Good morning, and welcome to Taylor Morrison's Fourth Quarter 2018 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to introduce Mr. Jason Lenderman, Vice President, Investor Relations and Treasury.

Thank you and welcome everyone to Taylor Morrison's fourth quarter 2018 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. 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.

Thank you, Jason. Good morning everyone and thanks for joining us. I’ll start today by discussing the current market environment and the beginning of 2019 because I know that’s top of mind for most. Then I’ll discuss 2018 and how we finished the year followed by an update on our integration of AV Homes. We continue to believe that the current new home sales environment has been best described as a break in momentum as the industry finds its new normal. The conditions the industry experienced during the back half of 2018 in regard to interest rates, affordability and the resulting press coverage led many potential buyers that have been in the market to take a wait and see approach. This coincides with what we felt as well with reduced traffic but the more significant impact appeared to be a lack of urgency. The ambivalence felt by customers was reflected in our conversions and further emphasized when considering the conversations on the sales floor versus the overall credit quality of our customers. Affordability issues have been less of an issue for us across most communities but instead a more hesitant and curious consumer given the competitive discounts seen in the marketplace. As we have shared for the last many quarters, our customers continue to have room with what they can afford based on mortgage underwriting. Our average conventional buyer is still able to absorb a rate increase of more than 500 basis points and our average FHA buyer is able to absorb just less than 300 basis points in rate increase before their debt to income ratio becomes a concern. In addition to the local momentum building each week on the sales floor, there still continued to be plenty of macro data points that give us confidence in the near-term…

Thanks, Sheryl, and hello, everyone. For 2018, adjusted net income was 306 million and adjusted diluted earnings per share was $2.65. On a GAAP basis, net income was 210 million and diluted earnings per share was $1.83. Our results include unusual expenses totaling 96 million from the AV acquisition as well as cost associated with our Canadian entity unwind and corporate reorganization, land charges and an increased reserve related to remediating a warranty issue. Total revenues for the year were more than 4.2 billion, including homebuilding revenues of over 4.1 billion. Home closings gross margin for 2018, inclusive of capitalized interest, was 17.1%. This figure was impacted by certain items that are worth discussing. Purchase price allocation for the AV acquisition positively impacted the full year margin by about 13 basis points or $5 million. This was an improvement from our purchase price allocation guidance last quarter as we refined our methodology during Q4. The margin rate was also impacted about 95 basis points due to a $39 million reserve we took in Q4 to cover expenses related to the warranty issue just mentioned. Lastly, our decision to prioritize pace in a few communities, including close our communities, during Q4 led to land charges of 9.6 million which impacted the annual margin about 25 basis points. Although this decision impacted margin, it was made with a focus on returns. After accounting for these adjustments, home closings gross margin, inclusive of capitalized interest, was 18.2%. When considering just the legacy Taylor Morrison results, this metric was relatively in line with our original margin guidance at the beginning of 2018. I’m pleased with the legacy margin performance given the significant headwinds we faced with increased input costs, primarily in lumber, various tariffs and trade labor throughout most of 2018. Moving to financial…

Thank you, Dave. Before we move to Q&A, I’d like to spend a few minutes covering some of what we’re seeing with consumer trends and activity in each of our major markets. I’ll start with an evolving data point with the continued growth of single buyers across the business. Reviewing our recent shopper demographics, we have seen an increase of approximately 15% to 20% growth in singles and interestingly enough we are seeing movement in each of our buyer cohorts with particular concentration amongst the gen-xers and boomers. The trend that we have seen with the Taylor Morrison customers appears to be consistent in the newer AV communities as well. After seeing the uptick in traffic activity from the singles segment, we followed up with focus groups to understand any differences in their buying preferences and found them to be generally aligned with couples and families except that they are more likely to be moving due to a lease expiring than their married counterparts and most importantly they articulated a greater desire to have security but not just in the literal sense but through being a member of a community. Moving on to the market, let’s start with the West and then we can work our way East across the country. None of our markets were immune to the slowdown in October and November but the West was a big driver of the stabilization that we saw starting in December. That led the charge in January and continued to perform well in the first half of February. Our Phoenix division continues to be a bellwether for the company and while the overall pie in that market continues to grow, our local leadership team has done a nice job finding ways to grow the Taylor Morrison share of the market. Despite…

Thank you. [Operator Instructions]. Our first question comes from the line of Scott Schrier of Citi. Your line is open.

