Christopher J. Martin - VP of Finance Douglas F. Bauer - CEO Glenn J. Keeler - VP and CAO Thomas J. Mitchell - President and COO.

Nishu Sood - Deutsche Bank Will Randow - Citi Alan Ratner - Zelman & Associates Mark Weintraub - Buckingham Research Steve Stelmach - FBR Capital Markets Jay McCanless - Sterne Agee Brendan Lynch - Sidoti & Co. Alex Barron - Housing Research Center.

Greetings and welcome to the TRI Pointe Homes Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to our host, Mr. Chris Martin, Vice President, Finance for TRI Pointe Homes. Thank you, sir. You may begin..

Good morning. Welcome to the TRI Pointe Homes' third quarter 2014 earnings conference call. Earlier today, the Company released its financial results for the quarter. Documents detailing these results are available on the Company's Investor Relations Web-site at www.tripointehomes.com.

Before the call begins, I would like to remind everyone that certain statements made in the course of this call are not based on historical information and constitute forward-looking statements.

These statements are made on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in these forward-looking statements.

I refer you to the Company's filings made with the SEC for a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today.

The Company undertakes no duty to update these forward-looking statements that are made during the course of this call. Additionally, non-GAAP financial measures will be discussed on this conference call.

The Company's presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP.

Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through the TRI Pointe Web-site and the filings with the SEC at www.sec.gov.

Hosting the call today is Doug Bauer, TRI Pointe Homes' Chief Executive Officer; Tom Mitchell, the Company's Chief Operating Officer and President; and Glenn Keeler, the Company's Chief Accounting Officer, who is filling in for Mike Grubbs, our Chief Financial Officer, who is unable to participate due to a family matter.

With that, I will now turn the call over to Doug..

Thanks, Chris. I would also like to welcome everyone to today's call. As our first earnings call as a combined company since completing the WRECO merger on July 7, we are very pleased with the transition efforts of merging these six great homebuilding companies.

I want to begin by thanking each and every one of our team members for working diligently to make the integration and transition as smooth as possible and also in continuing our focus on designing and building quality homes and providing excellent customer experience.

This is our first quarter reporting as a combined company and Slide 3 illustrates the breadth and depth of our operations. Our management team is focused on enhancing and fine tuning what is already a strong foundation at our six homebuilding companies that will position us to deliver long-term annual growth for our stockholders.

As an experienced homebuilder with proven growth oriented leadership, we're highly focused on repositioning the five WRECO homebuilding companies to enhance profitability and growth by implementing our best practices, strategic land sourcing capabilities, disciplined allocation of capital and rigorous cost controls.

We are extremely pleased with the progress we have achieved thus far in our initial phases of integrating our newly acquired WRECO homebuilders with our legacy operations at TRI Pointe. To dive a little deeper, turn to Slide 4.

We are already in the early stages of employing the following key objectives to ensure the success of the newly combined company. First, as a result of the integration and creating operating efficiencies, we have implemented changes that we expect will result in annual overhead savings of $15 million effective 2015 and beyond.

Second, an additional strategic objective in connection with the merger was to generate incremental income from the absolute businesses in various markets where we now operate, including mortgage, title insurance and escrow.

To that end, we are pleased to announce the launch of TRI Pointe Solutions, made up of TRI Pointe Connect and TRI Pointe Assurance, a suite of home buyer services that will provide end-to-end support throughout the closing process.

TRI Pointe Connect, formed as a joint venture with imortgage, will provide mortgage related services, while the TRI Pointe Assurance, a wholly owned subsidiary of TRI Pointe will partner with First American Title Insurance Company to initially provide title related services in Texas, and will expand to some of our other markets in the near future.

We're excited about these significant opportunities which will enable us to achieve our goal of growing our ancillary income in 2015 and beyond. Third, a reduction in cycle times along with a focus on revenue and cost management is expected to result in growing our new home deliveries and profits across all brands in each of our markets.

As an example, we are expecting a two to three month reduction in cycle times at Winchester and Quadrant as a result of streamlining our product offerings at those homebuilders. Additionally, we have begun to leverage our size and scale with national purchasing contracts which will help drive down costs.

