Good morning everyone, and welcome to the Toll Brothers' First Quarter 2018 Earnings Conference Call. All participants will be in a listen-only mode. Please also note, today's event is being recorded. At this time, I'd like to turn the conference call over to Mr. Doug Yearley, Chief Executive Officer. Sir, please go ahead.

Thank you, Jamie. Welcome and thank you for joining us. I'm Doug Yearley, CEO. With me today are Bob Toll, Executive Chairman; Rick Hartman, President, COO; Marty Connor, Chief Financial Officer; Fred Cooper, Senior VP of Finance and Investor Relations; Kira Sterling, Chief Marketing Officer; Mike Snyder, Chief Planning Officer; Gregg Ziegler, Senior VP and Treasurer; and Don Salmon, President of TBI Mortgage Company. Before I begin, I ask you to read the statement on forward-looking information in today's release and on our website. I caution you that many statements on this call are forward-looking based on assumptions about the economy, world events, housing and financial markets, and many other factors beyond our control that could significantly affect future results. Those listening on the web can e-mail questions to rtoll@tollbrothers.com. We completed fiscal year 2018's first quarter on January 31. We are very pleased with our first quarter results across all metrics, as our revenues, contracts, backlog, earnings and profit margin met or exceeded our expectations. Demand remained very strong with contracts in dollars increasing 36% in the first quarter. We saw a significant acceleration in contracts per community this quarter compared to one year ago on the annualized pace of 24 sales per community, up from 19 in last year's first quarter. Even so, we have yet to reach our historical norms of annualized contracts per community in the high 20s. The California and Western regions led the way with 93% and 36% growth, respectively, in the value of contracts signed compared to one year ago. The South was up 17% and the North was up 15%. Only in the Mid-Atlantic did we see a decline. City Living, which is primarily in metro New York City, saw growth with the value of contracts in our wholly owned projects up…

Thanks, Doug. Before I address the specifics of this quarter, I do want to note that a reconciliation of the non-GAAP measures referenced during today's discussion to their comparable GAAP measures can be found in the back of today's press release. Q1 was a very strong quarter for us. Compared to a year ago, revenue grew 28% and gross margin held steady despite continued pressure from labor, material and land input costs. Gross margin actually came in better than expected, while average price came in slightly lower, all due to small changes in our mix. As a percentage of revenue, SG&A was better by 150 basis points and operating income improved 160 basis points compared to a year ago. On a dollar basis, operating income grew from $50.6 million last year to $83.7 million this year, which is a 65% improvement. Below the operating income line, we continue to demonstrate our ability to generate earnings from various sources in our JV and other income line items. Last year, much of our below-the-line earnings came from JV condo unit deliveries in our New York City Living product. So far this year, the majority comes from a $30 million gain from the disposition of our 1,500-bed student housing property at the University of Maryland. This gain was on a $12 million equity investment, and our IRR was nearly 50%. This shows an example of why we really like the rental business. We will continue to hold some apartment properties long term while selling others, as we balance building a long-term portfolio with producing current earnings. Further down the income statement, we showed a one-time benefit from the decrease in the federal corporate tax rate associated with tax reform. Through some strategic tax planning, we ended last fiscal year with a net deferred…

Thank you, Marty. The new home industry appears to be building momentum with the national homeownership rate rising over the past year. Wages are increasing. Home equity is building. Consumer confidence is strong. The economy is improving, and demand for housing is accelerating. Meanwhile, the supply of new homes is in short supply, as production lags demand in many markets. These trends indicate a positive landscape for the new home market and particularly for Toll Brothers in the coming years. And now back to you, Doug.

Thank you, Bob. Thank you, Marty. The quality of our homes and our brand were recently recognized by a number of business and industry leaders. In January, we were named by Fortune magazine as the World's Most Admired Homebuilding Company for the fourth consecutive year. Toll Brothers homes, communities, design studios and teams across the country were also recently recognized with 40 national awards by the National Association of Homebuilders, Pacific Coast Builders Conference and others. This includes our Sullivan model at Adero Canyon in Arizona, which was named National House of the Year at the PCBC Gold Nugget Awards. It's the home on the cover of our new 2017 annual report. These honors reflect a tremendous effort and commitment to excellence of the entire Toll Brothers team and our focus on providing our homebuyers and renters with the highest levels of quality, value and service. We salute them and thank them for their amazing hard work. Based on our great brand, strong first quarter backlog, healthy demand and our well-located land positions for future expansion, we believe fiscal year 2018 will be another year of growth for Toll Brothers. Now, let's open it up for questions.