Hi. Good morning. Thanks for taking my questions. I wanted to start a little bit on the land and warranty targets and see how you’re evaluating your inventory and if you might see some further charges on either? I know you mentioned some closeout communities. I’m curious on the PPA accounting as a benefit. Does that imply that certain assets were written down or is it something more mechanical? So just curious how we’re looking at land from that perspective?

Sure. I’ll start with the impairment one. First, I guess it’s a good question. To call out, these are on the legacy TM side. The land charges don’t have anything to do with the AV side. That would be captured in some of the fair value work that we did. But for the charge we took on the land, that was focused on moving a few communities towards closeout sooner than we typically do. Then we also had a couple of communities that weren’t quite performing as we had hoped. So we were trying to drive pace, be very focused on returns. So in total this was just a handful of communities. Related to the warranty issue, as you guys know and have seen, builders experience these type of issues from time-to-time. For us, fortunately we haven’t gone through this in several years actually before we went public and that was at the time a Chinese drywall. But we believe we’re fully reserved for that now at this point and we actually hope to recover some portion of these costs. However, it’s probably not likely in 2019.

Got it. And then more broadly speaking, some builders obviously taking a pace over price stance. You mentioned you’ve done that in some communities. It tends to work better in some lower price product. Can you speak to how you’re thinking about the balance understanding that it might be different depending on the market, but just want to hear your philosophy on how you’re sizing your communities and how you’re thinking about the balance given your higher price point to maximize your returns?

Sure. You bet, Scott. I think it’s very difficult to declare a single portfolio strategy, but if I had to the bias would be pace over price. We pushed pace very hard early last year and as we did that we weren’t able to get some of the replacement communities online to replace the ones that we were closing out. But it’s important for us to keep the production machine consistent. It’s one of the ways I think that we continue to be a preferred builder for our trade. So we’re going to continue to push units. Believe the work that we’ve done over the last year and the opportunity with AV on the enhanced scale only continues to benefit that. We’re not going to destroy margins but we will continue to push pace. We’ll focus on gaining scale in each of the markets, generating cash, leveraging our overheads, enhancing the returns. Having said all of that, I believe we have some high quality locations in the business and within the TM brand and some of the locations we still do have the opportunity to get price and in those communities we would strive for both.

Great. Thanks for that. Good luck.

Thanks, Scott.

Thank you. Our next question is from the line of Stephen East of Wells Fargo. Your line is open.

Thank you and good morning, Sheryl and Dave.

Good morning.

On the order side you talked about the nice pick up that you’ve seen in January and February. A couple of questions on orders. One, how would you compare that to seasonal – typical seasonal trends there? And then could you just talk a little bit about your different segments as far as how active adult is performing, move-up, entry level, et cetera, on that? And I’ll stop there.

Yes, you bet, Steve. If I think about the end of the year, as I mentioned in my prepared comments, October – the fourth quarter was tough. October was barely down, November is really where we saw our greatest dip and then December was slightly up. What we’ve seen since then probably mid-January I would say since the third week of January, we’ve seen week-over-week improvement. We’re actually seeing it across all of the consumer sets. If I look back to the end of the year I would say in Florida we definitely saw the 50 plus buyer coming back a little later. So market-by-market we saw different levels of noise, but what we’ve seen really is pretty consistent traction across the business. As I’ve tried to isolate it by consumer group, even in the fourth quarter, Steve, I would tell you that it wasn’t the high end that we saw the reduction versus the low and in fact our pace was the lowest in our AV communities at the lowest price point. But you almost have to peel back the onion market-by-market because – Houston’s a great example. The 200 to 500 market is very healthy. The over 700 market is very healthy. The 5 to 7 is really where we felt the most turbulence. So every market’s got like a little niche but then you move it obviously submarket to submarket.

