the quality of our locations.

It's a blend of option lots in premier master-planned communities for our Darling business and mostly self-developed assets that we use for our Taylor Morrison homebuilding operations which are also used for selling lots to both Darling and other local builders.

At the end of the year, we had roughly 3.8 years of owned supply based on 2014 closings from all of Texas and 4.3 years in Houston. Of course, we are monitoring the market very closely and should conditions deteriorate, we believe we are in a position to respond quickly and effectively.

In fact, at the end of the year, we had less than one completed inventory home per community in the Houston market. Our Darling Houston operations are a finished-lot take-down business and our Taylor Morrison branch subscribes to a just-in-time development model.

We have deliberately structured our business this way to provide the flexibility needed to manage through potential changing market conditions, but it bears repeating we haven't seen any impact to-date and will have to see how the situation continues to unfold.

Now let me give you some color on our fourth quarter performance in Texas which gives us the confidence that our strategy is the right one. Sales were up 35% from the prior-year quarter. Specifically in our Houston operations, sales increased to 47%.

Most importantly, we start 2015 with slightly more than half of our expected closings for the year already in backlog. We also have healthy customer deposits averaging more than $30,000 per unit in backlog as of the end of the year. Now turning to the West region, I covered Phoenix earlier, so I'll start with Colorado.

Average outlets increased 67% in the quarter from the prior-year period, as we have continued to execute on getting more communities open. Traffic increased nearly 55%. Traffic in our California markets was up 135%, while outlets increased modestly.

Sacramento showed the greatest increases in both traffic and sales within our California operations Sales per outlet increased in Sacramento as we opened a number of anticipated communities. Another much-anticipated community, Fiori at Serrano, an exciting new golf course community in El Dorado Hills is expected to open this March.

For 2015, we anticipate significant outlet growth in both our southern and northern California operations. I'm also excited to report that Marblehead in San Clemente is on track and we anticipate our first term closings toward the end of the year. In past calls, we have spent some time discussing the entry-level buyer.

Today I would like to dig into our 55 plus offerings as they become more robust around the country. Over the last couple of years, we have opened seven new 55 plus communities across the country.

These communities have performed better than expected and continue to attract a very discretional buyer due to their desirable locations near activities and services. In fact, these buyers tend to out-spend our non-age targeted buyers by nearly twice as much in options and three times as much in lot premiums.

In addition to our successful Esplanade communities in Florida, we have 55-plus communities in Houston and our award-winning Skyestone community in Denver. This brought the percentage of 55-plus sales in the quarter to 16%.

In addition to the Esplanade in Orlando that I mentioned earlier, we are looking to open additional communities in Southern California, Tampa and Austin in 2015. All of these communities tend to be smaller and less capital intensive than their traditional competitors.

They are differentiated by a more boutique experience, where small details, intimacy and a hyperlocal focus enhance each community. We are very encouraged by our success to-date and we believe we have significant runway to grow this segment.

Due to the higher margin nature of this revenue stream, we are excited about the prospects of this business which could be a significant needle-mover for us in the future.

Before I turn it over to Dave to discuss our financial results, I wanted to comment on some of the new and what we believe to be positive developments in the mortgage environment that will affect 2015. To begin, the FHA announcement to lower insurance premiums by 50 basis points is expected to save the average borrower $900 annually.

This is just one step in the right direction to improve affordability. The reduction in monthly expense will likely bring consumers who are most sensitive to monthly payments back to the market particularly in our Florida and Texas markets.

Another positive action to open up lending was the FHFA announcement that Fannie and Freddie will re-introduce down payments as low as 3%. This program will be particularly helpful to the first-time home buyer and in areas like Phoenix where FH loan limits left a large void for many potential qualified borrowers.

Lastly and what we believe could be most impactful, we are pleased with some of the recent clarifications from Fannie and Freddie regarding the rep and warrant framework for lenders to better understand the risks. We expect the added clarity to reduce overlays and incrementally improve overall credit availability.

An interesting note that was also recently published from RealtyTrac shows the emergence of the boomerang borrower. Homeowners that lost their homes to a foreclosure or short sale during the beginning of the housing crisis are now past the seven-year window that GSEs require in order to re-enter the housing market.

Their analysis shows that the first wave of nearly 7.3 million potential homeowners nationwide will be in a position to purchase over the next three years and contribute to the general improvement of the overall housing market.

To summarize, we are excited to see incremental positive changes in the mortgage market that should continue to move the recovery forward.

Our fourth quarter and full-year 2014 results continue to validate our long term strategy, anchored on the pillars of prime locations, consumer focus, cost efficiency and optimizing profit and volume to maximize shareholder value.

We expect 2015 to be another strong year for our existing operations and a pivotal one as our team will be fully focused on opportunities in United States to drive the most profitable growth and strongest returns for our shareholders. Now I will turn the call over to Dave for the financial overview..