Ladies and gentlemen, at this time, we will begin the question-and-answer session. Our first question today comes from Stephen East from Wells Fargo. Please go ahead with your question.

Thank you and good morning, guys. Doug, I walked the Sullivan. And to steal your phrase, it was spectacular, that's for sure. Start with the share repurchase. I know you all are opportunistic on it, but is there some level of repurchase that you're comfortable with or that you really probably want to achieve and I'm thinking about what type of cash you have available, what type of debt level you have there and maybe what we could expect this year and next year?

Stephen, I think we are both opportunistic and strategic in our repurchases. I think as we went through the first couple of months of this year, we got optimistic that tax reform would pass and that we did not believe the full effect of that was reflected in our share price. We have plans for further repurchases should opportunities present themselves through the balance of the year, but I don't think we're going to give a specific targeted number at this point.

Right. In the past, Stephen, you'll recall, we had guided that we thought we'd probably spend about $400 million per year, and that's not set in stone, but that's certainly a number that we've had in mind. And as you can see from our activity recently, we've done a bit more than what I'd call $100 million a quarter to add up to that $400 million for the reasons that Marty gave.

All right. Fair enough, fair enough. And then turning to orders, you all continued to post very strong numbers there. California is really strong. I guess you talked a little bit. I know there's good demand there and lack of inventory, but maybe a little bit more specifically what some of the drivers are and how you all feel about the sustainability. And I know I've asked this before, but is there just not much price ability in that market? I know you take some, but do you rapidly hit a ceiling with that? Could you not push pricing more or do something to slow down that pace? And then just in the Mid-Atlantic, what's happening there?

Sure. So we'll start with California. Obviously, business is fantastic out there as reflected by the numbers this quarter. I know you travel a lot, Stephen, and you've seen it, and as impressed you were with the Sullivan model in Phoenix. What we are doing in both Northern and Southern California is that same word, spectacular. We have distinguished ourselves with our communities, with our architecture, with the ability to go to our design studios and truly create a custom home and it's really paying off. The markets are very strong. Northern California was led by the grand opening of a new community in Fremont, right next to the new BART station and the Tesla facility called Metro Crossing. We've sold 53 units north of $1 million in the last two months with our grand opening at Metro Crossing. So, that was certainly the number one driver in Northern Cal. And in Southern Cal, it continues to be Orange County where we just have seen fantastic results. The market is very strong. Job growth is in place. It's a very diversified economy. And with respect to pricing, we continue to have significant pricing power in both Northern and Southern California. We raise prices regularly. We also keep an eye on, obviously, growing backlogs and how quickly we can turn houses. And for as big as our backlogs are in California and as expensive and complicated as our houses are, we are able to build those houses faster than in many other parts of the country. So the trade base is in place, and we are continuing to manage pricing with the size of the backlog. Right now, it's in balance, and I'm just thrilled with where we're positioned. And I see a very bright future going forward in California. We also have some very exciting new land deals that we're working on. So, all is good out West. With respect to the Mid-Atlantic, it was our only area that, as I mentioned, was down in sales, and it was driven by fewer sales in Northern Virginia, which is our biggest Mid-Atlantic market. And we think Northern Virginia was down in the first quarter for two reasons. The first is that we had lower community count, as we are in between phases in a few of our large master-planned communities. And the second reason, we believe, is due to the uncertainty associated with the federal government budgetary debates that occurred in December and January. And of course, while these debates were national news, they had a more direct impact on the local Northern Virginia buyer.

Got you. All right. Thanks a lot. I appreciate it, guys.

Thank you.

Our next question comes from Michael Rehaut from JPMorgan Securities. Please go ahead with your question.