Yes, fair enough. We saw the same thing in Houston. If you turn to your synergies, that’s a big bump up which is great. Could you all talk a little bit about what’s driving that and then maybe, Dave, where the synergy buckets are occurring?

Yes, you bet, Stephen. So we previously guided to the 30 million. We’re bringing it up by 10 million to 40 million now. And that original breakdown was about two-thirds in overhead and then the other third was primarily mortgage, insurance, national rebates just to name a few. That $10 million increase is kind of being driven across all categories, most notably though in the overheads and on the national rebate side. So we’re still working through it. We’re hopeful that we might actually be able to eat this up a little bit more in the coming quarters.

All right. Thanks a lot.

Thank you.

Thank you. Our next question comes from the line of Mike Dahl of RBC Capital Markets. Your line is open.

Good morning. Thanks for taking my questions.

You bet.

Sheryl and Dave, I wanted to circle back on the orders again and understanding there’s a lot of moving pieces particularly with the addition of AVHI. Could you give us a sense of a couple different things? One, how many orders did AV contribute in the fourth quarter? And then when you’re talking about January and February, can you give us the year-on-year change in orders and if possible break down from a legacy basis or organic basis what that represents?

So let me try to give you some color, Scott. As of the end of the year, we actually have a blended business. All the signs are changed and AV is now TM. When you look at the fourth quarter, a couple of things happened. As I think I said in my prepared remarks, our sales pace for Taylor Morrison was generally in line with our expectations at the beginning of the year, our original guidance. We did in the fourth quarter see some softening across all communities, but we definitely saw a greater softening and the orders in AV were at the lower price point were probably 20% less than Taylor Morrison. Now we had anticipated a fair amount of that in our underwriting, so a number of things happened. One is I think you had just the softening in the market. Two, it’d be naïve for me to say there weren’t some integration impacts and some repositioning that we did. I did we spoke about that last quarter in a number of our communities. Three, and probably the greatest impact, is we really did have to clean up their backlog. So when I’m looking at the numbers, I’m really trying to parcel out the gross versus the net, because on a gross basis actually not bad. But our cans were up about 50% in the quarter, part of that like I said was cleaning out the backlog, the business approach was slightly different. So that was a chunk of it. And then obviously as we move into the first of the year, we’ve got some pretty tough comps. But as I looked, like I said in my last – I think in the last question, as I look at what we’ve seen over the last four, five weeks, we’re actually seeing momentum across all of the price points, all of the brands and we’ve really tried to blend Taylor Morrison and AV together.

Got it, okay. Thanks for that color. And then my follow-up question just around the incentives and it sounds like there’s been a particular emphasis on your end on the rate buy downs which I think is interesting. I was hoping to get a sense of two different things. One is, can you help us understand the magnitude of margin impact either on dollar or percentage basis of that type of rate buy down program? And then the second part is just outside of the rate buy downs, what do you think are proving to be the most effective incentives today?

That’s a great, great question, Mike. A couple of things there. As far as – let me go right after and Dave jump in here if articulate this incorrectly, but as far as the margin impact, actually there’s not. Because all we’re doing is putting the dollars to use slightly differently. What this national promotion has done is allowed us to align our incentives to the benefits of each customer’s needs. So yes, it’s a national promotion and yes everyone has the opportunity. But I would tell you that a percentage of the customers are taking advantage of this, some may be taking advantage of a permanent buy down with those same dollars, some their bigger need is cash out of pocket. So what it’s allowed us to do is really have the dialogue with the customers and respond to their individual needs. What it’s also done is generate great traffic and getting the traffic in the door to have the conversations and then personalize a program that works for that buyer.

