Jason Lenderman - Vice President, Investor Relations and Treasury Sheryl Palmer - President and Chief Executive Officer David Cone - Vice President and Chief Financial Officer.

Ivy Zelman - Zelman & Associates Stephen East - Evercore ISI William Wong - JP Morgan Anthony Trainor - Credit Suisse Jay McCanless - Sterne Agee Jack Micenko - Susquehanna International Group Nishu Sood - Deutsche Bank Alex Barron - Housing Research Center.

Good morning and welcome to Taylor Morrison’s Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to introduce Mr.

Jason Lenderman, Vice President, Investor Relations and Treasury..

Thank you, Vanessa and welcome everyone to Taylor Morrison’s third quarter 2015 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 third 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, Jason and good morning everyone. We appreciate you joining us today. As we come into the final quarter of the year I am pleased with our continued performance and encouraged by the long-term fundamentals which continue to support a positive and sustained trajectory in our industry.

Helpful balance sheets have improved significantly with homeowners equity in real estate increasing almost 6 trillion from the trough in 2011. The percentage of underwater mortgages has fallen to below 10% for the first time since the housing downturn.

When you couple that with estimate of new health information is reaching 1 million per year we see these fundamentals outweighing some of the market-by-market headwinds being experienced and that should be expected over time.

While the headlines for these headwinds garner attention and definitely generate volatility in the equity market we still feel strongly in the overall health of the industry over the long-term. Before I get into the specifics of our quarterly performance which we are excited to discuss as we met or exceeded our guidance in every metric.

I’d like to provide a quick update on the integration of our new markets.

First, let me talk about our general approach to integration into the capability that has developed in part by reviewing and evaluating best practices across multiple industries and originally developed with the Taylor Woodrow and Morrison merger, but largely if can refined by drawing on learning from our Darling Homes acquisition back in December of 2012.

We have made it a point to leverage their knowledge of the things we did well and some things that didn’t work well. While working with our team at JEH and Orleans. If you recall we acquired JEH at the end of April the integration is further along given it was the first of the two and today I am happy to report it is gone very smoothly.

We have the business on most of our system and continue to implement our processes. We continue to build on the great team in place and are pleased report that those sales and closings have exceeded our expectations.

The three Orleans businesses in Charlotte, Raleigh and Chicago were acquired in the middle of July with 3.5 months of integration efforts behind us we continue to make great progress with transitioning system and process training.

We had found that with this transaction coming on the heels of the JH deal timing allowed us to move efficiently with integration efforts as resources tools and expertise were already in place. Similar to JEH we are pleased with both the integration progress and early financial results.

Ultimately our primary focus during this integration is to make them as seamless as possible without disrupting the day-to-day operations for our customers and teams at each of the divisions. This is now small feet when you consider that from the division perspective we are increasing our footprint by more than a third.

This growth number provides color on how important it is to get these integration's right. A big thanks to our legacy Taylor Morrison integration team and to our team members in these newly acquired areas. They’ve all approach these changes with great attitude and a deep desire to ensure a smooth transition.

Our positive experience with our acquisitions over the course of the last three years endorses our strategy and provides us the confidence that our early preparation and nimble approach continue to serve the company well.

As we’ve said many times we are committed to letting the right opportunity dictate the timing and not a prescribed plan or cadence of forced activity. We believe this is also a testament to four pillar strategy, which we have discussed and remain consistent in pursuing.

It is something that governs our activity and frankly will not allow for paint-by-numbers management, we will continue to grow in core locations by evaluating all opportunities for the best use of cash, we remain steadfast about not compromising on our core positioning strategy.

It can be easy to justify land purchases when land is scares but it takes confident to encourage to hold out for the right opportunities where we know people preferred to live, we build distinctive communities using input from our customers.

We are proactive and responsive to our home buyers interest knowing they demand and deserve quality in their homes. We maintain a culture of cost efficiency in order to compete well and continually improve and we optimize profitability through our pace and pricing strategy that is nimble and recognizes changing market conditions.

Now on to our total company results, for the quarter we increased community count by 29% year-over-year to an average of 276 communities. Net sales order totaled 1,635 in the quarter at just over 18% and cancellations were about 15%. Sales per outlet came in at 2 per month.

As we discussed before we manage this rate to an expected average for the year of 2.2 to 2.5 per outlet on an annualized basis, which is consistent with our underwriting and supports our balance pace and pricing strategy. Year-to-date we are at an average of 2.3 sales per outlet per month.

So far in the fourth quarter October sales were approximately 15% year-over-year. As we have discussed in prior quarters, conditions continue to vary across our markets, although all have shown positive momentum as this recovery has unfolded.

As we all know the recovery in our industry has generally yielded an upward trajectory and has not displayed some of the rapid movements in volume that we have experienced in past cycles.

As we began discussing in our IPO, we believe a part of this pattern is driven by the inherent governor applied to production through trade labor constraints, which I now has been discussed more often in the Q3 earnings cycle.

Labor constraints will be moderating factor for the foreseeable future and as we have said in prior quarters we do not anticipate an easy or quick resolution to the issue. In fact we believe it's an area that's hard to understand and doesn't actually tell the right story by looking at just the data points that we have historically relied on.

This reduction in labor is driven by a variety of things including self selection out of the industry, retirement from the workforce a lack of educational programs promoting the industry, immigration policy changes and the health of other economies like Mexico that provided a significant percentage of the trade workforce during the prior cycle.