Thanks Sheryl and hello everyone. For the fourth quarter, earnings per share were $0.84. With the sale of our Canadian operations, the format of our financial statements has changed. The Canadian financial results are reported in discontinued operations on the income statement and balance sheet.

As we walk through the components of the financial results, I will focus on our U.S. performance which reflect our continuing operations. U.S. revenue for the quarter increased 58% to over $1 billion. U.S. home closings revenue increased to $966 million driven by increases in home closings of 35% and average closing price of 16%. The U.S.

adjusted home closings gross margin excluding capitalized interest was 22% for the quarter. While the rate is moderated, we also face tough compares over the fourth quarter of last year where we benefited from significant ASP growth.

Mix continues to impact margin rate with our successful performance in California which generates significantly higher gross margin dollars per home but lower rates. Also as expected, we are seeing higher land and develop costs as we burn off legacy holdings.

Incentive dollars on closed homes during the quarter have remained relatively flat, while as a percentage of home-closings revenue incentives have declined. This provided some margin improvement in the fourth quarter. We continue to leverage SG&A as a percentage of U.S.

home closings revenue which was 8.1% compared to 9.4% over the same quarter last year, driven by strong top-line growth. Our earnings before income taxes totaled $119 million or 11.8% of total revenue. Income taxes totaled $26 million for the quarter representing an effective rate of 21.6%.

During the quarter, we recognized $18 million in tax benefits primarily due to the reversal of a portion of our valuation allowance on deferred tax assets. At year-end, we have $7 million of deferred tax assets that remain fully reserved. As I mentioned, our Canadian operations are included in their entirety within discontinued operations.

I would like to share a few highlights from our fourth quarter Canadian results. Canadian home closings revenue was $156 million down 2%, while homes closed increased 18% to 483. ASP declined 18% due to the mix of high-rise units.

Income from our Canadian joint ventures was $2 million compared to $15.3 million in the fourth quarter last year where there were 200 more JV unit closings. The sale of Canada closed last week and will be reflected in our first quarter 2015 results. Under the terms of the sale, we will not recognize any home closings revenue in 2015.

Moving to financial services, we generated $13 million of revenue during the quarter representing a 33% increase over the prior-year quarter. Gross profit was over $6 million, while our capture rate continues to be strong. We ended the quarter with more than $234 million of cash exclusive of $228 million held in Canada prior to the sale closing.

We had $40 million in outstanding borrowings under $400 million unsecured revolving credit facility. At December 31, our net debt to capital ratio was 40.6%. During the quarter, we spent $232 million in U.S. land purchases and development and spent $1 billion for the full year.

Over the last few years, we have continued to shift our focus towards shorter, less capital-intensive opportunities that are accretive to the portfolio. And importantly, we have not taken any land impairments in the last several years due to our disciplined underwriting and diligence processes. Our total U.S.

land bank at year-end was nearly 39,000 lots owned and controlled, excluding lots held in unconsolidated joint ventures. The percentage of lots owned was approximately 79%, with the remainder under control. On average, our land bank had 6.9 years of supply at quarter end based on the trailing 12 months of U.S. closings.

We continue to assess our capital-allocation strategy based on what we believe drives the best long term shareholder return. First, we look at investing back in our current markets, as well as expanding our business through M&A. As demonstrated by the sale of our Canadian business, we believe the U.S.

markets are better positioned to provide that return. Next we evaluate de-levering our balance sheet. From there we assess our options in returning excess cash to our shareholders.

At this point, we have the full $50-million share repurchase authorization available and we will continue to pursue the best use of capital to maximize shareholder return between investing in the business and opportunistically repurchasing our shares. As I wrap up 2014, it's fair to say it was a volatile year in the industry.

Despite the challenges we face, we were still able to deliver on our community count, closings and SG&A guidance. As we look toward 2015, this will be a pivotal year for Taylor Morrison with the sale of our Canadian business and our transition to a full focus on the U.S.

We still believe the fundamentals are in place for a continued but stabilized U.S. housing recovery and look forward to the spring selling season. We begin the year with a U.S. backlog value of $1.1 billion with an average selling price of $488,000.

As expected, as new land comes through the pipeline and we burn off some of our legacy communities with lower land basis, our margins should normalize in 2015. It's important to recognize that our key strategy in managing our portfolio is to balance margin rate and margin dollars.

In 2015, we expect to continue to grow gross margin dollars and earnings per share despite the overall pressure to the margin rate. A good example of this would be our Southern California business, where we expect to grow margin dollars by 30% per unit.

This would be 80% higher than the company average in terms of margin dollars; however it carries our lowest margin rate in the company. Ultimately, a key driver of our margin will be the overall housing demand. Strong demand in the spring selling season has the ability to alleviate some margin pressure in 2015.

We expect our incentive strategy to remain relatively consistent as we carefully manage our pricing in each community. The consistency of our incentive strategy is due to our belief in the long term quality of our land positions.

