Greetings and welcome to TRI Pointe Group's Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Chris Martin, Investor Relations for TRI Pointe Group. Thank you Mr. Martin, you may begin.

Good morning, and welcome to TRI Pointe Group’s earnings conference call. Earlier today, the Company released its financial results for the fourth quarter and full year ending December 31, 2016. Documents detailing these results including a slide deck under the presentations tab are available on the Company’s Investor Relations website at www.tripointegroup.com. Before the call begins, I would like to remind everyone that certain statements made in the course of this call which are not historical facts are forward-looking statements that involve risk and uncertainties. A discussion of such risks and uncertainties and other important factors that could cause actual operating results to differ materially from those in the forward-looking statements are detailed in the Company’s filings made with the SEC, including in its most recent annual report on Form 10-K and its quarterly reports on Form 10-Q. The Company undertakes no duty to update these forward-looking statements that are made during the course of this call. Additionally, non-GAAP financial measures will be discussed on this conference call. Reconciliations of those non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP can be accessed through the TRI Pointe's Web site and in its filings with the SEC. Hosting the call today is Doug Bauer, the company’s Chief Executive Officer; Mike Grubbs, the company’s Chief Financial Officer; and Tom Mitchell, the company’s Chief Operating Officer and President. With that I will now turn the call over to Doug.

Thank you, Chris, and good morning everyone. Thanks for joining us as we review our results for the fourth quarter and full year 2016. Last November, we hosted an Investor Day where we laid out the strategic vision for TRI Pointe Group, by highlighting three key things for our Company. Those three things are number one, combine the asset turning mindset of a production homebuilder with the design innovation and operational leadership of a high-end builder. Number two, balance strategic growth imitative with a return on capital focus. And number three, unlock the value of our longer dated asset in California. I'm happy to report in 2016 we executed on these initiatives, which resulted in another strong year of profitability for the company and a great foundation for growth in 2017 and beyond. We average a healthy sales base of 3.0 home sales per community per month for the year. While boasting an average selling price of $553,000; the second highest average selling price in our peer group. We also generated home building gross margins of 21.2% for the year which was above our peer group average and converted 68% of our quarterly backlog on average for the year. These achievements are a direct results of TRI Pointe Group's dual focus on be a high absorbing production builder and a leader in design innovation and operational excellence. 2016 was also a year in which we maintained our balance between investment for the future and generating a healthy return on our capital. We closed out 43 communities and open 63, which provides us with a 19% increase in active selling communities to start 2017, as compared to 2016. We also increased our year-end inventory balance by 16% over the prior year, setting the table for additional delivery growth in the future.…

Thanks, Doug, good morning everyone and thanks for joining us on the call today. I would also like to remind everyone about that we posted a slide deck on our Web site which includes various key operating metrics as well as charts detailing orders, deliveries and absorption rates by home building brand or divisions for both the fourth quarter and full year ended December 31, 2016. We've also provided certain key operating metrics by state in today's press release announcing our earnings for the quarter and full year. Overall the fourth quarter marked a meaningful conclusion for 2016 with strong results highlighted by significant progress made on the groundwork necessary to meet our 2017 and 2018 targeted growth that we discussed at our Investor Day in November. Slide 6 of the deck provides a snapshot of some selected operational highlights in the quarter. Home sales revenue was 771 million for the quarter on 1,427 home deliveries at an average selling price of 540,000. Our homebuilding gross margin percentage for the quarter was 20% and net income came in at 57.9 million or $0.36 per diluted share. During the fourth quarter we opened 10 new communities, five in California, two in Washington, one in Colorado, one in Maryland, and one in Texas. In addition, we closed out of nine communities during the quarter, resulting in a year ending active selling community count of 124, as shown by state on Slide 8. This year ending community count resulted in a 19% increase year-over-year from 104 communities as of December 31, 2015. For the fourth quarter we reported 21% increase in net new home orders on average community count that was up 9%, the first positive active community count comparison for the entire year. Our overall absorption rate increased 10% to 2.5 homes…