The point being there are multiple factors driving this phenomenon that will require an equally diverse set of solutions, I should also note that there are additional drivers of labor constraints that are very market specific.

For instance the weather we experienced in Texas and Colorado earlier in the year have compounded issues in a very tight labor market. Unfortunately, the magnitude in which these markets were impacted was historic but it's heartening to know this piece will be resolved with a little more time and normalize weather.

In an environment where labor and ancillary services are already constrained, weather is just another hurdle the industry had to face, while we manage through this constraint we will continue to differentiate ourselves and be the builder of choice for the trade base, when the trades have more choices than they do skilled labor it's critical to be in the best position to get the workforce we need to deliver our homes.

Our trade partner relationships have always been a priority to Taylor Morrison in both good markets and some of our tougher ones.

Let’s keep in mind to that even though this constraint is cumbersome it should produce an environment of sustainable growth for the entire industry meaning it could prolong the recovery through strong for moderated growth, when look at this way it could prove to be a healthy constraint as opposed to a general restriction it presently feels like.

We also believe the labor constraints place more emphasis on our balanced portfolio management strategy, if a market has experienced some type of headwind that is more prevalent than in other markets, we look to a different area in our portfolio to fill the gap, this could be units, margin or any other metric we use to benchmark ourselves.

This balanced portfolio approach is critical to sustaining our overall business as certain markets present unexpected changes around demand, weather, labor or other business shifts. Keep in mind that it’s strong as any of these markets maybe they too have experienced some of this constraints we are seeing at a global level.

I hope that everything I’ve spoken about up to this point has effectively delivered two larger messages. First, we are experiencing a variety of real headwinds that will undoubtedly unpacked our near-term operations. As always we will be very transparent in outlining the projected impact of these challenges.

Second and more importantly, we do not believe the issues with labor and weather being felt industry wide constitute a change in the demand and economic fundamentals. These are issue that will resolve themselves over time.

It's important for us as a collective group to see these problems for what they are and this is largely a timing issue as this trade infrastructure continues to be rebuilt. Now, I will turn the call over to Dave for the financial review..

Thanks, Sheryl, and hello everyone. As a reminder, all reported financial information should be compared to our prior year’s U.S. operations only, which will provide the most appropriate comparison following the Monarch sale from earlier this year. For the third quarter, net income was $45.7 million, which equated to $0.37 in earnings per share.

On a year-over-year basis, home closings revenue grew 26.5%. Adjusted home closings gross margin, excluding capitalized interest was 21.2% for the quarter which was slightly ahead of our expectations as we benefited from mix.

Moving to mortgage services, we generated $11.3 million of revenue during the quarter, representing a 34% increase over the prior year. Gross profit was $4.4 million, while our capture rate increased by 500 basis points year-over-year coming in at 80%.

Our SG&A line, as a percentage of home closings revenue came in at 10.1%, which is slightly higher than the same quarter last year. This difference was driven by expenses related to our two recent acquisitions. It is important to note this year-over-year increase was expected in Q3.

We continue to focus on efficiencies and even though there are one-time expenses driving it up in the near-term as well as making certain investments in our people and systems, our teams remain diligent in managing costs across the organization. Our earnings before income taxes totaled $68.2 million or 8.6% of total revenue.

Income taxes totaled $22.5 million for the quarter representing an effective rate of 32.9%. Our effective rate was higher this quarter due to the timing as we recognized certain tax credits in Q3 of 2014.

During the quarter we spent $201 million in land purchases and development and we continue to be on track to spend our expected $1 billion for the year. And that $1 billion you can expect to see roughly 60% spent on land acquisition side and 40% spent on the development side.

Of course as the cycle matures this ratio should continue to move around as we monetize our position. Our total land bank at the end of Q3 was approximately 43,000 lots owned and controlled. The percentage of lots owned was approximately 76% with the remainder under control.

On average our land bank had 6.5 years of supply at quarter end based on a trailing 12 months of U.S. closings. Our land bank position is undoubtedly a strength of our and it has positioned us to build a healthy backlog. At quarter end we had 3,560 units in our backlog which equated to $1.6 billion.

This has spread across our portfolio in varying degrees, but all of our markets are poised to deliver a strong fourth quarter and start the year with a healthy backlog. Moving forward this allows us to invest based on market health, need and opportunity.

As we have discussed for the last few years this is identical to our approach with organic market expansion and M&A which is directly tied to our four pillar strategy. One such opportunity resides in Dallas as we view the market fundamentals in alignment with the expansion of our Taylor Morrison brand.

We have recently made land purchases where we intend to develop and sell homes under the Taylor Morrison brand with the first closings expected in 2017. This will provide us with both the Taylor Morrison and Darling brands in Dallas to capture a greater range of the customer segmentation.

We believe our strong well-positioned land bank gives us increased flexibility especially in times where there appears to be a lack of land price capitulation. We do not feel compelled to force land deals just to meet some nebulous level of inventory. Rather we will invest our capital carefully, thoughtfully and at the right time.

This philosophy promotes the management of the portfolio as a whole and it helps us to navigate the ups and downs that are bound impact individual markets. We end at the quarter with more than $158 million of cash with a net debt to capital ratio 43%.

We did have outstanding and borrowings of $230 million under our $500 million unsecured revolving credit facility. This is a temporary bridge to fund the short-term cash needs. Our capital allocation priorities remain consistent with what we have communicated in the past.

