Taylor Morrison Home Corporation

Ladies and gentlemen, the Taylor Morrison Q3 2025 earnings webcast and conference call will begin shortly with your host, Mackenzie Aaron. We appreciate your patience as we prepare your session today. During the call, we encourage participants to raise any questions they may have. You can raise a question by pressing star followed by one on your telephone keypad. So leave yourself a line of questioning, star followed by two. As a reminder to raise a question, star followed by one. We will begin shortly. Good morning and welcome to Taylor Morrison's Third Quarter 2025 Earnings Conference Call. Currently, all participants are in listen-only mode. Later, we'll conduct a question and answer session and instructions will be given at the time. As a reminder, this conference call is being recorded. I'd now like to introduce Mackenzie Aaron, your host, Vice President of Investor Relations. Please go ahead.

Mackenzie Aaron 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 Hefte, our Chief Financial Officer, and Eric Kueser, our Chief Corporate Operations Officer. We are pleased to report strong third quarter results despite the continuation of challenging market conditions. Driven by our diversified portfolio and our team's careful calibration of pricing and pace across our well-located communities, we once again met or exceeded our guidance on all key metrics including home closings volume, price, and gross margin. The ongoing execution of our balanced operating strategy has allowed us to maintain healthy performance even as we have adjusted pricing and incentives, particularly in entry-level price points. Combined with a thoughtful approach to land-lighter financing tools and effective cost management, our business is generating strong bottom line earnings, cash flow, and returns for our shareholders. With approximately 70% of our portfolio serving move up and resort lifestyle home buyers, our financial performance is supported by the strength of our broad consumer set. However, even though these generally well qualified buyer groups are less sensitive to affordability constraints, All consumer segments have been impacted by macroeconomic and political uncertainty, which has weighed on buyer urgency and shopper sentiment. In addition, consumers are aware of the current competitive dynamics in the marketplace and are carefully weighing available incentives, pricing, and spec offerings in their purchase decisions. Appreciating these dynamics, we are focused on deploying innovative and compelling incentives and pricing offers to support buyer confidence and improve affordability, leaning into the appeal of our well-designed spec and to-be-built home offerings to meet consumer preferences and carefully managing new starts as we continue to right-size inventory and prepare for next year's spring selling season. Given our quality land locations, the majority of which are in prime core sub-markets, Our sales strategies are driven community by community based on their unique selling proposition, competitive analysis, and consumer profile. In all communities, we strive to price to market to remain competitive and offer our home buyers the greatest value. In some communities, this results in a price-focused approach to drive volume, especially where we serve predominantly first-time buyers. and differentiation is more challenging given market competitive pressures. However, in move up and resort lifestyle communities, we are inclined to be more patient to protect values given our distinct locations and product offerings in hard to replace communities. We are able to execute this balanced approach in part because we have a well structured land bank that provides a flexible and capital efficient lot supply. As I said last quarter, while the near-term outlook calls for a more patient trajectory, we strongly believe that we have the platform to jumpstart outsized growth as market dynamics stabilize. In the meantime, we are doubling down on opportunities for cost management with our suppliers, value engineering with our product offerings, and overhead efficiencies in our back office. These efforts help drive year-over-year improvement in our direct construction costs and 80 basis points of SG&A leverage. We are also continuing to expand our industry-leading tech-enabled sales tools, which are contributing to growing cost efficiencies as well as an improved customer experience. I'm pleased to share that we recently launched an industry-first AI-powered digital assistant across select markets on taylormorrison.com. Unlike traditional chatbots seen in our industry that rely on scripted responses forcing home shoppers through a predetermined path, our new digital assistant leverages generative AI to provide dynamic, data-driven guidance that better mirrors an in-person sales interaction. Our digital assistant guides consumers through their discovery journey, provides them detailed answers to each shopper's unique questions, and helps convert interest into action. supporting lead generation and customer acquisition. This technology marks a meaningful advancement in how we engage prospective buyers online, and it's another step in our ongoing digital innovation strategy as today's consumers increasingly seek intuitive, personalized shopping experiences. As to recent demand trends, we were encouraged to see monthly net absorption paces improve each month during the quarter, with September pacing at the strongest level since May, in contrast to typical seasonal slowing into the end of the summer as the improvement in mortgage interest rates helps for activity. In total, our monthly absorption pace was 2.4 per community for the quarter and has averaged 2.7 year-to-date. slightly below our long-term target as demand has remained somewhat choppy. However, there are positive signs that potential buyers are cautiously engaged in the market. For one, our latest national home buying webinar, a free educational opportunity, we offer home shoppers to equip them with the knowledge needed for a successful home buying journey attracted over 400 attendees. That's 155% increase from our last webinar. In addition, total website traffic is at double digits and mortgage pre-qualification volume is trending similarly to year ago levels. I continue to believe that for our generally well qualified diverse customer base, improved confidence in the broader economic and political outlook will be the most important determinant of demand stabilization. especially for discretionary home purchase decisions in our move-up and resort lifestyle communities. Among the many headlines impacting confidence, uncertainty related to H-1B policy and broader immigration-related changes have weighed on non-resident buyer activity with Dallas, Austin, Atlanta, and the Bay Area feeling the greatest impacts. From a consumer standpoint, the mix of our orders by buyer group stayed relatively consistent sequentially in the third quarter at 30% entry level, 51% move up, and 19% resort lifestyle. On a year-over-year basis, our first and second move up sales held in most strongly, while our entry level segment pulled back, as did our resort lifestyle segment, due to performance in our non-esplanade communities. Going a step further, specific to our premier Esplanade segment, which accounts for just over 10% of our portfolio orders, we're flattish year over year, benefiting from a handful of new community openings. Given the brand's affluent customer base, this segment of our portfolio is relatively insulated from interest rate concerns and instead more reliant on consumer confidence. Positively, we did see improved shopper engagement in Esplanade during the quarter, with many consumers exploring multiple communities across markets with a willingness to travel to find their preferred combination of lifestyle, location, and price. With a healthy pipeline of new Esplanade communities scheduled to open in 2026, we remain encouraged by the strength of this consumer group and the opportunity to capitalize on this brand's unique lifestyle offerings in the years ahead. As we look ahead to 2026, it's still too early to provide guidance, but there are a few strategic priorities I would emphasize as we contemplate next year's opportunities against ongoing uncertainties. To begin, we have well over 100 communities expected to open next year, resulting in mid-to-high single-digit anticipated outlet growth. Many of these communities are slated to open in time for the spring selling season, which should help support our sales pace and delivery goals next year. We also have realized significant cycle time savings as Kurt will detail, providing improved flexibility to start and close homes within the year, including build-to-order homes. While we hope to begin gradually shifting our deliveries closer to a more balanced mix of to-be-built and spec homes over time from our current mix of roughly 70% spec and 30% to-be-built sales, this normalization will take time and be dependent on customer demand. For now, specs will continue to bridge the gap between current buyer preferences for incentivized quick move in inventory and an eventual return to more historic preferences for personalizing to-be-built homes, especially in our move-up and resort lifestyle communities, which have long been heavily weighted to to-be-built sales. Recognizing this unique environment, we are fortunate to have experienced teams across our divisions with the expertise to respond to local market conditions effectively to best serve our home buyers. With that, let me now turn the call over to Eric.