We will continue to use incentives as a sales tool to drive urgency, but we do not anticipate this to have a meaningful impact to our margins in 2015. We expect to carry slightly higher capitalized interest per unit given what we believe will be a short-term reduction in our inventory from the sale of our Canadian business.

This will moderate as we continue to grow our U.S. business. We continue to monitor costs into 2015 and would expect to see some correlation among cost increases and overall housing demand.

Hopefully the impacts of lower oil prices will assist in mitigating cost pressures, as was the case last year, costs increased in the first half of 2014 only to stabilize as housing demand moderated. We continue to believe pricing will stay ahead of costs on an annualized basis, but we may see some volatility quarter-to-quarter.

We monitor our costs closely, looking for opportunities to drive efficiencies. We seek to control the costs we can control. This includes driving leverage on the SG&A line.

We expect to continue our history of running an efficient business, even considering the sale of our Canadian operations and maintaining one of the lowest SG&A rates in the industry. We plan to retain our SG&A rate as a percentage of homebuilding revenue in 2015 similar to what we saw in 2014.

Beyond 2015, we expect to drive further leverage as we replace the Canadian units. Over the last few years we have generated negative cash flow from operations as we have focused on growing our overall business.

We feel our current land position is strong and we will continue to monetize our communities leading to positive operating cash flow during 2015. We will continue to see the proportion of spend shift more towards development.

In addition, we have the funds available from the Monarch sale which we plan to invest where we believe we can generate returns to drive long term shareholder value. Now turning to our guidance, in 2015 we expect to have an average community count between 230 and 240 in the U.S.

which is weighted more heavily toward the back end of the year leading to a maintained monthly absorption pace between 2.2 and 2.3. We anticipate closings to be slightly up in the U.S. year-over-year which was 5642 in 2014 and adjusted home closings gross margin around 22%.

SG&A as a percentage of home closings revenue is expected to be in the mid-9% range. JV income is expected to be between $2 million and $4 million and we anticipate an effective tax rate of 32% to 35%. We anticipate spending approximately $1 billion in land and development in 2015.

For the first quarter, we anticipate community count to be relatively flat with Q4 which was 220. Closings are planned to be between 1000 and 1100 with an adjusted home closings gross margin starting lower in the first quarter between 21% to 21.5% and then growing in the back half of the year as our closings volume picks up.

We go into 2015 with a strong balance sheet and with what we believe to be a solid liquidity to capitalize on the opportunities and manage the potential challenges we face this year. Thanks and I will now turn the call back over to Sheryl..

Thanks, Dave. Following up with the color that Dave just provided, I believe it's easy to see that 2015 has an opportunity to be an inflection point for Taylor Morrison.

With the strength of our field teams and management expertise, the quality and diversity of our locations across the portfolio and our recently fortified balance sheet coupled with the support of overall macroeconomic trends, we believe we are well positioned.

And with the proceeds from the sale of our Canadian operations, we have significant dry powder to continue to execute on our strategy of targeted land acquisitions within core locations to drive the best returns for our shareholders. With the company fully focused on our U.S.

strategy around our target consumer groups, existing and potential new markets, world-class community execution and customer service, we believe 2015 is going to be an exciting time at Taylor Morrison, as we remain focused on our four pillars and continue to position the company for long term sustainable growth.

Thanks and we will now open the call for questions. Operator, please provide instructions to our callers..

[Operator Instructions]. And we have our first question from Ivy Zelman with Zelman and Associates..

Maybe Sheryl, you could help us understand a little bit from the guidance for '15 closings with you having only a slight increase in closings for it seems pace, it seems really conservative given your guidance on community count and maybe you can talk about the flat absorption, is that due to a higher mix of more luxury products? But overall we're trying to make the math work and we’re a little perplexed here..

Sure, Ivy. With respect to the closing guidance obviously we'd like to make our way through the spring selling season before we put absolute numbers around it. We do expect the closings to be up year-over-year.

I think the other thing that's really driving it is as we look at our community count, you can see through the guidance that we expect our community count to be up year-over-year. It is heavily weighted to the back half of the year. Interestingly enough our communities are opening pretty evenly throughout the year.

But we have significant closeouts in the first half. And so wanting to see how those goes but like I said the strength of the spring selling season before we firm that upper for everybody next quarter. And as far as on pace, Ivy, really what we're guiding to is pace is very consistent with last year and I think I could go back a couple years.

And I think what we shared was we generally look at paces in the 2.2 to 2.5 generally right around Q3, that's pretty much what we are saying given our price point we expect to see in 2015 which is really consistent with '14.

The exception is if you look at the first quarter of '14 we saw a remarkable strength and pace is even a little higher than we would have expected or really wanted to burn our land off. So generally we think it's flat and consistent with our long term model..

And then Sheryl, maybe your thoughts around two points, you brought up the boomerang buyer.

