Good morning, and welcome to Taylor Morrison's Third Quarter 2017 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce Mr. Jason Lenderman, Vice President Investor Relations and Treasurer. .

Thank you, and welcome, everyone, to Taylor Morrison's Third Quarter 2017 Earnings Conference Call. With me today are Sheryl Palmer, Chairman and Chief Executive Officer, and Dave Cone, Executive 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 our results, along with our guidance for the full year. Then, Sheryl will conclude with the outlook for the business, after which, we'll 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. .

Our ability to balance price versus pace. This is evident, as our discounts are still being used in moderation, which were down sequentially, and are not being relied upon as a significant part of our selling strategy.

In addition, I appreciate the team's work with spec inventory, with less than one completed spec per community at the end of the third quarter. Similar to last year, we have begun ramping up our inventory production in anticipation of another strong spring selling season.

Our average sales price of homes closed was $481,000 for the quarter and represents an increase of 3%, compared to the same quarter last year. Overall, I'm extremely proud of how we performed for the quarter, given the unprecedented disruptions faced.

And while we're proud of our results, they pale in comparison to the countless examples of unity and compassion that I witnessed across our organization this quarter.

As always, I'm confident Taylor Morrison will be able to navigate the ebbs and flows of our industry, while being driven to put the company in a position to deliver the year and set us up for a strong 2018. With that, I will turn the call over to Dave for the financial review. .

Drive consistent year-over-year accretion to ROE. We fully expect that to happen in 2017 and beyond. We recently announced an extension of our stock repurchase program through December 21, 2018. In addition, the overall program's purchasing capacity increased to $100 million.

This program has been, and will continue to be, a complementary piece to our broader capital allocation strategy. We'll be opportunistic in our execution within this program and layer that evaluation into all future strategic decisions around investment. In the third quarter, we purchased just under 200,000 shares.

We believe in the role that stock repurchases play in the market and how it illustrates our desire to keep our options open with capital deployment as a way to maximize shareholder returns. Despite the challenges we faced, we are focused on delivering within the ranges of our guidance. So let me wrap up by sharing our guidance.

For fiscal 2017, we anticipate closings to be on the lower end of our range at 7,850. Our average community count will be about 300, and we continue to expect our 2017 average monthly absorption pace to be at least 2.3 per outlet.

Our GAAP home closings margin guidance, including capitalized interest, is expected to be accretive to 2016 and in the mid 18% range. We anticipate increased costs in Houston and Florida, but we hope to manage through this with opportunities in other markets.

Our SG&A as a percentage of homebuilding revenue is expected to be in the low- to mid-10% range. JV income is expect to be about $10 million, and we anticipate an effective tax rate between 34% and 35%. Land and development spend is expected to be approximately $1 billion for the year. Thanks, and I will now turn the call back over to Sheryl. .

Thank you, Dave. From a macroeconomic standpoint, most indicators remain stable to encouraging. Consumer confidence is still healthy, with short-term perspectives continuing to trend positively. This speaks to our current economic condition, the overall business environment, and increasing stability around jobs.

Employment levels are good, with the unemployment rate well below 5%, and personal balance sheets continue to strengthen, with real estate values increasing by more than 10% nationally from the same period last year.

Specific to our industry, we still believe we're in an advantageous part of the cycle and are excited about the potential moving forward. Supply levels are still low in both new and existing homes, and that has created a favorable demand proposition from which we've been operating for some time now.

The supply of existing homes has been relatively flat year-over-year, and the supply of new homes has seen just a moderate uptick as of late. We think this uptick is a result of homebuilders trying to fill the void left by low levels in existing homes.

The current lending environment continues to provide customers with attractive terms to finance their individual home purchases. Rates are still hovering in the 4% range for conventional 30-year mortgages, which is well below historical averages. Dave mentioned our mortgage operations in his remarks, and I'll take a minute to touch on them as well.

As I've mentioned before, they are a critical part of our connection to the customer. TMHF provides tremendous insight, based on their commitment to align financial services from the beginning of the buying process and throughout the construction of our homes, to deliver the best product and experience to our home buyers.

