Good morning. My name is Chris and I will be your conference operator today. At this time, I’d like to welcome everyone to the Q2 2019, PulteGroup, Inc. Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Jim Zeumer, you may begin your conference.

Thank you, Chris and good morning. I’m pleased to welcome you to PulteGroup’s conference call and webcast to review operating and financial results for our second quarter ended June 30, 2019. Here with me today are Ryan Marshall, President and CEO; Bob O’Shaughnessy, Executive Vice President and CFO; and Jim Ossowski, Senior Vice President, Finance. A copy of this morning’s earnings release and the presentation slides that accompany today’s call have been posted to our corporate website at pultegroup.com. We’ll also post an audio replay of today’s call to our website a little later today. We want to point out that PulteGroup’s financial results for the second quarter of 2018 included several unusual items which were noted in our earnings release. As part of today’s call, we will comment on our reported results, as well as our 2018 financial results adjusted to exclude the impact of these items. We’ve provided reconciliation of these adjusted 2018 numbers to the reported results in our earnings release and within the webcast slides posted as part of this morning’s call. We encourage you to review this information to assist in your analysis of our year-over-year Q2 results. Before I turn the call over to Ryan Marshall, let me remind everyone that today’s presentation includes forward-looking statements about PulteGroup’s expected future performance. Actual results could differ materially from those suggested by our comments made today. The most significant risk factors that could affect future results are summarized as part of today’s earnings release and within the accompanying presentation slides. These risk factors and other key information are detailed in our SEC filings, including our annual and quarterly reports. Now let me turn the call over to Ryan Marshall. Ryan?

Thanks Jim and good morning. I’m excited to speak with you today about PulteGroup’s second quarter results and I’m pleased to say that on a seasonally adjusted basis, market conditions for the second quarter and the first six months of 2019 remained consistently stronger than what we experienced through the back half of 2018. Further based on feedback from our operators, I’d tell you that the market generally felt stronger in Q2 than in Q1 with mortgage rates down roughly 75 basis points from the start of the year, it’s easy to understand how market momentum continued to advance as the year progressed. Our second quarter performance reflects this momentum build as orders increased 7% over the last year. This is a notable swing after orders were lower in the first quarter of 2019 compared with Q1 of the prior year. On a year-over-year basis, orders were a little slow in April, but then we realized strong gains as the quarter progressed. While there are always a number of factors that influence the home buying decision, it is reasonable to assume the decline in interest rates had some impact in attracting additional buyers. As it relates to the current sales environment, I’ll paraphrase my comments from our first quarter earnings call in saying that through the first six months of 2019, we’ve experienced what we view as a typical seasonal recovery in buyer demand. It is great to see that consumer demand has been so resilient this year given the soft sales environment in the back half of 2018. I think that this characterization is consistent with the government data which show new home sales through the first five months of 2019 were up 4% over the comparable period last year. It is certainly nice to see the year-over-year increase,…

Thanks Bob. As I said at the outset of this call, we experienced a meaningful improvement in our business with year-over-year orders up 7% in the quarter. The increase reflects improved order metrics across many of our markets and specifically looking at conditions across our regions I tell the following. The eastern third of the country continued to experience good demand with the southeast seeing a nice pickup in buyer activity, while Florida remained one of the top performing areas of the country. In the middle third of the country, Texas remained strong particularly in the Houston and Austin markets, but demand among the higher price points in the Midwest was a little bit slower in the quarter. And at West, Nevada inclusive of the new American West communities as well as our Arizona market enjoyed very strong demand. Business in California remained challenging, but conditions do seem to be stabilizing with buyers beginning to venture back into our communities. I would note that the improved level of buyer interest experienced in Q2 has carried into the first few weeks of July. The strong economy, low unemployment and falling interest rates continue to support the demand for new homes. Before opening the call for questions I do want to thank all PulteGroup employees for their tireless efforts to deliver a great home and customer experience to every homebuyer. I'm also proud to say that based on the feedback from our employees, PulteGroup was just certified as a great place to work. This is another important milestone as we work to demonstrate the strength of our corporate culture in an outstanding environment we seek to maintain. Now let me turn the call back to Jim Zeumer. Jim?