Thanks, Mike. In conclusion, we feel great about our business as we head into the spring selling season. The housing fundamentals appear to be stable to improving in all of our markets and we are well positioned to take advantage of these conditions with several new product offerings in well located community. Longer term, we will continue to adhere to our production home builder roots while maintaining an emphasis on design, innovation and operational excellence to drive solid margins in our entry level move up in luxury market segment. We will also continue to balance our near-term profit and return goals with a focus on investing in the future. This dynamic is currently playing out in all of our markets, but most notably in California where we're experiencing great success in our existing communities while simultaneously moving closer to bringing our longer dated assets online. We made great strides in 2016 and believe that we're in a great position to achieve our goals in 2017 and beyond as we laid out at our Investor Day in November. Finally, I’d like to thank the talented men and women of this company for all their hard work this year. You are the ones that take our goals and ambitions for this Company and make them a reality and I'm appreciative of your effort. This concludes our prepared remarks. And we’ll be happy to take your question. Thank you.

Thank you. [Operator Instructions] Our first question comes from the line of Alan Ratner from Zelman & Associates. Please proceed with your question.

Congrats on all the progress and thanks for all the disclosure and guidance its helpful as always. Mike, first question I just wanted to double check, did you say the quarter-to-date orders were up 9%?

That’s correct, 9.2%, I mean, January we were up 17%. But we have a difficult comp set when you look at that chart that we mentioned on Slide 33. When you look at absorption pace, historically in '16 we had pretty strong February, March and April.

Got it. Okay. That’s helpful. And was there any weather impact included in that February results? I know you've had some pretty wet in California. So just curious if that’s --?

Alan, in January our orders were up 63%, I think in California, we had a really strong January in California. But we have not seen really that much impact on weather associated with our order flow. And we’ve had some pretty good community openings as well.

Yeah. Alan, this is Doug. I would just add on the weather question. The drought is over, but it will have a little bit of impact, it's not impacting our guidance for the year, what it ends up doing is, deliveries get pushed from the second to third, third to fourth, it will make third quarter and fourth quarter a barn burner as I called it. And this happened for me back in the mid-90s when we had a huge rain storm. But our communities are all open, Tom, as we know, and frankly, the traffic in results through even there in the last week have been very strong. So, we’re very optimistic.

Great. That’s good to hear. Second question, Doug, I guess just, I'm just curious to get some your thoughts on the M&A environment and what you’re seeing out there. I know the southeast is one area where you’ve highlighted you're always looking, whether its organic or through M&A. I think you have mentioned that there are some market that you have some interest in longer-term. So curious, since the election now that there is a little bit more optimism in general in the business environment, stock prices of course going up certainly helps, maybe you could give us update on what you’re seeing on the M&A front and any potential opportunities out there. And if so, which markets specifically might you be looking at? Thank you.

Yeah. No, on the M&A front, I mean, as we’ve always continue to believe, we kind of offer the best of big and small having the resources of a big company while operating locally with our six brands and we do continue to see packages. We haven't fallen in love with anybody. But we continue to look at opportunities in the southwest, the east coast and the southeast. So, I think that activity will continue, primarily with the small and medium size builders that may have reached some capital constraints that they have in their program.

Do you get the sense at all that people might be waiting for more clarity on tax reform before pulling the trigger either on the buy or sale that or do you think that’s not really a major factor that you’re seeing?

I haven't heard that discussion at all yet. I think the biggest discussion has been, what's the new HUD [ph] Secretary going to be like, what is he going to challenge that area with, but on tax reform, infrastructure spending and the like, it's actually created a positive environment for most CEO's in most industries.

Our next question comes from the line of David East with Wells Fargo. Please proceed with your question.