Organic investment is our first consideration and laid the foundation for our focus on driving the best of use of cash. We've all that evaluation up with M&A considerations from there we consider de-leveraging our balance sheet by paying down debt. Lastly we take a look at our options and returning excess cash to our shareholders.

This investment strategy and prioritization is and will continue to be a critical component in driving short-term performance while securing the long-term health of the overall business. As we look to the fourth quarter the challenges with skilled labor availability have stretch delivery schedules in the industry this is impacted us as well.

Despite our best efforts the labor environment is resulting in longer cycle times which will shift some of our previously anticipated fourth quarter closings into 2016. While we are definitely disappointed in this timing shift we will not compromise our commitment to our customers to deliver quality homes.

We remain optimistic about our overall business and execution however this is a unique time period as our visibility to the mix of home closings is less clear due to the anticipated volume in December and as trade labor continues to be volatile.

As noted in our last few earnings calls over the near-term we will see higher capitalized interest per unit which is primarily driven by the short-term reduction in our closings from the sale of our Canadian business.

This will moderate over time as our new businesses from JEH and Orleans begin to contribute closings to fill that gap in our overall business continues to grow. Our incentive strategy remains consistent and we have not relied on it heavily to drive volume.

It should remain relatively unchanged on an annual basis which will result in it being generally flat to slightly down in many markets. This approach is rooted in our pricing philosophy and are strongly held belief in the quality our land positions.

For the full year 2015 guidance we expect to have an average community count between 255 to 265 in the U.S. leading to a maintained monthly absorption pays around 2.2. We anticipate U.S. closings to be 6,300 to 6,500.

We expect adjusted home closings margin to be in the low-to-mid 21% range after adjustments for purchase accounting from our recent acquisitions as well as the shift are previously anticipated Q4 closings into 2016 from higher-margin areas such as Texas. SG&A as a percentage of homebuilding revenue is expected to be about 10%.

JV income is expected to be between 2 million and 3 million and we anticipate an effective tax rate between 33% to 35%. Thanks and I'll now turn the call back over to Sheryl..

Thanks Dave. Let me wrap up my comments with a quick update on mortgage and them some color on each of our market. October 3rd officially ushered in the TILA/RESPA integrated disclosure rule known as tread.

We’ve discussed over the last several quarters our mortgage subsidiary TMHF focus on operational preparedness and testing the system and disclosure requirements that impact the way a mortgage and closing transact going forward. Interpreting and understanding the rule itself has been a significant industry undertaking.

The system requirement and training involved in creating the abundance of disclosures accurately has been a small fee yet we are running smoothly in the first week and are issuing loan estimates in compliance with tread.

Today we have successfully closed several transaction with the new closing disclosure with several hundred loan applications in our pipeline originated prior to October 3rd our employees will be working with both previous and new requirements for a good part of 2016.

Global conditions and our economic indicators have created uncertainty on that when versus if interest rates will rise and by how much. As it always a concern increases in interest rates generate a lot of discussion around the impact on borrower affordability and consumer confidence.

We anticipate that any increases made should be dictated by economic data, which reflects growth, job creation and improvement in household income. Household income and credit expansion have a far greater impact to the customer's ability to obtain a mortgage loan than interest rate alone.

It's also worth mentioning that our buyers with our mortgage company have an average debt-to-income DTI of 37%, which is well within the lending limitations of 43% along with an average household annual income of 140,000 and an average credit score at 743.

Incremental increases in rates should not have a negative impact on our buyers ability to qualify for a mortgage. Lastly just a quick reminder that this was the fifth consecutive quarter that credit availability has expanded, we believe each of these factors contribute to an overall improvement in consumer affordability and housing activity.

Before I close, I’d like to provide some color on each of our markets. I will start on the West Coast and work my way East.

I won’t touch on any of our newly acquired areas given the focus spend on them in my earlier comments, our California markets of Sacramento, the Bay Area and Southern California are all experiencing solid demand and we have a number of fourth quarter community openings including some of our recently discussed JV communities in Southern California that we have been excited to bring to market.

As expected we are seeing the typical seasonal patterns but nothing unexpected including a savvy buyer looking around for fourth-quarter inventory deals, having said that we are pleased with each of new communities from both the pricing and phase perspective.

C-Summit, which many of you know as Marblehead just open the models in the last week with well over a dozen pre-sales price from a $1 million to $3 million with lot premiums reaching as high as 600,000.

In Northern California, our Sacramento business saw a bit of moderation in the early part of the summer but have enjoyed a nice rebound since August, our Bay Area business this year has been focused on a number of smaller infill sites and we have managed our sales rate down from last year due to supply constraints, limited availability of labor and the challenges around certain municipalities.

Although the Phoenix division had a nice year last year the strength of this has exceeded our expectations, we have leaned on Phoenix to replace some volume caused by other market volatility. Having said that the demand has far outweighed our ability to significantly over deliver units given the labor constraints discussed.

Our positioning has proven has effective in the face of increasing number of communities as we carved our niche, locations with less direct competition. Denver is another area where the recovery has taken hold and fundamental continues strong.

The market has experienced quite a bit of growth and our management team has really turned the corner operationally given new community openings and toward weather conditions. Denver although our smallest division has grown community count 14% this year and increased sales more than 45% markets.

The Texas markets continue to persevere through the headwinds of weather, labor and energy sector volatility, often has shown some moderation after few years of very strong price appreciation, which is probably a good thing for the overall health of that area and expected to be generally flat year-over-year.

