Good morning, and welcome to Taylor Morrison's second quarter [Audio Gap] [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce Mr. Jason Lenderman, Vice President of Investor Relations and Treasury.

Thank you, and welcome, everyone, to Taylor Morrison's Second Quarter 2017 Earnings Conference Call. With me today are Sheryl Palmer, Chairman, President, 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 next quarter, and for the full year. 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 share our results for the second quarter of 2017. We were able to build off of a very strong first quarter and leverage that momentum through the second quarter. The entire spring selling season proved to be very productive, and we found ourselves in one of the strongest selling environments that we've seen since the downturn. That environment was the perfect backdrop for us to apply and take advantage of some of the new tools, processes and enhancements that we've discussed over the last 18 months on prior earnings calls, and I appreciate the opportunity to dig into more details with you. Our performance drove $0.46 of EPS, a 24% increase year-over-year, and a 16% growth in EBT dollars compared to the same quarter last year. We finished the quarter with 2,376 sales, representing nearly a 20% increase year-over-year. Our strong orders growth is something that we've seen across the majority of the portfolio. For the first 6 months of the year, our sales attainment represented about 25% in year-over-year growth. That sales performance has put us in a tremendous position to achieve all metrics of our guidance. With our strong sales pull-forward through May and typical seasonality, we did see our growth flatten, as expected, which supports our pace guidance of 2.3 to 2.4 for the year. Our average community count was 294, which was driven by the solid demand throughout the first half of the year, and our strategy to capitalize on a strong spring selling season, to better set up production in the back half of the year. Our pace was 2.7 per outlet, which is almost 30% greater than it was for the same quarter last year. Perhaps even more exciting…

Thanks, Sheryl, and hello, everyone. For the second quarter, net income was $55.7 million, a year-over-year increase of 23%, and earnings per share was $0.46, an increase of 24%. Total revenues were $908 million for the quarter, including home-building revenues of over $889 million. Home closings gross margin, inclusive of capitalized interest, was 18.5%. That is a bit higher than guidance, and it is also accretive to last year, which is a good comparison relative to the industry. We continue to believe the full-year margin will be accretive year-over-year. Moving to mortgage operations, we generated nearly $16 million of revenue during the quarter, representing growth of more than 15% over the prior year. Gross profit was about $5.5 million, with a marginal rate slightly above 35%. Our capture rate for the quarter came in at 76%. As you know, we recently integrated our mortgage business into our newer markets, and based on our backlog, we expect to continue to see the capture rate gradually increase back to historical averages in the high 70% range. Mortgage capture is critical to our success, as this gives us visibility into our backlog and confidence in our closings guidance each quarter, as well as continued strong profitability through our mortgage operations. Our mortgage teams consistently deliver, which strengthens our overall business. SG&A as a percentage of home closings revenue came in at 10.7%, which represents a 30-basis-point improvement over the prior year quarter. The investments that we made back into the business in all areas -- people, processes and systems -- have begun to produce leverage by driving scale at the rate we anticipated. We remain focused on prudent cost management to produce the optimal operational balance and generate the most value for our stakeholders. Our expectation continues to be that we will drive…

Thank you, Dave. Let me expand on Dave's last point regarding the recent equity offerings. As he mentioned, our public float is now above 60%, signifying that by definition, we are no longer a controlled company by NYSE rules. Our private equity sponsors continue to be tremendous partners throughout this journey, imparting wonderful strategic guidance and direction as we've evolved over the years. As we continue through this ownership transition, rest assured that our strategy and focus will not waver. We are committed to our 4-pillar strategy and capital allocation philosophy. Together, those guideposts will continue to lead us down the right path. Part of our strategy centers on knowing our customers' needs and wants, and more importantly, adjusting our business model and practices accordingly to meet those needs and wants as [inaudible] develop. In addition to the shopper and buyer surveys we routinely conduct for our market research team, we partnered with Wakefield Research on a consumer survey sampling 1,000 U.S. adults who have purchased or are likely to purchase a new home in the next 3 years. You may recall, in May, we released some of the findings around the outdated "forever home" concept, where we found that 56% of the respondents indicated that over time, they expect to change where and the way they live as their lifestyle evolves, and that it's really becoming more and more unrealistic to find a home that meets all of their current and future needs. It may be tempting to assign this sentiment to millennials, but the data suggests that it's a consistent expectation across all age groups. This was a critical and grounding finding, as it indicates the reality of multiple moves and home purchases that homeowners are expecting to make throughout their lives. Understanding more about what that lifestyle…