As we look at customers in our pipeline, we continue to see a very strong borrow profile, with an average credit score in the mid-740s. Our average borrower had an LTB of 74%, with a debt-to-income ratio of 36% on a loan amount of about $340,000.

I also think it's worth mentioning that Taylor Morrison Home Funding recently introduced a complementary one-year membership of LifeLock identity theft protection services to all of our Taylor Morrison and Darling Home customers who purchase a home before the end of the year and close with financing originated by Taylor Morrison Home Funding.

We have found that today's customer appreciates the added level of comfort and protection of their personal information, and this program further enhances the importance we place on our quality customer service experience.

As I did last quarter, I want to update you on the latest installment of our customer survey results and the learnings we've been able to glean. We recently published findings that suggest our customers are becoming more and more willing to sacrifice indoor space for outdoor space.

In fact, more than 50% of the respondents said they'd be willing to do just that. The survey also found the most important exterior feature of a home is distance from neighboring homes. This notion was represented in about 50% of respondents and was almost equally distributed between millennials and non-millennials.

This breathing room is key, and it scores higher than any other curb appeal element, such as siding, driveway styles, exterior paint color, and roofing.

At a time when land prices are escalating and local approvals can force smaller lot sizes, our company is creatively maximizing limited areas, especially in urban locations, making the entire living experience that much more enjoyable.

Interest in more outdoor space is stronger among women than it is men, with roughly two in three preferring less home square footage and larger yards, compared to a little more than half of men. Taylor Morrison shopper surveys also reveal an increasing desire for enjoying the back yard.

When asked what home shoppers would expect an extra $10,000 to $15,000 on in their new homes, outdoor living items topped the list over features such as upgraded cabinets and kitchen islands. These little pieces of knowledge add to the mosaic of understanding we already have, related to our customers.

Knowing their evolving needs and wants, and more importantly, incorporating our consumers' feedback timely into our product offering, is critical for us to remain on of the industry leaders in customer experience.

Let me close by saying one last time how very proud I am of our Taylor Morrison team and the resilience they've shown these past few months.

The hurricanes are just the latest in a series of disruptions we've experienced since the recovery began, and yet, the team still finds a way to deliver on its promise to our customers, to our shareholders, and to each other.

We'll continue to have the courage not to over-react and to stay true to our strategy, all in a concerted effort to drive value for all of our stakeholders. With that, I'd like to open the call to questions. Operator, please provide our participants with instructions. .

[Operator Instructions] Our first question comes from Stephen East with Wells Fargo. .

Thank you. This is actually Paul Przybylski on for Stephen.

Sheryl, I guess first off, could we get your thoughts on the recent Lennar/CalAtlantic combination from a strategic and competitive perspective? And then, does that alter your view on M&A going forward?.

Well, good morning. You know, I don't know that anything has changed from prior conversations that we've had regarding just M&A. You know, when we look at M&A, as we've always said, it's really about the best use of cash.

And as, you know, I've said, I think Dave and I talk about it on the road a lot, you know, along with our senior management and the board, we're always reviewing opportunities around acquisitions, value around acquisitions, you know, being acquired, who should we acquire, and I think that's kind of our fiduciary, you know, looking at new markets and should we go wider or depth in market.

You know, so when I look at the M&A in total, I don't think anything's changed. When I look at this particular M&A that was just announced, I probably have a couple thoughts. You know, I think it told us very clear that there was a strong vote of confidence in the cycle.

And we've talked about for some time our feelings about the longevity of this cycle and that we have some runway ahead, and I saw this as kind of a very strong message.

I believe the macro fundamentals from how the consumer is feeling, to jobs, income growth, to the, you know, building on the production deficit, to generational tailwinds provide pretty strong catalysts for this opportunity. I think the other thing it demonstrated is the importance of scale, and you know, I think scale is often debated.

Does it really matter? What matters most, local, regional, national? I think they all provide something different, but they matter. You know, if you think about it, the top 25 builders represent about 45% of the new home market, and the other 55% just divided by hundreds of home builders.