Thanks. Good morning everyone, and congrats on the results.

Thanks, Mike.

First question, you pointed in your prepared remarks, Doug, to the strong improvement in sales pace and it certainly was impressive with over a 20% gain. At the same time, you talked about more upside as you turn to normalized paces, but I was hoping when you kind of look at that improvement in sales pace, which markets led that or which regions led that improvement? And how should we think about the balance of the year? You have slightly tougher comps if you look at, back at, against in terms of the year-ago growth, but nothing too dramatic. I mean, should we be expecting a strong double-digit sale pace improvement for the rest of the year or how should we think about that?

Mike, I'll be happy to give you our top markets for sales. As you know, we don't pull the crystal ball out of the closet and predict where sales may be for the balance of the year. I'll just maintain what I've said, which is I'm thrilled with where we're positioned and how well we're doing. And I'm also excited that in the second half of the year, we have, as I said, about 70 new communities opening. But with respect to individual markets, the number one market for sales per community for the quarter was Northern California at 13.1 sales. And I remind you that November, December, January are not the strongest three months of the year. So you can probably multiply that 13.1 by a little more than a factor of four to come up with an idea of an annualized number just because of the timing of Q1. Market two would be New York City at 12.6 contracts per community. Market number three would be Reno at 9. Market four would be Boise, Idaho at 8.7, followed by number five would be Southern Cal at 8 sales per community. And by the way, Southern Cal had an average price of $1.9 million. And then six is Orlando at 7.2 sales. Seven is Massachusetts at 7. Eight is Austin, Texas at 6.8. Nine is New Jersey at 6.6. And rounding out to top 10 would be Vegas at 6.4.

That was very helpful, Doug. Obviously appreciate all the regional color. Secondly.

Close as we're going to get to Bob Toll's old report card with letter grades.

That's right. I remember that fondly. Second question, just a little clarification if possible. When you talked about the community count, your comments around that, you said that 2Q should still be down, but by the end of the year, it should be up. I just wanted to make sure I understood correctly. 2Q down further sequentially or just more continue to be down year-over-year? And in talking about the year-end growth, are we talking about low-single digits, mid-single digits? And then just finally, if I could sneak another one in there, Marty, if you could just, tax rate for next year, I just want to make sure I heard that right. I think you said 26% to 27%? So, thanks very much.

Sure.

I did.

Okay.

I got mine done, Doug. Now, it's your turn.

Yeah. Marty's answer is yes. That's what he said. Q2 was down sequentially and year-end community count over 2017 year-end, we're maintaining the guidance we gave last quarter, which was up similar to the prior year, which was in the range of 5% to 10%.

Thanks, again.

You're welcome.

Our next question comes from John Lovallo from Bank of America Merrill Lynch. Please go ahead with your question.

Hey, John.

Mr. Lovallo, your line is open. Is it possible your phone is on mute?

Sorry about that, guys.

No problem.

I guess the first question would be on raw materials, particularly lumber. I mean there's been some notable increases there. I mean how are you guys thinking about raw materials in general and lumber specifically, as we head through the year?

So lumber was up about $2,000 this quarter. Remember, it's the largest component of our materials in a home. It was driven by New Jersey, Pennsylvania, Dallas, Houston and Colorado. Thankfully, labor, while we still have labor issues in many markets, those increases have moderated. So overall, our building costs are up modestly and it's pretty much all driven by that increase I mentioned in lumber. When you look at the cost to build a home, 55% of our cost to build a home is lumber, 32% is other materials that go in the home and 13% is labor. So for the most part, the 13% labor and the 32% other materials are relatively stable, but the lumber component has gone up. So overall, we've seen a modest increase in the cost to build the house the last quarter.

That's helpful. And then last quarter, I think there was some discussion around maybe an appetite for creating or buying some kind of off-balance-sheet land entity. Is there any update on that?

No, not at the moment.

Okay. Thanks, guys.

You're welcome.

Our next question comes from Megan McGrath from MKM Partners. Please go ahead with your question.