Houston is holding up admirably in the face of multiple hurdles, we reported last quarter we haven't seen any real change in sales activity in the first half of the year.

But we have seen some moderation since late summer and through the fall; specifically we have seen some softness from the $350,000 to $600,000 price point, but still good resilience in both the first time and luxury buyer groups.

With our exceptionally strong third quarter in 2014, we expected third quarter sales to be down year-over-year that I would suggest it’s a bit more than we had initially anticipated.

The teams continue to execute very well because skilled labor continues to be the greatest challenge exasperated by the difficult winter conditions experienced through the years. Talking about difficult weather, Dallas slightly have the greatest number of days of productivity loss of any of our markets.

Despite the weather, the market has experienced a lot of excitement with recent announcements of new employment drivers such as Toyota, FedEx and the new training facility for the Dallas Cowboys. From a land perspective our Darling brands will continue to focus investment with a just-in-time finish lot strategy.

As Dave mentioned earlier this is the right time to enter the market with our legacy Taylor Morrison brand and allow us to capture the benefit of developing land and provide some synergies across businesses. We will begin closing homes under both the Taylor Morrison and Darling brands in 2017. Lastly, I will turn to Florida.

Orlando, Tampa and Sarasota all continue to do well. West Florida has produced some of the strongest growth in the quarter driven by an increase in outlet. The 55 plus offerings continue to resonate with our customers as a distinct area of strength for the company.

At the risk of being redundant the teams are working tirelessly to deliver a year in the face of some challenging near-term industry issues that were further compounded by weather. The most significant concern for us is the availability of trade labor and the effect that continues to have on our cycle times.

We have a few communities operating what I would characterize as ideal scheduled and others that could be operating with bill times two to 10 weeks longer than just a quarter or two ago. Our primary focus continues to be delivering the right experience and an equality completed home to each of our Taylor Morrison and Darling homes customers.

When we look at the larger landscape of the industry it is safe to say there has been a confluence of factors that up until now we've never seen. There are challenges at the micro market and macroeconomic levels. They range from labor and weather to interest rate uncertainty.

That being noted, we believe the issues are manageable and impact timing more than anything else. The challenges will subside and the strength of the underlying market fundamentals will emerge. With that I want to conclude my remarks by thinking all of the teams across the company.

I was only able to highlight a fraction of the good work that is happening at Taylor Morrison, Darling and Taylor Morrison Home Funding during my prepared remarks, but please know that I am motivated each day by our teams out in the field and corporate.

We are a company that is growing at a faster pace and the demand are many, but our employees never cease to amaze me with their work ethic, passion and sense of purpose for the industry and how much they care about each other and our customers. Thanks and we will now open the call to questions. Operator, please provide instructions to our callers..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And we have our first question from Ivy Zelman with Zelman & Associates..

Good morning and thank you for the very detailed overview, Sheryl very helpful.

I think when everyone is watching company's report right now there is one trepidation about guidance and recognizing the challenges seem to be a lot more on the supply governing issues as it relates to labor, but Houston obviously in the front of everybody's mind you didn't disclose the year-over-year decline there, we had Ameritas talk really badly about Houston and the deterioration there.

So given the portfolio approach and you showed your resilience in Phoenix while unfortunately companies were missing numbers, maybe you can give us a little bit more color around Houston and then just more broadly as you deal with these market volatility or various performances within market more broadly you’ve got a strengthening dollar that’s having an impact in some markets maybe you can help us understand what your thoughts are around markets like Northern Cal, Southern Cal, we've had markets that have been so strong.

Are you concerned about any of the markets that might moderate and do you think that 2016 that you continue to see organic growth and still need those absorption numbers or you getting concerned that the market is getting hit I know there is a lot, so I’ll stop there. Thank you so much..

Thanks Ivy, think I got all of them down so once again thanks for your comments specifically on the guidance and how we are feeling about it.

It's more difficult than it has been in the past I have remarkable confidence in the teams when I think about how we roll up the numbers and how the teams report, but when you're seeing the kinds of volatility that we are with the trade base week after week you’ll hold on and expect that they're going to deliver.

But at some point as and both Dave and I mentioned in our prepared comment it really does come down to making sure we are going to deliver quality homes and with all their respect that can remain our top priority.

So I feel good about the numbers, the teams are doing good, but it's not without its day-to-day challenges and we have a significant number of deliveries the last two weeks, three weeks of the year, but we put out numbers that we believe we can get to. Specific to Houston, which I think of your next question.

As I mentioned in my comments and we absolutely over the last quarter have seen a couple things. One, we’ve seen some real softness in that kind of 4 to 6.50 ranges and that has impacted the Darling business a little bit more than the Taylor Morrison business is that really is our sweet spot.

We've seen our cancellations increase in our Darling business significantly year-over-year.

Now part of that quite honestly is the consumer getting a little trepidation about their ability to sell their house and part of that is us cleaning out our backlog and if we don't have a 100% confidence in their ability to perform in their realistic expectations on the resale of their own homes then we have gone ahead and cleaned out that pipeline through October.

To meet of the market continues to be really at that 200 to 400 price point.

We are as I mentioned seeing a lot of resilience and that first time buyer that $200,000 to $400,000 price point, its interesting as I’ve listened to some of the other comments on some of the other calls and there's different views on which part of the market has softened we really tried to take a look internally and say what are some of the differences.

And I think the reason we continue to feel and see great strength at that even that $200,000 to $400,000 buyer is the standalone communities that we have our own self developed communities tend to perform better as compared to some of the robust competition in some of the master plans and we see ourselves still raising prices in many of those communities.