Hi, actually this is Paul Lejuez on for Steven. I was wondering if you could give a little bit of color on your 2017 land spent targets and how that would breakout between land and land development and if there were any regions that you were particularly targeting for investments this year?

This is Mike. I mean our land spent this year is about 900 million to 1. -- or land and land development sorry, 900 million to about 1.1 billion. And when you look at that it's a mix of about 500 million land, 400 million land development, and the high side probably 600 million land and 500 million land development. So we're clearly spending more on the land development side because of the long-term asset this year.

And then with rates moving up, I was wondering if you had noticed any change in your customer preferences, are they looking at smaller fuller plans or are they making changes in their designing center spent?

As of right now we haven't seen any significant shift in their preferences, although the conversations has begun, they're looking at alternative mortgage structures rather than the traditional 30 year fixed, many of them are designed some long-term rate locks. And I think it would be inevitable as rates go up for them, that shift into smaller product types and probably look for more affordable solution.

Our next question comes from the line of Stephen Kim with Evercore. Please proceed with your question.

I guess my first question is related to your gross margin outlook. Obviously for the reasons you explained, going to be a little stronger here at the end of the year. And I know a lot of that commentary is probably built around your expectations for what communities you'll be selling those homes out of, here over the next six months. I was curious as to, if you could comment a little bit on the cost assumptions that are embedded in those gross margins figures, I think [indiscernible] fourth quarter, I assume you're not assuming any price increases from where we stand today in your outlook, but could you talk about what you're thinking about with respect to cost increases over the course of the next two quarters, that would impact your fourth quarter closing?

This is Mike. When we do our underwriting we're typically not putting price depreciation in there, but on the cost side we're looking at probably about 2% increase in overall building cost throughout the year.

And that's [Multiple Speakers].

But I mean our margins are really been driven by, as you mentioned, California specifically and then even some of the newer communities that are in opening in California and we had some more communities opened in Pacific Highlands ranch and delivering more units in California in the back half of the year, a significant amount of unit.

So, just have to be clear, you said a 2% increase in the cost? Right, not a 200 basis point cost impact, right?

No, no, no -- 2%.

Great. And then the second question I had related to if you can talk about your expectations or your plan to do anything on the active adult side. Just talk a little bit about what you’re seeing in terms of how that market has been evolving and your plans for approaching that?

Yeah. Steven this is Tom. We certainly have identified the active adult market and buyer demographic is one that has a lot of upside potential. And we’re currently in the planning stages on several fronts. First and foremost, that the Aliento community that Doug mentioned where we had very successful opening earlier this month, we have a planned 95 home communities coming that is active adult and that will be opening in the June timeframe, that will be our foray. But other significantly nature we really have the planning in land development underway for a 700 unit community that’s going to be out in our Sundance Community in Belmont. So, we’re very excited about that and we continue to look at that as a way to increase our volume and our growth.

Yeah. That’s great. Thanks very much for that color. I guess just lastly the big question I think is operating people's mind is that your order growth has been strong, demand definitely seems to be good in all of your communities, typically the once that we saw in California recently. And yet, we have the potential for somewhat higher rates to keep a little bit pressure on pricing and then also in some of those areas in the Inland Empire for example you have the loan limit which creates a little bit of a ceiling. So, I'm just wondering if you could comment on how you think your position this year to be able to pass through the strong demand that you’re seeing for your product into price increases to your customers?

Yeah. I think relative to Inland Empire in specific, we have probably some of the lowest price offering in the core market of the Inland Empire available and we feel really good about that, and we have already seen that implemented to date with phase-to-phase increases on the regular basis. Again, most of our projects throughout California are in core market, so by nature they're low supply and high demand and I think that gives us a better ability to implement pricing structures and price increases even in spite of a rising rate environment.