Good morning. I want to ask a little bit about the guidance, specifically on the gross margin into the second quarter, obviously seeing a sequential decline there. Could you just talk us through what kind of mix things you're seeing into next quarter and then your confidence that that reverses into the back half of the year as you've maintained your full year guidance?

Sure. I think it's a function of mix. I think we have a little less positive margin coming out of our Hoboken project, 1400 Hudson, as the number of units left there has decreased significantly. And then we expect a few communities out in the West to have slightly lower margin than the communities they replaced, namely our great Baker Ranch and Hidden Canyon communities. We are out of Schlitz, as Mr. Toll likes to say. And so we have replacement land that we are building on that has great margins, but not quite as great.

And then, Marty, that kind of reverses in the back half, what shift into the back half of the year for those better margins?

So I think we continue to see more volume coming out of California, which as a percentage of total has influences the margin positively. We continue to see improvement in margin in some of our newer regions like Seattle and Boise and general mix issues all around the country that give us confidence in the guidance we've given.

Great, thanks.

Our next question comes from Alan Ratner from Zelman & Associates. Please go ahead with your question. Alan Ratner - Zelman & Associates: Hey guys, good morning. Thanks for taking my question. Doug, the commentary you had on what you're seeing from the field on rates was very helpful. I know you're not obviously very exposed to the entry level, but was just curious, are you seeing any differences in that feedback across your – maybe the T Select product or some of the markets where you do have a bit lower of an average price maybe like Boise where certainly the price runs below the company average or are those comments pretty consistent across all your various price points?

Alan, those comments are pretty consistent across all of our markets and price points. Alan Ratner - Zelman & Associates: Okay. I appreciate that. And then just as far as February, I know you don't give the non-binding deposits anymore, but should we take from your comments that you're not seeing the market change in conditions thus far in the month?

Yeah. As you recall, a few quarters ago, we got out of the business with talking about three or four weeks' worth of deposits in agreements because we recognized it was not predictive of the full quarter. And so we're going to continue to stay out of that business. We think that's the smart way to go. All I'll say is that our business continues to be good. Alan Ratner - Zelman & Associates: Okay. If I could squeeze in one last one just on California. So, Marty, you've highlighted obviously the impact from the community shift there as you close out some of the communities with great margins, but should we think about maybe the longer term just given how strong the sales pace is there. When does that fully mix out, meaning when should we think about kind of the new normal, if you will? In the beginning of 2019, should we start to see that reflect more of a consistent margin with what you're currently underwriting and opening communities at?

So I think our margin in California is going to be in the upper 20s this year as we guided, and it was low 30s last year. We're not prepared to update margin guidance beyond 2018. Alan Ratner - Zelman & Associates: Okay, fair enough. Thanks a lot, guys. Good luck.

Thank you.

Our next question comes from Jack Micenko from SIG. Please go ahead with your question.

Hi good morning. Marty, wondering how you're thinking about ROE targets now going forward, the one – first quarter demand was a bit better, you put your foot on the gas on the buyback a bit. Any numbers you can point to into the end of the year on where you think you can get ROE to?

Well, I think we ended last year with a return on beginning of the year equity of around 12.7%. Our press release mentioned that we expect this year to be up 300 basis points on top of that. And we'll get to 2019 when we get to the end of 2018.

Okay. Fair enough. And Don, are you starting to see any migration towards adjustable rate ARM loans over the quarter? And if so, is there a sweet spot that, I don't know, 5/1, 7/1, 10 that anybody – the borrower profile is sort of aligning to based on the moving rates?

Not really. For the first quarter, 79% of our loans were fixed rate, 21% were ARMs. All of 2017, 78% were fixed rate, 22% ARMs. So we're not seeing a lot of movement there at all.

Okay, right. Great. Thanks, guys.

You're welcome.

Our next question comes from Nishu Sood from Deutsche Bank. Please go ahead with your question.