With respect to the balance of the market I think specifically around some of the macro economic things were seeing in California both southern and northern markets are still very resilient.

I would tell you the bay continues to be very strong on everything we bring the market continues to do well our challenge or opportunity in the bay as we just kept burnt through much of our inventory that we were able to put on the books through the downturn.

So as we - our supply is pretty limited in the bay but the success is still pretty good I think we’ve seen Sacramento continue to hold in their may be moderate I would describe them both is going from Red Hot to really good markets.

And Southern Cal we have not seen the impact and really our communities many of our new holdings along the coast we’re not seeing that buyer like we were in maybe Orange County.

So our businesses in Southern and Northern Cal continue to hold strong and when we look at the new community openings and there performance and what we have ahead of us for 2016 so far so good..

Thank you for that detail explanation and then second relates to pricing within your a lot about pricing power you mentioned just right now that you are rising prices some of the new communities.

When we look at your guidance for gross margins are coming in slightly relative to where you had been previously is that really a mix related issue or is it purchase accounting is there incentives of the Houston that you're using maybe even just broadly and incentive as a percent of ASP has that changed just thing call around pricing power in general incentives.

Please thank you..

Maybe we will tack team this one, broadly pricing I think we are seeing pricing power and many of our communities clearly IV not at the level we have over the last couple of years.

We are still raising prices in many of the communities as compared to being 70% or 80% is probably closer to 40% to 50% and I would tell you the other difference is those price increases are much more modest than they have been in the prior - over the prior 12 months to 18 months incentives have generally state flat Dave are you going to more detail on that..

Yes, take from our incentives there are flat when we look at year-over-year and actually slightly down sequentially.

But I think the leading may be more into the margins IV you know as look forward for the remainder of the year the backlog strong but obviously with the weather related issues which is further straining the labor availability we are seeing the shift in closings through 2016 and that’s definitely impacting our margins for the fourth quarter.

Texas and Colorado obviously were the most impacted areas from weather perspective and as you know our Texas markets generally have some of the highest producing margin rates. So that shift in closings does carry some weight.

And then from a purchase accounting standpoint, the drag that we’re projecting for the fourth quarter on the margin rate is about 20 basis points. So again why we’re disappointed about the shift in the closings, for us this is really a timing issue of some of these things push to 2016..

And the last thing I probably pile on to Dave's response is when we think about incentives and the way they're coming through the P&L these are homes we sold either the end of last year or early this year.

So I think the real question you're trying to get to is what are we doing in the field today and we will not see that come through the business until year.

I think we’re using incentives generally as we always have, I do think in some markets we are seeing incentives get a little higher in the marketplace as folk are working to replace slippage in production homes and try to move specs before the end of the year, I will expect that will moderate, we generally see that every fourth quarter.

So this fourth quarter is no exception maybe a couple of markets little higher in the path. But generally I think our incentives are in line as we expected..

Great, thank you so much..

Thank you..

Thank you. Our next question comes from Stephen East with Evercore ISI..

Thank you and congratulations.

Sheryl I was just following along on some of those issues, when you look at the labor, one how much do you think it's up year-over-year and there's been a lot of concern out on The Street, for the industry as we get into 2016, the pricing that you talked about here in your latest commentary may not be strong enough in the market to cover the labor costs, land cost, accelerations et cetera.

So can you talk about that a little bit and then also when you look at the markets on labor, is it that we’re just seeing a tremendous amount of shortage or are you able to make a decision, do we want to lengthen our closing cycle and maintain margins or do we need the pay up to get our closing cycle in a rational timeframe and absorb the hit on the gross margin?.

Okay. Once again a lot of questions in there Stephen, so we’ll give it, try to make sure we address everything you asked.

Specifically around cycle times, there is multiple issues, so it's very hard I think to take a single brush across the business, because pretty much every condition you just articulated we’ve seen in some markets I am going to tell you that the cost increases won’t to be made up by price improvement.

I think they’re very specific with very specific trade and once again you have to really break the cost of construction apart and say where are you feeling the pressures and those pressures are different across market but you know the trades are going to get their day in the sun and right now there's more work than they can get, where we’re really seeing the pressure is as we did some new communities that's where they really even on same product because they just don't have the crews to do the work.

I would tell you that in some markets we could be seeing the pressure around framers and that’s creating the bottleneck, I would tell you other markets the framers have been able to keep up and we’re seeing it come through at dry wells, Taco, HVAC.

As the markets continue to get some normalcy in the phase and they get these peaks and valleys kind of out of the cycle I think that will help as much as anything for us to be able to plan and for the trade base. Sorry Dave, do you want to hit the dollars..

Yes, from a cost perspective Stephen, year-over-year the labor costs are up call it mid to high single digits, which represents about 150 basis points to our margin, and we’re continuing to see that as Sheryl said, we’re hoping to continue to see those some of the relief from various inputs, things like lumber have been down and that’s been able to take some of the sting out of the labor increases obviously not fully offsetting it, but at least it does..

Okay and that's very helpful. I appreciate it. Sheryl, you gave us some great color on what you are doing with your acquisitions, could you give us an idea of maybe how for these acquisitions have to go to get up to corporate averages on margins et cetera.

And what really needs to be done to get there I mean I think you give us broad overview of what you've accomplished so far, but just what sort of the second half game plan if you will?.