Thank you, Ryan. We will now open the call to questions in contrary to the operator's comments they are open to all not just financial analysts so that we can speak with as many participants as possible though during the remaining time of the call, we ask that you limit yourself to one question and one follow-up. Chris let's get the Q&A process started.

[Operator Instructions] The first question comes from Mike Dahl of RBC Capital Markets. Your line is open.

Thanks for taking my questions and nice results.

Thanks Mike.

Ryan, I wanted to start out and dig in a little bit more on the active adult commentary. You mentioned that it just seems like it's taking a little bit longer for that buyer segment to rebound. I was hoping you could break it down even just anecdotally if you could between kind of some of the legacy, larger Dell Web projects and some of the kind of newer projects that might have kind of - the smaller footprints, more urban footprints and has there been any notable difference within that segment in terms of performance there?

Yes Mike. Great question and what I would tell you as we highlighted in some of our prepared remarks, we closed out of a number of our communities or suctions of communities that were generating relatively high sales paces. The replacement positions for those selling locations came on a little later in the quarter and had slightly lower sales pace and so the combination of those two things is really what had an impact on the comparative results. I would tell you there's not a differentiation in performance between the in town communities and some of the bigger larger legacy communities. They both perform well and on a relative basis year-over-year are very similar. More broadly Mike, just to kind of get into the question about the active adult buyer, I would tell you that these buyers are taking a little bit longer to regain some momentum coming out of the back half of last year. The group is, as I think most of you know, is less rate sensitive on both the upswing and the downswing. So the drop in interest rates doesn't have quite the same push that it does for other buyer groups. They frequently pay cash or take very small mortgages. I think it's also a buyer group that tends to be a little bit more cautious and so probably not a total surprise that it's been a tad bit slower than the other buyer groups.

That's helpful. And then, I guess conversely had this really nice pickup in the first-time buyer and so I think part of that's clearly been some of the pivot that you've had towards that. But hoping you could elaborate a little more and forgive me if I missed this, but that 30% increase in orders for the first time. Help us understand, how much of that is coming from absorption versus the community count growth you've seen there and any other color you can give us around that? Thanks.

So Mike, I'll start with the absorption question. We had a 14% increase in absorption, so pretty meaningful increase there. Further you've heard us talk over the last really 18 to 24 months that we've been intentionally into that investing in the first time space and we've been bringing assets into our book of business that are specifically targeted for this buyer group, which we think is a meaningful differentiation between doing that which we have done and taking existing assets and simply repurposing them from something they are originally intended for into the first time space. So, we highlighted on our call last quarter that if you look at the lots that we control that are specifically targeted for the first time buyer group it's about 35% of our controlled book now. So you'll see this segment continue to have a more meaningful presence in our closing volume over time. So last thing maybe on that point Mike, just I highlighted absorptions were up 14% and community count was up 13%. So those are the two elements that contributed to the overall increase in first time.

Your next question comes from Stephen Kim of Evercore ISI. Your line is open.

Thanks very much guys. I missed if you gave the community count guide, I was curious if you could talk to us about what your expectations are for community count and what the challenges and opportunities are on that metric specifically? Bob O’Shaughnessy: Yes Stephen, we didn't give a guide, but an answer to your question we expect the community count to be up between 1% and 3% in the third and fourth quarters relative to the prior year period. In terms of the challenges as you know, it's difficult to open communities, entitlements are challenging today. Our team has done a great job in doing this and obviously that 1% to 3% growth would include the communities that we picked up in the American West transaction.

