Taylor Morrison Home Corporation

Good morning and welcome to Taylor Morrison's first quarter 2024 earnings conference call. Currently, all participants are in 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 call is being recorded. I would now like to introduce Mackenzie Aron, Vice President of Investor Relations. Please go ahead.

Thank you and good morning, everyone. We appreciate you joining us today. Before we begin, let me remind you that this call, including the question and answer session, will include forward-looking statements. These statements are subject to the Safe Harbor Statement for Forward-Looking Information that you can review in our earnings release on the investor relations portion of our website at taylormorrison.com. 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 SEC, 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 the release. Now, I will turn the call over to our Chairman and Chief Executive Officer, Cheryl Palmer.

Thank you, Mackenzie, and good morning, everyone. Joining me is Kurt Van Hefty, our Chief Financial Officer, and Eric Huser, our Chief Corporate Operations Officer. Today, I will share the highlights from our first quarter, as well as an overview of the competitive differentiators driving our strong performance. After my remarks, Eric will review our land portfolio and returns-focused investment strategy, while Kurt will detail our financial results and guidance metrics. In the first quarter, our team delivered a strong start to the year, including better than expected sales activity, upside to our gross margin expectations, and efficient construction progress that has set the stage for continued success through the remainder of the year. We delivered... 2,731 homes at a better than expected home closings gross margin of 24%, driving earnings per diluted share of $1.75 and 14% growth in our book value per share to $50. With consistent activity throughout the quarter, our net sales orders increased 29% year over year, driven by a monthly sales pace of 3.7 per community putting us firmly on track to meet our annual sales pace goal in the low three range. Following this positive first quarter momentum, we are raising our full year guidance and now expect to deliver approximately 12,500 homes at a home closings gross margin between 23 and a half and 24% at an average price of 600 to 610,000. This improved outlook is reinforced by our healthy backlog of over 6,200 homes and includes the expected contribution from our entry into Indianapolis that I will share more on in just a moment. Our strategic emphasis on broad consumer reach, quality locations, and a flexible production model is grounded in a through the cycle playbook that aims to deliver sustainable long-term profitability and cash flow generation while minimizing our exposure to housing cyclical forces. The success of this strategy is demonstrated with our increase in this year's guidance for home closings, gross margin, and average closing price, despite the renewed mantra of higher for longer interest rates. Since expanding our company scale over the last many years and then focusing on fine tuning our operations, I am immensely proud of how our teams are executing on our long-standing strategic priorities and even more excited for the meaningful growth and bottom line results we anticipate as we look ahead. In addition to our strong company-specific outlook, the housing market overall remains healthy despite the continued headwinds from elevated mortgage rates, some economic uncertainty, and global unrest. With a multi-million unit deficit of housing in our country and supportive demographics across multiple generations, The need for new construction that meets the demands of the evolving consumer is as apparent as ever. Guided by our deep consumer research, our land investment, product offerings, and sales strategies are focused on meeting these needs. The diversification of our consumer mix from entry level through first and second move up to resort lifestyle buyers is the foundation of our strong performance. We further maximize our results by optimizing our construction efficiencies and gross margin opportunity by offering both quick-moving specs and personalized to-be-built homes aligned to our customers' needs and preferences, while our geographic diversification adds another layer of risk mitigation and growth opportunity. By design, this approach allows us to tap into the deep pools of demand that exist across the home buyer spectrum, each with important advantages to our overall portfolio that we believe enhance our performance over the full course of a housing cycle as various consumer groups respond differently to various macroeconomic factors. Today, with affordability remaining stretched for many consumers at large amid volatile interest rates, our diversification has aided our ability to navigate these headwinds by allowing us to meet demand without sacrificing gross margins given relative pricing resiliency in our community supported by our buyer's financial strength. In the first quarter, our average buyer finance by Taylor Morrison Home Funding, which had an exceptional capture rate of 87%, had a credit score of 751, down payment of 23%, and household income of 176,000, each of which are stronger than industry norms. In fact, our conventional buyers in the first quarter had nearly 400 basis points of average rate cushion in their ability to qualify and could absorb an additional half point increase in interest rates with negligible impacts to their DTI ratio and monthly payment. Capturing the strong start to the spring selling season, our first quarter net sales orders increased 56% sequentially and 29% year-over-year, driven by improvement in our monthly pace to 3.7 per community. This pace marked our strongest since the first quarter of 2021 and was well ahead of our first quarter average of 2.6 from 2013 to 2019, reflecting the multi-year evolution of our portfolio to higher-paced communities. I am also pleased that sales converted from online reservations increased 47% year over year as these tools continue to gain traction among our buyers, further enhancing our success. As the quarter progressed, sales activity was consistently strong each month, allowing us to raise