Yeah, I would add. This is Doug, when I was up in Seattle last week and all along the coastal part of the Western U.S., there is some significant supply constraints and despite a mild rising interest rate environment, for example up in the northwest under our quadrant brand, we’ve got several new community openings and through the first six weeks of the year we’re averaging over five sales for community per month. Now, the communities are very small and they are all infield, but we’re also feeling strength in the pricing environment too with that type of sales space that obviously leads to that. So, the underlying fundamentals of housing is very elongated, I mean there is a very lack -- there is a big lack of supply both on the new and resale and there is a significant demand despite interest rates, you've cost constraints, you've got entitlement constraints. So, our company and either you dive back into California, is very well positioned with the land that we have in California entitled to move through that for the next several years and we highlighted that in our Investor Day in November and we're beginning to see the fruits of it. I mentioned in my earnings call remarks, the opening of Aliento 3,000 people at the opening, I mean it's a very -- it's a good market out there and I think we'll be able to manage both pace, price and margin as we move forward and we've always demonstrated that, but the year-over-year business, I don't get hung up on quarterly fluctuations because in California our mix typically closes in the third and fourth quarter, it's been that away for 28 years and that's the reason why we see that. So I'm extremely bullish about the business for this year going into next year because of those macroeconomic environment.

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

First question, just wanted to know on the '17 guidance, were you guys are looking I think for 134 communities by year end, is that still a good target to model?

Yes, I mean there's going to be probably few weather delays in California, I mean we opened about 46% of our new communities in California during the year Jay, so there is probably some push on those, maybe 30 days or so, but I don't think that's going to overall impact the full year.

And then on quadrant, it looks like the monthly absorption was up year-over-year, but I guess community count is down, what's the plan for '17 with growing the community count there and are you guys going to be expanding to larger footprints or much of that is going to be infill?

Most of that -- those are infill communities. The quadrants does open I think eight new communities this year and as Doug mentioned they're relatively small communities and so what typically happens is by the time we get those opened we're selling at a very high pace and then there's not any product available just as you saw in the fourth quarter, quadrant's orders were down year-over-year, but their communities were also down pretty significantly. I think their communities were down 30% in the fourth quarter year-over-year.

Doug, sorry the last question I had was just on the repurchase, how much was left on the authorization at year end and do you guys have any kind of target for which you might want to repurchase this year?

Well we -- currently our authorization expired at the end of January and then we'll update everyone as we get into authorization in place.

Our next question comes from the line of Mike Dahl from Barclays. Please proceed with your question.

Good morning everyone this is Anthony Trainor filling in for Mike. Thanks for taking my questions. A couple of questions, some of the regional trends, so first on Houston, impressive growth in the quarter, can you talk -- can you add a little more color about what you saw within your markets and then what the strategy going forward in that market is as you're looking at new land deals?

This is Doug. Houston in 2016 actually had record resale transactions, if I recall I think there was 91,000 resale transactions. So as I was over there in December, we definitely feel it's at a bottom, there is a high community count or store open locations, stores opened. So it's very competitive still, always is, I think it's the most competitive market in America. But we're definitely seeing renewed consumer confidence. Our strategy as we mentioned at the beginning of the last year was we're implementing, is to further broaden our scope of business, Trendmaker historically has been a premium brand in the eastern market traditionally all in the move up building on lot sizes of 70, 80 and 90 foot widths and as I mentioned earlier last year, we are entering into smaller lot width size which will then eventually have a kind of more opportunistic price points. So, you'll actually see the average ASP for Trendmaker go down over the next few years as we bring in a broader range of product type on 54 foot wide product all the way up to 90. We’re doing the same thing in auction, as we got going in there last year. We’ve got a broader of footprint of product types and price points as well.

That’s helpful. Thank you. I guess shifting to Northern California, I want to follow-up on a comment you made earlier about the tight inventory in the market driving improved pace and the margin. Are you pushing through same-store or same-lot price increases in the market and is that driving the margin expansion? Or are you just seeing better pace drive a quicker turn and that’s what's driving some of the improvement in the margins there.