And then, you talked about your land spend and obviously you did a great job in sort of spreading around your cash flow to debt pay down as well as repurchase. But the overall level of land spend, it's a little higher than I would have liked to have seen frankly because I would have liked to have seen your overall land investment on your balance sheet reduced as we go forward. Is this level of land spend what you need to be able to maintain your current rate of growth or do you perceive this level of land investment as a level which is setting you up to accelerate your growth in your home building going forward? Bob O’Shaughnessy: Yes Stephen, it’s a fair question. In terms of actual spend this year on land in the first three and six months, if you exclude the money we spend for American West we're actually flat. So the increase in spend is largely on development dollars which is bringing lots that we put under control on the path to market. I don't want to get into expectations for growth beyond this year. We've given the guide for what we think it's going to be for the balance of the year. But, when we look at capital we start with investment in the business. You heard Ryan's commentary on our view of the market, we remain constructive and so this reflects the opportunities that we're seeing in the market including American West. So not really growing as much as I think you're inferring. So we feel comfortable with the level of spend.

Yes Stephen, I would echo Bob's comments and further I would say that we continue to make excellent progress against our goals of three years owned and three years options. Our field teams have just done an outstanding job in working on a local level on a transaction-by-transaction basis to really secure lots that are helping us to turn our assets faster and to minimize the risk that's associated with having too much lined on the balance sheet.

Your next question comes from John Lovallo of Bank of America. Your line is open.

Hey guys, thank you for taking my questions. The first one Bob, it looks like adjusted SG&A as a percentage of sales 10.8 was equal to last year's quarter despite the 2% decline in revenue. And also appears that adjusted dollars or SG&A dollars are down on a year-over-year basis. Can you just help us understand what percentage the moving parts there? Bob O’Shaughnessy: Yes. It's an interesting question. There is no one thing to highlight as the driver of the performance during the quarter. I think you've heard us talk about that controlling cost is always a focus of ours as we challenge our team all the way back to 2016 when we took a pretty hard look at expenses and we've continued that focus. So, really it was a cross of bunch of different areas, there's no unique or significant things happening in the quarter.

Okay, that's helpful. And then Ryan, you mentioned not seeing any signs of another pending slow down like in the second half of '18 but I just curious in hindsight what signs did you guys see heading into the back half of last year and what are you looking for?

Yes, it's a good question. And then if you'll remember in our second quarter earnings call last year, we highlighted that we started to see some softening, was really in about the third week of April, and for us we saw it really in two forms, really would see it in two forms, the traffic that crosses the threshold of our model homes is certainly one of the leading indicators. Website traffic tends to be a little less predictive but certainly another metric. And then, on a daily basis we can see the number of new contracts that reported from our sales offices and that's arguably the proof in the pudding and the best indicator of an impending slowdown. As I highlighted in my prepared remarks, the first couple of weeks of July, the momentum that we have experienced in Q2 has sustained, we're still seeing very positive trends from buyers.

Your next question comes from Alan Ratner of Zelman & Associates. Your line is open.

Hey guys, good morning, nice quarter.

Hi, Alan. Bob O’Shaughnessy: Thanks, Alan.

Ryan, I think you were talking a little bit about just the fourth quarter and building up some specs during that software demand period and obviously I think a lot of builders did the same thing and retrospect it, it turned out to be a decent decision because the sales environment improved. If you look at the start status so far year-to-date it's definitely lagged orders and I think a lot of that points to in absorption of a lot of that standing speck that was on the ground heading into the year. So, my first question is can you talk a little bit about what the inventory situation looks like in your markets today both yours as well as probably more importantly other builders. And the second question on that point is just costs have remained in check here and I think a lot of that has to deal with the labor situation maybe not being quite as bad up to this point given that standing inventory. Is there any risk now that the orders are improving that you start to hear more about the labor tightness and challenges that the industry has faced over the first few years of this recovery?

