Taylor Morrison Home Corporation

Good morning and welcome to the Taylor Morrison Second Quarter 2020 Earnings Conference Call. Currently, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to introduce Mr. Jason Linderman, Vice President, Investor Relations, and Treasurer.

Thank you and welcome everyone to Taylor Morrison's second quarter 2020 earnings conference call. With me today are Sheryl Palmer, Chairman and Chief Executive Officer, and Dave Cohen, Executive Vice President and Chief Financial Officer. Sheryl will begin the call with an overview of our business performance and our strategic priorities. Dave will take you through a financial review of our results. Then Sheryl will conclude with the outlook for the business, after which we'll be happy to take your questions. Before I turn the call over to Sheryl, Let me remind you that today's call, including the question and answer session, includes forward looking statements that are subject to the safe harbor statement for forward looking information that you will find in today's news release. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the Securities and Exchange Commission and we do not undertake any obligation to update our forward-looking statements. Now, let me turn the call over to Sheryl Palmer.

Thank you, Jason, and good morning, everyone. We appreciate you joining us today. We continue to find ourselves navigating these uncertain times and I sincerely hope that you have all been healthy and safe and will continue to be. Earlier this month, we provided an update on our second quarter results as a part of our debt refinancing project, which Dave will discuss in more detail soon. And at that time, we expressed how pleased we were with how the business has performed the last few months after the initial impact of COVID-19. I'm happy to report that those trends have continued through July, and with two more days left in the month, we're on track to deliver year-over-year growth in net sales of approximately 80%. That sales success translates to a projected pace of nearly four sales per outlet per month, about 60% growth year over year. The resiliency of the business has been remarkable and something that has produced great pride within the organization. We pivoted quickly, established new norms, and aggressively pursued strategies to ensure the safety of our team members and customers conforming to the necessary social distancing practices. It's because of this flexibility that we were able to deliver our impressive second quarter results, so let me share some key highlights. We finished the quarter with 3,453 net sales, representing year-over-year growth of 23%. April represented our lowest sales point during the pandemic, where we were down year-over-year by 36%. May was up 17%, and then June was an extraordinary up 94% on a year-over-year basis. The consumer data driving these numbers is worth sharing. Three of our largest consumer groups saw overly quarterly growth, entry-level, first and second move-up, and active adult, and they each have their own story. The first two groups delivered solid growth, both in timing and magnitude. and for those customers the rebound was swift and steep. Our first time buyer group was up 16% year over year and I was delighted to see our move up buyers up more than 20%. The active adult group is where the most interesting narrative has emerged as their recovery has been slower and slightly better than flat on a year over year basis for the second quarter. Thank you for watching. Although I find most interesting that our in-state Florida sales on an absolute basis for this buyer was up more than 50% in the second quarter year over year. Our out-of-state buyers remained highly engaged in planning for their winter travels. In fact, 40% of our website shoppers in the quarter were 55 plus, more than two times any other age cohort. During the pandemic, we have seen the greatest success in our luxury lifestyle, golf, water, and country club communities, as they have all continued to perform well. The luxury active adult buyer has remained the most engaged, and it is actually the more affordable subset of this demographic that has taken a little longer to reengage. The overall strength in sales drove a quarterly pace of 2.8%. which ties to the highest level for a second quarter that we've seen in years. In April, our pace was down 43%. In May, it was flat. And in June, it was up over 70% year over year at 4.3, which was the highest pace in our company's history. This is the most critical metric providing an apples-to-apples blend for sales activity levels. This strong performance was driven by both the Taylor Morrison and William Lyon legacy businesses. Closings for the quarter came in at 3,212, an increase of about 24% compared to the same quarter last year. In April, we were basically flat last year. In May, we were up almost 20%, and in June, we were up just over 55%. The second thing to note with our quick ramp-up We were able to further enhance our strong cash position, which Dave will speak to during his remarks. Looking forward, I'm hopeful that the trades will be able to shake the constraints felt during the pandemic and the most recent spike in positive cases that we have seen amongst some trade partners and manufacturers. I'm often asked, what's at the heart of our sales success or