Thank you. [Operator Instructions]. Our first question comes from the line of Mike Dahl of Barclays.

Hey, thanks for taking my questions. Sheryl and Dave, wanted to hone in a little bit about -- on some of the kind of absorption comments, and also tie in some of the spec strategy with that. I think you've been consistent about the message on pushing sales pace a little early in the year to build that backlog and then starting to manage it a bit more as we get through the year. It does look like your June growth came down a little bit, while at the same time, kind of the specs are remaining, I think, fairly consistent quarter-on-quarter as far as what you're seeing per community. So could you just give us an update of just the levers that you're pulling, where you're finding opportunities that continue to put specs in the ground and continue to drive pace a little bit more, but then overall, just what the -- how much of the moderation in growth in June is really that balance that you're implementing, and potentially pulling the price lever?

Sure, we -- hi, Michael. We absolutely can. A lot of questions in there, so let's start with them, and Dave and I will tag-team this. You're right, we absolutely had signaled early in the year, maybe even as late as last year -- early as late last year, that it was our plan to really take advantage of the spring selling season as part of our macro plan on creating more of a planned production evenly throughout the year, and getting the action when it was hot. And so we did that with outsized paces for the first 2 quarters. As part of that, we expected, as you can see through our guidance, for us to complete the full year at somewhere around 2.3 to 2.4, a little higher than we'd initially anticipated, but we felt it was important, even with our difficult comps in June and the third quarter, to get that early. It really provides a better environment for the trade base, and so we wanted to get those -- even recognizing that it wasn't, for us, about managing our hard comps in the third quarter, but setting the year up the right way. So we expected what we saw in June. Part of it, I would tell you, is normal seasonality. I would tell you part of it is by pulling that forward, we absolutely created some reduction in community counts. Part of it was gap-outs because we pulled that forward as a way to bring new land to the market for the third and fourth quarter sales. So we should expect that moderation. The math would clearly suggest that we should see that moderation in Q3 and Q4 for us to get to the 2.3-2.4, which is really all we plan on getting done this year, given what we need -- the communities that we have on the ground, making sure that we can continue to pull those pricing levers. And Dave, why don't you pick up a little bit on the spec strategy?

Yeah, and maybe one thing I'd add, just from a pricing perspective, we saw price increases in about 50% of our communities here in the second quarter, so I think that just feeds into what Sheryl said, just really around product availability on the ground. So we feel like we're selling from a position of strength and that's allowing us to tick up price. Be it modest, we're taking advantage of that. From a spec strategy standpoint, Michael, you're right in that our strategy remains the same. Our goal is to have about 4 to 5 specs per community with about 1 completed spec per community as well. So we're staying well within that. And that just feeds into our overall strategy as far as getting the jump on the year. We've put specs in the ground. We've been able to sell through them. Really, for us, the biggest change is just a more targeted approach, making sure we get quality lots with the most common plans used. And the goal, obviously, is to sell those before we finish construction, and we've done a much better job of that this year. So if anything, it's a little bit more of a margin play for us, when you look at the overall financial results, but specs remain an important part of our overall strategy.

And Dave, maybe the only other thing I'd add -- jump in here if you don't agree -- is that when we look at the margin profile between specs and to-be-builts, we're actually seeing a lot of compression there, so not near as -- you know, what we saw over the last few years.