Thanks Cheryl and good morning. At quarter end we owned or controlled 84,564 home building lots. Of these, just under 12,000 lots were finished. The balance are being and will be value enhanced by normal course entitlement and development efforts over time. Based on trailing 12 month closings, this represented 6.4 years of total supply, of which 2.6 years was owned. The majority of our lots are in prime locations in core submarkets where we believe long-term fundamentals are healthiest. This core location strategy has helped to partially insulate us from the elevated level of new and existing home inventory in some markets. We control 60% of our lot supply via options and off-balance sheet structures. This is up from 57% at the end of 2024 and is considerably higher than the year-end low watermark of 23% in 2019 as we have made significant progress in our asset lighter strategy. Importantly, we have done so by prioritizing seller financing, joint ventures, and other option takedown structures, complemented by land banking at rates not historically seen. By utilizing each of these vehicles, we look to optimize the trade-off between gross margin and expected returns. As we continue to strategically deploy these tools we believe we are well on our way of achieving our goal of controlling at least 65% of our lots. With respect to the land market, we have seen some development cost relief and favorable adjustment in land sellers expectations regarding land structures and values. This has translated into an increased receptiveness on the part of land sellers to structure deals with terms, our preferred financing route, or in a growing share of deals to also adjust pricing. In the third quarter, Our investment committee reviewed land acquisition updates that contemplated favorable transaction enhancements impacting nearly 3,400 lots and more than $500 million of purchase price. These enhancements resulted in an 8% average price reduction, six-month average closing deferral, and other structural improvements. These negotiations related to current deal flow as well as deals that were originally approved as far back as the fourth quarter of 2023. Partially as a result, we have invested $1.6 billion in home building land year to date as compared to $1.8 billion at this time last year. We regularly review and evaluate our deal pipeline to test underwriting assumptions and ensure each new deal and additional phase meet our thresholds prior to closing. With the flexibility to be patient, given our existing lot supply, we now expect to invest approximately $2.3 billion this year. down from our prior expectation of approximately $2.4 billion and our initial projection of $2.6 billion coming into the year. Especially in volatile markets, our investment discipline is critically important to ensuring our portfolio is set up to perform for the long term. Turning to our bill-to-rent platform, we previously announced that we had entered into a $3 billion financing facility with Kennedy Lewis to support our Yardley business. which, as a reminder, provides an attractive and affordable single-family living experience in amenitized rental communities. During the third quarter, we transferred 14 of our 22 non-JV projects from our balance sheet into the vehicle, providing capital relief of approximately $140 million. We expect to complete the transfer of a handful of additional projects by year end, which would release another approximately $50 million. In total, these transfers address over $1 billion of funded project costs. Even more meaningfully, on a go-forward basis, the structure allows us to jointly underwrite new yardly opportunities, which can then be acquired, developed, and constructed fully off-balance sheet within the vehicle, providing significant capital efficiency and optionality as we continue to scale this unique business and optimize disposition strategies. Consistent with this optionality, We now expect to sell two projects by year end as we have taken a more patient approach given recent market conditions. Now I will turn the call to Kurt.