Sure, Alan. I'll take the question on inventory and then I'll have Bob address your question on costs. As far as inventory goes at your point, the back half of last year we made the decision to let our spec inventory run a little bit higher than what we typically do. And that was purely aimed at maintaining the momentum of our production machine. At the end of the fourth quarter, our specs is a percentage total inventory was about 31%, actually a little higher than that, that's probably [30%, 33%] I think at the end of the fourth quarter. We saw that come back down in the first quarter and we're now back down to 26% which is more in line with where we typically run. That's total spec inventory at all stages of construction. And then, when you specifically look at final inventory, we continue to be at less than one per final unit, per active community which is the kind of the parameter that we've typically targeted. So, as far as our inventory levels go, Alan, we think we're in great shape. We continue to start homes very much in line with our expectations and so we haven’t necessarily experienced within our business the same situation that I think you described in the overall [starts] data. As far as inventory goes in the broader market, I think it's in a healthy spot when we look at month of supply for both new homes as well as for resale, almost every single market that we operate in remains at a healthy level. Certainly, we've seen some markets take some increases but even with those increases we believe the levels are still at a healthy spot. There are a few competitors that have put more inventory into the ground in an effort to achieve stated closing goals for the year. We are managing against that and competing against that on a case-by-case basis where we run into that. But it hasn’t had a system-wide impact on our businesses; I think it's evidenced by our Q2 results.

Great, that's very --. Bob O’Shaughnessy: And Alan, sorry just I wanted to address the comment or the question about costs. I think you asked about labor specifically how broadened, let's talk about our cost in general. The pleasing news is that lumber has trended down, I think everybody is well aware of that. Based on that and generally benign cost environment, we had guided to a 2% increase in our vertical construction cost and we now see it at about 1% for the year. So, the benefit of that lower lumber cost has really come through. The only sort of out-layered to that really is concrete very specific, locally we've seen some pricing pressure there. As it relates to labor, I would characterize that it's still generally pretty tight but not as bad as it has been. So, to your question, we've actually seen some moderation in the pricing pressure. Pricing isn’t going backwards but certainly less upward pressure than there has been and in certain markets we've actually had trades come in and ask looking for work which I think is a good sign in terms of pricing. So, in general, the labor market feels that is because it has. And I think with that there's room for them to do more as evidenced by the fact that we've seen some folks looking for work.

Got it, that's really encouraging to hear. If I could ask one more, Ryan, just few builders recently have started talking a little bit about single-family rental and either building for operators where you are kind of either bulk selling and some communities or even phases of projects entirely for single-family rental operators. Was curious if you guys have pursued that at all if it's any part of your business today or if there's any thought about embarking on that going forward?

Yes Alan, it's not. We have looked at it, we have evaluated it in an environment where it's becoming increasingly more difficult to find well located land, get it in title, develop, etcetera, and we don’t believe that that's the highest in best use of the associated land parcels. We think we're better off putting that available land into our for sale operation. So, other than some small onesie-twosies here and there and specific markets as we close to other communities, that's not a business that we're engaged in.

Your next question comes from Matthew Bouley of Barclays. Your line is open.

Good morning, thank you for taking my questions. I wanted to ask about pricing power in this environment. I guess Ryan, I guess if interest rates have come down obviously, have you found that’s all kind of allowed you to perhaps I guess stimulate price increases. What are you seeing I guess on pricing power today versus eight months ago across the different buyer segments?

Yes. So, we've had in specific locations we have had the opportunity to raise prices a bit but on the -- I would tell you that's the minority. The majority of our communities have frankly kind of held -- been held flat. It is still a competitive market, the incentives are still elevated. We continue to make decisions on a community-by-community basis to adjust pace a price in such a way that we think we think we can drive the best outcome for our shareholders and drive the highest return on invested capital and I think you are seeing that in our results. So, with interest rates coming down, it was widely talked about the back half of last year that one of the biggest headwinds that we had was overall affordability. Interest rates are certainly contributing to that, as we've seen interest rates come back down along with some stabilization in overall pricing. I think that's helped to bring affordability in a lot of markets back in line.