That's correct. That feeds into our guidance that we've had for this year. Some of that margin accretion is that margin play where we're seeing that delta between the 2 shrink.

Yeah.

Great, that's really helpful. And then, just as my followup, hoping you could quantify, when you're talking about some of the discounts coming down, sequentially, could you give us some numbers around kind of what your average discounts were on both closings and orders in the quarter, and how that compared to a prior quarter?

Yeah, well, we look at it sequentially, Michael. We saw a decline in incentives per house. When you look year-over-year, we were roughly flat. And I'd say it's kind of the normal cadence, what we'd expect for the year. I think most importantly, the way we're trending now, we actually expect it come down year-over-year in Q3, Q4, and be down year-over-year for the total year compared to '16.

Okay, that's great. Thank you.

Thank you. Our next question comes from the line of Nishu Sood of Deutsche Bank.

Thank you. I wanted to talk about the SG&A leverage. Obviously you're getting some SG&A leverage, I think on a kind of 20-, 30-basis-points range, for this year. With the really impressive growth and absorptions and backlog, that would seem to set up an acceleration in SG&A leverage as we head into the back half and into -- as we look ahead into '18. I know you're not giving guidance, but is that the right way to think about that? Or are there are other compensating factors we should potentially be taking into account?

Here, I'll take that, Nishu. Yeah, I think for this year, we anticipate leveraging year-over-year. That's in our guidance. I would say quarter-to-quarter, we might see some variability just based on the level of closings relative to the prior year. But we've made a lot of investments. We're pleased with those investments that we've made. We think those put us in a position to drive continued leverage in 2017 and beyond, so you are going to see it here in the back half of the year. But we remain focused on running a lean operation. I think, for us, what's important is we have the ability to reinvest back into the business, in people, processes and systems, and still drive leverage going forward.

Got it. I mean, honestly, this question is rooted in the historic -- the historically SG&A, lean SG&A, focused nature of your organization, and Sheryl, that's something you've talked about over the years, so that also implies quite a bit of upside. So I imagine that that's still in the DNA, and so that's where the question is coming from.

And I appreciate that, Nishu. And you're right, it's something we've talked about, I think, for as many years as we've known you. It is deep rooted into the DNA of the organization. But at the same time, I think I also acknowledged over the last 2 or 3 years that maybe we had been a little too aggressive there, and it was important with this business and the growth that we've seen to make sure we're investing in it. But to be able to invest the way we have and continue to leverage and stay with what I would call leading SG&A, is something I'm quite pleased with.

Got it. And another question I wanted to ask was about community counts. You've had great absorption growth, obviously. Your community counts have been kind of flattish in this 300, just below 300 range now, and it will stay in that range for about 6 quarters, based on your guidance. Your land spend has also been a little on the lower end during those 6 quarters. It picked up this quarter, but as you mentioned, those are investments for '19. Does that imply, then, that we should kind of think about the potential for a more limited community count growth as we think about '18? Just the land trend would seem to imply that, maybe with some acceleration later as we go forward into the recovery, into -- in '19. Is that the right way to think about that?

Yeah, I think you're going to see growth here. As we said, we'll continue to hold in there with the overall averages of the industry from a community count standpoint, but you're right, last year we did moderate land spend. We didn't find the opportunities in the market, and we've been well positioned with our land bank to be able to be very selective in our acquisitions. As we've rolled into this year and really the end of last year, we actually saw a lot of great activity and pleased with the land that's under contract control on what we've closed this year. So we've seen our growth through community count moderating, for sure, but really through the pace, which we believe from an efficiency standpoint is an overall better strategy. So I think you'll see the combined efforts continue.

Okay, thank you.

Thank you.

Thank you. Our next question comes from the line of Stephen East of Wells Fargo.

Thank you, and congratulations, Sheryl and Dave, on the quarter. And Sheryl, maybe I'll start off on the returns some. Dave talked about inventory turnover being your first target that you're driving, so can you give us a little more color, maybe where you are now, what type of targets you have out there, and any other major drivers that you all are focusing on a lot? And then, I just wanted to understand, sort of following on Nishu's question and the returns, will you be cash-flow-positive? Do you even want to be cash-flow-positive at this point in the cycle, or do you still see the big growth rate out in front of you?