Thanks, Eric, and good morning, everyone. Turning to the details of our financial results for the third quarter, we reported net income of $201 million, or $2.01 per diluted share. This included inventory impairments, pre-acquisition abandonments, and warranty adjustments. Excluding these items, our adjusted net income was $211 million, or $2.11 per diluted share. During the quarter, we delivered 3,324 homes, which slightly exceeded the high end of our guidance range of 3,200 to 3,300 homes due to faster cycle times. The average closing price of these homes was $602,000, also slightly ahead of our guidance of approximately $600,000 due to a favorable mix. In total, this generated home closings revenue of $2 billion. We are closely managing our starts volume based on community-specific inventory levels and incremental sales. During the quarter, we started 1.9 homes per community, equating to 1,963 total starts. We ended the quarter with 6,831 homes under construction, including 3,313 specs, of which 1,221 were finished. Our total spec count was down approximately 15% from the second quarter. As we look ahead to 2026, we will be strategic in putting new spec starts into production in advance of the spring selling season. appreciating that our current spec inventory remains elevated and the demand environment is fluid. Positively, the ongoing improvement in cycle time has significantly strengthened our ability to flex production levels. In the third quarter, we realized another roughly 10 days of sequential savings, leaving us about 30 days faster than a year ago and 90 days faster than two years ago. Even still, We believe there's further room for improvement as we are continuing to find opportunities for additional efficiencies throughout the construction schedule, aided by the slowdown in industry-wide starts. Based on our current inventory position, we expect to deliver between 3,100 to 3,300 homes in the fourth quarter. This implies an updated full-year home delivery target of 12,800 to 13,000 homes. reflecting our current backlog and recent sales paces. We expect the average closing price of our fourth quarter deliveries to be approximately $590,000, which would leave our full year closing price at the low end of our prior range of $595,000. Our reported home closing gross margin was 22.1%. While our adjusted home closing gross margin, which excludes inventory impairment and certain warranty charges, was 22.4%. This was slightly ahead of our guidance of approximately 22%. The upside was due in part to a favorable mix of higher margin to be built home closings, which benefited from faster cycle times. Conversely, for the fourth quarter, we expect a modest mix headwind from a higher penetration of spec home closings. With spec homes accounting for 72% of third quarter sales, but 61% of closings, we expect our spec closing penetration to increase in the near term. As a result, we expect our home closings gross margin, excluding any charges, to be approximately 21.5% in the fourth quarter. This would imply a full year home closing gross margin of approximately 22.5% on a reported basis and roughly 23% on an adjusted basis consistent with our prior expectations. Now to sales. Net orders in the third quarter totaled 2,468 homes, which was down just under 13% year over year. This was driven by moderation in our monthly absorption pace to 2.4 homes per community from 2.8 a year ago, partially offset by a 3% increase in our ending community count to 349 outlets. Cancellations equaled 10.1% of our beginning backlog and 15.4% of gross orders. While cancellation activity has increased due to change in consumer sentiment, We believe our cancellation rates remain below industry averages, driven by our emphasis on pre-qualifications, $45,000 average customer deposits, and the overall financial strength of our buyers. Looking ahead, we now expect our outlet count to be approximately 345 at year end, slightly below our prior guidance as we have intentionally delayed some openings into the new year when anticipated selling conditions are stronger. As Cheryl said, we have well over 100 communities expected to open next year, resulting in mid to high single digit anticipated outlet growth in 2026. We once again realized strong expense leverage as our SG&A ratio improved 80 basis points year over year to 9% of home closings revenue. This improvement was driven primarily by lower payroll-related costs and commission expense. For the year, we continue to expect our SG&A ratio to be in the mid-9% range. Our financial services team maintained a strong capture rate of 88% during the quarter, which drove financial services revenue of $56 million with a gross margin of 52.5%. This was up from $50 million and 45%, respectively, a year ago. Among buyers using Taylor Morrison home funding, credit metrics remained healthy and consistent with recent trends, with an average credit score of 750, down payment of 22%, and household income of $179,000. Before turning to our balance sheet, I wanted to highlight that during the quarter, We incurred net interest expense of $13 million, up from $3 million a year ago driven primarily by our land banking vehicles. We expect to incur a similar amount of net interest expense in the fourth quarter. Now onto our balance sheet. We ended the quarter with strong liquidity of approximately $1.3 billion. This included $371 million of unrestricted cash and $955 million of available capacity on our revolving credit facility. At quarter end, our net home building debt to capitalization ratio was 21.3%, down from 22.5% a year ago. During the quarter, we repurchased 1.3 million shares of our common stock outstanding for $75 million. Year to date, we have repurchased a total of 5.3 million shares for approximately $310 million, representing approximately 5% of our outstanding share count at the beginning of the year. As a result, we are well on track to achieve our full year repurchase target of at least $350 million as we remain focused on returning excess capital to shareholders and taking advantage of the attractive valuation of our equity. At quarter end, Our remaining repurchase authorization was $600 million. Inclusive of our repurchase target, we expect our diluted shares outstanding to average approximately $101 million for the full year, including approximately $99 million in the fourth quarter. Now, I will turn the call back over to Cheryl.