If you think about the market cap of our industry and that Home Depot, on its own, is something like three times greater, what does that really do, from an efficiency standpoint? So, all in all, you know, you put all that in the blender, and not to even mention the trade environment, I think the top 10 builders really have an advantage to get consistency and predictability with scale, and I think this kind of, once again, underscores the importance of that.

.

Thank you. And then, switching gears a little bit, some of your competitors have recently mentioned, you know, they're seeing some price resistance at [indiscernible] communities.

I was wondering if you're seeing that, and if so, are there any markets where that's become more prominent?.

You know, when I look at the quarter, we continued to raise prices in probably nearly half of our communities. .

It's about 40%, yes. .

Okay, so almost half, excuse me -- very similar to last quarter. You know, I wouldn't tell you there's anything meaningful, market by market. You'll always have a certain asset or community that's in closeout that maybe you get a little bit more resistance. Generally, it's going to be around your offering.

We're not seeing it particularly just across the market. If I would tell you there's a market that I think the higher price point is seeing just resistance in general, more of as a result of the amount of inventory that's building up at the higher price point, that would be Dallas, and we've been talking about that for the last couple quarters.

There's a little more price sensitivity and a little bit more inventory at that over-$500,000 price point than we've seen. I think last quarter, we talked about the Bay and that there had been some price hesitation, but that would be, like, over the $3 million price point, so not something we really play in there. .

Okay, thank you. I appreciate it. .

Thank you. .

Our next question comes from Alan Ratner with Zelman and Associates. .

Hey, Sheryl; hey, Dave; good morning. Congrats on a good quarter, given all the challenges you guys faced. Glad to hear that your team members all made it through a difficult period there. So my question is kind of an elaboration on Paul's first question.

You know, I think it feels like the last few months, we've heard builders talking about various strategy shifts or areas of focus, I guess, at this point in the cycle. And you touched on the scale side and M&A, but we've heard others talking about shifting towards more asset light.

We've heard others talking about a shift in price points, maybe more entry level, maybe more active adult. We've also heard some increased chatter about investments in technology and automation, and maybe changing the way we go about building homes in this country, which has pretty much been the same for the last century.

So I was just curious, maybe to take a step back, Sheryl, if you could kind of give us a little bit of insight.

Where are you spending your time when you think about the multi-year outlook for Taylor Morrison for the industry, maybe something that we as investors and analysts don't necessarily see in the numbers, but curious where you're focusing a lot of your attention and efforts these days?.

Okay, thanks Alan. I think there's a lot of questions packed in there, so hopefully, I'll get them all.

You know, once again, I think from a strategic standpoint, what we've articulated over the last 12 to 24 months around our operational cadence to make sure we got that where we need it and to prepare the company for additional growth at the right time has been a great deal of our focus. We're not looking to grow for the sake of it.

You know, I believe that scale enhances the business and generates financial returns that are productive for our shareholders. There's a number of strategies that are deployed to get us there. You mentioned a couple of them.

When I look at our consumer kind of segmentation and the third of our business being to that first-time buyer -- and you can slice that first-time buyer up a couple different ways -- that's taken a great deal of focus from the business, or of the business, and we think it's been well suited.

That third in that first second-time move up and that third in the active adult is really how we like to see the business play out over the next few years. Once again, that could move a few percentage points one way or the other.

But when I look at just the generational tailwinds we have coming to the sector, I'm actually very excited strategically about how our land portfolio is lined up to address the needs of the buying consumers.

When we look at the land portfolio specifically, to your point on asset light, we've moved our landholdings from about a 10-year supply of less than five years ago, to half of that today. We think that's about right. When we think about what makes sense in the full cycle, I think we've said somewhere around five to seven years.

What I'm most pleased on with the business right now is really the way we're using our balance sheet and going a little lighter, getting a little bit more seller control or, you know, carry-back, and as Dave talked about in his prepared remarks, moving our controlled number, you know, fairly substantially.

And then lastly, when I think about another focus of the business, you kind of get the operational piece. You have to have your land platform. It really is the overall consumer experience.

all the things that you talked about, Alan, and all the things that we're hearing, if it's technology within the homes, if it's home designs, if it's marketing, it's really -- I put that all in the overall customer experience, and I think the bar in our industry has been too low.