Why don't you take that --

Yeah, Stephen, I'll take that. So from an ROE perspective, we saw accretion here at Q2 year-over-year. Really, we're focused on driving both the numerator and the denominator. You've seen it through the higher pace that we had here in the first half, the tighter inventory management, just real focused on balance sheet efficiency. A lot of that is spec management. We're getting our year's supply down from roughly 10 at the IPO to about 5 now, and driving positive cash flow. We think that's important at this point in the cycle. Not to mention the cost management efforts that we've put in place by still reinvesting in the business. We're driving accretive homebuilding margins year-over-year, and SG&A leverage. So our strategy is simple here; we're focused on driving year-over-year accretion in 2017 and for the foreseeable future when it comes to ROE. From a cash flow --

And Dave, maybe before you go to cash flow, maybe it's worth adding just kind of the change in our land makeup from options deal, as well as the structure of our deals, which is allowing us, I think, also to continue to enhance the returns. As we've moved through the cycle, Stephen, we've really continued to focus the business on where we can get seller financing, put some difference in our structure and the size the deals. So I think all of those added to what Dave has articulated really do help.

Okay, that's really helpful.

And what you'll --

[Multiple speakers] on the cash flow.

Yeah, just a -- real quick on the cash flow. You'll see -- we'll put the 10-Q out here a little bit. Year to date, we're cash-flow-positive, and we're going to continue drive that through the rest of the year. So we'll be able to build on that number as we move through the second half.

Okay. All right, thanks. And then Sheryl, maybe you can, on the demand side of the world, give us some color on what you all are seeing, one by product, and I'm always interested in what you all are doing at Active Adult, but then also geographically, because we've heard some of your competitors talk about Northern California pricing being tough. You all are big in Houston, so you've got the oil. You're launching in DFW with your Taylor Morrison, so a lot going on for you all. If you wouldn't mind giving us some color?

Sure, I'd be happy to. So I can do a little quick around-the-world for you, or at least around our world. Maybe I'll start here in Phoenix. I've heard a lot of others describe the strength of this market, and I completely agree. Phoenix is probably -- not probably, it's running our strongest paces in the company. As I've heard others describe the strength at lower price points, our strength is really across all consumer groups, and in each submarket of the valley. We always say location really matters, and we're being rewarded for it, given our prices at all ends, 400s through 700s, 800s. The market's healthy; closings are up, I think, nearly 28% year-over-year; and inventory is very low. For us, we did lose some stores this year with our early sales strength, and we're down year-over-year, but pace has made up the gap. And we start adding years -- we start adding stores back in the half-back of the year.

Okay.

On California, both the Bay and [ Sac ] continue to demonstrate strong demand characteristics. The supply is, honestly, ridiculously low --

Okay.

And that would mean both new and resale is very, very tight. For us, it's a much better place this year, as we got all our shops open late last year, and so our sales success has been very impressive. I think the Bay has had the strongest year-over-year growth for us. People have talked a lot about the highest price points in the market have been impacted, and I would say that's probably over the $1.5 million range, not really where we play. We've seen strengths across even in the low $1 millions. But in July, we seemed to gain steam even with the strong success we've had at those higher price points, so I think the market continues to be healthy where we are, but I do think as you get into thinner air, maybe it's the $2 million, it does start thinning out. Southern Cal, we definitely have had a reduction in store count. It's really been the greatest impact in year-over-year west sales. And I probably shouldn't leave California without a quick mention on weather. We didn't have impacts early in the year when it came to deliveries, but rather, we did have some on the development side, which impacted our store openings, and some delays in putting starts in the ground, so putting some a little -- putting a little more pressure in California for those teams on the back half of the year. Denver, strong first half by all metrics in the business. The market dynamic's very strong. If I have watch-outs in Denver, it's continued labor pressure. And I do expect the appreciation to moderate there, as we've seen significant growth over the last many, many quarters. Let's move to Texas; I think success across the state, Stephen. Austin paces in sales are…

All right, that is great. I appreciate it. Thank you.