Okay, I appreciate that. And then I guess, you mentioned incentives, looking at the third quarter margin guide, I think Bob said you said discounts were down 10 basis points sequentially in the quarter. Is there way to quantify what that looks like on orders is I mean Ryan you just mentioned incentives are still elevated but is there any reason to believe at least that sequentially that the discounts on closing shouldn't continue to diminish further in the second half. Thank you. Bob O’Shaughnessy: Yes, I'd rather not -- it's Bob. I'd rather not get into the specific what's base pricing, what's option pricing. We feel pretty good about the market. Obviously, we work to maintain the margins that we have, we have among the highest in the industry. We're pushing opportunity for pricing and that comes in lot premiums and option revenues. And then, we're working to make sure we're turning our assets and we'll use discounting to get there. So, the relative percentages of each of those move over time a little bit. I think the message we want you to hear is that there are still instances in the market and to the question earlier about inventory. There is inventory in the market and we're competing with that to try and turn our assets and we'll continue to do so. It's the reason you saw it move up year-over-year, a little less so first quarter, second quarter. Also important to remember, we are more built to order, so you won't see the impact of today's discounts in our closings for probably a quarter or two.

Our next question comes from Truman Patterson of Wells Fargo. Your line is open.

Hi, good morning guys, thanks for taking my questions and nice results.

Thank you. Bob O’Shaughnessy: Good morning, Truman.

First wanted to dig in, yes, I wanted to dig in on your the main commentary, you said June and July it seems like lower interest rates kept the selling season elongated if you will. In the first quarter you guys noted that the traffic that can to order conversion was a bit low I guess on the second quarter. And has that conversion improved? And what I'm trying to dig at was the second quarter order results was it really driven by better traffic or better conversion?

Yes Truman, its Ryan. So, what we have seen in the second quarters, we've seen an increase in traffic that combined with higher community count has led to higher gross sales and also higher absorption rates but I would not attribute it to higher conversion rate in the quarter.

Okay great, thanks guys. Looking at your cash balance currently about $660 million, what level are you guys comfortable with and could you guys discuss your capital allocation strategy moving forward and if you don’t mind, if I could piggy back off of Stephen's question earlier, how should we think about your [demand] strategy over the next couple of years especially when you overlay this with how you guys think demand is going to shape up? Bob O’Shaughnessy: Sure. We have a lot of liquidity, $600+ million of cash; the billion dollar revolver has about $750 million of availability on top of that. So, liquidity is really strong for us. I wouldn’t want to put an artificial number around it, I think it would depend on what we're spending the money on. Obviously, if we had need for increased liquidity, we could go to the capital market. So, really no target number for cash. And as it relates to how we're going to invest it, I'd point you right back to what we've been telling you for years now which is first in the business. We're going to pay a dividend, we increased it by 20% at the beginning of this year. We would buy back stock with the balance and we've been talking about, we might also look at our leverages, so as act on that in this quarter. I think you can and should expect to see us continue to do exactly that, in exactly that order of priority going forward. We're fortunate the business is cash accretive and we're generating cash strong cash flows even this quarter once again cash flow from operation's positive. So, as it relates to our land strategy over years, I think, I'll refer you back to the first answer which was, we want to invest in the business as long as we are constructive on it. We want to grow with or slightly in advance of the market. We will invest to try and do that. You heard Ryan talk earlier a little bit about how we're doing that as we're building the optionality in our book which provides capital efficiency, greater liquidity. So until you hear us start to say there's something about the market that's causing us to either moderate or reduce our land spend that's where I think you'll see us put the majority of our capital.

Your next question comes from Carl Reichardt of BTIG. Your line is open.

Bob, I wanted to ask about the community count guide. You've got 1% to 3% I think each quarter for the rest of the year, but your first-time buyer communities were up 14% this quarter. So as you look out for the rest of the year, are you expecting a more significant acceleration in certain price point or certain geography in terms of store count especially with the active adult being sort of lagging here and you getting those stores open late? Bob O’Shaughnessy: Well, I don't want to get too granular on that. It becomes a quagmire right.

You opened the door, Bob. Bob O’Shaughnessy: I did, I did. So I would offer that we also had community count growth in the active adult space in this quarter just like we did in the first-time and actually we had a decrease in move-up. I don't think you should expect to see a meaningful change in the business. We did highlight that we would expect the first-time business to be growing based on the sales that we reported. We'll see a little bit of moderation in pricing related to that. Over time I think it's fair to say we've highlighted that we want to get to a little bit closer to 35% of the business in the first-time space. Our land bank today is 37% targeted towards that buyer. That's typically going to have community count associated with it. So I think you'll see our community count move in line with the dialogue we've had over the last two, three years in terms of where we have our investment going and what demographic it's targeting.