I think the opportunity to make sure that our experience with that customer, from the time they first see us and drive by a sign, or that first web experience they have, all the way to the post-closing, is an area that the organization is spending a great deal of time on, but that's something we'll share a little bit more in the coming quarters with the Street on.

.

Great, and I appreciate all that insight. Thanks a lot, and good luck. .

Thank you. .

Our next question comes from Mike Dahl with Barclays. .

Hi; thanks for taking my questions. .

Hey, Mike. .

Hey. I wanted to ask around some of the sales activity, and Sheryl, I think you mentioned that, you know, outside of the storm-impacted regions, absorptions were up 10%.

So I'm curious, just as you've gotten through the month of October, if you could give us a little color on how the storm-affected regions, Florida and Houston, have potentially rebounded from an absorption pace, because I think that suggests ballpark that they were down, you know, 20-ish percent, 20%, 25% in the third quarter.

So anything you can give us on how those markets have evolved over the past month or six weeks would be great. .

Yes, you bet, Mike. I'll give it my best. Realize that the month ended a few hours ago.

So what I will tell you is for October -- and I haven't been able to, not that I would, but exactly audit the numbers, but we saw a pace of about 2.1 for October, which was flat year-over-year, which candidly, I am quite pleased on, especially with all of the things we've been sharing with you around our pull-forward.

So when I look at the sales end throughout the third quarter at that 2.0, I couldn't be more delighted. I think we were set up to do a very nice quarter. We came much closer than I would have ever expected with the sales disruption. And once again, recognizing the sales pull-forward and the amount of closeout communities that we had in inventory.

You know, I think I said in my prepared remarks that our pace of that 20% year-to-date, and that's even with the effect, Michael, of you know, the closed sites during the hurricanes.

And primarily in Houston and Florida, we were, you know -- it was difficult to access the sites, and we were also probably closed for maybe a weekend in Atlanta, Austin, and Charlotte. I think we've seen a return of all of those, as we've moved into the first few weeks of October.

I think lastly, I'd mention that I think the Street estimates, without consideration of the storms, had us at 2.1 for Q3, and we came in at 2, so like I said, I'm delighted. But maybe, more specifically to your point, let me take the opportunity to do a quick tour around the markets.

Where we were really down the greatest in the quarter, and maybe as well in October -- like I said, I haven't been able to get through the detail of the October sales yet -- was in the West. And that was really driven by reduced community count.

We were down 16 communities in the quarter, and that was really around us selling out much sooner than we had planned, because our pace was up 22% for the year in the West for the first three quarters. Phoenix and the Bay, they operated at a pace nearly of 5, year-to-date. And so, once again, that was really the driver in the West.

And that was also, as we watched our ASP move up in both those markets of somewhere over 400 and 900 in Phoenix and the Bay. I think also in the West, if I were to round it out, Sac was very stable. I think it was slightly impacted by community mix.

And Southern Cal community count was the other place we were, you know, down because of the pull-forward and some opening delays. In Central, you know, I'm amazed that our year-to-date, our pace is stronger than last year, with the impacts that we saw in Texas.

And for the quarter, it was negligibly down, I think which underscores the strength of the markets that we've seen in Texas since kind of the energy recovery. I won't spend much more time in Texas.

I think I said enough in my prepared remarks, with the exception of maybe Austin, where I would tell you it remains very strong, both paces and units up meaningfully year-over-year.

Lastly, to round out the country for you, in total, the East was flat year-over-year, even with the impacts of Irma in Florida and the slight impact in Carolinas and Georgia. So all in all, once we get through the October numbers, we'll be able to see how it all cuts. But given the 2.1 pace in October, I just couldn't be more pleased. .

All right, that's helpful. Thanks for the comprehensive review there.

I guess some of that dovetails into the next question, which is really just, if you think about some of the accelerated closeouts and some kind of gapping in certain markets, plus potentially some of the delays you're experiencing on the ground in Florida or in Houston, I know you kept the community count guide at about 300.