Yeah. Anthony this is Tom. I would tell you in Northern California, again because there are locations in high demand low supplier, we do see the ability to continually push price. Certainly, pace as it relates to our business has been really frontloaded in the first half of the year, and that’s been consistent in the last couple of years. So, we look to continue to have a strong pace through the spring selling season and we’re maximizing our pricing opportunities as well.

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

I guess I'm trying to piece together a few things that I think I was hearing. On the one hand the optimism given certain macro developments, on the other hand kind of the recognition that the higher interest rates do have implication. And I think, Tom, you mentioned that perhaps buyers ended up with a slightly smaller home or maybe another type of compromise that need affordability. If you can just go into maybe a little bit more detail on how you think that plays out and how your inventory is set up to -- how well positioned it is for this sort of type of development that you think are likely to happen?

I'll take a stab at that first Mark, and I’ll let -- Tom, I'm sure has got some points too. But I think we’re very well positioned. We’ve always been a very opportunistic homebuilder and when you look at the mix of housing that we have in California with the Pardee brand and the Inland Empire and our attractive basis in our land, it will continue to afford us the ability to build a significant amount of entering lower product as well as the active adult segments that Tom talked about throughout California, while also taking advantage of the supply constraints under the Western part of the state, all the way from San Diego up to Northern California. That will continue to be our focus here in California, you just heard what we’re going to be doing and what we’ve started doing last year in Houston. So, we’re going to continue to look at the mix of entry move up in luxury, being in that 30% range of entry level plus 55 -- 50 to 55 move up and then 15% luxury and we'll continue to work those segments depending on the -- while focusing in a location. So I think we'll be able to take advantage of that very well here in California. Tom?

Another thing Mark that we're doing is relative to the design of our product, we're really providing optionality and flexibility. Many of our new offerings have buyer choices that will enable them to go from a base product on a more affordable nature and grow with it or expand it as they prefer. And so I think that flexibility will lead greatly to the ability to purchase one of our homes even in a rising interest rate environment.

And maybe just two follow-ups on that. One is, how dependent will you be on your customers choosing the option, the add-on that kind of meet your goals? And then somewhat related to perhaps, are you seeing a difference in the entry level move up or luxury buyers given some of the macro developments of equity markets really strong, maybe that's favoring the luxury buyer versus with rates going up maybe that sort of the entry level, just being at what you're seeing on the ground in this regard?

As I stated Mark, to date we haven't really seen any significant shift or difference in the profile of our buyers or the product that they're pursuing. Other than those early rounds of questions. Obviously with the rate increases in 4Q last year many were concerned that they didn't lock into those rates. So as I said the long-term lock is very desired right now, people are beginning to talk about other mortgage products just outside the traditional fixed rate loan. But again I think it's early, but as rates do go up we want to be prepared, as Doug said opportunistically offering a lot of different product, the optionality in our design, but again I don't see it impacting our business and as of yet I haven't seen the political environment shifting buyer preferences yet.

Our next question comes from the line of Jack Micenko from SIG. Please proceed with your question.

Looking at the absorptions by segment, it looks like Maracay had a really-really big uptick in pace maybe over 40% year-to-year. What's driving that, is that product type is that an indication of demand in that market, what's behind that?

Yes, that's a great observation and I'll really give credit to two things. One that this, healthy market fundamentals look more importantly Andy Warren [ph] and his team in Maracay and I welcome you to come out to Phoenix and look at Tucson, our center point community execution and product, I'd go out to Meadows in Chandler, I'm sorry, up in Peoria, go out to Morison Ranch. Innovative product design and execution has had a significant impact on these results and we talked about that at the Investor Day and you hit on the right observation because of that emphasis on design innovation operational excellence, I know it sounds all corny, but Andy and his team are doing a fabulous job and that’s really what separates Andy from the competition in Phoenix.

