Taylor Morrison Home Corporation

Good morning and welcome to Taylor Morrison's first call to 2025 earnings conference call. Currently, all participants are in listen-only mode. Later, we will conduct question and answer session. Any instructions will be given at the time. As a reminder, this call is being recorded. I'd now like to introduce Mackenzie Aron, Vice President of Investor Relations.

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 www.theatremorrison.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 Kirk Van Hefty, our Chief Financial Officer, and Eric Huser, our Chief Corporate Operations Officer. To begin, I would like to recognize our team's exceptional performance during the first three months of the year. Among the highlights, we delivered 3,048 homes at an average price of $600,000, producing $1.8 billion of home closings revenue of 12% year-over-year, with an adjusted home closings gross margin of 24.8% of 80 basis points year-over-year. Combined with 70 basis points of SD&A leverage, our adjusted earnings per diluted share increased 25%, while our good value per share grew 16% to approximately $58. Once again, each of our operational metrics met or exceeded our prior guidance. These strong top and bottom line results reflect the benefits of our diversified consumer and product strategy. Especially in volatile market environments, this diversification is a valuable differentiator that we believe contributes to volume and margin resiliency. From a sales perspective, the slow start in January gave way to stabilization in February and modest growth in March, following the historic pattern, albeit with slightly less velocity than we would have otherwise anticipated during the early spring selling season. In total, our monthly absorption pace increased at 3.3 per community from 2.6 in the fourth quarter, so it was down from the near record of 3.7 we achieved a year ago. As I noted on our last earnings call, we experienced exceptional sales strength in the first quarter of 2024, driven by a decline in interest rates that helped unleash concept demand. Alternatively, this first quarter, interest rates moved higher alongside macroeconomic and political uncertainty related to tariffs and immigration. More recently, the significant volatility in the stock market and additional policy-related changes impacted buyers' sense of urgency, causing some shoppers to move to the sidelines, as we have seen before during periods of uncertainty. The SPICES headwind is worth highlighting that our first quarter's pace was still solidly ahead of our pre-COVID historic average of 2.6 from 2013 to 2019, reflecting our strategic shift into higher-pacing, larger communities that is helping support our long-term ROE targets. It's also worth highlighting that our sales success was in part due to strong year-over-year improvements in conversions of online home reservations, another driver of improved efficiency. Appreciating the macro backdrop, our first quarter performance highlights several key drivers of our success that I believe are unique to Taylor Morrison. First, even in the face of rising incentives across our industry, Our diversified portfolio is relatively insulated to broader net pricing pressure due to the strength of our buyer and appeal of our quality locations and desirable communities and product offerings. By consumer group, our first quarter orders consisted of 32% entry level, 47% move up, and 21% resort lifestyle. On a year-over-year basis, our resort lifestyle segment was the only to post-growth, with a 3% increase in net orders, heated by strength in Florida, while our move-up sales were down just 2% and entry-level sales declined steeply, down 21%. Secondly, our emphasis on personalized finance incentives, including proprietary forward commitment structures, allows us to be tactical in our use of such tools to help our consumers with their home purchase. 42% of our first quarter closings use a forward commitment, just over half of which were first-time homebuyers. By using these and other incentive programs effectively, incentives on new orders increased only 20 basis points sequentially during the quarter. As we have discussed in detail, we believe our diverse consumer segmentation is critically important given varying demand sensitivities and financial profiles among different buyer groups that contribute to healthier, more resilient growth opportunities and pricing over time. To that point, we have been closely monitoring our proprietary shopper survey data for any insights into the consumer mindset of late. This information is always an important input into our marketing and incentive offers as we look to best address consumer needs. Unsurprisingly, home prices and interest rates have been the most common themes cited by shoppers in their home buying decisions. However, parsing the data by generations reveals important differences. These responses are more common for Gen Z and millennial consumers than for Gen X and boomers, who are instead more focused on finding their next home, floor plan, and community location, as well as selling their existing homes. Interestingly, across all age groups, uncertainty around tariffs was cited equally, but not as a significant factor. This data gives us confidence that demand, particularly in our second move-up and resort lifestyle, will likely recover quickly as consumers regain greater clarity on the macro outlook. And lastly, because of the expertise of our local teams, we are nimble in balancing case and price at the community level, as we make daily operating decisions designed to reach our targeted returns. Given our diversification and emphasis on core locations, there is not a singular approach to our pace versus price strategy, but rather an ongoing community-specific process that considers each asset's unique competitive dynamics, sales momentum, and other market influences. We believe that this community-by-community approach is even more critical in the current environment because we are seeing significant divergence in the performance of core versus non-core locations. As Eric will elaborate, total inventory of both existing and new homes has risen sharply across the country, with the vast majority of this located in non-core submarkets. It is in these markets primarily serve entry-level consumers with spec offerings where discounting and incentives are the greatest. Alternatively, prime core communities, particularly with Two Beetles products, are generally faring better with manageable incentives and solid pricing. With this in mind, it's worth highlighting that 58% of our first quarter closings were spec homes, including a record 27% that were sold and closed each quarter. well ahead of the 21 to 24% share in the prior two first quarters. While our teams have been effective in selling and closing spec homes, finished inventory at quarter end was elevated compared to our targeted levels at 2.4 homes per community, following the slower start to the spring. In response, we moderated our first quarter starts, paced by 6% year over year, and will remain highly selected in new starts moving forward. Additionally, we will look to move through finished specs for the remainder of the selling season to return to more normalized inventory levels, resulting in a higher-anticipated spend penetration in the second quarter. As a result, we expect incentives to rise more meaningfully in the second quarter. Given the lower margin and price associated with specs as compared to TVL zones, We expect moderation in our home closing gross margin to around 23% and in our average closing price to around $585,000 in the second quarter with approximately $3,200 delivery. For the remainder of the year, we are assuming incentives remain at current elevated levels, although market conditions are highly fluid and dependent on mortgage rates and consumer confidence. As a result, we now expect to deliver between 13,000 to 13,500 homes this year at a home closing gross margin around 23%. Alongside this revised volume forecast, we have reduced our expected land investment this year to approximately $2.4 billion from $2.6 billion previously and are ensuring that new land underwriting decisions are sensitized to a wide range of pricing and pay scenarios. At the same time, we now expect to repurchase approximately $350 million of our shares outstanding this year, the high end of our prior target. While the current environment has made it challenging to provide near-term guidance with strong conviction, we remain confident in our long-term trajectory on our path to 20,000 closings by 2028. The path will not be a straight line as we navigate the market with 2025 now expected to represent a speed bump on our path there. However, we believe our disciplined underwriting and attractive product position is strongly supported by business capable of generating low to mid 20% from closing gross margins and high team returns on equity over time. Looking further out, we continue to believe the market overall remains undersupplied and demographic supportive of the strong need for new construction. As you heard at our investor day in March, we have transformed and solidified Taylor Morrison's operational capabilities through strategic rationalization and optimization of our products, community footprint, and customer segmentation. By leveraging digital sales tool and personalized finance incentives, We are driving efficiencies throughout our business from lead generation, sales conversion, and revenue opportunities. Backed by our industry-leading innovation and customer experience, we are confident that we are well positioned for outside growth in the years ahead. In aspiring to reach 20,000 closings, we will prioritize bottom-line earnings and returns for our shareholders while always maintaining the health of our balance sheet. We are not interested in growth for growth's sake. As our strategy has proven over the last decade plus, we seek to maximize long-term return potential by thoughtfully balancing both pace and price through a uniquely diversified portfolio that is well-positioned to withstand housing cyclicality. With that, let me now turn the call to Eric.