But just, if we could get a bit of a forward look, like as you look out over the next two, three quarters, how should we expect the community count to trend?.

Hey, Mike, it's Dave. So maybe I'll just pick up with the fourth quarter and for the year. We're expecting to be, you know, somewhere around an average of 300. But in all honesty, we've got some work to do, obviously, in the hurricane-impacted markets. There was some delay there, so we're fighting to get them open.

And as you know, we routinely deal with delays around, you know, municipalities and, you know, sometimes from the development perspective. You know, as we move into next year, we still have some work to do. Again, we're kind of in the process of rolling out plans now.

But I think you're going to see somewhat of a stable, probably, community count as we move into Q1 to Q2, relative to Q4. Again, some more work to do, more so in Florida and Houston, to see if we're going to get any kind of incremental delays. But we'll get more to you here in our next call. .

Okay, thanks guys. Good luck. .

Thank you. .

Our next question comes from Michael Rehaut with JPMorgan. .

Thanks. Good morning, and glad to hear that everyone's safe and, you know, the performance around the challenging weather. The first question I had was on gross margins.

You were good enough to give some very good detail around what you estimated was the impact in 3Q from the delayed closings in terms of gross margins in SG&A, in addition to the closings themselves. You also kind of highlighted that you do expect some labor pressure, [indiscernible] labor and materials in some of the key affected areas.

You reiterated your full-year guidance, which is obviously very encouraging. I was hoping to get a little more detail on 4Q itself, because there can still be a little bit of a range; when you talk about mid-18% for the full year, there's a little bit of playing room for 4Q.

I was curious if you expect 4Q gross margins to be down sequentially a touch, perhaps, and, you know, if you have any sense of just what the higher labor material impact might be on 2018, you know, if you just isolated that impact. .

Sure, I'll hit the margin for Q4 first. You know, we have good visibility in the backlog for the Q4 margins, but as we've been talking about, we do anticipate some additional cost pressures from the hurricanes. You know, it's a little bit different outcome between the two markets.

So, you know, Florida, they've seen some nice recovery; not a lot of impact from a trade perspective. Still a bit stressed, given some loss [indiscernible] the weeks of productivity that we had there. But really, the cost pressure that we've seen is more on replacement of landscaping, so not as much on the actual construction side.

You know, as the norm in this industry, we're going to have to deal with the year-end push to get some homes closed there, but we anticipate probably a quicker recovery here, maybe than -- compared to Houston.

In Houston, the crews, they're not at full capacity and they're definitely stressed more so, given the amount of work that they have ahead of them, and we don't we've seen insurance companies or FEMA fully engage the trades yet.

So we're probably still a little bit cautious there from a cost perspective, but most of that pressure is coming through the labor side in Houston, really in drywall and some of the finishing trades.

So we're going to pay more to get the homes built in Houston versus kind of the pre-hurricane time, but we're managing through that, and we believe we've captured the increased costs in our margin guidance. Some of it is going to come down to, Michael, just around the geographic penetration, too -- how many homes we can get closed in Houston.

That's one of our highest-margin markets that we have, even with the impacts of the hurricanes there. So as we move forward, I think we're going to be somewhere near what our rate has been here. Probably year-to-date, we're about 18.4. Q3 was 18.6. I'd put us, again, kind of mid somewhere probably in that range.

And then, as we look to 2018, again, a little bit more work to do there. The question is, how long will these labor pressures stay? We're going to have to work through this recovery aspect of it, and then we'll probably see some reduction of costs going forward, but we'll give you guys some more detail on the next call. .

I think the real interesting thing on that, as you look at 2018 Michael, is all the programs that we've been working on and you heard Dave articulate, once again, in his prepared remarks, you know, we see a lot of benefits, and we're hoping to be able to pull those through compared to absorbing some of these cost increases, given the constrained labor environment.

.

Thank you; I appreciate that. I guess secondly, also kind of a little bit of focus on 4Q, the community count guidance of about 300 average communities for the full year would point to a pretty strong step-up in 4Q. And I understand, granted, there are still a lot of moving pieces, and you kind of alluded to some of the challenges there.