Fourth, continuing our land acquisition strategy in select markets that focuses on locations along major transportation quarters and employment centers and remaining disciplined in our underwriting guidelines.

For the third quarter, we spent $260 million on land acquisition and development, and expect to spend $290 million in the fourth quarter of this year.

Fifth, we're turning to Slide 5, utilizing our long California land position, we have initiated plans to increase deliveries and continue to look at select land sales that will generate cash on profits to be reinvested in the growth of our homebuilding companies, a reduction of debt or a repurchase of our stock.

As a reminder, the WRECO merger is accounted for as a 'reverse acquisition', with WRECO as the accounting acquirer and legacy TRI Pointe as the accounting acquiree.

As a result, the consolidated financial statements for all periods prior to the closing of the merger will only reflect the historical financial statements of WRECO and will not include legacy TRI Pointe operations.

As a part of our press release and on the last slide, we have included supplemental selected financial data of the combined company adjusted to add back legacy TRI Pointe operations.

I will be commenting on the adjusted results and Glenn Keeler will be discussing our GAAP results which exclude legacy TRI Pointe operations for the first seven days of this quarter and for all prior periods.

On an adjusted basis, home sales revenue for the third quarter 2014 increased 31% to $474 million as our average sales price of homes delivered grew 33% to $561,000. Our new home deliveries of 844 were down 2% year-over-year.

Our backlog was down 14% to 1,440 homes but the dollar value of our backlog was relatively flat at $870 million due to a 16% increase in our average sales price to $604,000. The ASP improvement in the backlog is due to a change in mix and mild pricing increases at Trendmaker, Pardee and TRI Pointe.

In the third quarter we increased our average selling communities by 9% to 107, as compared to 99 the prior year period. But the softer market conditions that are being experienced across the industry impacted our overall activity and absorption pace as well as flat community growth at all brands except for TRI Pointe.

Net new orders decreased 10% to 811 orders from 902 for the prior year period, as a result of lower monthly absorption rate of 2.5 as compared to 3.0 in the prior period.

The decrease in our absorption rates reflects the softer market conditions at some of our markets, namely Phoenix, Maryland and Virginia, which struggled during the quarter with an absorption pace of 1.8.

A positive note, legacy TRI Pointe and Pardee continued to have strong absorption of 3.2 and 4.1 respectively, which underlines the continued strength in our well located California real estate which represents 64% of our lots owned and controlled as of September 30, 2014.

Year-to-date, the housing markets remained choppy and volatile despite traditional catalyst for improvement, including job gains, recovering economies, rising household formations and very low interest rates.

We acknowledge there are multitude of factors impacting home-buying decisions including political uncertainty, credit availability and consumer confidence, but we believe the long-term fundamentals for housing are positive and remain in place.

Additionally, our expanded and diversified operations provide us with a lower risk and more balanced platform to execute our long-term growth strategy as markets change from year to year. We're very pleased with our progress in combining these companies.

We have been conducting leadership meetings, town halls, best practice workshops and a consistent dialog with the management teams that is building trust and implementing a culture that empowers each of our operating teams to think, act and execute as a pure play homebuilder.

As we look forward, our focus remains on growing our cash on earnings through a disciplined and proven operating strategy on a well-positioned footprint at a prudently leveraged balance sheet to drive long-term stockholder value.

We are well on our way to achieving our goals of creating more efficient operating platform, maximizing the value of our land portfolio, increasing our deliveries and right-sizing our G&A to generate higher profits.

While Glenn will provide additional guidance detail, we continue to expect to grow our new home deliveries in excess of 25% over the 2014 combined deliveries of legacy TRI Pointe and WRECO operations.

We also believe we will deliver increased land sales as compared to historical volume of WRECO homebuilding companies thus generating earnings per share of $1.25 to $1.40 for 2015. With that, I'd like to turn the call over to Glenn to discuss the Company's GAAP results and to provide some perspective for the balance of 2014 and beyond..

Thanks, Doug. Good morning. I would also like to welcome everyone to today's call. I am going to highlight some of our results and key financial metrics on a GAAP basis for the third quarter and finish my remarks with an update on our expectations and outlook for the fourth quarter 2014 and full year 2015.