Thanks and Ryan, could you talk maybe a little bit about two things; one is the private builder acquisition environment. What it might look like if things have changed in the last six months? And then also just the availability of lot options and whether or not we're starting to see developers return to the business in more meaningful numbers as you look to continue to move your mix sort of gradually towards the option site? Thanks.

Yes Carl thanks for the question. In terms of the private builder market, I would tell you it's been fairly consistent. There are opportunities out there in various markets. I think given our size and our geographic footprint we tend to get a look at a lot of them. We're not necessarily interested in all of them because I think what you heard from both me and Bob is, we're looking for acquisitions to be aligned with our overall strategy and we're going to continue to be very disciplined along those lines. The Vegas acquisition was one that fit very well with our strategy with how we were trying to position our business and as well as we were able to structure the acquisition such that it also aligned with what we've been trying to do with our land book and with our balance sheet and we'll continue to do that. So as far as, I forgot what the second part was. Are we seeing more developers in the market? Not really. I think it remains a very tough space to see new entrants come in to. So I think you've got certain markets where they're well capitalized developers and they continue to develop land for us. But we're not seeing a wholesale return of developers that went away in the prior downturn and the real constraint there, banks just aren't willing to lend. And so without capital and access to capital is pretty tough for that group to come back into the space.

Your next question comes from Michael Rehaut of JPMorgan. Your line is open.

Thanks. Good morning everyone. Thanks for taking my question. Firstly, I just wanted to make sure I'm understanding the puts and takes to the gross margin guidance in the back half. Bob you referred to the benefits, some of the benefits from lower lumbar impacting your overall construction cost inflation outlook positively. I guess, you're still looking at a down year-over-year dynamic for the second half, but I just wanted to try and get a sense if that was more driven by the higher incentives or land cost inflation combined with other cost inflation because I guess the incentives aren't peeling off maybe as quickly as some had hoped for as this better environment so far this year has played out relative to the back half? Bob O’Shaughnessy: Yes. Mike, I think you got it right. It's all those things candidly. We obviously enjoy like I said earlier among it's not the highest margins of the space. We're proud of it. We're protective of it, but house costs are going up. The tariffs while not significant are impactful. Our land costs are up. We are cycling through land very quickly about three years on average. The option we have built into our book does introduce some cost to that and as Ryan talked about pricing while we take opportunities where we have them, there are discounts in the market and we are playing these. We want to turn our assets we are going to continue that rotation of the asset base. So like I said, it's a pretty healthy world we are living in. We got some cost pressure and we think we are going hold to serve, we think that's pretty good.

I appreciate that. I guess secondly, you referred to earlier in the call in terms of your order growth cadence throughout 2Q that April was slow year-over-year and obviously then things kicked in more strongly in May and June. I was just hoping to get a little bit more granularity in terms of the degree of magnitude there. Was April actually down year-over-year, was May and June up over 10% through low double-digits and obviously rates came down, but most builders kind of really didn't point to rate being a driver per se in May and particular given the fact that mortgage rates really didn't even decline in May materially relative to the ten year. So I was wondering what the drivers were, either certain geographic regions sort of markets or certain product segments. So again kind of a two part, one little more granular on the degree of magnitude of the improvements, and then what the drivers were there? Thanks.

Mike, so the comment was that on a year-over-year basis April was a bit slower and as I touched on in one of my earlier answers, April was really the last kind of strong month in 2018. So I think the year-over-year comp was probably a little bit more difficult. In terms of the other things that I’d probably offer, the Easter holiday was where the sale had a little bit of an impact in terms of kind of April overall numbers, but I think that all kind of comes out of the wash as you move through the quarter. Seasonality, I would suggest is fairly normal. Little bit better than last year. So we like the way the business is performing. We like what we are seeing. We saw coming out of April which was a fine month. It just was against a comp from last year. It was little tougher. We had a nice May. We had a nice June and the strength has continued into July.