Maybe you can discuss that buyer profile across all price points and are you guys quantifying the number of boomerang buyers as you progress quarterly and whether that buyer is a good credit applicant after being out of seven years out of the buyer pool and then the foreign nationals segment of the market is a bit of concern today with challenges of getting money, assets out of China, the Russian currency debacle and people are concerned about the incremental demand that they've helped housing market.

Maybe you can give your thoughts or quantify some of the exposure you have in California especially may be in some of the higher end markets where they have been boast in demand. Thank you..

Make sure I captured each of those. I think the first one was on the boomerang buyer. We're pretty excited about that as I quoted in my prepared comments 7.3 million, that's a big number that starts its way through the pipeline really last year and we'll continue to see over the next few years.

I think the numbers we've seen, Tawn shared with me is something like 0.5 million in 2015, we expect to be back in the market and that will grow to over 1 million in 2016. And I think I saw that in Phoenix alone for example that's about 165,000.

Most interesting, we're really already seeing them as I look at the commentary coming from each of our sales groups and mortgage groups across the country, we're really starting to see them in the traffic and when I look at our last 12 month closing, last year we had about 20% of what I'll call true genuine first-time buyers.

These folks never bought a house before. If we look at the mortgage definition which is a first-time buyer that hasn't had a home in three years, that number grows to 30%. So 50% increase in our first-time buyers have actually started returning to the market. Candidly, we are seeing it across the entire business.

There are some significant penetrations we're seeing in traffic in Phoenix, parts of California, parts of Texas, but really across the business and I would tell you the quality of that buyer is pretty good. Next question I think was around the foreign national buyer, many of our foreign national buyers are cash.

Loans are becoming available to those buyers and generally when I look at our communities across Southern and Northern California I think we have a couple communities in Southern California that really focus on that buyer we haven't seen any real change in the traffic patterns or buyers or actual sales.

But what we've seen so far is they tend to be pretty well-qualified, we haven't seen a real shift their and lastly I would add that Taylor Morrison Home Funding has recently been very successful in adding some good product mix to assist that buyer group..

If I could sneak in one more, just on the mortgage exposure. Many people perceive that credit is still very stringent although it's going improving modestly.

I would say what would be the biggest reasons that people can't qualify today? Is it because they can't qualify for down payment? Is it their FICO score? Is it backend ratios or their verifying income? Any color there would be helpful and thank you for letting me go again. Sorry..

I'm actually really glad you asked the question because I think it's an area that's generally misunderstood, but if I were to say what are the top three reasons because I think depending -- it's obviously very market specific and consumer segment specific but if I were to bucket the three reasons, as you said it's debt to income ratios, it's credit scores, its down payments, right? But I don't think it's what people really think when they think about these prospects.

It's really about the product portfolio. Today's products all include full doc loans and many of our prospects specifically -- they have the cash to close. They have the credit scores.

But for example, they don't generally have -- they might not pass the debt to net income requirement or they might not have two years of bonus history, in certain roles that they are self-employed. So they will have the asset, they might even have the cash flow but they very likely can miss the backend ratio.

Tawn Kelley runs our mortgage business has said for quite some time, the greatest underserved buyer that we're actually seeing today or the one that has the greatest opportunity for -- that should get approved are the more discerning buyers, given the program alternatives that we have out there available to us today..

Thank you. Our next question comes from Michael Rehaut with JPMorgan..

First question I had was on the gross margins and SG&A guidance. The 22% for the year I think that compares to 23% in 2014 for the U.S. alone. And you mentioned a few different gives and takes, mix and the less legacy holdings.

I was trying to get a sense for what might be the biggest drivers there in terms of if it's just that type of mix or if there is any anticipated margin decline let's say from a potentially weakening Texas market and I guess separately on the SG&A, how do you see that playing out on a longer term basis as you continue to grow the business? Is there a natural floor for that? Or would you expect mid-9s or low-9s to be it?.

On the gross margin starting there, a lot of that is to do with the land so as we're burning off that older land with a lower cost basis and that's primarily in California in our Darling positions where we do have those shorter land banks, that's what's driving us more towards what we would say is a normalized margin.

I think the ones that we've seen over the last couple years for us and across the industry, you know those have been higher and good markets. I think right now we’re getting into that more normalized margin and one that we can still generate nice earnings off of.

Kind of more specifically though, we've talked about it before and I'll talk about it again today around balancing margin rate and margin dollars.

We try to drive the rate where we can obviously but we're also focused on driving earnings and it gets back to our strategy that we have in Southern California where we made the decision to accept a lower margin rate to generate the margin dollars which in '15 we expect to be higher than the company average--.

High returns..

And we’re getting the high returns absolutely. I think our strategy has always been to stay within the core locations that obviously helps us in a good market also helps to protect us against some downside risk and maybe a little bit more stabilized market so helps manage through a full cycle.

And I think that kind of takes us to the Houston, we actually still expect solid performance in our Texas markets. We don't really see any negative impacts so far as we're moving into January.