At the conclusion of my remarks, we will open the call for some questions. We will start with a few highlights on Slide 7. Our home sales revenue was $472 million on 842 deliveries with an average selling price of $560,000.

Homebuilding gross margins decreased to 18.3% after recording a $13 million non-cash purchase accounting adjustment which I will discuss in more detail later on this call.

We were successful in generating significant operating leverage during the quarter as reflected in our selling, general and administrative expense ratio which improved to 10.5% as a percentage of home sales revenue.

During the quarter, we incurred restructuring charges and transaction expenses of $23.7 million related to cost reduction activities initiated during the quarter as well as transaction costs related to the merger with WRECO.

This resulted in net income of $11 million or $0.07 per diluted share, or $0.22 per diluted share excluding non-cash purchase accounting adjustments, restructuring charges and transaction expenses incurred during the quarter.

I would now like to provide some information about our active selling communities for the quarter and an outlook for the balance of 2014 and 2015. On June 30, 2014, standalone WRECO had 100 active selling communities and legacy TRI Pointe had 14.

As part of the integration of the new combined company, we applied our definition of an active selling community to the WRECO homebuilders which resulted in a net decrease of 10 communities during the quarter.

To be considered an active selling community, we require a community to have at least five market rate homes available for sale and a fully merchandise model to provide a complete consumer experience. During the quarter, we opened 10 new selling communities and closed out eight, leaving 106 open active selling communities on September 30, 2014.

For the fourth quarter we anticipate opening 10 new selling communities and closing eight to end the year with 108 active selling communities. It is important to note that the definitional adjustment to our active selling communities during the quarter did not change our outlook for deliveries for the remainder of 2014 or 2015.

While the timing of new community openings and closings can often vary from projections, we anticipate delivering 15% to 20% community count growth in 2015. Net new home orders increased 5% company-wide to 803 for the quarter compared to 767 for the previous year period.

Our absorption rate was 2.5 orders per month per average selling community during the third quarter of 2014, which was a decrease from 2.8 for the third quarter of 2013. Third quarter, we converted 57% of our second quarter 2014 backlog which we adjusted to include the backlog of legacy TRI Pointe.

By delivering 842 homes, our average sales price for homes delivered increased to $560,000, a 41% increase from $397,000 for the comparable period a year ago.

The increase in average sales price was primarily attributable to the addition of legacy TRI Pointe which had an average sales price of homes delivered of $781,000 as well as increases in all of our reporting segments due to a shift in mix to a more move-up and higher-priced product as well as price appreciation in certain markets.

As we discussed on prior calls, we expected our homebuilding gross margins to be slightly reduced due to increased incentives in certain markets and lower margins in our newer communities.

During the quarter, homebuilding gross margins decreased to 18.3% after recording a $13 million non-cash purchase accounting adjustment related to the fair value increase of legacy TRI Pointe inventory as a result of the merger with WRECO.

Excluding this non-cash purchase accounting adjustment and interest in cost of home sales, our adjusted homebuilding gross margin was 22.7% compared to 24.2% for the third quarter of 2013. On the expense side, we made significant progress in reducing our costs this quarter.

During the quarter, we initiated many cost-cutting strategies at all of our homebuilding companies which included the reduction of duplicate corporate and divisional overheads.

These strategies were included as part of the anticipated synergies from the combination of these companies as previously discussed and are expected to result in annual savings of approximately $15 million in 2015.

As a result of these efforts and our focus on operational efficiencies, we were able to leverage our SG&A expense as a percentage of home sales revenue to 10.5%, a significant improvement of 410 basis points compared to 14.6% in the same period in the previous year. I would also want to take a moment to address our book value.

It is important to understand that the accounting treatment of the merger was a reverse acquisition with WRECO as the accounting acquirer. In a traditional merger, WRECO's assets would've been recorded at fair value, but due to the unique nature of this transaction the assets of WRECO come over at their original basis.

We feel this is one of the advantages of this transaction as there are a number of assets that have a basis well below the fair market value that will contribute growth and profitability to the combined company going forward.