pricing in more than 60% of our communities and selectively reducing incentives. When I look across the country, it's notable that our markets with the broadest consumer diversification performed most strongly during the quarter, while divisions with a heavier entry level concentration generally performed in line to slightly below our expectations. Looking even more closely at our consumer data, we see that in the markets where our median customer income exceeds that of the overall MSA by a wide margin, Our sales paces and pricing strengths have held up most resiliently over the last several quarters, again, reinforcing the benefits of our diversified consumer base. As you've heard me discuss before, our resort lifestyle and move-up buyers, which accounted for a combined 63% of our first quarter sales, tend to utilize all cash or minimal financing when making their purchase and have the means to spend upwards of $150,000 on lot and design upgrades to personalize their to be built homes. This contributes to a gross margin advantage of several hundred basis points compared to our company average. On the other end of the spectrum, our entry level communities benefit from a significant pool of pent up demand among first time buyers for simplified spec homes, albeit with more limited financial flexibility That does require a higher use of incentives and other discounts. As a result, while only a third of our first quarter closings utilize a mortgage forward commitment to secure their desired interest rate, nearly 50% of those were first time buyers. Ultimately, by serving the full spectrum of consumers, we capture the dual benefits of both healthy demand and pricing strength, which contributes to more durable long term earnings. As I shared last quarter, we are targeting at least 10% home closings growth annually beginning in 2025, following the high single-digit growth now expected this year based on our revised guidance. This growth is critical to maintaining and further solidifying the many competitive and operational advantages associated with our strong local, regional, and national scale. The vast majority of this growth is expected to be organic within our existing markets of operation, but as I've said in the past, we're in the fortunate position of being able to evaluate other opportunities presented by single market local builders, many of whom are finding it difficult to grow given constricted capital availability, tighter labor resources, and other constraints in the private market. One-cent opportunity recently arose that met our high thresholds for strategic fit and financial accretion, and I am pleased to share this morning our entrance into Indianapolis by way of approximately 1,500 home building lots from Pyatt Builders. Nearly 55% of these lots are controlled via options, and we funded the purchase with cash on hand. We're excited to add this healthy and growing market to our map, within our central region under the leadership of PIAT's strong existing team of tenured operators. Indianapolis boasts meaningful net migration that ranks top 10 in the country, fueled by above average employment growth of 3% over the last 12 months, and favorable affordability that is highest among the country's top 30 major metros. Due to its low land residuals, its housing market has been remarkably resilient over time And we are encouraged by the capital efficient growth opportunity the market presents. Kurt will provide more specific details as to Indianapolis's financial contribution for the remainder of the year. But let me just say again that I am so excited about this compelling opportunity that further strengthens our portfolio's consumer and geographic diversification. As I've laid out this morning, this unique diversification combined with our operational capabilities provide important competitive advantages that we believe will deliver superior growth and profitability in the years ahead. I'd like to share a few of the long-term targets we have established that demonstrate this. First, on the top line, as I said earlier, we are targeting at least 10% home closings growth annually in 2025 and beyond. With over 74,000 home building lots, our existing land pipeline and planned community openings will support this growth over the next few years as we already own or control over 90% of the lots needed through 2026. For growth beyond 2026, we are focused on investing efficiently with a growing percentage of controlled lots and a preference for balance sheet friendly self-developed projects in prime locations, as Eric will discuss in more detail. Secondly, we are targeting an annualized monthly sales pace in the low three range as compared to our historic run rate in the low to mid twos, which improves our asset turnover and returns on invested capital. This pace expectation is driven primarily by the newer, often larger communities that we have underwritten over the last several years, as well as our higher share of spec sales and expanded geographic footprint. Third, we expect our home building gross margins and returns to remain well above our historic average due to increased production and operational efficiencies, greater cost leverage from our scale, and lower capitalized interest burden from our reduced debt levels. Reflecting these changes, underwritten gross margins on home building lots approved over the last four years exceeded those of lots underwritten in the prior four years by an average of more than 200 basis points. At the same time, we are committed to continually looking for ways to optimize our SG&A, including ongoing centralization and other cost-rejection efforts, such as our technology-driven efficiencies. And lastly, the strength of our balance sheet is exceptional. and we have significant financial flexibility, giving us confidence in strong cash flow generation and ongoing capacity to return excess capital to shareholders in the form of share repurchases with a $300 million repurchase goal this year. Based on these long-term targets, we expect to generate consistent mid- to high-teens returns on equity and ongoing book value growth for our shareholders with the ultimate goal of delivering top quartile results within our peer set. With that, let me now turn the call to Eric.