So by and large it's really more again kind of going back to the order, it's really just the land basis that's impacting margins of the most and then as well as some geographic mix when you're looking at Southern California and the strong penetration we have they are. I think your next question was on SG&A.

I think 2015 is a bit of a transition year for us we're selling the Canadian business. So we're guiding to essentially flat on the SG&A. I think as we get to 2016 and beyond we're going to continue to drive that number through topline growth, don't necessarily have a specific target for that.

We're just really focused on driving leverage year-over-year..

And Michael, I might just pile on one thing to Dave's comments because I think he's right on, but if we were to get really specific with you and you look at certain markets like we had a remarkable benefit of buying a lot of great land let's say in the Bay Area and during the downturn and last year we could have been generating in the Bay 30% margins.

That's not a long term model and so it's not that -- we actually feel really good about our margin rate today the comparison against margin rate that we're really a very specific point in time--.

I guess just my second question, on the capital allocation and thoughts around the proceeds from the sale of Monarch, you had mentioned as one of those options I guess your initial preference is in investment or internal investment opportunities or that's what you would first look at but you mentioned share repurchase and I was wondering if as part of the calculate aside from the returns that you weigh between the different options also the fact that the float is pretty small and I think that is one of the factors that weighs on the valuation.

So repurchasing more shares might even potentially exacerbate that issue if that's kind of brought into the mix of how you think about things. While on the other side, using some of the proceeds perhaps to potentially diversified geographically within the U.S.

if that's also being considered and if there are certain markets that overtime you might be interested in..

Yes. I think Dave and I will tag team this one. And I'll start with your second half of your question first.

As I said in my prepared comments, there is clearly significant focus in the organization about footprint expansion and we're going to continue to reinvest in our markets where it makes sense and we also shared with you our expected land and development spend four 2015.

It's not like we're going to double down with these proceeds in any of our markets but we continue to look at a number of opportunities to expand the footprint. With respect to just overall use of capital, we have always said we're going to reinvest in the business first, look at organic or accretive M&A and then we'll look at other circumstances.

Dave do you want to?.

You’re right on as far as the float, you know we did look at the float and that did play a part in sizing the repurchase for us. So at $50 million on authorization it represents about 10% of the float depending on the day. We're obviously continued on being focused on profitable growth in our business and I think that remains our first priority.

I think repurchasing the stock is going to depend on where the prices relative to the returns that we can generate through more organic or growth through M&A.

And we have to give consideration to where our debt levels are so I wouldn't expect this to be necessarily aggressive in the market on a share repurchase standpoint it's going to be more about as being opportunistic relative to where that prices and our other investment options..

Yes. And I mean I think to some it all for you, Michael, I mean it's not lost on us what we have in the marketplace and the impact it's having on our share price. So we would really have to be -- it would really have to make good sense and are price would have to be a place that really made sense for us to want to take more shares out..

Thank you. Our next question is from Adam Rudiger with Wells Fargo..

You mentioned in the prepared remarks Sheryl the prices continue to rise and prices and closing price continues to increase but backlog prices seem to stabilize here.

So the question is do you think will closing price going forward should stabilize in the 492 to 500 range or if there is more upside and also back in the first point just talk about the pricing because reported closing price increases is that mostly mix related still or is there quantified with the organic price increases have been?.

Yes. A couple points of there I think. Our price has grown as we articulated and as we look forward probably more mix related you'll see some additional growth in price. As we look across the business, it's actually quite interesting. We had just as many markets actually seeing their price go down.

Some of it slightly, some of it dramatically, very much unmixed related but we have a couple markets that because of mix we actually see our price going up which I think will net a slightly higher price point in 2015. Really the biggest culprit from a price standpoint or mixed standpoint is Southern California.

We're seeing some really exciting new product come to the marketplace. As far as pricing opportunities, that is going to depend so heavily on the spring selling season. We absolutely in some parts of the country are still raising prices.

I think last quarter it was something like 30% of our communities actually had adjusted pricing same-store, same product a period over period price increases.

I would tell you they are probably a little bit more moderate than we've seen a year ago but we're still seeing additional opportunities and as we bring new products to market, generally our strategy is we're going to come in, get some demand going and then were going to start to raise prices and I expect to see that through 2015..

And the second question is similar to the one just asked about capital allocation and you mentioned being aware of the float issues, you've also I think just talk probably gets a little bit of punishment from some of the geographic concentration.

So I was wondering as you look for opportunities to expand the footprint does that -- does the heavy concentration in Houston and Phoenix way -- does that contribute to your thoughts -- is that something you are concerned about aside from market weakness just be concentrated there and will that impact or drive decision to as you look at your footprint?.

Yes. Like I said, I don't expect that we're going to take this and double down. We're going to continue to invest responsibly into those markets. We like the markets were in from a long term standpoint; we are absolutely focused on expanding that footprint and are looking at some opportunities to do that. But they have to make sense.