In order to explain the book value of our land, we have provided a table on Slide 8 that reflects the number of lots owned by two categories; one, lots that have started some form of construction, classified as model, or homes complete or under construction; two, land which has been classified as land under development or land held for future use.

The table request the book basis of our consolidated inventory and for standalone WRECO and TRI Pointe. We wanted to highlight the book basis of our land and of standalone WRECO which is approximately 53,000 per lot, and on a combined basis is approximately $64,000 per lot.

The combined book basis represents approximately 11% of our third quarter 2014 average sales price. As we have previously discussed, management believes that the real value of the transaction over time is that the combined company will have greater earnings and cash flow than the legacy TRI Pointe platform.

Furthermore, as Doug explained, we will plan to increase deliveries and opportunistically sell land where we can realize attractive returns through cycling inventory at a faster rate to generate increased profitability and cash flow to either fund growth, pay down debt or repurchase stock. Now I'd like to make a few comments on the balance sheet.

At quarter end we had approximately $2.3 billion of real estate inventory representing approximately 30,000 lots owned or controlled, of which 64% is located in the entitlement constrained California market. A detailed breakdown of our lots owned will be reflected in our 10-Q when filed.

As part of the reverse acquisition accounting, during the quarter we reported goodwill of $144 million and a trade name intangible related to TRI Pointe of $13 million. As of September 30, 2014, we had outstanding debt of $1.2 billion and our ratio of net debt to capital was 41.9%.

We ended the quarter with $148 million of cash on hand and additional liquidity available under our revolving credit facility of $159 million. I would now like to give some color for the balance of 2014. During the fourth quarter, we expect to deliver approximately 75% to 80% of our 1,440 units in backlog as of September 30, 2014.

As we discussed earlier, we expect to open 10 new communities and close eight resulting in 108 active selling communities at December 31, 2014.

As we previously disclosed, our fourth quarter results will be impacted by additional restructuring and transaction related expenses and a rollout of the non-cash purchase accounting adjustments related to the fair value of legacy TRI Pointe's real estate inventory.

Finally, as Doug mentioned, we are reiterating our 2015 outlook for delivery in excess of 25% of our adjusted combined deliveries from 2014, and earnings per diluted share in the range of $1.25 to $1.40. With that, we would now like to turn the call back over to the operator and take questions..

(Operator Instructions) Our first question comes from the line of Nishu Sood with Deutsche Bank. Please proceed with your question..

Congratulations on your first consolidated quarter. I wanted to start off with the 2015 EPS guidance. I would say that investors were concerned that you might bring that number down given the somewhat softer than expected demand environment. Now you cited the softer than expected demand environment but you are sticking with the $1.25 to $1.40.

So I just wanted to dig into that a little bit. One possibility is that you had taken a very conservative approach to forecasting demand, or alternatively maybe there's enough synergies and other opportunities for margin expansion that can make up for the softer than expected demand environment.

So I was just wondering if you could take us through some of the puts and takes on your thought process on that 2015 guidance..

This is Doug. We've looked at it initially, we have run through our initial business planning then we'll finish it up as we obviously close out the year with actual results, but it's really a combination of a number of factors.

One, as we look forward into 2015, we're still very optimistic about the long-term recovery of housing and the demand factors, both jobs and household formations. It tends to be choppy but we've factored in a very, very modest outlook on 2015.

We also factored in our accelerated community growth, operating synergies and moderately expanding margins going into 2015 along with land sales. So we're still very focused on what we can deliver in 2015 and our initial scrub is staying in line with our initial forecast..

Got it. Yes, you focused a little more on land sales in your commentary this time as it relates to '15.

Have you identified more opportunities, are you more optimistic about that, maybe I don't know if it's possible if you could give us a sense of what sort of land sales you're expecting for next year?.

I think the comment from a lot of people from the previous call was the average of land sales was about $100 million and we look at that number to be in excess of that going forward for the next couple of years, but we've identified nonstrategic assets, some of which are in play already, and that hasn't really changed from our thought process as we closed the transaction in July and took over the operating control of the company.