Thank you.

Thank you. Our next question comes from the line of Michael Rehaut of JP Morgan.

Thanks. Good morning, everyone, and nice quarter.

Thanks, Michael.

First question, I just wanted to circle back for a moment to the gross margin. A little better in the second quarter than the guidance was, and you raised the full year, I think, from low to mid-18% to mid-18%. Dave, I know you mentioned spec margins being a little better playing a role. Just wanted to come back to that and see if that was, in fact, all of the upside for 2Q in the full year, or were there any other factors playing a role, such as maybe price being a little better, or the price-cost dynamic, if pricing was a little better or costs were a little better than expected, if any other drivers were at work there.

Sure, Michael. I'll take the Q2, I guess, relative to our guidance. A lot of that is really mix-driven, I'd say, as far as the bigger beat. But we are seeing some upside. As you mentioned, pricing is playing a factor to that as well. A couple of things in there: Obviously, the specs contributed to some benefit. We're going to see a little bit more of it in the back half of the year, so you're right, we're guiding now to mid-18%. We have good visibility into our backlog for Q3 and Q4; you can imagine, at this point, we've got most all of our homes started, so we have a good handle on the costs. And we're benefitting from some of the purchase accounting last year, the benefit from specs, and then we're also benefitting from some of our strategic procurement and construction efficiency initiatives that we've talked about here in the past. That came in maybe a little bit better than we thought in the second quarter. We got some additional benefit coming now through Q3 and Q4. And then, I'd say, lastly, on the pricing side, we've -- be it modest, we've done a little bit better there on the pricing than we thought as well. So it's really a combination of those things that are giving us the confidence that we're going to see a slightly better margin than we originally thought for the year. Now, we've still got the typical headwind, so mix will play a factor, just depending on the geographic penetration. Labor still remains somewhat of an issue through some of the pressures, but again, we got a jump on the starts this year, so that's going to help to offset some of that. And then, potential commodity increases. But we believe we've factored that into the guidance.

That's great. That's very helpful, Dave. And then, just on the order growth and sales pace, I might have missed it earlier. I know at the end of the first quarter I believe you gave April, but if you could give the order growth by month, that'd be helpful. And also, with regards to the sales pace, obviously with the guidance raised up slightly, just wanted to verify, I guess, for the model, that you're still expecting 3Q and 4Q to, while moderate sequentially, still be up year-over-year. Thanks.

So, the math would suggest, Michael, that obviously our paces in the back half of the year to somewhere between 2.3 and 2.4 would be in your low 2s. So, 2.1, 2.2, depending on the month, right? And depending on the month, like I said, we had some really difficult comps in Q3, but Q4, I definitely expect that we'll be up year-over-year.

And the order growth by month? I'm sorry.

Do you have that, Dave?

Yeah, we were -- we flashed April, May. We're a little bit over 20% for those 2 months. And in June we were right about 2%.

Okay, thank you.

Thank you. Our next question comes from the line of Alan Ratner of Zelman & Associates.

Hey, guys. Good morning, and I echo my congrats on a good quarter.

Thank you.

Sheryl and Dave, I think probably the one thing that really strikes me as I look at your performance is the improvement on the balance sheet, and I know you spent some time talking about that. If I look at your current leverage ratio, and Dave, you mentioned that the goal is to continue generating some cash in the back half of the year, you're probably going to end the year with a net leverage ratio in the 20s. And I know, in the past few years, you guys have had some good success on the M&A side; after you sold Canada, you put that money to work very quickly and have done a good job integrating those deals in the business. So I guess just bigger picture, as you think about the balance sheet as lean and improved as it is, and you look out in the environment at the M&A side, because it seems like the land spending is pretty much on the course you've set forth, how do you see the M&A environment today versus back in '15, when you were pretty aggressive, and is there any other use of cash that we should think about, or are you just kind of content sitting on that for the time being, waiting for an opportunity to unfold? Thank you.