We're not just going to add markets to the portfolio that the markets tend to get in and out of that they need to have the right macroeconomic factors that we believe to be with us for FICO. And we look at both on an organic growth standpoint kind of bolting on new markets as well as new parts of the country but more to come with that..

Yes. I would also say as we look at -- I mean there are several markets that we have interest in. For us it's really finding the one that fits best within our portfolio and that's kind of benefit both the company and the shareholders long term..

Thank you. Our next question is from Stephen East with Evercore..

Sheryl, you gave a lot of great color on geographically what's going on.

A little bit more on Texas and the West, just as you look at Houston in particular, strategically, if we assume for a minute that volumes in Houston fall pretty significantly 10%, 20% as we go through the year, how does that change your strategy? Do you all meet the market? Do you sit back and let it flush through? What's the strategy there? And then on the West, barely up pricing down a lot I assume there is some mix in there but could you just explain a bit more what was going on in the quarter?.

So the reason we spent some time on the call Stephen to talk about Phoenix and the trepidation that I think every call discussed last year was -- I mean I would point to that strategy as we look at Houston. We are very proud of our locations in the marketplace and the way we've set up that business.

As I said the Darling business, let me start there, the Darling business operates on more of a takedown schedule. We don’t even hold a year worth of lots in our inventory.

So that has the ability to really respond to market conditions but as I also said, we sit in Houston today with about half of our backlog already in place for Houston which is really quite exciting.

On the Taylor Morrison side that tends to be larger master-planned communities and when we look at our community portfolio there, we have the opportunity to bring in new product positions or not. And so when you look at the number of communities we have in Houston, that would include a number of master-planned where we might have multiple positions.

We will invest in Houston on the Darling side to bring new lots into the business on an as needed basis. On the Taylor Morrison side we feel very good about our portfolio and it would be very opportunistic investment exactly what I articulated in Phoenix last year.

And most of our investment dollars in Houston is very similar to Phoenix, we’re on the development side where we could bring land to the market on an as needed basis.

Moving on to the west and looking at our business, you do have really -- most of what you are seeing there is really product penetrations and the timing of community openings in the west when I look at kind of our average communities year-over-year, most of that really start ramping up in the second half and that's what you're going to see in 2015.

Our sales pace was off slightly year-over-year, that was mostly contributed through the Phoenix sales that we got early in the recovery as well as the Bay Area. But when I actually look at the community-community and I take a kind of the impact of new openings and high demand, it's actually slightly down year-over-year..

And then the other question I had -- you talked some about the 55 plus and how it's performed for you, it's now 60% of your business. I'm a huge fan of it, I think that's a trend that somebody like Taylor Morrison has to be in.

How much do you think you can grow that, if we fast forward it, call it three years or so where do you think that would be as a percentage of your portfolio from a closing's perspective?.

That's a hard number to give you specifically. Stephen, I'm also a big fan of it and the company is really well-positioned to continue to grow and I look at the expertise within our management team.

We have just one on the very large master-planned but most importantly on the lifestyle piece and the lifestyle piece is such a key component to capturing this business successfully. I think back to my prior life in big master communities, you know thousands and thousands of residents, our approach is very, very different.

We are having great success in this really addressing the changing consumer profile which is a very as I said in my comments a boutique kind of community that's a very focused on local community, local services and amenities, it's a different to play [inaudible] market.

Well we’re also finding with this consumer is you can't spend enough time around mental and physical wellness through a very health conscious group. So it's not just about the infrastructure that I think historically we have all associated with active adult communities. It's a very different play.

The other thing is the product is quite different than what I would say historically we've seen. It's about outdoor living, indoor outdoor spaces, entertainment, parties within the community. So all in all I think we're very well positioned.

I think you will see us continue to add new communities to the portfolio and I guess lastly I would wrap up that comment with the other thing the piece that makes the consumer very excited -- exciting for us as you know they are generally a cash buyer. It's not necessarily about price.

It's about value and what's important to them and that's a very emotional decision. So it's about understanding how to sell and relate to this consumer group..

Okay.

One last question on that, margin wise any difference versus your core business?.

Yes. Generally, I would say it's a little bit higher. If I were just to say a true comparison across the portfolio..

Thank you. Our next question is from Michael Dahl with Credit Suisse..

I wanted to follow-up on the -- I guess the Phoenix comparison and an interesting one there. Just to clarify, how we should think about your pace assumptions for 2015.

If you look at Phoenix in 2014, you had like you said sales down a little bit but I think from a pace perspective, as everyone was bringing on communities, pace was down a good bit more.

Kind of seeing a similar situation in Houston now so is your expectation for pace taking in that your overall sales in those markets might hold up but that pace is down in those markets and any color you could give their?.

Yes. I think that's a great question. I really do, Michael.

Because if you do look at Phoenix, not only -- I mean, your pace fell, I mean we acknowledge that early last year but I'll take a lower pace if I can still sell houses at the right price points but interestingly enough, some of it was market but I would also tell you that our sales price in Phoenix year-over-year was up close to 20%.

