Taylor Morrison Home Corporation

Good morning and welcome to Taylor Morrison's third quarter 2020 earnings conference call. Currently, all participants are in the listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to introduce Mackenzie Aaron, Vice President of Investor Relations.

Thank you. We appreciate you joining us for Taylor Morrison's third quarter 2020 earnings conference call. With me today are Sheryl Palmer, Chairman and Chief Executive Officer, and Dave Cohn, Executive Vice President and Chief Financial Officer. Sheryl will begin the call with an overview of our performance and market outlook, while Dave will take you through the highlights of our financial results, after which we will be happy to take your questions. We ask that you please limit yourself to one question and one follow-up. 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 filing to the Securities and Exchange Commission, and we do not undertake any obligation to update our forward-looking statement. I would also like to remind everyone that we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in our earnings release, which is available on the investor relations portion of our website. With that, let me turn the call over to Sheryl.

Thank you Mackenzie and good morning everyone. We appreciate the opportunity to update you on our recent results and business strategy. Certainly the year has unfolded differently than we could have ever anticipated. Yet I'm so pleased with how our team has navigated the unprecedented environment while also working through an integration allowing us to deliver our stronger than expected third quarter performance. Our adjusted diluted earnings per share increased 53% year-over-year to $1.01, excluding transaction-related expenses and refinancing charges, while our gap diluted earnings per share was up 38% to $0.87. Building upon the rebound in activity that began in May, our sales remained strong throughout the third quarter. Our net orders increased 74% year over year, driven in part by the benefit from our acquisition of William Lyon Homes in February and a continuation of robust demand. This marked notable acceleration from 23% growth in the second quarter. Our monthly absorption pace increased 53% year over year to 3.8 sales per community. The highest quarterly level in our public company's history. By month, our sales pace was up by nearly 70% in July, just over 55% in August, and approximately 40% in September. Despite leaning more heavily on price to appropriately manage our backlog, our absolute sales pace remained in a relatively consistent range throughout the quarter, and has even accelerated thus far in October from September's run rate and is expected to be at more than 50% year over year for the month, reflecting the remarkable resiliency in today's housing market. Our industry is clearly benefiting from several tailwinds, including historically low interest rates, limited inventory, and a shift into the new home market by consumers in search of clean, healthy, and functional spaces for their families. These trends have magnified favorable demographics that were in place prior to the pandemic and will likely persist long after it. Collectively, these dynamics renew our conviction in the long-term opportunity for housing that we are all well positioned to capitalize on after years of strategic transformation into the nation's fifth largest homebuilder. The sales success we experienced during the quarter was driven across nearly all our geographies and consumer groups. Across the country, all our markets experienced year-over-year growth, with notable strength in our Phoenix, Northern California, and Southwest Florida markets. Among our buyer groups, sales pace in our entry-level segment was generally consistent with the second quarter, while activity in each of our move-up and active adult segments improved meaningfully. Notably, our active adult consumers are increasingly engaged with our sales team, and we are seeing real traction, particularly among returning out-of-state buyers as we enter the winter selling season for our lifestyle communities. Of course, the strong sales environment has put renewed emphasis on the critical price versus pace balance. While we have always navigated that tradeoff at the community level to fully maximize profitability and returns on an asset by asset basis, we have generally prioritized price at this point in the market rebound. We implemented a nationwide price increase in August, reduced our incentives across the board, and achieved price increases in virtually all our communities. As Dave will elaborate on, we believe the pricing increases we have realized thus far are sufficient to cover anticipated lumber and other cost inflation as we look ahead to 2021. While there is further runway to raise prices in the current environment, particularly in the move-up and luxury segments, we also recognize the need to be mindful of preserving affordability for our prospective buyers. particularly at the affordable entry level. We will continue to carefully manage our price and pace in each community based on demand trends, our supply pipeline, and the competitive environment. I want to also spend a moment discussing our industry leading virtual selling tools and digital capabilities. As we discussed last quarter, we introduced two additions to our online suite earlier this year. Self-Guided Tours of Inventory Homes and Online Home Reservations. Following on those successes, we are in the process of rolling out standardized option packages that will be available in both our in-person and online sign centers offering curated feature selections to streamline our design process. I am pleased about the positive impact these tools have on the overall customer experience and equally encouraged by the longer term financial benefits on the business. For instance, home buyers that use one of our virtual tools are less likely than other buyers to use a real estate broker. Additionally, the internet was our top lead source for buyers for the second consecutive quarter at 46% versus 38% for brokers. Both trends present opportunities to reduce our commission expense over time. Additionally, the adoption of standardized option packages will help us improve our material costs and processes and reduce our cycle time. While these initiatives are still in the early innings, we remain committed to finding innovative ways to drive improved operating efficiencies, enhanced margins, and increased returns. Shifting gears to another exciting development, it has been one year since we announced our entry into the Build to Rent market via strategic partnership with Christopher Todd Communities, and I'm happy to share an update on our progress. At the time, we expressed our optimism that the Build to Rent market presented opportunities to leverage our core home building and land acquisition expertise in a new way, helping to increase our delivery velocity, enhance our production process, and diversify our offerings to meet consumer demand. Given the clear deficit of affordable single-family housing across the country and shifting consumer preferences post-COVID away from dense traditional apartments to more spacious single-story living, our confidence in this opportunity has only increased over the last year. We have broken ground on two communities in Phoenix with five additional projects in their pipeline expanded into four new markets, completed a strategy playbook to be utilized across our divisions, and are in the process of finalizing our new national product library. We have plans for further expansion in 21 as we continue to quickly scale the partnership. Once the communities reach stabilized rental levels, we intend to monetize the assets and are in the process of evaluating potential exit strategies for 2022 and beyond. Most importantly, the relatively streamlined and concentrated production provided by our build-to-rent operations will add further depth to our overall scale, allowing us to capture greater construction efficiencies that should be accretive to our margin and return profile over time. As I said earlier, we expect housing activity to remain healthy for the foreseeable future and believe our market presence is well suited to meet that demand. However, we also remain cognizant of the uncertainties and risks facing the economy related to the ongoing pandemic, uneven employment recovery, waning government stimulus, and of course, next week's presidential election. Regardless of the economic backdrop, our strategy is designed to allow us to navigate the cyclical environment equipped with both financial and operational flexibility. Now let me turn the call over to Dave for his financial review.