I think the other thing to add to that is on the land acquisition strategy, they really are looking for unique opportunities, not just the run of the mill cookie cutter sub-division. But they're looking to explore opportunities where they can to add value, because of an offering that is not very consistent in the market place.

Okay. Great. That’s helpful. And then Mike, on the buyback, I heard the earlier question on the buyback authorization, now is expired. Your cadence in the fourth quarter was higher than the year run-rate and there was a deep in the stock I guess in November, but it doesn’t look like that the average price was much lower relative to the rest of the year. And I guess the question is, has the attitude changed around the buyback more cash flow on the back half for the year, maybe driving a decision or is it just opportunistic time and I'm reading too much into it?

Maybe you’re reading too much into it, Jack. This is opportunistic acquisitions.

Okay. Fair enough. Thanks.

Our next question comes from the line of Nishu Sood of Deutsche Bank. Please proceed with your question.

Just following up on that, the improvement orders Maracay was one Quadrant, Colorado those are some of the divisions which have been more of a drag on gross margin in the past year or two. So, the strength there, what implications does that have for your gross margin?

Well, I'll start with Quadrant actually, that story started last year. Their margins significantly improved because of the execution led by [indiscernible] and his team on project design innovation and execution, it was fairly significant last year and we expect outstanding results for him in '17 and '18 and beyond as he continues to focus in the Puget Sound d area. And with Maracay as I mentioned what Andy is doing and his focus and we talked about this on the Investor Day in Nishu is how to increase of those gross margins in 2017 and 2018. Our goal by the end of 2018 as we gave it to you on the Investor Day was to get up the 18%. And that’s I think right there on the crosshairs for them by the execution success he is having.

And then Nishu to add to that, relative to Colorado. Obviously, as we move through our more affordable products there, which typically had our better margins, we are taxed with the upper end and that ASP is well above 550. We just see less demand. I think you'll see improvement in margin going forward as you noted the order pace, because we’ve been able to bring back and reintroduce some new more affordable products into that marketplace and we’re very optimistic about that.

Got it. Got it. And a question on the share purchases as well. The pace -- the strong pace of share purchase this year and I think as you laid out pretty well at the Investor Day, have these longer-term assets which are going to require time and capital to build out. So, it gives your -- it gives the TRI Pointe as a builder a little bit more of a land development flavor. Cash flow requirement, does the level of share repurchases this year effect your ability to be able to be able to focus on these longer terms assets? Is it just a timing issue, obviously, you'll be generating cash flow from the remainder of the operation? So, maybe if you could just give us your thoughts on the relative bouncing of those to over the next couple of years?

Nishu this is Mike. I mean we don't see that stock repurchases are going to slow down our growth perspective, we still are negative cash flow this year as we continue to grow to those deliveries in 2018. We're still very confident in the fact that we will generate free cash flow '18 and beyond as those assets have -- we spent majority of the dollars in the groundwork and it'll be bringing deliveries on from those communities. But we don't think that has any impact on that.

Our next question comes from the line of Carl Reichardt from BTIG. Please proceed with your question.

You've mentioned I think $500 million to $600 million development spend for the year for '17 how much of that is going to be devoted to California?

Well I think I mentioned it was 500 million to 600 million on land and it was --.

Well, sorry, [Multiple Speakers].

400 million to 500 million I guess on land development.

Carl as you know, the majority of that's in California. It's probably 250 million to 300 million of that's in California. Not just in long term assets, but some of our other assets in Northern California and Southern California, but the majority of all of our land and land development spend is in California. As you can imagine just for the pure price of lots and the cost of business too.

I can, and then can you talk a little bit about specs as well, maybe what you got in terms of specs per store now and whether or not just given the difficulty in getting traced, obviously you've seen many of your peers, moved downstream, do more spec, your price point don't necessarily lend them stuff to that, I think, but is there much change in strategy there as you look to next year or two?

Not much change in strategy, we backed up our specs in Texas as that market was a little bit weaker, we changed our spec strategy a little bit, but we currently have around three specs per community, when you look across the whole platform of our business.