Thank you. So wanted to come back to the absorptions. Obviously, fantastic trend there, stretching back quite a ways. Doug, you are throwing around the concept of we're not back to normalized yet. The first quarter run rate is 24-ish and long term it's 20 – 27-ish. I just wanted to dig into that a little bit. Obviously, the first quarter – and you mentioned this when you're talking about Northern California. The first quarter is the seasonally low period, so that translates to, I think, a little bit higher on a run rate. Your geographic mix is quite different than what you might have looked at for the normalized period in your run-down of the top 10. I think 8 of the top 10 were in the South and West, so some of the more recent markets. Obviously, townhomes and active adult are a bigger proportion than they used to be. So when you factor all that, like what's possible here? You've had a tremendous run, trying to think about how far it might go.

Nishu, it's a great question. We talked about it before that what is the new norm, because we have a different geography, we have more attached product that sells at a higher pace. We obviously have City Living that can sell at a much higher pace. Active adult tends to sell at a higher pace. Boise, other Western markets have sold at a higher pace. So we cognize that that historic number back to, call it, the early 2000s was made up of a – it was a different business model than we have today. And we can't exactly quantify what that new norm would be, but it is certainly north of the old norm. We think it's probably north of 30.

Got it, got it. Okay. No, that's very helpful. And then the sale of the student housing complex, obviously fantastic for returns. You have obviously been more focused on returns in recent years. What was the trigger of that? Was it something specific? Obviously, there's been a tremendous appetite for student housing projects. So was that the trigger? Was it returns-driven? And really, obviously, thinking here about how many other opportunities like there are on this balance sheet that under the new kind of returns-focused approach you're taking here, how many more of these could we see, I guess, is where I'm heading with that?

So, Nishu, it's Marty. Much of the decision to sell that project was driven by our partner, who is even more focused on returns as an investment fund than we are. And when we saw the price that was available to us, we certainly concurred. The timing during the year is important on a sale of that nature as well. And remember, these buildings are fully leased by August or not. And this one was fully leased by June or July, and we were able to execute a transaction that closed in November. So we took any uncertainty about re-leasing off the table in that pricing. Our apartment business, by its very nature, is setting up further opportunities to monetize some buildings. Our mentality is going to be along the lines of build three, hold two, sell one so that we can get more routine in the triggering of these sorts of gains, maybe not at this particular magnitude because this was a very sizable asset. But you saw us monetize a couple of assets last year. We took care of one here in the first quarter and we have a few more that are embedded in our guidance for the balance of the year.

The apartment pipeline, as you build it, is going to be a drag on returns because obviously – because of the funnel nature of it. And at some stage, it turns returns accretive when you get to the steadier state, as you were saying monetize two and hold one. So where are we in that process of building a pipeline and the overall pipeline – the overall business becoming returns accretive?

Sure. And I think it's important to address the first part of your comment to mention that generally we are 25% partners in these deals. In some cases, we've been as much as 50%. When we are 50%, that gives us the opportunity to kind of half sell or sell them like we did with our first two buildings. But we think this building – this project is excellent. We get project-level financing on these off-balance-sheet structures, essentially replacing equity with, call it, 4% debt for two-thirds of the cost. Our investment in this business is roughly $0.25 billion on a $10 billion balance sheet. So while it may from time to time appear to be a drag on earnings, we think over the long haul and within each year, it is going to be positive. We have 14,000 apartments in various stages of development, call them roughly 300 units each. So it's in the neighborhood of 45, 50 projects that as we get this engine going, and I think we're a couple years away from being as routine in it as we'd like to be, we can trigger some gains.

Got it. Thanks for the thoughts.

Excuse me. It was the reverse. We're holding two, selling one.

I'm sorry. Did I say it wrong?

No, no, the questioner reversed himself.

Okay, fine. Yes. Build three, hold two, sell one.

Now you got it.

Our next question comes from Mike Dahl from Barclays. Please go ahead with your question.

Yes. Thanks for taking my questions. I had a follow-up to, of sorts on the return question. And if I'm thinking specifically about the City Living business, at least at the time of your last profile, it looks like there's no buildings under construction or that start construction beyond Q4 of 2018. So could you just give us an update in terms of kind of what you're seeing in the market for new projects and how you're thinking about kind of beyond the next couple of quarters or this next wave of buildings, the owned versus JV side of it?