Thanks, Alan. Well maybe I'll hit the M&A, and then Dave, you can pile on, if you want, anything on the balance sheet. I mean, first of all, thanks for the recognition of the balance sheet. I think Dave and team have done just a really good job getting us to a position -- the position that we're in today, really allowing us the flexibility that Dave talked about in his prepared remarks. I don't know that anything's changed from prior conversations and discussions around the markets and M&A. We've always been active looking but have never felt the need, the necessity, to do a deal unless it really does make sense strategically for the business, that it's accretive. When we look at M&A, as we've always said, we look at the best use of cash and how -- what's the best way to deploy that organically, building in certain markets. I talked a little bit about Atlanta, where we did 2 M&As, and now it's come to be one of our largest businesses with some of our highest margins, and we integrated those in about a year. So when you do it and do it well, it's really an opportunity for the organization, and we'll continue to study the market dynamics in some of the markets that we're not in, as well as some of the markets that maybe we see an opportunity to add scale. But it really comes down to the quality of the assets, the culture, the alignment of the customer philosophy, the quality of the team. The deal obviously has to make sense. We're going to look for deals that are quickly accretive on the returns and the operating margin line. And if those -- if we put all those pieces together, yeah, you'll see us active again.

Yeah, and I'd just maybe echo what Sheryl said and build on capital allocation. M&A is a potential lever for us. We're also very focused on just organic reinvestment as well, so when we can be opportunistic, we'll deploy some of that money there. If that's additional, beyond our billion, then we'll pursue that if it makes sense. We also have our share repurchases out there, so that's something else that we'll consider. Again, trying to be opportunistic. But I think right now, we don't mind having the dry powder from a net debt-to-cap ratio perspective. You mentioned we might get into the low 20s. It may have a 2-handle on it, it might be just very low 30%, but we like the position that we're in right now.

Yeah, really. It's the right position at the right time in the cycle.

Absolutely. It definitely should be a competitive advantage for you guys going forward, I would imagine. And then Sheryl, just on the demand environment, I think your comments were -- sounded very positive, very bullish. Is there anything, as you look out, that gives you any concern today? Affordability, job income growth, anything that you can think of that would provide a counter to the pretty bullish comments you had earlier?

Yeah, it's a fair question, Alan. I think I mentioned in some of my comments in a few markets that affordability is a challenge, and it's a close watch for us. And it absolutely drives, to Dave's point, our capital allocation strategy and the way we bring those land deals into the business. So affordability, I think, absolutely. It won't be a new tone for me to talk about the labor market, but I think that's a headwind and a tailwind, because I think it gives us a competitive advantage with -- this year with the jumpstart we've put on the business and how we manage through that. But I think the labor environment really does create that governor that gives us bullishness for a longer cycle. There's been a lot of talk about affordability and bringing that product to market, and I think we've seen a lot of builders shift to that profile. When we look at it, it's about 30% of our first-half-year sales. And it's obviously market-specific, and I mentioned in some of -- in many of our markets, I think our greatest penetrations are in Sacramento, Chicago, Tampa, Atlanta, Charlotte, Raleigh, and really starting to grow in our Austin business. So that's how we'll approach, I think, the affordability piece. If I look across the portfolio, Denver and Dallas have historically really been the only place we haven't served those, but things like bringing Taylor Morrison to Dallas really help us change that. But when I think about some of the additional macro factors that I talked about in my prepared comments, I actually feel pretty darn good about where we are. I do think we'll see market-by-market movement and -- but overall, I feel pretty bullish.

Great, good to hear. Good luck, guys.

Thank you.

Thank you. Our next question comes from the line of Carl Reichardt of BTIG.