Yes, if I understand your question correctly Steven I mean obviously we are going to see purchase accounting and Dave jump in here, but we are going to see purchase accounting direct through the first half of next year.

When you say get the company averages recognize the Atlanta business the rate will probably get there sometime next year, but you're dealing with much lower ASP so it depends if you are talking about rate or dollar contribution.

Orleans recognizing that, we closed right after their year-end in much earlier says so I think you’ve got a 12-month period ahead of you..

Yes, that’s fair and I’ll take you back to the Darling acquisition, when we looked that what we did there obviously when you brought it on we have the assurance of the purchase accounting, but then it probably took us 12 months to get the benefits of the national synergies to bring that margin up so what is that to us probably in a longer term I mean it could be in those particular markets probably another 20 to 30 basis points over time, but you're looking at probably 12 months from now..

Yes, and I think what’s important is to recognize that each of these businesses have a role in the portfolio and some of them are quicker turned and some of them are margin percent contribution and we balance that across the business..

Okay. All right, thank you..

Thank you..

Thank you. Our next question comes from Michael Rehaut with JP Morgan..

Good morning. It’s actually Will Wong on for Mike..

Hi Will..

Hi, regarding the increased in cycle time you talked about maybe two to 10 weeks longer across some of our communities just on average across the portfolio on a year-over-year basis, what is the average increase right now that you are seeing in terms of cycle times versus last year?.

We actually look at it Will both on our – to be built homes as well as our spec homes, okay and our inventory homes and sometimes you'll let your spec said if they're not sold because you want the buyer to come in so it’s a very difficult metric to give you and I would tell you that what we’ve delivered to date is probably not seen the impact as compared to what we had seen over the last six to eight weeks.

I think you have an industry, everybody racing to the finish line and so what I'm seeing out in the field today is we've got slabs that are sitting for two to three weeks in certain markets. We’ve got framing crews in some markets that instead of showing up the day after the slabs might wait two or three weeks.

When I put all of that average so far into the business I think it's less then three week that we’ve seen extended. When we talk again in February my instinct is that’s going to be significantly longer than that..

Okay, thanks for those comments.

And with regards to spec just given the elongated cycle times have you guys changed you spec strategy in terms of having a few more specs just sort of you can capture that additional demand if that's probably your strategy going forward?.

Not really, we look at our spec strategy very specifically community by community and what we believe makes sense for that community.

We always come into the year and prepare ourselves for the spring selling season with a little higher spec and we've done that consistently this year, but I would tell you there's no wholesale changes in our spec strategy.

I think we look at every piece of our business with our spec how with winter conditions and what can we do to put slabs in the ground in winter market to make sure that TMHF is ready to handle the business.

And if I look at our new markets making sure they got operational as quick as possible to help with thread so we do everything we can to compensate or some of the other headwinds we are seeing..

Okay.

Great and just lastly if I could if you can just talk about October can you give us an color in terms of trends if it's kind of proceeding along typical seasonality or if you guys are seeing any outliers within the October orders?.

Yes, I think what we said is we are more of about 15% year-over-year and given the comments I had on Texas and Houston and actually cleaning out can't I actually feel very good about the outcome October number.

That’s can be a little different in each market Phoenix was on fire and so you have a little bit different trends across the portfolio, but in total we were up 15% year-over-year..

Thanks, I appreciated..

Thank you..

Thank you. Our next question comes from Mike Dahl with Credit Suisse..

Hi, this is Anthony Trainor filling in for Mike this morning..

Good morning..

Thank you for talking my questions. First question on labor so trying to get a sense of kind of the strategy you have laid out to your field crews to kind of manage through these issues.

We have the point you to take a proactive approach to retaining cruise pewter guaranteeing longer repeated - can't repeat build cycles or increasing I thing obviously talked about highly but increasing the expenses.

So trying to understand kind of your strategy on the labor approach and the also what you're seeing in the markets as far as how competitors are responding to higher labor costs?.

Okay, great question and to be real on its Anthony we can spend and Dave talking about this one because obviously it's getting a lot of focus and not just our organization but I think across the industry.

So thinking big picture you got an immediate need and some immediate solutions on what you're doing to make sure that you're being competitive your sites are ready, you’re the builder of choice for the trade days because those relationships as I said in my prepared comments really do matter when they can go everywhere anywhere they want and I believe that we are getting more than our fair share.

Even flow is very, very helpful when our trades know that when they show up the houses or where there oppose to be that's really one of the best gifts we can give them.

Anything we can do to simplify to be repetitive in our production activity in our design activity those are things that are really important to help the trade base because there's different level of skills out in the marketplace.

Some of our product you know with stake frames per second you know we might not be able to have all framing crews work on all of our products because some it’s a little bit more complicate and there is different levels skill.

So once again Anthony there's not going to be one solution we continue to expand our trade base and make sure were bringing all new talent and that’s kind of very much in at the moment as we know as markets normalize.

I think beyond that you have a lot of macro solutions that were working on and it can be with you know education working with colleges that's returning to the workplace. I'm working on the political front to what we can do to attract and develop talent into our industry.

We have a work visa program that many of our trades are looking to take advantage of which I think will give us some relief in 2016.

So like I said I could probably go on for hours on that but there are really a number of different opportunities as far as with the competition is doing I think you're saying a lot of the same activities that were doing.

I think that we are seeing some silliness I don't know that’s our competitors or that’s just the different trades on doing whatever they can to grab crews off-site and we are going to work through that through the year-end..