I think having Tom and myself and our teams in place now, the focusing on strategic and nonstrategic asset sales is our focus and being part of a pure play homebuilder it allow us to hopefully enjoy more predictable outcome of those strategies..

Got it. And my follow-up question was on SG&A. The number looked terrific this quarter already and just days after basically consolidating the two entities. So the 10.5% SG&A ratio, your G&A dollars I believe were actually less than they were on a pro forma consolidated basis last year.

So this is ahead of the $21 million in synergies you had laid out initially and it's happening so quickly.

So obviously it looks great but my question is, were there temporary factors driving that, is there more to go here still and what enabled this to come in so far ahead of target?.

I think it's a number of factors. I mean obviously we made a lot of progress. I mean number one, the elimination of the corporate overhead at the Weyerhaeuser WRECO level. We had heavier closings in revenues in Q3 and that is typical for a builder, right, you typically have higher closing volume in the third and fourth quarter.

We announced going forward we'll have $15 million in annual savings from consolidation and integration and streamlining of our activities. Obviously that's in the go forward basis.

But I would always, having done this for a long time, on a normalized basis a builder the size – and I'll give you a broad range to be between 10% and 12%, I think we're in a good spot but it has a lot to do with some timing and so forth, but our focus as you know is to continue to make progress and sustain that type of activity going forward because that's one of the things that we think we're pretty good at, and that's our goal going forward is to maintain that range..

Great. Thanks for the color..

Our next question comes from the line of Will Randow with Citi. Please proceed with your question..

Congrats on the transformation. So I appreciate the Slide 8 in the deck, pretty interesting. In addition it sounds like you guys are trying to move the leverage on cycle times and asset turns, and I think that's key to the story.

I'm hoping not to divulge too much of a preview for your Investor Day in two weeks, but how do you think about moving the needle over the next couple of quarters and what are kind of the signposts that we should look for in terms of, one, recognizing the value of the land basis, and two, getting absorptions as well as closings moving quicker?.

This is Tom.

Results will certainly speak for themselves, but as you're looking forward obviously getting off to a strong selling season next year will be the key defining factor, but as Doug alluded to in his prepared remarks, a focus on operations at all of our brands, it is really beginning to take hold and I think you'll see some of that cycle time turning quickly and improving as we go forward.

I would also add, Will, that I think it comes in two fashions, one a little quicker than the other. I mean land sales, nonstrategic land sales and repositioning some of those, those will obviously have an impact and indicate the value of these land holdings that we talked about sooner.

Reducing cycle times and increasing deliveries, that will happen over '15 and '16 and beyond because it takes a while to implement those, but all our teams are very embraced as part of being a pure-play homebuilder.

Now that they are not capital constrained, having the capital and the vision, and we have great leadership at each one of these companies to execute this, I'd say the general theme here is very excited about increasing those deliveries over time and that's why we have forecasted part of it is the execution of new communities which results in increased deliveries next year, that's all part of the execution of this new platform..

And then on community count, just to be clear, guidance is it looks like to me unchanged, it's just a change of one definition on community count growth.

Is that correct?.

This is Glenn. That is correct. It was just a definitional change made during the quarter, but as we said in the call it doesn't impact our guidance for '14 and '15..

Alright. Thanks again, guys, and look forward to seeing you on the 17th and 18th..

Our next question comes from the line of Ivy Zelman with Zelman & Associates. Please proceed with your question..

This is Alan on for Ivy. Congrats on the deal closing. I just had two housekeeping questions.

First on the guidance on the community count, the 25% growth, is that basically 25% from the 108 that you expect to end the year at this year or is it based on an average for the full year which – and if that's the case, what is that average? And the second housekeeping is just on the SG&A.

Is that $15 million reduction, is that off of the third quarter levels, is that a good run rate, or does that already reflect a good chunk of that decline?.

I'll take the first part of that and Glenn will take the second part.

As far as the – you actually had a little bit twist there – as we indicated in our remarks, we expect our community count to grow 15% to 20% from a year end number of 180, and we expect deliveries to increase in excess of 25% as a result of community growth and very moderate expectations forward into 2015 as far as the marketplace..