So you had kind of the impact of overall market, I think offset by the quality of our locations but you also had a more discerning buyer because we really did a significant shift to that business. This business years' ago in Phoenix was much more of a first-time buyer and now bulk of our portfolios in North Scottsdale at a much higher price point.

So how that kind of plays itself out through 2015, I would expect the pace generally in Phoenix to stay about the same because once again we're dealing with this higher price point buyer.

That tends to be the case in Houston as well and once again, depending on if we're talking about our Taylor Morrison business or if were talking about our Darling business, it's slightly different. But we saw some tremendous cases in 2014.

We opened some master-planned communities that were almost once in a lifetime kinds of opportunities there that drove some significant paces. So all in all I think our paces in Houston will generally mirror the overall company as I articulated earlier..

And second question with respect to the margin guidance, certainly understand the issue with the legacy communities rolling off so I guess if we look out beyond 2015, if we assume that conditions are fairly stable to improving, is all of the mix impact in terms of higher margins, distress vintage purchases, rolling off and newer vintage coming on? Is that all flushed through by 2015? So that we could see stable margins in 2016? All else equal, or how should we think about it a little further other?.

Yes. I mean, that is kind of further out with the way things change within this industry. I would say that we still have a fair amount of the legacy land to burn off and it's just going to take a few more years. So it is that mix between burning off the legacy and bringing on new land and how that rolls through in some of our shorter positions.

Obviously ultimately market demands going to drive that where the margins can go but I think we are moving into that timeframe in a cycle, absent any swings where we're going to get to that more normalized level from a margin perspective.

So again hard to hold me to it right now, we've got to see where things go but yes I think we’re in that more normalized margin environment..

Thank you. Our next question is from Nishu Sood with Deutsche Bank..

This is Rob Hansen on for Nishu.

Just had an additional question about how you kind of developed your $1 billion land spend figure? Is this kind of a top-down function of, okay this is what the balance sheet can handle or did you kind of go through it from a bottoms up with the division managers and have they been kind of allocated the capital and kind of lastly, I guess what happens if they don't spend all of that capital? Are they kind of forced to spend all that money or how does that kind of flow?.

It's both, if we were to be quite honest about it.

We look at a very specifically when we talk about portfolio management, we really work to understand the individual dynamics within a local market, what their land pipeline is, the opportunities and competitiveness around new land and we look at what the balance sheet can afford and what makes sense and are we in a replacement or are we in a growth mode? Division by division.

And we look at what they believe makes sense and we marry those two and just because they have the capital so yes they have an allocation, they actually have a three year allocation so they can look at it a little bit more broadly and not just in this spend it or lose it kind of mentality.

But there is also kind of a backend check, just because they have the capital doesn't mean they get to spend it.

They still have to come through our North American Investment Committee on any acquisition, any divestitures, even any strategy changes to make sure that it's in a line with our original expectations when the capital was allocated or that there is not a better place to put the capital..

And I've just like maybe a little bit more on the -- as far as the four spend, I mean we are very return focus. So we're not going to put money in the ground ahead of when we needed and we've been talking about this since the IPO, our focus on return on invested capital.

So we are always looking to improve that and part of that is through inventory turns which we been able to take up a little bit each year. So we are very mindful of spending that at the appropriate time..

One other question I had was just on the SG&A, 9% target for this year. I think kind of normally in the builder business, right, the goal is 10% and then you’re kind of sitting well below that.

What would you consider kind of your long term normalized SG&A as a percentage of sales level?.

Well, I think you've seen the company for years now, we run a pretty efficient business and that's going to continue to be our focus. As far as a target, I'm always hesitant to give targets. I have a belief and I think Sheryl does to that those have a tendency to maybe forced into decision you wouldn't otherwise make.

So for us it's more of a global target that we’re focused on driving the top line and then driving leverage through SG&A year-over-year..

And I think we say that with confidence with our history and the way each of our employees look at the business but I would also say out of the other side of my [inaudible] that we run a very lean shop and we need to make sure that we continue to reinvest into our people and the business as well but even with that, we expect we'll stay at top quartile in the industry..

Thank you. Our next question is from Jay McCanless with Sterne Agee..

First question on the gain from Monarch, I'm assuming that's going to be recorded in the first quarter?.

It is. It'll come through in the first quarter and we're kind of in the process right now. I mean I just closed last week; it's on a final balance sheet so we still have to work through some of that but we'll have it there in the first quarter..

Okay. And then also I know you guys published the annual data pro forma, taking Monarch out of the operations. Could you -- would also like to request if you could give us the quarterly breakouts that would be helpful as well for modeling.

And then the second question I have in terms of repatriating, the cash that's in Canada now, I know you guys talked about this in December but could you update your thoughts around that and what type of tax implications you might have from bringing it back into the U.S.?.