Thank you, Curt. I'd like to end by acknowledging the administration's recent focus on addressing the country's critical need to help make housing more affordable. At Taylor Morrison, we welcome the opportunity to work collaboratively towards expanding homeownership and improving accessibility. We have long strived to build strong communities and deliver affordable, desirable housing options that serve the needs of our customers with both for sale and for rent offerings. We applaud the administration's commitment to improving the cost and availability of housing and look forward to contributing towards meaningful solutions. I also want to end by thanking our entire team for once again delivering results we are proud to share. Your commitment to our customers, communities, and each other is second to none, and I am confident we will continue to navigate this market successfully. Thank you to everyone who joined us today, and let's now open the call to your questions. Operator, please provide our participants with instructions.

Of course. Thank you very much. We now open the lines for the Q&A. If you'd like to ask a question, please signal now by pressing the star followed by 1 on your telephone keypad. And if you'd like to remove yourself from the questioning, it will be star followed by 2. As a reminder to raise a question, it will be star followed by 1. Our first question comes from Trevor Allenson from Wolf Research. Trevor, your line is now open.

Hi. Good morning. Thank you for taking my questions. I wanted to start with your views on the potential action from Hi, good morning, from the administration to encourage volumes. And Cheryl, I appreciate your comments and the prepared remarks. Have you guys had conversations directly with the administration on the topic? And if so, can you talk about specifically what they're looking from you as a home builder? And do these conversations change your views at all on your approach to volume versus pace in the current environment?

