Taylor Morrison Home Corporation

Good morning and welcome to the Taylor Morrison second quarter 2024 earnings conference call. Currently, all participants are on listen only mode. Later, we will conduct a question and answer session and instructions will be given at the time. As a reminder, this conference call is being recorded. I would like now to introduce Mackenzie Aron, Vice President of Investor Relations.

Thank you and good morning. 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 our quarterly highlights, our view on the market, and the strategic drivers that give us confidence in the business and our long-term targets. Eric will provide an update on our land portfolio and investment strategy, while Kurt will detail our financial results and guidance metrics. To begin, in the second quarter, we delivered 3,200 homes at an average price of $600,000 with an adjusted home closings gross margin of 23.9%. This produced adjusted earnings per diluted share of $1.97 and 12% year-over-year growth in our book value per share to approximately $52. Despite the impact of higher interest rates during the quarter, both our closings volume and gross margin exceeded our prior guidance. Following this strength, we now expect to deliver between 12,600 to 12,800 homes this year at a home closings gross margin around 24%, both of which are stronger than our prior guidance. Most importantly, our performance and updated outlook once again reflect the overall strength and stability of our diversified consumer and geographic strategy. By meeting the needs of well-qualified homebuyers with appropriate product offerings in prime community locations, we continue to benefit from healthy demand and pricing across our portfolio. From a sales perspective, our second quarter net orders increased 3% year over year with a monthly absorption pace of three per community. The quarter started with a strong April, but we did experience some moderation in traffic and pre-qualifications during May, as would be expected given the magnitude of interest rate movement. However, we saw momentum begin to recover in June and thus far in July, with activity picking up alongside lower interest rates and the positive shift in the Federal Reserve's messaging, which are once again providing consumers with the needed confidence to move forward with their purchase, especially once they appreciate the compelling finance incentives we are able to offer via Taylor Morrison Home Funding. Most importantly, when we look at the first six months of the year, our year to date absorption pace of 3.3 per month leaves us on track to achieve our full year target in the low three range, assuming normal seasonal patterns through the remainder of the year. Because we target a broad range of financially secure consumers in the entry level, move up, and resort lifestyle segments, we believe that our portfolio is well positioned to serve demand across the housing market while generating healthy gross margins and bottom line profitability, given our product's relative pricing resiliency, even during more challenging market conditions. No data point proves this better than the remarkable stability we have experienced in our home closings gross margin over the last six quarters. Over this period, our adjusted margins have remained in an exceptionally tight range at above average levels of 23.9% to 24.2%, despite mortgage rates swinging from 6% to over 8%, with plenty of volatility, macro uncertainty, and political unrest along the way. We continue to expect this stability to hold in the quarters ahead, as reflected in our improved home closings gross margin outlook of around 24% for the third quarter and for the full year. Beyond the temporary volatility caused by interest rate movement and other headline noise, we remain confident that the need for new construction is firmly intact, supported by a multi-million deficit of housing units and evolving demographic trends across multiple generations. In the majority of our markets, affordable and desirable inventory options remain limited with months of supply still at manageable levels. And while resale inventory has started gravitating back toward historic norms, particularly in Florida and Texas, we are finding that much of the available product is generally not competitive to our amenity rich communities and quality designed and newly constructed homes. Eric will provide some interesting insights on this shortly. It's also worth sharing that based on our home shopper surveys, which we send to all prospective customers after they visit one of our communities, only about 30% of our responding shoppers are considering a resale home as an option in their home buying search. In other words, 70% or the vast majority of our prospective customers intend to buy a new home. further mitigating the direct competitive pressure of resale inventory. And I am particularly proud to share that nearly 45% of our shoppers tell us they're only considering a Taylor Morrison home in their search. In the second quarter, resort lifestyle and move up buyers accounted for a combined 64% of our net sales, which was similar to the first quarter. These generally well-heeled buyers tend to utilize all cash or minimal financing when making their purchase and have the financial ability to personalize their home on their desired lot, generating high margin design center and lot premium revenue. At the same time, our entry-level communities, which represented 36% of our second quarter sales, are positioned to take advantage of significant pent-up demand among first-time buyers for simplified move-in ready spec homes, albeit with more limited financial flexibility. To that point, just 35% of our second quarter closings utilized a mortgage forward commitment or similar structure to secure a desired interest rate, and an outsized 58% of those customers were first-time buyers. While not surprising that these consumers require more financial support, These trends reinforce why we strongly believe the diversification of our portfolio is one of our most meaningful competitive advantages. In total, in the second quarter, our buyers financed by Taylor Morrison Home Funding with a capture rate of 89% had an average credit score of 751, down payment of 23%, and household income of $174,000. From a production standpoint, we continue to manage our to-be-built and spec home offerings based primarily on each community's targeted consumer set. This approach provides the benefits of both a high margin to-be-built business with the high turns from efficient spec construction as we look to maximize our overall returns. In the second quarter, spec homes accounted for 58% of our total gross orders nearly double the 30% share they represented in the same quarter of 2021, reflecting a strategic shift that has delivered sales and production benefits. At the same time, we have further improved our construction and purchasing efficiencies with the success of our campus option packages, which are included in all our spec homes and a growing share of our To Be Built offerings. Since being introduced nationally two years ago, Canvas has grown to represent over 60% of our closings, providing enhanced margins, cycle time savings, and strong customer appeal. Driven by these evolutions in our business, our option count has shrunk by nearly 60% since 2020, while our floor plan library has been streamlined by over 20%, improving our ability to leverage costs scale our trade base, and most importantly, deliver quality homes to our customers. For all of these reasons I've discussed this morning, we believe our business is exceptionally well positioned to take advantage of strong housing fundamentals in the years ahead to deliver strong results that exceed our historic performance as we strive to be within the top tier of our industry. Our confidence in this outlook is reflected in the long-term targets that we introduced last quarter. These include 10% plus annual home closings growth, an annualized low three absorption pace, low to mid 20% home closings gross margins, and mid to high teens returns on equity. Supported by our capital efficient investing model, we also expect to generate sufficient cash to continue to grow our business while maintaining our strong balance sheet position and returning capital to shareholders in the form of share repurchases. Since expanding our company's breadth and depth through smart and accretive growth and refining our operational capabilities through product and process optimization, I am immensely proud of our team's execution and confident in our ability to achieve these targets on a consistent go-forward basis to deliver attractive results for our shareholders. As we head into the remainder of the year and into 2025, while we are awaiting more clarity from the Federal Reserve after next week's meeting, we are cautiously optimistic that lower interest rates and a continuation of positive housing fundamentals has set the stage for continued growth and positive momentum in our business. With that, let me now turn the call to Eric.