Got it, okay. Thank you.

Thank you.

Thank you. Our next question is from the line of Alan Ratner of Zelman & Associates. Your line is open.

Hi, guys. Good morning. And Sheryl, congrats on those accolades you rattled off there, very impressive during the quarter. So I guess just following again on the cancellation topic, I think that it’s an interesting point you brought up because I do feel like we see this typically in a lot of M&A transactions that there’s some cleansing of the backlog that tends to go on and maybe that got lost a little bit looking at the net numbers. So do you have the actual can rate for us? And maybe on a gross basis might be the better way to think about it, do you have what those trends look like for the quarter into January for the company?

Yes, the can rate for the quarter was 20% for the total company.

And last year same quarter was 13.5, so there’s my 50% up. But when you place units to that, which isn’t hard to do, Alan, that really generates my comments around gross sales versus net sales.

So that gets me – I’m looking at gross orders up probably about 8% year-over-year which would probably be more aligned with what people would have been expecting at least from a net basis. So is that a good number to think about for January as well in terms of what you’ve been running at?

Yes, the cans are slightly down, which is the good news. I think just in general and you’ll see this across our peers, as you move into this entry level space, you just gen more contract. So I think the days of our average can rate 10% to 12% might tick up because I think that’s consistent with this buyer group. You write more deals to get them to stick. But I think in general, yes, that’s about right.

That makes sense. Second question, I noticed your community count was about 10% higher than what you had guided for, so I was curious if there were any changes? I know you mentioned last quarter some repositioning of communities and things like that. It looks like your active count was higher. So can you just give us an update on where you are with that repositioning and how we should think about that community count versus the prior guidance?

Yes, so I think it’s tailored a couple of stories, right, some of it unfortunately will be the reduction in sales and fourth quarter will slow down some closeouts. That’s probably a good contributor – the primary contributor to it. When I think about what we have ahead, as I go market-by-market, there’s absolutely some noise in the community count. As you know, this is just about the hardest thing we guide to. But when I think about the volume of openings that we have this year, this will be our largest year community openings that we’ve really ever seen as an organization. Having said that, we have a boatload of community closings as well. So I think we’ll guide to the full year as we get into the next quarter, but I think we’re going to generally stay par as I think about new openings and closeouts.

Okay. That’s helpful. If I can just sneak one last one in, Sheryl, can you just talk quickly about what you’ve seen across the industry; January, February on the incentive environment and pricing? We heard from some of your larger competitors six weeks or so ago just about potentially being very aggressive and since then we’ve heard some more positive chatter about traffic and sales. So has there been any pullback on some of the incentives that were being offered through the industry thus far through the first six weeks of the quarter?

Alan, unfortunately you’re not going to love my answer, but it is still market specific. There are some places where the incentives are very aggressive and it all is correlated to the level of inventory the builders have. In others I think where there has been some momentum in traction, we have seen – I think you heard us as well as other builders say that incentives from a closing perspective were down. I’m not sure that really speaks to the sales environment. Our incentives were down in the quarter year-over-year and in January slightly as well from a closing perspective. Some markets were a little more aggressive, in some we’ve been able to pull back and I would expect that balanced approach is what you’re seeing. But I do think there’s a bias across the sector of if people came in for the year with increased inventory, there are going to do what they need to do to move it. And that – recognizing that behavior is just what thrashed some of our land decisions because you know that’s going to happen. And so you want to be able to sell on something beyond price and that’s why quality of locations is so critical.

Got it. Thanks for that. Good luck.

Thank you.

Thank you. Our next question is from the line of Nishu Sood of Deutsche Bank. Your line is open.