Your next question comes from Jack Micenko of SIG. Your line is open.

Good morning. Bigger picture question. As you move thinking through the mix and you move from say 27 to 30 onto that 35 first-time. Conventional wisdom is that the lower price point, the first-time homes are inherently lower margin I mean, your first-time is a bit different. But as we think about past 3Q, 4Q into next year and beyond, can you sustain margins all else equal on product set I guess the better way to ask it is, is your first-time margin comparable to move-up, comparable to active adult and where does that 35% share take from any other categories in that margin discussion?

Jack its Ryan. Good morning. I appreciate the question. I think what you have heard from us in the past is, we don't underwrite the gross margin. We are underwriting to return and we are positioning our overall book of business in a way that we think we derive the optimal net result by playing in certain geographies and playing against certain consumer groups that gives us the best opportunity to manage risk and have success. I think conventional wisdom to your point would tell you that the first-time space typically comes with a little bit lower margin, the volumes and the inventory turns tend to run a little bit higher which gives you a comparable return as the other segments have a little bit higher gross margins. So we have kind of provided the guide for the full year of this year and you have heard Bob talk about all the puts and takes around what we are expecting in terms of cost increases and where we have got cost pressures, where we have got some tailwinds and what the resulting margin is and you can see that we are still maintaining the best margins in the space. We are very pleased with where we have been able to keep our margins and that is reflective of more business coming through the first-time space. As we get closer to Q4 of this year and get into next year, we will update our guide for 2020 at the appropriate time.

And then, the mortgage capture rate you called it out, it jumped pretty significantly year-over-year. Is that market conditions and execution in gain on sale getting better or was that partially a component of maybe trying to drive some of the slower demand activity in the back half over the finish line in more recent quarters? Bob O’Shaughnessy: No, actually it's a concerted effort on our part. Our operators have done a great job as our mortgage company of identifying the divisions where we didn't achieve real success with our capture rate and trying to figure out what caused it. So we're trying to make sure our incentive structures are right so that we drive folks to the mortgage company because what we know is, they serve as a captive model. They do a great job serving only us as a builder and their customer satisfaction scores and net promoter scores are off the charts and so we think it's actually a better experience for our consumers at the same time. What you saw last year was, it was a very, very competitive market. The new money origination had become something that the banks were paying a lot of attention to. As rates go down and re-fi business comes up it softens that a little bit. I wouldn't say it was a lot. So this is really about us focusing on how are we providing that opportunity to the consumer showing them the benefits of working with our mortgage company driving higher capture rate. So it was mostly internal effort.

And our next question comes from Jay McCanless of Wedbush, your line is open.

Good morning. Thanks for fitting me in. The first question I had, the order decline that you saw in the Midwest was that related to any weather issues or delays in getting communities open because of the weather?

Not really Jay, the weather to your point was tough and it certainly has an impact, but we wouldn't want to hang the specific result in the Midwest on weather. I think we mentioned in our prepared remarks we just saw the higher price points of our move-up communities which we have quite a few of in the Midwest. We're a little bit softer.

And then, on the active adult in terms of pricing, do you guys feel like you need to adjust some pricing there or is this just kind of a temporary blip in demand? Bob O’Shaughnessy: Yes, I don't think we need to adjust that. You heard Ryan talk about that that is generally a cautious buyer group noise in the marketplace, kind of puts them back a little bit. It's not about interest rates for them. The other thing that I’d highlight is it's also a consumer that buys what they want. They've got the healthiest balance sheet of any of our consumer groups and they're willing to pay for the things that are important to them. So we haven't seen a real need to try and address the pricing there. Traffic is up. I think at the end of the day it just needs they to get their head in the right space and they'll be back in the market.

Got it, thanks for taking my questions.

We have run out of time for questions and answers today. I'll now return the call to Mr. Zeumer.

Thank you. Appreciate your time this morning and certainly be available the remainder of the day if you have any follow-up questions and we look forward to speak with you on the next call.