Sure. So our future pipeline beyond the Q4 2018 that you referenced include another tower in Jersey City, two more buildings in Hoboken, one building in SoHo, Manhattan, and another building north of Hoboken in Weehawken. We have three properties under contract in Los Angeles to expand City Living to the West Coast in great locations like Beverly Hills that we're very excited about. We have another opportunity that we're recently playing with and going under contract for in Philadelphia. And so, and we're looking hard in Manhattan and Brooklyn. There's nothing new to report at the moment, but the deal flow is picking up a bit as the sellers become more realistic in the value of their asset. So we're in good shape. It needs to grow. It will grow. But I'm happy with those half a dozen or so that I just mentioned with, I believe, more to follow.

That's helpful. And then I guess a two-part follow-up, if I could. First, is there any way you can give us a sense of kind of size and timing for those L.A. opportunities? And the second is from a competitive standpoint, on one hand, you have the sellers adjusting and then on the other hand, presumably, bank financing to some of your would-be competitors for those deals would appear to be getting tighter, I think. So can you just give us a little more color on the competitive environment as you've been bidding out some of those?

Sure. I'll talk about L.A. for you and then Marty can take over on the financing side. The three properties in Los Angeles are small. They are boutique, infill, mid-rise condo buildings. We're not targeting Downtown L.A. We're targeting the pockets around L.A. like Beverly Hills, Newport Beach, Santa Monica, Pasadena, places like that. And they will all come online or at least construction will commence within the next year to two. And then, Marty, on the financing side?

Sure. I think you're right, Michael, that financing has gotten more challenging, particularly for other players in the industry. We continue to have great relationships with our banks both on our apartment financings as well as our condo financings. And I've actually seen rates come in a bit in some quotes on the apartment business. We haven't been as active in the market for condo financing recently for me to give you a current assessment of that. But it's definitely harder for our competition to find some financing.

Okay. Thank you.

Our next question comes from Susan Maklari from Credit Suisse. Please go ahead with your question. Susan Maklari - Credit Suisse Securities (USA) LLC: Thank you. Good morning.

Good morning, Susan. Susan Maklari - Credit Suisse Securities (USA) LLC: You've seen some nice lift in the SG&A this quarter, and it looks like you expect that to somewhat continue into the second quarter. Can you just talk a little bit about longer term what the potential is there, how we should think about it coming from just an improving top line relative to maybe some of the things you can actually do from an underlying cost perspective?

Sure. So our guidance for the year is, it remains at 10%. We continue to make progress there. 10% is near an all-time low for us. We continue to see some advances in technology as it relates to the systems we're putting in place. They have not yet begun to pay dividends. Our teams are working very hard. And I think while we would hope to get further improvement as years progress, we're going to stick with this year's guidance. Susan Maklari - Credit Suisse Securities (USA) LLC: Okay. Thank you. And then maybe you could give us a little bit more color on the T Select product. I know that you said that in terms of some of the feedback you've gotten, it's been consistent with your other business. But as we sort of think about this coming together more and you're just getting a little bit more experience with it, how is the rollout progressing? Are you thinking about taking it to even further markets or just where do things stand?

We are definitely taking it to further markets. Right now, it's in Texas, Florida and Pennsylvania. Strategically, we wanted to roll it out slowly. As I've talked about on prior calls, we need to fully integrate T Select with a larger luxury brand of Toll Brothers, and you'll continue to see a slow rollout. There will be many cases where we will not be branding communities T Select, but we will just be selling Toll Brothers houses at a lower price, again targeting the more affluent millennial buyer who is buying their first home at 37 years old instead of 27 years old when they're wealthier. And so, that strategy, whether it be what we already do in Boise or what we already do in Jacksonville or Michigan – Ann Harbor, Michigan, as examples, is a continued focus by the company on having a product line that will be appropriate and desirable to the affluent millennial. And so that, in some cases, will be through a T Select brand and in other cases will just be through the Toll Brothers banner. And I'm comfortable with the rollout. I do want to see it accelerate. We have our land teams and our division leadership teams focused on finding more and more opportunities for millennial housing. And I think you'll see more of it over the coming years. Susan Maklari - Credit Suisse Securities (USA) LLC: Okay. Perfect. Good luck. Thanks.