Hi, thanks, guys. This is Ryan, on for Carl. On your updated absorption guidance, 2.3 to 2.4, do you think that's a good run rate for Taylor Morrison going forward, or do you think that you can continue to move absorption higher in 2018 and beyond?

You know, it's an interesting question, and the honest answer is, we don't have what we call a good run rate. And so it's hard for me to comment on 2018 yet. But as we've talked about in the past, what we do is we really look at the underwriting of each of the assets in the portfolio when we bring them to market, and those are our expectations for our run rate. And over the last many years, you've seen us articulate paces of anywhere from 2 to, obviously, 2.7 this quarter. And that's not driving for a specific pace, that is driving for the expectation we have of each of the assets, and as we roll those all together, what our expectations are. In some places, we might push it a little harder, but generally, when we kind of lay out our land plan for the year, we wouldn't do that. So there's not what I'll call an ideal. It's really about the makeup that's -- to market at any given time.

And we'll add a little bit more color here in another quarter or 2. A lot of this is just looking at '18, the timing of communities coming online. So a little bit of work for us still to do to roll up that number.

Okay, got it. On -- and then, I think you said in the prepared remarks that you're kind of strategically adding specs to some markets. Can you, I guess, just expand upon that? Are there some markets in particular where it makes sense to increase your inventory?

I think the better way to say it is it's more community-by-community than a particular market. A lot of it just comes down to the buyer type. Obviously, if it's a little bit more towards entry level, that has a higher spec. Mix --

Higher spec as a percentage of mix.

Yeah, of the mix. Higher --

Yeah, [ re-lows ].

So I'd say we look at it more at a community-by-community level than we do an overall market basis.

Okay, great. Thank you.

Thank you.

Thank you. And we have time for one more question. Our last question comes from the line of Alex Barron of Housing Research. Alex Barrón: Thank you, and good job on the quarter. I had a quick question of wondering if you guys had any of those joist issues in Denver? That was my first question. My second question, some other builders, I guess, have made a pretty hard focus on the entry-level segment. I know historically you guys have been more higher move-up, and more recently focused on Active Adult as well, but just wondering on your thoughts on opportunities of moving in the direction more of entry level? Thanks.

So -- thank you, Alex. The first question's really easy: No, we have no impact on the business that we have identified at this point, and we've done a pretty nice scrub. With respect to the entry level, I mean, similar to what I said a couple questions ago, but I think we've consistently articulated our strategy around the importance of protecting the business and the balance sheet with quality of locations. And certainly, where it makes sense and the land's available, that it yields affordable housing, we'll be all over it. Like I said, our penetration right now is about 30% of first-half-year sales is our first-time buyer. Now, granted, our first-time buyer is a little different than maybe others. It's a more professional, and in many instances, a 2-income, and we can see that first-time buyer playing in the $200,000 to $500,000 range. But we can all debate what an A location is, or a C location, but I think the way we look at affordability and making sure we protect the business long-term is that our locations are in the path of growth. And sometimes that will lead us to a market that's truly emerging, but we're not going to put ourselves in a position where we really go out to the peripheral to address that buyer. So I guess the simple answer, Alex, is about a third of the business feels right, and if we can do a little bit more without putting the business at risk with kind of fringe locations, we will. I think we're always looking at the strategy and understanding the best way to play. Recently we've approved a couple pieces in the Inland Empire, but it's really around how we've structured those deals and it's very intentional on timing. And maybe the last thought I'd pile onto that, Alex, is it's interesting: The competitive set is changing, as everyone is kind of going down in price, so I really like the opportunity it's affording us in both the Active Adult and kind of our bread and butter of that first-time, second-time move-up buyer. Alex Barrón: Excellent. Well, best of luck. Thank you.

Thank you.

Thank you. And I'd like to hand the call back over to Sheryl Palmer for any closing remarks.

Well, thank you, everyone, and appreciate you joining us this morning to share our second quarter results, and I hope you have a wonderful day.

Ladies and gentleman, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone have a great day.