One thing probably that we did do anticipating whether it was, try to go ahead and get out in front of it a little bit relative to some of our land development improvements and infrastructure we're putting in the ground, similarly where we have seen the opportunity we went forward on putting some slabs in, but again not a significant shift in our overall strategy relative to spec?

Our next question comes from the line of Alex Rygiel from FBR. Please proceed with your question.

Could you just real quick address some of the risks in your guidance in 2017 and maybe just identify your top three? And then also comment on whether or not the rate at which the new communities come onboard, is meaningful risk?

I'm sorry, rephrase your question, what are the top three risks in 2017? Did I understand you right?

Yes, top three risks to your guidance in '17?

Yes, I think it's all macro. I would throw it in the terms of any political uncertainty, that would be created whether it's through any sort of GSE [ph] reform, immigration reform, would be probably number one. The second risk is always weather, labor and those things. I mean that's something that we can manage and get ahead of it as Tom said. And then third is, interest rate risk obviously, but I think that’s well documented and well forecasted. But I think the biggest risk is the political uncertainty frankly, there is a lot of pluses and minuses to it, but time will tell.

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

I guess given the tail on land houses a bit longer, in regards to your expectations for land sales growth profit this year, what percentage of that is in the bag or locked in at this point? Also, given you probably have a better view than you did last November, do you think there is any upside to that?

Hey, Will its Tom. Nothing is in the bag and that’s for sure. We are highly confident of our ability to deliver on that land sales, but we have not even entered out an offering package on that yet. But given that, I think we’ve messaged the most significant land sales is down in our PHR community in San Diego. We’re highly confident that we’re going to be able to maximize the potential of that deal.

Got it. And then also as a follow-up to prior question. What types of cost inflation did you experience in the last quarter year-over-year? Where were the biggest swing factors and I'll call it bumper labor lots or other building material buckets? And then your 2% inflation expectations, do you have any strong deal, once you park it, you’ll see the most pressure in '17?

Yeah. I would say that over the last quarter clearly that the biggest pressure came from the labor market specifically as it relates to framing and dry wall.

Yeah. And then if could just sneak one last one. It seems like you guys only exhausted half of your purchase authorization, I guess, let me know if that's right, and if so why not take the opportunity to be more aggressive given your cost [ph] and not giving that growth will you sacrificed for the related repurchases?

Yeah. Overall, this is Mike. We spend about $42 million of our $100 million authorization, but as I mentioned that expired at the end of January. And we’ll report if and when the Board decides to authorize an additional dollar amount.

Okay. Got it. Thanks again guys and congrats on the progress.

We have time for one last question. Our last question comes from the line of Alex Barron with Housing Research Center. Please proceed with your question.

I wanted to ask about the guidance for the next quarter, first quarter. I think I missed your gross margin guidance, but I got the other three quarters and I got the sense that it was lower, but you also mentioned that it has to be with California mix. Is that also the size of homes or just the volumes of home relative to the overall?

Well, I mean our lower margin at first quarter is really specifically associated with the percentage of deliveries in California as well as what’s been delivered in California as you mentioned are more of the Inland Empire projects. And less of the coastal oriented higher ASP projects that’s why our overall ASP is down fairly significantly in the first quarter. But then when we look at our margins in backlog in the second and third quarter, they're shifting pretty significantly up.

And what was the gross margin again Mike?

Well for the gross margin guidance that we gave for the first quarter was 18% and then it was 19.5% to 20.5% for the middle two quarters, and then 21% to 22% for the fourth quarter. So overall, it's 20% to 21% for the full year.

This does conclude our Q&A session. I'd like to hand the call back over to management for closing comments.

I want to thank everybody for attending today's earnings call and we look forward to sharing our results after the first quarter here as we progress through the year; very optimistic about 2017 and wish you all a great year. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.