Sure. So as far as the quarterly data, we will get that out, we will get that out in our investor deck here in a little bit. Again, a little bit more work we have to do around that but we'll have it out shortly. As far as the repatriation it's a great question.

We're actually able to loan that money down to the U.S., so we can defer some of the cost to repatriation out into the future plus we have NOLs, net operating losses that are still up there, that's going to help us minimize that exposure.

So we're going to reflect that cost actually in our net gain in the first quarter which is still going to -- we're still going to end up with a very nice gain on the sale..

Thank you. Our next question comes from Alex Barron with Housing Research Center..

I was hoping you could elaborate on the 30% order number for January, is there any market that stands out or was this just an easy comp you guys were against or how do you view the health of the market so far this year?.

I don't know that I would call it an easy comp to be quite honest. I think it was a fair comp but I think the quality of our new community openings was actually quite helpful. It was really -- I mean the great news there, it was across the board. We really saw strength in all of our markets and we've seen that momentum building since mid-December.

And continue to build through all of January with just a phenomenal week, last week. And once again, what makes it so nice is it's really been across not just all of our divisions but it's across each of our communities within our division so it's encouraging..

And then I guess with respect to Texas, I know you said you haven't seen any slowdown yet.

But I'm wondering as far as your margin guidance and closings guidance, what is your baseline? Are you assuming things stay where they are at current market conditions or are you baking in some type of a slowdown if you will?.

No. I mean right now we're going with where we had planned it originally without contemplating any kind of a downturn there.

I would say I would also like to think that if we did see slowdown there, it would hopefully be made up by other parts of the company that's benefiting from lower gas prices and I mean we actually think that net-net that's a meaningful to the home industry..

Yes. And I agree with Dave, I mean these are the budgets that we created back at the end of the year and so we'll stay very mindful.

So we didn't specifically bake in anything because of what's happened in the oil industry but we do just like we've seen in all of our markets -- we will continue to see as newer land comes to the pipeline some pressure on the margin in Houston and everyplace else..

Thank you. Our last question comes from Jim Krapfel with Morningstar..

So curious to hear your thoughts on the 55 plus communities as far as the development pipeline, so going from land acquisition to when you are actually closing in the home and how that compares to the rest of the communities? And then just overall capital intensity of the 55 plus communities as compared to the rest of the business?.

Okay. So with respect to the development side of it, once again, I think that's where we really excel. We have that experience in-house and really across our markets and the bulk of our active adult communities to-date have been in Florida and we have significant experience within our team there.

Those deals are structured differently across the company and even within our Florida business where some are longer pipelines where we actually take down rolling options on parcels. There is others where we have bulk parcels that we are developing. So from an underground standpoint, generally, we're not doing significant infrastructure.

But in some of the communities we are and some of them are bolt-ons to larger master plans, so really it's very community specific.

And then the other piece is obviously the amenity side of it and that's something that we build amenities in a number of our communities across the companies that we are pretty comfortable on that and what was the second half of the question? Was it the actual home construction site?.

The overall capital intensity of 55 plus versus everything else..

You know, like I said, we tend to do more boutique communities so you're not seeing us go out there and develop a thousand lots and $100 million of amenities. Generally, we will open a phase of lots at a time very similar to many of our other master-planned communities and we will offer different product profiles.

Our team has done just a great job in structuring some of these deals where we can take the land down over time. So we're actually think what I would say are uncharacteristically higher returns in some of these communities then you would expect to see in large active adult communities.

And then we bring on the amenities depending on really what the surrounding amenities are and what kind of lifestyle we need to create within the walls of the community..

And then the second question on labor inflation I think previously you had mentioned that labor inflation was accelerating a bit this year.

I guess does that outlook still hold? And do you feel that maybe some of the layoffs occurring in the energy sector may help in terms of labor availability?.

Absolutely. I mean Dave mentioned some of the benefits we're going to see in -- spend from a consumer side specifically in Houston. We really do expect to see an abundance of opportunity with some of the layoffs and trying to get houses built, construction -- just more production capacity.

And I would expect in Houston a moderation in construction costs.

When I look more globally, last year I think early in the year we articulated we expected to see some single digit increases pretty much what we saw was in the first quarter and then with the strength of the spring selling season not been quite as strong as people anticipated, we really didn't feel the same level of pressure throughout the year.

I would probably articulate a very similar message this year that in some parts of the country where things are heating up, we would expect to see some tightness in labor and that will hit the cost side and other parts of the country like in Phoenix last year we got some cost back out of it. So it's very market specific..

Yes. The correlation between the labor and overall demand in a market is pretty strong. The nice thing is if you knew, you would typically see the demand come through first before the labor cost comes, so it gives you a little bit of time..

Probably a lumber [ph] will be the one that if the demand really picks up, will need..

Okay. So with that I want to thank everyone for joining us today. And I hope you all have a wonderful day..

Thank you..

Thank you. Ladies and gentlemen this concludes today's conference. Thank you for participating. You may now disconnect..