On the second question, Alan, on the SG&A, as we said on the call there's additional restructuring and cost reductions that are going to go underway in the fourth quarter. So it's not safe to assume that $15 million will be of the total fourth quarter spend, it's really an annual saving in 2015 and beyond..

Got it. And just on the community count side, I think the confusion was in the press release. It says for the full year you expect to grow communities by 25%. So I wasn't sure if that was an average increase or a year end increase. But the second question is on the gross margin.

If you look at the core number right now at 22.7 after adjusting for all the purchase accounting noise, how you see that trending over the longer term once all the noise is kind of out of the equation, because you have a lot of levers going on, you have the improved cycle time which I assume is a positive, you have obviously somewhat weakening demand environment which is resulting in some higher incentives across the industry, so if you kind of strip out all the noise and then of course looking at the WRECO lot price, the favorable lot prices you have on the books, is that something that you think in the current pricing and incentive environment you could show improvement in the face of other builders probably showing some declines?.

As we look at our company-wide margins, they should be very moderately expanding in 2015 beyond – and I say moderate because some of it depends on certain markets in which we operate, obviously the Phoenix, Washington DC, Virginia markets have been very incentive laden, and as I believe those markets improve marginally you should have some marginal or moderately expanding margins.

The California land assets as we indicated we continue to have good normal ordered growth in those assets. I think we'll continue to moderately improve after this purchase price accounting adjustments through the end of the year.

But we'll be cautious on it, because as you know the industry is still very choppy but we've got a lot of levers to pull now compared to where we were 18 months ago..

Our next question comes from the line of Mark Weintraub with Buckingham Research Group. Please proceed with your question..

Just following up a little bit on the gross margin question, I mean you had mentioned SG&A 10% to 12% longer term as being a reasonable goal for company your size, et cetera.

Given the type of product mix, et cetera, that you have in the strategies you have in place, what type of longer-term targets do you think are appropriate for gross margins?.

I mean longer term, as we look at – there's two factors that are going to drive gross margins, Mark.

I mean you've got the legacy Pardee assets here in California which continue to have very strong margins in the low to mid 20s, but the other five operating brands continue to turn inventory in that two to three year timeframe, so they are constantly looking at new opportunities on a select basis and in select markets and we continue to underwrite those opportunities at 18% to 22%.

So it's not a long-term infinite increase in gross margins because you're constantly buying market-rate land in a lot of your other locations. And including California for TRI Pointe, as I mentioned as you know TRI Pointe is in the business every day buying land and it's still a competitive marketplace.

So you're going to see margins continue to be underwritten in that 18% to 22%..

The only thing I'd add to that as a caveat is obviously we're currently underwriting without inflation, and so as we do get some price appreciation out there, that's typically where we're able to see some upsized margins..

And are we going to get a little bit more specificity do you think on this strategy for potential land dispositions in December or is there any additional color you can provide to us at this juncture?.

Strategically, as I mentioned, we will continue to focus on assets that what we call are nonstrategic or non-core assets that we can deploy.

We've got several actually on the marketplace – that are in the marketplace being marketed right now and we can chat about those after our December meeting as well, but the important thing is to continue to look at generating cash flow and/or increase deliveries.

There is also quite a few of those communities that we have and land assets in California that allow us to bring on new communities too in 2015 and that is part of our program to increasing deliveries also..

One addition to that, Mark, is we are currently initiating some land development on some future phases of some of the larger master plans in Pardee, and along with that as we're looking to increase our delivery growth we'll also be looking to strategically position some guest builders in those communities as well, and so that will give you a little flavor on some potential future land sales.

And as Doug said, we are in the market currently on some selected assets that were a part of master planned communities. That has some different land uses than what we're typically delivering.

And so as an example, we're out on a fairly significant employment center down in Pacific Highlands Ranch, we're also out on a multi-family site and a retail site, and we expect to turn those land sales next year..

Great.

And then lastly, and I realize there are lots of moving parts here and maybe it's premature for this question, but the $250 million to $300 million type of land and development spend in the second half of this year per quarter, is that about right to be thinking for next year, or again is it too early to put numbers to that?.