Thank you.

Our next question comes from Dan Oppenheim from UBS. Please go ahead with your question.

Thanks very much. You talked about opening on 70 new communities later in the year. Given the way that you're working through them or selling through them so rapidly out here in the West with 13 sales per community in North Cal and 8 South Cal, what's the outlook in terms of the representation in those 70 of communities here in California?

Dan, hold on one second. Okay. So we ended the first quarter in California with 41 selling communities. And between new openings and sellouts, we believe right now that we will end the year at 42.

Got it. Okay. Thank you. And then I guess along those lines then, so presumably with 53 sales you had in Fremont in the last two months, you're talking about having pricing power, but I guess you're assuming that high pace of absorption in these community count plans. So there seems to be sort of more of an active choice for absorption given that California margins are higher than other regions. Is that sort of the overall thought of it or how are you looking at it?

Back to my early comments that we are very happy with the ability of our California teams to build houses quickly and efficiently, notwithstanding the large backlogs. So we will continue to raise price. And hopefully, as in the past, the market will continue to buy. We had huge pent-up demand. We have communities where we have hundreds of people who have already filled out mortgage pre-qualifications and are waiting for the next phase of homes to be open, so we can call them and say, it's your lucky day. And when they come in, the price is higher than it was a month before. And so long as we can keep building houses as efficiently as we've been able to, I think that model is going to work beautifully. And you're right, there's more margin coming out of California. So, that is all good news.

Got it. Thank you.

You're welcome.

Our next question comes from Ken Zener from KeyBanc. Please go ahead with your question.

Good morning, gentlemen.

Good morning, Ken.

Good morning.

So, big in California, the demand, we see it – we think it's more stable. I'm going to focus on with California being about 35% of your EBIT and about 33% of your assets, so fairly well positioned. How do you think about land purchase? Obviously, Shapell was very important to you guys. I think you've, by and large, gone through a lot of those assets already, so you improved the turns there. But how do you avoid kind of – given the price tag of land out here and the contribution to EBIT, how do you kind of avoid the big surprises if and when – whenever the cycle turns? I was just thinking of Surprise in 2000, Surprise, Arizona, where you guys went really long land? I mean how do you think you'll position asset exposure differently in terms of large communities given the West or specifically California's contribution at high cost? I mean do you guys just do smaller communities now? Thank you.

Well, smaller compared to Shapell, absolutely. The land is expensive in California. And my answer is we're keeping a very close eye on the market. We're in touch with the sales teams weekly. The nature of the buyer, are there investors coming in, are the vans full of multiple family, the friends and families who want to come live together, these are all the things that we are aware of from the mid-2000s when we had issues in a number of markets. Main and Main is the key. We're buying land in the right locations. We're being very careful in how we structure land buys. If a deal gets too big and too expensive, we're not afraid to bring another builder in, we're not afraid to bring a joint venture partner in. This past quarter, we spent $327 million on land, and $210 million of that $327 million was in California, one spectacular piece with Pacific Ocean views in Orange County and another piece up in the East Bay of San Francisco. So I'm very comfortable with our business in California, and I'm very comfortable with how we're buying land. We will continue to be careful. We are doing smaller deals, but they're still very expensive. It's the nature of the market. Our average house, as I mentioned, in Southern Cal is $1.9 million. Our average house in Northern Cal is $1.6 million, and that of course drives pretty expensive land. But right now, the market fundamentals appear to be very solid.

Thank you.

Our next question comes from Jade Rahmani from KBW. Please go ahead with your question. Jade Rahmani - Keefe, Bruyette & Woods, Inc.: Thanks. Just a couple of quick ones. The lumber $2,000 this quarter, was that relative to the home on a per-home basis? What's the relative comparison?

Yeah, per home.

Yeah. Jade Rahmani - Keefe, Bruyette & Woods, Inc.: Okay. And what was the percentage increase, say, over last year that represents?

The same $2,000 it's been each of the previous two quarters, right?

That's right. So we're kind of keeping pace with that number every quarter. Jade Rahmani - Keefe, Bruyette & Woods, Inc.: Okay. And on the share count, do you have a quarter end share count?