Thank you. I wanted to go back to the purchase accounting adjustment. It’s about a 40 basis point tailwind to margins and just with the change and the review of the assets, so what kind of tailwind do we expect for 1Q? Will it be about that 40 basis points range and what might it be for the year?

Nishu, I’ll give you Q1. We’ll wrap in the year hopefully next quarter when we come out with the annual guidance. I want to point out two things. One, the PPA does provide a benefit but at the same time the legacy AV margins have kind of been that mid to high-teens, so there is kind of that inherent drag there as well. So they actually have the ability to somewhat counterbalance each other. So if you kind of looked where we’re guiding to in Q1, it’s that mid-17%. On an adjusted basis when you take out some of those unusual charges that we had around warranty and the land charge, we’re going to be on kind of that consistent run rate into Q1. And then as we move forward there, we’ll readdress that next quarter.

Got it. Okay, so a similar kind of effect or amount in 1Q compared to 4Q?

Yes, it could be. It’s obviously the level of closings that come through that business that ultimately will drive that amount relative to the penetration to the legacy TM side. But I’d hold the run rate for now.

Got it, okay. And then on land spend, I think you mentioned a combined AV and legacy Taylor land spend of about 1.1 billion for '18, if I heard that correctly. How are you thinking about '19? The market outlook has been choppy but obviously you sound optimistic based on the recent pickup in demand. Would you intend to spend something similar to that level or perhaps less as you continue to kind of drawdown the land supply?

I think we’d have to look at – we’re trying to balance somewhere around that five years of supply. I think it’s going to depend somewhat – obviously on the order environment, we at times will act a little bit contrarian. If we see a good deal we’ll take advantage of it just like you saw us do in many markets; Phoenix, Austin, Houston to name a few. But I think the 1.1 billion, you also got to think about that includes AV just for one quarter. So again, it’s going to be – depending on market conditions what’s out there from a land seller environment. I would say the land sellers maybe aren’t as active right now because they see some of the softness in the market. But as we all know that could change in a quarter’s time. For us it really just comes back to capital allocation and putting the dollars where we think its best use is and that is first and foremost reinvesting back into the business. And then we’ll look at other opportunities as you saw in the fourth quarter and in the first quarter we were pretty aggressive on share repurchase. In fact, we kind of went through when we bought back all the shares we issued in AV transaction plus another 30%. So we did all that without getting into our revolver at the end of the year. So for us it’s just going to be that continual management of the capital allocation.

And I think that’s spot on. And the only thing I’d add to that, Nishu, is at some level, Dave said it well, that we tend to operate contrarian. We’ve seen a lot of people exit the market which does create opportunities and we’ve also seen some land sellers start to get a little religion about what’s happened. We never leave the land market but we’ll continue to be very selective. And generally what we do in times like this is we do a lot more sensitivity testing as we look at our underwriting. But I agree with Dave. I think given the fact that we’re going to have AV in there, you might see some shift in how much is spent in development versus acquisitions as we’ll continue to develop. We’re in a really good place. '19, we’re bought out obviously; '20, we’re close --

We’re nearly bought out. And just a little bit of work in '21.

So we’re in a good place. We can be selective.

Got it, okay. Thank you.

Thank you.

Thank you. Our next question is from the line of Carl Reichardt of BTIG. Your line is open.

Thanks. Good morning.

Good morning.

Sheryl and Dave, you talked a bit about the specs you’re carrying, finished specs and I’m just trying to think about as you go forward with AV as a larger part of your mix, what level are you comfortable with in terms of finished spec per community or overall specs per community?

When we look at it, we’re probably a little bit higher than we are normally. Some of that is definitely driven by the legacy AV business. Typically, there’s more specs there given the price points. And then obviously a little bit of that softness we saw in Q4. So our spec count is probably is a bit higher than we would hope, but we’ve been successful in selling that through. We commented in the prepared remarks that we’ve sold a little over 350 of those specs. In addition, we slowed the starts around specs several months ago, so we expect that to kind of even out as we get through the first half of 2019. But we typically say we’re four to five specs both in process as well as complete. With AV we’re probably going to be on the higher side of that, if not above. So we’re running about 6.3 right now. That’s probably somewhere where we would expect to be on a go-forward basis.