It's too early. As we fine-tune our final business plan going into 2015, we'll definitely give more color. Again that includes land and land development, the land activity predominantly from a land acquisition standpoint, predominantly occurs at the five other companies other than Pardee, although Pardee Vegas continues to be in the land market.

And then the land development dollars are sprinkled throughout but a little heavier on Pardee. So we'll give you a little more flavor for '15 as we finalize '14 going into next year..

Great, thank you..

Our next question comes from the line of Steve Stelmach with FBR. Please proceed with your question..

On the community count side, can you just maybe give a little bit of color how you expect that to be layered in throughout the year, is it mostly front-end loaded, back-end loaded? And then sort of as a corollary to that and maybe on just leading to the gross margin sort of color, how should we think about the mix between those incremental community growth, WRECO versus TRI Pointe?.

For the community count growth, you're talking about for 2015, correct?.

Correct, yes..

It is I would say heavily weighted to the first two quarters of next year in order to – obviously that's part of the factor that it allows us to increase deliveries. I'll have to get back here on the exact percentage of how much it's weighted but it's more than 50%, let's put it that way.

I'm sorry, what was your second question?.

Just sort of weighted towards – how much of those new communities from that line are going to be at WRECO versus TRI Pointe, kind of commensurate with your land count, is it going to be more skewed one way or the other?.

It's across the board, it's not – I mean in absolute numbers it's a little skewed to Pardee and TRI Pointe because California is where we've got significant land activity that we can implement, but it's across the board as far as in percentage terms in all our markets, for example at Winchester and the Virginia market.

So we have a lot of communities in the pipeline that are actually going to be hitting the market as early as January which will be a welcome position to be in compared to where we were last winter when the tough winter hit and there was just a lot of open trenches and streets [knocked down] (ph).

So it's across the board but probably heavier skewed towards Pardee and TRI Pointe..

Our next question comes from the line of Jay McCanless with Sterne Agee. Please proceed with your question..

First question I had was the commentary in the release about a potential revamp of the Winchester and the Quadrant product.

Could you discuss more what that's going to do, and it looks like the extension of cycle times, should we expect that to be an incremental headwind for gross margins in the rest of this year and into '15?.

This is Doug.

It's actually a reduction in cycle times which really allows us to have increased deliveries, and particularly in our Winchester brand on the East Coast we're taking one of our product that I said had a significant option program aligned to it as far as customization part of that program, and really revamped from start to finish implementing the same quality home but we've been able to deliver that and reduce its delivery time like two to three months.

Up in Quadrant, we looked at a couple of brand extensions that were not necessarily meeting the return threshold that we had prescribed going forward.

So we fine-tuned that operation, streamlined it and focused entirely on our Quadrant brand going forward which we think will improve margins and allow us to increase deliveries in what is a very land supply constrained market up there..

Okay, that's good to know.

Second question, could you give us some detail about how many spec homes you had at the end of the quarter, how that compares to last year and what percentage on average of your quarterly deliveries do you think are going to come from specs?.

We'll have to dig into some of that detail, but in general our spec level except for Trendmaker runs around two to three per community overall. At Trendmaker in Houston, it will trend a little higher because we tend to build a few more spec, probably trend in the six range because of the heavy relo market there in Houston.

So that's how I look at it on a per community basis..

Got you. And then the last question I had was, looks like monthly orders this quarter were about 2.5 per community.

How does – to the extent you're willing to discuss it, how close is that to the order progression you expect for '15 to get to that 25% increase in deliveries? And also could you also talk about pricing trends, because it looked like your closing price came in a little bit better than we thought but the backlog price was a little bit softer, if you could just maybe generally talk about pricing trends going into '15 as well?.

As I mentioned in the remarks, our absorptions per community at 2.5, actually when I look at our competitors and our peer group, we're actually on a per community basis at 2.5 at the top end of the range despite flat community growth.

As we go forward into 2015 and see the 15% to 20% community growth order pace, it's very project specific, we drill down into each project and each location depending on price points where they are positioned and they can vary from 1.5 to 5 sales per month for communities depending on price point and so forth.

So we haven't finalized our planning efforts for 2015 and beyond. We have a pretty good line of sight to be able to give you that guidance, but we think we'll see moderate, very moderate expansion in the market in 2015..

