Taylor Morrison Home Corporation

Good morning, and welcome to Taylor Morrison's fourth quarter 2020 earnings conference call. Currently, all participants are in a listening 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 your interest in our fourth quarter 2020 earnings conference call. I am joined by Sheryl Palmer, Chairman and Chief Executive Officer, and Dave Cohn, Executive Vice President and Chief Financial Officer. Sheryl will provide an overview of our performance and strategic priorities, while Dave will share 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 earnings release which is available on the investor relations portion of our website. 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. In addition, we will refer to certain non-GAAP financial measures on the call which are reconciled to GAAP figures in our earnings release. With that, let me turn the call over to Sheryl.

Thank you, Mackenzie, and good morning, everyone. We appreciate your time this morning and sincerely hope that you and your families have managed to stay healthy and safe. To begin today's call, I want to thank the Taylor Morrison team for their tremendous efforts and dedication to our customers and organization over the past year. Their commitment allowed us to navigate 2020's many challenges to deliver our strong fourth quarter results to cap off a pivotal year for our company and further position us to capitalize on our enhanced scale and expanding business opportunities. To recap some of the highlights, during the year we delivered over 12,500 homes, adopted new industry-leading digital capabilities that allow us to operate more effectively and pave the way for future innovation and expanded our growing build-to-rent operations. Our financial services team achieved record financial results and a mortgage capture rate over 80%, providing critical visibility into our backlog and highlighting the strong value and service our mortgage company offers our buyers. Collectively, these strong results helped to drive our operating cash flow to a record high of $1.1 billion after investing $1.4 billion in new land and developments. Additionally, we exceeded our deleveraging targets with a nearly 300 basis point sequential decline in our net debt to capitalization ratio to just under 39% and ended the year with ample financial flexibility. This month also marks the one-year anniversary of our closing on William Lyon Homes, the largest and most transformative of our six acquisitions over the last seven years. I'm proud of the progress our team made to fully integrate into one company on schedule, despite having to do so almost entirely remotely through the pandemic. As a result, we are well on track to achieve our annual life synergy target of $80 million. And lastly, but surely not least, I'm very proud that Taylor Morrison was recently recognized as America's most trusted home builder by Life Story Research in 2021 for the sixth consecutive year based on survey responses by nearly 50,000 home shoppers. To earn this trust even during a pandemic highlights our unwavering commitment to integrity and a differentiated experience for our home buyers that is core to who we are as an organization. These successes position us for an even stronger 2021 and beyond. This morning, I would like to share with you our vision for the company's next chapter as we turn the page on our integration efforts and transition into the value creation phase of our strategic journey. After seven years of growth into the nation's fifth largest home builder, we are now focused entirely on pulling through the financial benefits of the enhanced scale, local market depth, and consumer and geographic diversification that we have achieved along this journey. Our driving thesis behind our growth strategy has been our conviction in the benefits of our market share at the local and regional level. With a top five market position in 14 of our 21 markets, including top three in seven of those markets, we have meaningful opportunity to drive top line growth, improve efficiency, and reduce costs. Our strategy playbook is grounded in a commitment to delivering attractive, sustainable returns through operational effectiveness and balance sheet efficiency. Our strong fourth quarter performance and 2021 guidance reflect the early results of our strategic growth, which we expect we will continue to build upon in the quarters ahead. With our targeted market footprint and product portfolio now in place, The key to our future success will lie largely in our operational efficiencies. While this has always been an essential pillar of our strategy, we recognize the opportunity to ensure the organization is operating at a level reflective of our enhanced size, industry leading customer experience, and valuable land positions. Topping our list of priorities is a drive towards stronger per unit profitability through improved gross margin and asset efficiency. which were temporarily impacted by our numerous acquisitions. Over time, we strive to again deliver margins that are competitive with our industry and expect our performance over the next two years to narrow the gap with our peers. While the opportunity is greatest within our newly acquired communities where there is still meaningful runway to enhance construction and purchasing efficiency to offset their high land residuals, there is also opportunity to improve our legacy margins to reflect The full benefit of our greater procurement capabilities and other strategic benefits of our increased market presence. Now that William Lyon is fully integrated, we expect our new starts to increasingly reflect these competitive advantages, which will drive improving performance as recently started homes convert to deliveries in the coming quarters. Among the many ways we are focused on achieving this enhanced profitability is a renewed emphasis on scalable, repeatable processes that ensure our best practices are fully utilized across our teams, especially within our newer divisions. This encompasses everything from optimizing our strategic selling process, reducing our build cost through further plan rationalization and value engineering, maximizing our purchasing contracts, and standardizing our option pallets, all with the intention of maximizing revenue, reducing costs, and managing our cycle times. In addition to these operational enhancements, we have also been focused on the management of our land portfolio. With our emphasis on driving returns, we have managed our land supply to ensure an appropriate level of lots to meet demand while also taking advantage of opportunities to improve our capital efficiency. We have successfully driven our years of lot supply down to one of the lowest and most efficient levels in our company's history, while also growing our total lot supply to nearly 70,000 lots. At year end, this represented five and a half years of supply, which we believe is just slightly ahead of the optimal range for our product mix and community development expertise. Most importantly, we have also expanded the share of our lots controlled via options and other arrangements to over 31%, Thank you for joining us today. with more than 40% of our approved lots during the year controlled via options, joint ventures, or other arrangements. We also restructured a number of William Lyons' previous ventures and land banking arrangements that will further enhance the cash flow and return profile of some of the acquired assets. In addition, I'm excited to announce that in 2021 we expect to further improve the capital efficiency of our business with the introduction of new land financing vehicles and we will share more details in the coming quarters. Overall we expect the land initiatives we have underway will support improved returns and enhance cash flow generation while also reducing our long-term risk profile. These efforts will allow us to participate even more competitively in the land market while remaining disciplined in our underwriting to acquire land where we see opportunities to drive profitable growth over the full cycle. Before turning the call over to Dave, I want to share some comments on the current market. In the fourth quarter, we experienced strong sales growth across each of our consumer groups, led unsurprisingly by the entry level. However, our active adult buyers are also increasingly reengaged in the market, and the early traction that we noted last quarter during the early winter selling season drove strong sales activity through year end. Additionally, our move-up communities are enjoying healthy demand among buyers eager to find a home well-suited to their evolving needs and strong price appreciation has fueled mobility within our move-up price points. In total, our fourth quarter net sales orders increased 46% year-over-year, driving our monthly absorption pace to 3.4 sales per community. and many more. We do so in recognition of the importance of maintaining affordability, especially at our entry-level communities. As always, our diverse price points drive our approach to balancing price and pace at a community level with the intention of fully maximizing returns on each asset. In addition, we are mindful of the market-wide limitations on capacity to efficiently deliver the industry's significant backlog of sold homes. With ongoing labor tightness, delays with the municipalities and other supply-side constraints unlikely to change in the near term, I think it's important to acknowledge the many bottlenecks constraining the industry's production machine. At Taylor Morrison, I believe the operational priorities I laid out, along with our enhanced scale that has further improved our access to land and labor, is allowing us to navigate these challenges successfully. In addition, our teams are carefully monitoring sales and lot releases to align with production capacity to avoid overextending our backlog. We're also working closely to manage our production paces and construction timelines by leveraging our longstanding relationships with our trade base to ensure our business continues to run effectively. Lastly, we're also remaining disciplined in our strategic selling and pricing strategies Thanks, Sheryl. Good morning, everyone.