I probably the one thing I would add in the Sheryl’s point about being the builder of choice one thing that we do have most follower market to scale.

So you add a question around you guarantee future work just our scale alone helps put us in a great position and working with trade because they know that the pipeline is there you know out into the future..

Good point Dave..

Great thank you for those comments and then my second question I mean just given the labor environment broadly guess how are you thinking about 16 community count growth and growth generally for next year?.

Haven’t really given any guidance for 16 yet….

We are bit early we are actually in that process right now working through next year's plans, I don't want to get too far out in front especially with some of the things that we've seen from a labor perspective, but I think from a growth perspective you could probably expect us to come out somewhere probably inline with the industry from a community count growth..

Yes, I think Dave points right we really do need to see how we make our way through the quarter.

But we are spending a lot of time talking about labor but it actually goes well beyond that, when you talk about community openings, I mean the growth is impacting to be municipalities, it’s impacting everything from architects to engineers, one that doesn’t get a lot of discussion is the utilities and when all of these production homes get completed at the same time, we have one market where we had a subdivision waiting for power for more than 30 days.

So I think we need to make it through the year end and see how everybody does and then it would give us a better perspective on our February call..

Appreciate it. Thanks, guys..

Thank you..

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

Good morning, everyone. Just wanted to follow on that ancillary services comment, you just made. What are you seeing on the land development front and are you seeing financing for land developers open-up, where you guys might be to access a more finished lots..

What are we seeing on the land development front, I think that same thing Jay that we’ve talked about for a few quarters, you are seeing development activity pickup, so some of the development activity is taking a little longer, some of it’s actually in the planning stage and some of it’s in the field.

So generally if I go back two years and look at the planning times, we’ve probably seen cycles extend from when we thought we would be open for sale anywhere between 30 and 90 days but that’s kind of been a constant theme for the last couple of years and I think we find ourselves in that exact same place.

As far as financing and finished lots, Dave any comments, I don't really think from our standpoint it just had a significant impact or some market where I think you’ve seen those same delays of big master plan come to market but that's not the bulk of our business. So we haven’t seen any impact there..

Yes, that’s very little for us so far, I’d say it hasn’t changed much for us over the last couple of quarters..

Okay, okay sounds good.

And then just want to touch on power stratification what percentage of your closing this quarter were first time buyers and how does that compared to last year?.

Yes, so pretty consistent to be real honest Jay. If we look at those sales and closings, sales were somewhere around 21%, our closings were a little bit less than that.

The active adult business stay pretty consistent and that kind of low double digit number, so I don't think you have seen a real shift; I think when I compare that Jay kind of what’s going through our mortgage company.

Once again pretty interesting about 32% year-to-date of our buyers that actually went to TMHF, our first-time buyers and about 29% are true first-time buyers meaning they’ve never owned before the truth and the definition of first-time buyers at the 32%. So pretty consistent with what we’ve seen in prior quarters.

Obviously, with some of our new markets, we are going to start see that ramp up it had..

Okay, great, thank you..

Thank you..

Thank you. Our next question comes from Jack Micenko with SIG..

Hi, good morning. Dave I think you had said earlier in the call, some of these deliveries that get pushed into 2016 or higher margin delivers.

So I guess not looking for guidance but also the goal should 1Q and 2Q 2016 margins be a little healthier than the more they maybe normally be seasonally?.

It’s probably little bit too early for me to tell like I said we are working through those numbers. Mix is going to continue to play a factor as well as the new community openings. So probably give you a little bit better color here in our next call..

Okay, fair enough.

And then on the SG&A dollars obviously the step-up from the acquisitions does the dollar level improve from here, are there synergies to take out where is it more deliveries on a fixed SG&A dollar base going forward?.

We are going to continue to run a lean organization, we were around 10%, was same for the year. Absent to M&A’s we are going to continue to strive to get topline leverage in that number. We don’t have a lot of cost to take out obviously, but as we grow our business we think there we are going to be able to drive some basis points year-over-year..

Okay, great.

And then Sheryl, just real quick on the mortgage availability comment, is that just the mortgage bankers index you are referring to or you seeing something specific in Taylor Morrison Funding that’s giving you incremental optimism?.

I think it’s just across the board, it's a little bit of both to be honest I mean we are experiencing stronger capture in our jumbo business then in prior quarters so I think we've seen that. I think we are seeing less restrictive documentation requirements not necessarily using an [JEH] or credit, but just overall a slight benefit to just a process.

I think as we look forward and we look at what FHA might be doing even though it's not a significant piece of our business. We are hopeful that if the FHA continued healthy as kind of expected we’ll see some shifts there on MIP reduction. So I think it’s global on what we've seen and specific to Taylor Morrison Finding as well..

Okay, thank you..

Thank you..

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

Thanks. I wanted to discuss the volume pattern, the community counts pattern over the second half of the year.

At the end of the second quarter you indicated some potential for delays in the third quarter, but unlike a lot of other builders you delivered around what you expected community counts same thing, your community count was actually stronger than what you had indicated, but then at the same time on the 4Q numbers you are obviously lowering those on both counts.

So how should we interpret that, it seems as though the labor delays have been unexpected by and large, but it seems as though maybe there's some more discretionary actions you are taking.

So how should we interpret the flow of how the delays have happened and how it’s impacted the flow of closings and community counts in the second half of the year?.

Yes, it’s a fair question Nishu. I think its a couple things that really factored into our guidance. One is as I said in the comments, we are going to be very deliberate about closing houses that aren’t ready and so having those community still open is one factor.