Okay, great. Thanks for the help. I appreciate it..

Our next question comes from the line of Brendan Lynch with Sidoti. Please proceed with your question..

First, I wanted to dig in a little bit further on the absorption pace. As you discussed, it fell off a little bit from last year as it did for many of your peers, and likewise many of your peers are planning on ramping up the community count in 2015 like you guys are.

So I was wondering if you're concerned that demand is not sufficient to support all the products that may be on the market at least temporarily, and how you think about your growth initiatives in the near-term in that context?.

As we drill down into each one of our operating companies and drill down specifically into submarkets, we don't see a huge oversupply over-building activity in general in the marketplaces, and obviously you can see that from starts and permits numbers and throughout the marketplace.

So, as we drill down and look into our crystal ball for 2015, it's again driven by market dynamics and looking at the market competitive factors project by project, area by area..

Brendan, the only other thing I would add to that is, we're actually seeing signs of pent-up demand.

Certainly there's been a lack of orders over this past quarter, but traffic remained strong and we still have good interest in all of our projects, but as Doug said, it does vary on a market to market basis, but in all the primary markets we're in we don't see an oversupply situation that would be outpacing demand.

So we look for a stronger spring selling season and we think we're going to have some fairly positive absorption with a slight increase to that 2.5 per month that we are experiencing now..

Great. Thank you, that's helpful. And then my other question was on TRI Pointe Solutions. You mentioned you're initiating this business line to drive revenue and drive earnings as well.

Can you just comment on the idea of just bringing the home buying process in-house and you guys will have more control over that, and perhaps you had been losing some sales just due to the owner's process of buying a home, and now having that in-house, is it just facilitating, you think you can drive sales that way?.

I don't think that we've been losing sales by not having that in-house but I do believe we can provide a much better customer experience and provide a much better service to our customers, as well as a control issue, we certainly will have much more visibility towards bringing that closing process to fruition. So we're really excited about it.

I think by having both, something on the front-end in the mortgage arena that we're going to be really incorporating as part of our sales team on the origination front, it will make a big difference relative to our ability to increase sales and certainly maintain that sales pace that we're looking forward to.

And then obviously on the title side, we see that as an ancillary business and service that will provide us great visibility to get the products closed..

Our final question comes from the line of Alex Barron with Housing Research Center. Please proceed with your question..

Congrats on completing the merger. I wanted to focus a little bit on the SG&A. So on the sales and marketing component, it was about 6% of revenues this quarter.

Should we think of that as a good run rate or do you guys think you have opportunities to bring that percentage down as we go into next year?.

This is Tom. We were pleased with the results obviously, as Doug alluded to. Third and fourth quarter we have higher revenue based on additional closing. But overall it's a fairly good run rate going forward. We still see opportunities in some of our brands to tighten that upside a little bit.

So I'd look forward to some improvement over time, but again I think overall pretty good run rate..

Got it.

And as far as the land sales that you guys commented on, can you give us any sense of I guess maybe as a percentage of the EPS or as a percentage of the operating income, is that going to be I don't know material or not so much for your 2015 EPS guidance?.

We haven't delved into any further details on the land sales as a component of EPS. And so we continue to believe that with the increased deliveries and the combination of strategic and nonstrategic assets being sold, we have a good line of sight to hit our guidance for '15..

Okay.

And if I could ask one last one, on the 25% growth that you guys stated, is that already on land that you guys already own or is that to execute on maybe some optioned land positions to open communities to hit that number?.

Good question, Alex. This is Tom. No, you're exactly right. That growth is completely sustained by land that we already own and control..

Got it. Okay, great. Thanks..

Thank you. There are no further questions at this time. Mr. Bauer, I'd like to turn the floor back to you for any closing and final remarks..

Thank you everyone for joining us on today's call. We are truly excited about our initial and first call as a combined company. We're very excited about 2015 and the progress that we've made to-date in really implementing all these best practices amongst these great homebuilding companies that we have.

I wish everybody a great holiday season and look forward to catching up with everybody next quarter. Thank you..

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day..