We would expect that most of the AV business will continue as a spec business. So if you take that piece of it and say our normal has been four to five, this could easily be five to seven, that’s going to blend somewhere around where we are right now. The opportunity will be to make sure that we still are very, very true to our finished spec philosophy and selling those early in the process.

Okay, great. I appreciate that. With the deal it’s hard to know sort of what’s the market, what’s the deal and how that changes, so thank you for that. And then, Sheryl, you talked a little bit or both of you talked about land and developers. Can you talk a little bit about the trade? I think they’re sort of more viscerally seeing things change. How are they responding in terms of pricing? How’s availability particularly with framing? Thanks.

I’d say as we finished up the year, we still see some of that continued labor pressure as typical with year-end. But things are and have moderated a little bit. So we’re hopeful we’ll see some of that pressure pull back. I would say we’ll probably still see some of it maybe at quarter end. But when you look at some of the input costs, I think it works a little bit in our favor right now when you look at what’s happening with lumber and OSB. Obviously still some risks around tariffs but something like labor is something we watch pretty closely.

And I would say we just – and I know we talk about this every quarter, but this is our new normal. This isn’t going to solve itself and it’s slightly different in each of our markets. So if I look at Phoenix, for example, right now, most of the builders in Phoenix are experiencing 60 to 90-day delays in delivering lots because the underground and concrete trade partner’s capacity is most challenged here. In other places, it’s our framers and other places like Florida, we can’t get roofers. And so this is kind of what we do each and every day. And sometimes it’s unexpected and Florida certainly has been one where the roofing challenges actually cost us deliveries in the quarter. But generally we’re able to manage through these bumps.

Okay. Thanks, Sheryl.

Thank you.

Thank you. Our next question is from the line of Jay McCanless of Wedbush. Your line is open.

Hi. Good morning, everyone. So the first question I had on the East, very good order performance there but since your footprint this year with active adults that you got from AV is a lot different I think than your footprint was last year, can you talk about the demand in active adult versus the traditional housing business?

Yes, I don’t know that I have anything new to add, Jay. As I said, in the fourth quarter we felt it across all consumers. I think as we saw some markets – stock market volatility that hits us in a couple of places that generally hits us with the active adult and it certainly hits us in the Bay when people are using RSUs and options to buy houses. And so we saw the 50% kind of the shoulder season come back a little later. November, December was absolutely softer than we would have expected in Florida. But we’ve seen that momentum pick up and we’ve also seen that with the active adult business in the Carolinas. Interestingly enough, as you know, the portfolio difference is TM’s 55 businesses generally a little higher price point than the AV, but they performed generally the same and that’s what we’re seeing early signs of. But I’ll be in a much better place to really talk about that in the next quarter when we really see the spring performance.

Got it. And then the other question I had, the inventory home numbers that you guys gave in the release, how much of those were legacy TM versus AV home inventory house?

Yes, as Sheryl said, we’ve kind of moved the combined business. I would say it’s just more proportionate through to the relative size of AV.

And the only exception to that would be what we already discussed, Jay, and that is we tend to carry the lower price point more specs. So maybe you give the AV side a slight uptick, but I wouldn’t say it’s meaningful.

Okay, great. Thanks for taking my questions.

You bet.

Thank you. Our next question is from the line of Matthew Bouley of Barclays. Your line is open.

Hi. Thank you for taking my questions. I wanted to follow up on the incentive discussion and just thinking historically, Sheryl, when you think about prior periods where there’s been positives around interest rates and kind of a need to incentivize, how long do incentives typically stay in the market in your view, so really how quickly can you pull back as demand continues to get traction as you mentioned or to some degree is there kind of momentum behind incentivizing at this point that you feel might take a bit longer to work through? Thank you.