But, you know, if you just hit 300 on the nose, it would point to an average community count for 4Q of around a little over 310, 311, something like that, which seems pretty challenging. So I just wanted to make sure that I'm thinking about that correctly, as well.

I think if you had some level of improvement, maybe closer to 300, it would be closer to 295 or so, it's still about or around 300. You know, I just don't want to get overly aggressive, given some of the challenges. And obviously, you know, there are a lot of different potential delays with community openings, as we all know. .

You're thinking about it the right way. And like I said, we're saying about 300, and it's not going to be more than 300, to say it a different way, just given the amount of work that we have to do. So those communities are coming; the question really is can you get them in place before 12-31? If not, they're going to come in Q1. .

One, you have a lot of communities that are moving into closeout mode, and the question will be will those get closed out before the end of the year? And then, as you said, Michael, we have a lot that are coming on in Q4, and will they hit, you know, November, December? And then the impact, we haven't talked much about it.

One of the other areas of focus, but we assume we're going to get these things open, is the impact of utilities on getting new communities energized in California primarily, given the wildfires. So that's kind of where we're hedging our bet. We're not sure if we'll get those or not. .

Great, thank you. .

Thank you. .

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

Thank you. I wanted to dig into just the closings impact a little bit. You know, the kind of two numbers I'm thinking about is the 130 closings that were affected in 3Q, and you know, your guidance that you're going to come in closer to the 7,850 and the end of the range.

You know, if I look at those two numbers together, the 3Q impact alone probably would have pushed us closer to the bottom of your yearly closings guidance range. So how should I think about 4Q? I mean, one thought is that the closings -- the delay, the impact might have been even greater in 4Q than in 3Q.

Or, you know, I mean, alternatively, you know, perhaps 4Q is when you begin to make up ground, and obviously, that's some of the shift from 3Q to 4Q helps offset as well.

So how should I think about that? What is the number of closings that would be pushed from 4Q into 2018 on a net basis, and are things -- is 4Q going to be a quarter of making things up, or is it still going to be a quarter where delays are building?.

It's going to be a little bit of both, Nishu. It's a good question. So, you know, we're saying the low end of our guidance, mainly due to the uncertainty around the trade labor, primarily in Houston, and then, you know, of course, trying to make up some of that lost production in Florida, as well.

So the missed closings from Q3 will likely come through in Q4, but some portion of the deliveries originally scheduled for Q4, those are likely going to slide into next year, so there's definitely a bit of a cascading effect. We have the homes in backlog; it's just a matter of getting them built.

So from our perspective, we're focused on delivering the quality homes and hitting that low end of our range. We expect to be there. .

And I don't want to be redundant, Nishu, but I do want to underscore again that, even though today's point, the greatest impacts are Houston and Florida, and a new push in production, we don't fully appreciate how the utilities will get caught up in Northern California, and we have a number of multi-family buildings that we'll be delivering in December that we're assuming, you know, will get energized.

I would tell you some will, some won't, and so that's why there is just some wiggle room right now. .

Maybe the last thing I would add, and you know, we're watching this, but you know, to date, we haven't seen any real impacts in the surrounding markets, but we are hearing some noise around trades heading to Houston, as the wage opportunity is pretty significant, so that might have some impact. But again, like I said, we're watching this closely. .

Got it, and following up, Sheryl, your comments about October were very helpful, you know, the 2.1 absorption pace, you know, flat year-over-year. I wanted to dig into that a little bit more.

How does that compare, let's say, versus what you were kind of forecasting or budgeting, based on what you've seen early in the year? And anecdotally, you know, if you think about the 40% of your communities that were affected, that 2.1 pace, does that represent things being slowly back to kind of normal against budget, et cetera, or is there still some catch-up.

Maybe also, just along those lines, any kind of anecdotal commentary you have about how people are reacting in the wake of these events would be helpful, please. .

Yes, so let me start with your last one first, Nishu, how people are reacting. I think we've been surprised how quick we got back to business. I mean, we were opening communities [indiscernible] before we really had access to sites in Houston, so I think the demand has been there. And let me start with Houston.