We are also closing out a number of communities and so when we look at the year and average which is really the number I think Dave guided to is kind of our starting and our ending point, you're seeing that overall reduction compared to just a fourth quarter number. Sequentially we are still adding communities each and every quarter.

I think the thing that's a little foggier for us is which ones will close out and our ability to deliver some of those finally in it..

Got it, okay. And just coming back to the gross margin guidance, obviously you’ve made a number of comments on that already.

The reduction, if we think about the drivers of the reduction the main factor you've cited has been the mix of closings and pushing some of higher margin closings into the early part of the next year and also other factors you mentioned such as – Dave you mentioned capitalized interest potentially being higher, the purchase accounting are being 20 bps in the fourth quarter acquisition, synergies.

I think you had said also by 20, 30 basis points.

So if we’re thinking about the reduction is it just because of mix or are those other factors affecting the reduction as well, the Delta and obviously with the concern about pricing you’ve said incentives are slower, but is that a part of it as well?.

It’s a great question. I think there is probably two things that changed in our guidance from last time, obviously mix that’s the lion share of the change as we talked about.

There is a small portion of that tied maybe a little more to capital interest based on the number of closing that are coming through, but those are really the two things that changed drag from the acquisitions that stays a same at 20..

Got it.

But in terms of the Delta rising construction costs or lower prices are not immaterial driver for your reduction in gross margin guidance?.

Because a lot of that was baked in obviously when you start the house, so what we are seeing that is probably more pressure, a little bit in Q4 just depending on, when it was – when the house was started but probably more so in the first half of next year..

And fairness probably kind of hedging about a bit, because we are seeing some of that activity out into the field and we know there is going to continue to be cost pressures on getting the fourth-quarter deliveries.

I mean don’t you think Dave it’s almost all the items that you should mention but the two that you mentioned are obviously carrying the greatest weight..

Yes, I would say it’s definitely that the shift is the greatest..

Yes, okay, thanks for the color.

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

I wasn’t sure, if I missed it.

But did you mention or can you give us the number of orders that were contributed by JEH in Orleans this quarter as well as homes that came into the backlog when you acquired them?.

We didn’t go into that specifics by market I think all we said Alex was that sales and closings were within line with our underwriting and expectations..

From a backlog perspective, now keep in mind, we did the acquisition in July, but we came in with Orleans call it about 6,570 units in backlog..

Okay, that’s good.

And then I guess I wanted to ask a more general question, probably that effects markets in Texas like Houston where demand has slowed and you mentioned Austin were also demand apparently has slowed? What’s your general approach there, is it just to kind of weigh things out or is it more to offer a higher broker commission or higher incentive or when do you cut prices, or what’s your general approach to markets like that that slowdown?.

I would use the discussion we had all of last year around Phoenix as guidance to how we look at markets like this, but we do recognize that markets are going to ebb and flow through a cycle. The underlying quality of our land at the end of the day is what gives us the confidence and the overall market performance.

So things are going to slow down but the quality of our land and the length of our land bank to be quite honest especially in Houston Alex, we’re not going to just flashing, cutting and burning because the quality of the underlying land is just way too valuable, we make those decisions community by community around incentives and sometimes and close outs comes back - should you what you need to do.

But just like we did in Phoenix last year, we let the market discount away and we stayed pretty firm, we’re going to have discounts and we did in Phoenix but we’re not to going to have a wholesale shift, because we’re still selling units, because of our communities, things might slow down a bit.

But once again we’re only caring about a four-year land bank in Houston today. And when you look at the volume that we’re pulling out of Houston will be very sensitive on new acquisition just like we were in Phoenix, we might find some phenomenal opportunities just like we did in Phoenix.

But there is not a single kind of strategy or approach that you would go to a trouble market, this is a very local business, and we’ll make those decisions community-by-community..

And for us at the end of the day it’s about portfolio management, so you have some markets that are maybe a bit slower, we do look to some of our stronger markets to help cover any kind of shortfall and we’ve seen a lot of that strength as Sheryl mentioned this you're in Phoenix and some of our markets and Florida as well..

And I think the last comment I would throw on Houston is, once again, I think you need to look at the market over time very similar to Phoenix, when I look at our performance in 2015, even with the slowdown we’ve seen over the last, few months and then I compare it to 2014, 2014 was the anomaly it was a very, very good year for us, when I look at it compared to 2013 in this trajectory, if we still have a very good market and we’re still selling a lot of houses is just quite different from last year..

Okay, how about the flipside of the argument, so like in the market like Phoenix that this year has accelerated or you more careful to raise prices and just kind of let the sales phase go up or at what one point you decide, you gain the confidence to raise prices..

Yes, it’s the exact same discussion to be quite honest about it Alex it’s a very community by community discussion, you look at a number of factors, you look at the competition, you look at supply, you look at the demand, you look at your ability to replace that land.

So we have a number of communities in Phoenix that we are raising prices and some of that it’s a reduction an incentive some of it’s actually based prices. So you do it in a number of different ways, but do I think the market is going to be more carefully given the run that we had in 2013 absolutely.

So we are going to make sure that were just very responsible in our analysis as the market continues to unfold. End of Q&A.

Thank you. We have no further questions at this time. I will now turn the call over to Sheryl Palmer for closing remarks..

Thank you for joining us for our call today. I wish you all a very nice day. Take care..

And thank you ladies and gentlemen this concludes today's conference. We thank you for participating. And you may now disconnect..