Yes, it’s a really good question, Matthew, because is there a norm from past cycles? I can think the dark days and those incentives took years. And then I can think some of these market bumps we’ve seen over the last five, six years we’ve seen them in Phoenix and that lived with us for about a year and then the market took off again. And I would say as the market took off, incentives really went away in the market. I compare that to a market like Houston where incentives have always in my 30 years in this business, good and bad markets, incentives have always been a critical part of the sales formula. You almost increase the base price to incentive because the size of the incentive really matters there. And so you won’t see those back off at the same level even as the market improves. If I think about Austin where we also had what I would call a mini-cycle about three years ago, those came and left as quick as anyone I’ve seen. So I wish I could give you a book answer, but probably 6 to 12 months all things being equal.

Okay. That’s really helpful color. Thank you for that. And then I just wanted to ask quickly on the community count just beyond the first quarter guidance. Is it possible to elaborate at least directionally on your community growth plans in 2019? And I guess regionally, how that might be weighted? Thank you.

Yes, I can try to give some color. It’s hard to get too specific, but just like we talked about some of the community count – some of the communities that were supposed to come to market in parts of Florida that had a number of different delays, we’re going to see some growth there. So when I look at the East, I think we’re going to generally stay pretty – we’re going to be opening a lot and closing a lot. I would say Central would be about the same. When I look at the West I think that’s going to be one of timing. We have a number of communities opening and then closeouts toward the end of the year. So it really will depend on kind of sales pace. But generally I would say you’re going to see general replacement of closeouts with new communities and maybe a little growth on top of that.

Okay. I appreciate the detail. Thank you.

Thank you.

Thank you. Our next question comes from the line of Michael Rehaut of JPMorgan. Your line is open.

Hi. This is actually Maggie Wellborn on for Michael. I just wanted to quickly follow up on an early question. I was wondering how has the improvement in January and into the beginning of February that you talked about compared to normal seasonality.

So you would normally expect – we’ve always said in this business that sales really start coming after the Super Bowl. And I would tell you that last year they came a little earlier and this year we felt the momentum before the Super Bowl as well. So I would say it’s – that was kind of my opening comment about finding this new normal, because I don’t think we’re going to experience the kind of break the gates down that we saw last first quarter but I’m encouraged by the momentum. We have some really tough comps we’re working against. We had probably one of our best quarters historically certainly over the last many years last Q1. But the trend feels much more like I would expect from seasonal norms. We should see real volume picking up over the next six to eight weeks.

Okay, great. Thank you.

You bet.

Thank you. And our next question is from the line of Alex Barron of Housing Research. Your line is open.

Hi, guys. I’m not sure if I mentioned it but can you comment on the land impairment, where that was as well as the warranty issue what those were related to?

Yes, we hit that early on but maybe just to recap for you. On the land charge, it was a bit in the West but primarily in the East. They were all legacy TM and that was a couple of communities that were just moving to closeout a little bit sooner and then a few that weren’t just performing where we had hoped. So we’re just trying to drive returns there. But like I said before, it was just a handful of communities. And then on the warranty side, that’s one that – we haven’t had one in a while but we’re fully reserved for that. And we hope to recoup some of those costs, but probably not in 2019.

And that’s in our Central region.

Yes.

Okay, but it was like weather-related or it was more like defects or what --?

There’s a technical – it’s pretty technical that would take a long time to walk through, but we can walk you through it after our call.

Okay, great. Thanks.

You bet.

Thank you. And this does conclude our Q&A session. I’d like to turn the call back over to Sheryl for any closing remarks.

Thank you for joining us today. I appreciate you spending this morning with us. I wish you a great week and we’ll talk to you next quarter.

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program. You may now disconnect. Everyone, have a great day.