We were quite surprised on how quickly we were getting calls, because we couldn't even get communities open. We were closed a solid seven days, and that was a minimum. And I think every [indiscernible] we have seen that pick up, and we have been remarkably delighted. Florida, the state, you know, acted a little different.

I mean, we definitely had more of an impact on access to sites in Naples than we did, you know, in Tampa or Orlando. But now that I look at the state in totality, maybe with a couple exceptions in Naples, I think it's kind of back to norm.

the only thing that probably would be worth calling out, Nishu, would be maybe the winter visitors, you know, are taking -- took a little bit longer to come into the market, that we would have normally started seeing, you know, in October.

I think they started coming back just a little bit later than we would have expected, but all in all, I just couldn't be more pleased. When I look at the 2.1 and I compare that to budget expectations -- and once again, this is more of a global comment, because I haven't been able to dig into the detail yet -- I think that's pretty much in line.

If I go back to our budget earlier in the year, we might have had an expectation closer to 2.2, but when we look at what we did from a pull-forward and just our inventory, the impact of kind of closeout communities, it's actually right in line or on the high side of our expectations to get us to what we shared with you, that, you know, at least a 2.3 annualized pace.

.

Great, thank you. .

Thank you. .

Our next question comes from Will Randow with Citigroup. .

Hey, good morning, and congrats on navigating those challenges while holding guidance. .

Well thanks, Will. .

Thanks, Will. .

As you guys mentioned improving the home buying experience, and I was hoping you could elaborate on that, as well as potentially quantify the financial benefits [indiscernible] traffic conversion, reducing external brokerage commissions as a percentage of closings.

And also, could you mention the underlying driver for the LifeLock promotion? Was it to take advantage of what's happened with potentially another company out there, or any detail would be great. .

So let me start with Life. Let me go in reverse with you.

LifeLock, you know, the reason we did that, Will, is as some of the cyber security breaches happened, you know, to consumers, and certainly, just about every consumer in the US was impacted, we saw a hesitancy in kind of the prequalification process, and as to be expected, people wonder, God, when I give out my Social Security number and I go through that process, what happens? And we just found this to be a really nice way for them to understand how important that process is to us and how seriously we take their personal credit information.

And it's been very, very well received at the sales floor. With respect to the customer overall experience and synergies in marketing, you know, like I said before, Will, I think it's everything. It's the marketing dollars.

Obviously the efficiency comes through increased referrals, reducing your broker commissions, having a more efficient national advertising platform where it makes sense.

And one of the things I'm quite pleased with is when I look at our activity on the website and our conversions, one of the stats I probably shared in the past, and it continues for us, as we convert millennials at a rate three to one of all other consumer groups.

So the relationship that we're building with those millennials with the introduction to Taylor Morrison on the internet, through mobile apps, is giving them the ability to do the diligence they need and come in as a more qualified buyer.

So that customer relationship is the relationship through our marketing, and most importantly, it's that relationship, once they come into our communities and through the transaction and post the transaction.

Because the best way to leverage our marketing dollars is to increase our referrals, and that's through, like I said, an outsized customer experience. And once again, when I look at the way -- how important the home buying experience is for a consumer, 95% of the time, it's the most significant purchase in their lifetime.

They deserve an outsized experience, and so that's what we're quite focused on. .

Thanks for that. And you guys have been inquisitive -- acquisitive in the past, rather. Considering your net debt-to-cap leverages is 33%, you have room or balance sheet capacity to be acquisitive.

How are you thinking about the deal pipeline you're seeing today versus what it looked like last quarter and a year ago? And similarly, you guys did put out the incremental stock repurchase plan.

Should we assume that if nothing makes sense, the best use of funds is to buy your own stock?.

Maybe I'll start with the M&A and then Dave can wrap up on the stock repurchase. We've talked about, for a number of quarters, the importance of getting our balance sheet in the right condition, having the dry powder to do what's right for the business. As I said earlier, Will, we are very inquisitive. We look at a number of opportunities.

We target what are the things that we feel are a void in our platform. Are there opportunities in our existing markets? Should we be looking at new markets? Having said all of that, we're not going to do deals just for the sake of it. We're going to make sure they're enhancing and accretive to the overall business.