Lumber alone, not labor.

I'm sorry, Jade, could you repeat the question?

Quarter end share count. Jade Rahmani - Keefe, Bruyette & Woods, Inc.: Yeah, do you have the share count at quarter end? Was it around 148.8 million or so?

158.8 million. Jade Rahmani - Keefe, Bruyette & Woods, Inc.: That's diluted share count, right?

Yes. Jade Rahmani - Keefe, Bruyette & Woods, Inc.: Okay. Do you have the basic share count at quarter end, not the average, but the period end?

I do not have that. You have it, Gregg?

If you're asking for the actual share count per book value per share, it was 153.6 million shares. Jade Rahmani - Keefe, Bruyette & Woods, Inc.: Got it. Thanks very much.

You're welcome.

Our next question comes from Will Randow from Citi. Please go ahead with your question.

Hi. I guess, good afternoon, guys, and thanks for fitting me in. Sounds like Don might be there in the background hopefully.

Yes.

Just curious with the move-in rates, have you seen any change in rate lock activity?

We have. We've seen about a 10% increase in folks who are locking long term versus a quarter ago.

Makes sense. And then also on underwriting standards, with kind of the puts and takes on SALT versus lower federal rate levels on a personal basis, have you seen any change in the overlays, either you or the banks and correspondents you work with?

No, the market really hasn't reacted to that.

Great. Thanks and congrats, guys, on the quarter.

Thank you.

Thank you.

Thank you.

Our next question comes from Jay McCanless from Wedbush Securities. Please go ahead with your question.

Hey. Good afternoon. First question I had is on the adjusted gross margin decline from 1Q to 2Q. Could you guys talk about the catalysts for that? And as part of that discussion, could you maybe talk a little bit about the spread between City Living and Traditional Home Building on gross margin?

Sure. So the biggest driver of that move in the first quarter to the second quarter is fewer units delivering from the 1400 Hudson project in the City Living Hoboken area. We expect City Living margin for the full 2018 year to be in the 26% to 27% compared to our full midpoint of the company in total of around 24%.

Okay. Great. And then on the share repurchase, how much do you have left on that now?

17.3 million shares left on the authorization that we just put in place in December – mid-December of 2017 for a new $20 million share authorization.

20 million shares.

20 million shares.

Yeah.

We have 17.3 million shares left under that authorization.

Right.

Okay, great. Thank you.

And ladies and gentlemen, our final question today comes from Mark Weintraub from Buckingham Research. Please go ahead with your question.

Thank you. A couple of questions on cash flow and use of cash. You mentioned $327 million of land spend and I assume that was just land, not development spend in the first quarter 2018?

Correct.

Can you – last year was the first year where inventories were actually a source of cash for quite a while as opposed to a use of cash. Any indication you can give us, do you expect this year for how that will play out?

Well, I think we generally do not forecast land purchases. I think last year, you saw us move the percentage of land owned as a percentage of total down. We've remained at 65% here a quarter in. And we'll see as the opportunities present themselves to us whether we're able to move that down any further or not.

Okay. Because obviously if we see that again as – last year, you were also in a position where not only did you do your share repurchase, you had a lot of extra moneys to be paying down debt, et cetera. And so just again if we're going to have another year where there's not going to be a lot of cash building up inventory, you're going to have a lot of moneys to put to work, even beyond the, say, $400 million share repurchase. Just trying to understand where the thinking might be.

So I think we're looking at this year absent a strong uptick in land opportunities to be modestly cash flow positive. And like in any other year, we'll evaluate the opportunities to reinvest in the business, buy back stock, pay down debt. I think as we look at our debt right now, our term loan has a little less than three years left on it, and that is a variable rate piece of debt.

Okay, great.

First and foremost, we're going to buy land.

Thanks very much.

And ladies and gentlemen, with that, we'll end today's question-and-answer session. I'd like to turn the conference call back over to management for any closing remarks.

Jamie, thank you very much. Thanks, everybody, for listening in and joining us this morning. And have a great week.

And ladies and gentlemen, with that, we'll conclude today's conference call. We do thank you for joining. You may now disconnect your lines.