what is driving demand during such uncertain times? and do we think the drivers are sustainable? Although a complicated question, I'd like to share some of my thoughts, some macro related and one very specific to Taylor Morrison. First, the interest rate environment is the most accommodative I've seen in my career. With rates at all-time lows, it in and of itself provides an extremely strong stimulative impact. It's compelling for the consumer, drives real action, and more importantly, create multiple ripples throughout the larger economy that benefit home building. Second, the resale inventory is extremely low and coupled with the rate environment, it effectively pushes more demand to new homes. Third, there was a thesis at the beginning of the pandemic involving a flight from urban areas where personal space is limited to more suburban or rural areas where space is more abundant. I can tell you this is a real phenomenon and we are seeing it come to life in our data. We now have about 20 consecutive weeks of targeted research on COVID impacts driving motivations with our buyers and shoppers. And what we've seen in both our sales offices and virtually through our website is that what began as casual discussion has evolved into real action. It has become clear in our buyer data that these initial discussions have converted into sales. Some are highly motivated to get out of the urban core in addition to their motivations for bigger and more spaces, enhanced technology, and a strong bias to new for the differences in health and wellness features. We've seen a steady appeal to new product as a reflection of customers' desires for safer and cleaner living. As a result of this feedback from our home buyers and customers, I am delighted to announce that effective August 1st, all homes sold for new construction starts will include a number of Taylor Morrison Live Well product enhancements. These products will be standard features in every home including an upgraded air filtration system, a new whole house water filtration system, and a micro bisidial interior paint with a chemical free formula which absorbs bacteria and prevents mold, all contributing to cleaner indoor air quality. With our customers spending much of their time at home these days, we want to positively contribute to their quality of life by providing standard features that will help keep them healthy. Our Live Well Suite will also soon include several selections available in our design studios with both healthy and convenient options for our buyers. And lastly, I continue to be encouraged by another significant driver of our strong sales performance, and that's our unmatched focus on the virtual experience with new innovative tools and digital capabilities. Our digital journey began long before the pandemic and will live on long after it. The home shopping experience has an equal role to play in the overall customer experience, so we stood up more self-service features for consumers to do as much of their research at home and on their own time than ever before. We aggregated our virtual tours from across the country into a single point of entry, making it easier than ever for shoppers to experience visiting a Taylor Morrison model or community without having to leave the comfort of their home. The engagement of our virtual tools online continues to be more than twice as high as other webpages and with much higher conversion rates. The website offers more than just a digital retail experience, but really serves as a true extension of our sales teams. Recently, we introduced two innovative additions to our online suite of self-service and virtual options, self-guided tours and online home reservations. Our self-guided touring technology is live in completed inventory homes across the country. Thank you for joining us today. Thank you for joining us today. Thank you so much for joining us. 100% virtually. We know consumers have long craved technological advancement, self-service, and convenience when it comes to our industry. This transition has been long overdue and is one of the few silver linings to an otherwise extremely tough period. So how sustainable is the current environment? I'm not sure how good my crystal ball is, but thought I'd share a few thoughts. When it comes to the mortgage rates, The Fed has made it clear they will work to protect the economy, and in their estimation, a low-rate environment is one meaningful way to do that. As for low inventory levels, they were relatively low before the pandemic, and that has only been exasperated in both total number of units and quality of inventory. Thank you so much for joining us. We believe that a more structural impact of COVID is consumers' focus on their personal health and environment. We believe giving our homebuyers peace of mind around the quality of their home will eventually become table stakes in building and are so delighted to introduce TM Live Well. And finally, the transition in our approach to the sales experience is absolutely here to stay, and I am pleased with how our virtual shopping experience is the first to have advanced to being truly an online buying experience. As I said earlier, it's long overdue, and as an organization, we're committed to continue to be out in front with these changes. Now, let me turn the call over to Dave for the financial review.