And we do have the balance sheet to support that with the right opportunities. .

And then, on the share repurchase side, Will, you know, we're very focused on driving free cash flow. But first and foremost, you know, we're focused on growing a profitable business. So from there, it becomes just a balanced capital allocation strategy based on current market conditions.

We're going to be opportunistic for considering the growth opportunities on our debt leverage. So we're going to continue to assess it, you know, week by week, based on our deal flow and what we see coming ahead of us, and where the stock price is trading.

And, like we've done in the past, we'll look for times; if there are dips, we'll be opportunistic and try to repurchase some stock. Overall, though, the strategy is just to deploy capital where we believe it drives the best long-term return for the shareholders. .

Thanks again, and congrats again. .

Thank you. .

Our next question comes from Carl Reichardt with BTIG. .

Good morning, guys; hope you're well. I wanted to ask about, over the next year or two, your community mix from a regional perspective. As you know, the West obviously shifted down year-on-year quite a bit.

As you look out a year or two, looking at the land purchases you've made, the investments you've made, how do you expect that regional mix to move?.

I don't know that we're prepared to give you a whole lot of detail as I look two or three years out. I would tell you that we've been very active in our land acquisition across the business, but I don't have community counts out to 2019 or 2020 as I sit here today for you. .

What we can tell you, I mean, if you look at where we've invested her and the markets that we've acquired over the last two years, we're very focused on increasing those positions and creating scale.

So some of our dollars probably flow there slightly more disproportionately to the rest of the organization, but as Sheryl said, you know, we'll need a little bit more time to kind of lay out the next couple of years, and we can give you guys some color about that in the Q4 call. .

And maybe the last thing, if I want to talk in kind of the present time for you, if I look at our year-to-date land spend and the lots approved, we've actually approved more in the first three quarters of 2017 than we did in all of 2016, and that increase was really across the business. .

Okay, thanks. And then, just going back to the fires in California, you mentioned trade pull, or potential for that, in Texas.

Are you seeing or hearing about trade pull from Sacramento or the Bay Area? I mean, recognizing you're kind of in East Sacramento, but any trade pull up to Napa, Sonoma?.

You know, I haven't heard a great deal yet, but I think it's early days. I mean, that's a very different condition than what we would have experienced in Houston and Florida, because obviously, without stating the obvious, the homes that were burned down, it's going to take a long time before we see those get redesigned and rebuilt.

So I don't think we should have expected to see a real trade impact. The real exception here is utilities. .

That makes sense. Thanks. .

Thank you. .

Our last question comes from Jack Micenko with SIG. .

Hey, good morning. You know, Sheryl, it seems like you've weaved ROE into the prepared commentary the last couple quarters, and I guess a two-part question.

Have you set an internal maybe goal for what you could maybe produce in coming years? And then, understanding that it's both an R and an E discussion, you know, you've got your land booked down, your pace is running pretty good.

What are the levers to move that number higher, you know, as we look into 2018 and 2019, that you see today?.

Hey, Jack, it's Dave. So, yeah, we're definitely focused on ROE, and I think we've been talking about it for a couple of years now, and we're very focused on driving both the numerator and the denominator.

So, you know, you've seen the focus with our pull-forward this year around driving higher paces, and then tighter inventory management and balance sheet efficiency in my prepared remarks, and Sheryl touched on it in the Q&A here, just the percentage of owned, where we've actually been able to drive that down a little bit, and then, of course, just prudent cost management in managing SG&A.

Our strategy is to drive year-over-year accretion to ROE in 2017, even despite the hurricanes, and we expect to do that, obviously, in the years beyond. From an internal perspective, yes, we do have return hurdles around compensation.

You know, that's something that we feel is very important and it gets the team aligned around driving the same value that our shareholders expect. .

Okay, thank you. .

Thank you. .

Ladies and gentlemen, this does conclude today's Q&A portion. I would now like to turn the call back over to our host for closing comments. .

Well thank you very much for joining us for our Q3 call. We appreciate you being with us today. Have a wonderful day. .

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day..