Well, thanks, Trevor. Appreciate the question. You know, as has been reported, there's a number of meetings that have been held And honestly, I believe it's great for the industry that we're having these very productive conversations with the administration. The discussions are really about how we can overcome the housing shortages in this country. And most critically, how do we make housing more affordable? You know, we do have some excess inventory in the system. Everyone knows today that builders are working through and we need to be very thoughtful of the how that happens. But I think we can all agree that we have an affordability issue and it didn't happen overnight. And it's going to require tremendous collaboration by a number of stakeholders to solve. It's a very complicated issue, you know, but the good news is it's getting tremendous focus by a lot of smart people. We need to tackle, you know, rising land costs, local regulations, the list just goes on and on. What I would tell you is we're in the early days. So more to come, but rest assured that Taylor Morrison and all the big builders want to be part of the solution on providing the right housing for Americans. And I'm quite confident, given the meetings we've had, that we'll see opportunities and progress. I'd also point you to the LDA statement that went out a couple weeks ago. I think it did a really nice job representing the position of all the big builders. And as far as your second part of that question, You know, we're going to continue to do the right thing, community by community, asset by asset. You know, as we've talked about for years, Trevor, we don't make that decision globally. We really look at the balance of price and pace and consumer group in every community, and we'll continue to do that. It's not going to be helpful to flood the market with inventory that can't be absorbed, so we just need to be very conscious of, you know, the dynamics in each sub-market.

Thanks for that, Cheryl. It makes a lot of sense. I think that's a very logical approach. And then second, on recent demand trends, you talked about demand improving sequentially throughout the quarter, which is very encouraging. Are you seeing a difference by consumer segments? Just thinking as rates came down, did you see entry-level traffic become more, entry-level consumers become more engaged, or is it more broad across consumer segments? And then any color on if those improved trends continued into October? Thanks.

Yeah, great question. You know, I would tell you it's been pretty broad-based, Trevor, and I share just like, you know, prior discussions that it almost comes down to, once again, community by community. You know, for example, entry level, absolutely, we've seen traffic pick up, but we know we have, you know, affordability issues we're trying to solve for when we look at our move up and our resort lifestyle business, you know, there continues to be increases in traffic, increases in web traffic, foot traffic, and actually I'm quite encouraged, you know, specifically with the resort lifestyle as we move into the shoulder season, that's going to continue. That consumer group is, you know, more sophisticated. They know what's going on in the market. So the opportunity is to convert them from traffic to action. And we have a lot of tools, if it's anything from everything from our incentives, our mortgage programs to our new AI tool to help consumers get from start to finish.

Thank you for all the color and good luck moving forward.

Thank you. I appreciate the questions.

Thank you very much. Our next question. It comes from Mike Dahl from RBC. Mike, the line's not open.

Hi, great. Thanks for taking my questions. Cheryl, as part of the sequential trends, I was hoping you could elaborate on incentives. You talked in your remarks in the press release about kind of innovative and compelling. I mean, obviously, rate buy-downs have been out there. years now. So, you know, what are you doing that's different? Is this kind of roller teaser race? Is it arms? Like, what do you think you're doing that may be playing a role in helping to drive that customer off the sidelines?

Yeah, I would tell you, honestly, Mike, it's all of the above. As you know, we continue to use You know, both on the conventional and the FHA loans, we're using buy downs, we're using adjustable loans. We also have proprietary loans for our inventory that's, you know, just gotten in the ground or specifically our to be built, really trying to stimulate that business. We have recently just introduced a new proprietary nine month program for our to be built. And I think most of those are done with Fannie and Freddie through the window. We've got a slightly different program. And it really gives our customers flexibility on a forward lock, but the security of a longer period of time if they believe rates are going to drop. Obviously, in most of these programs, we also have the ability for a pre-float down. You know, I think for us, Mike, it's really about making sure we personalize each customer's experience. Some of them need help with closing costs. Some of them, you know, don't know how, you know, aren't expecting to be in the house a long time. An adjustable program seems most helpful. Some need the confidence of a 30-year lower fixed rate. So it's really making sure we understand the customer needs, and we just have a plethora of programs to provide.

Okay, got it. That's helpful. And then, Cheryl, I know it's early to give 26th commentary. You did highlight a couple of things around community account growth, specs maybe being abridged to help you a little bit in the near term. I think some of that probably alludes to the fact that your backlog is down nearly 40% in dollar terms year-on-year and probably ends the year somewhat similarly. So the The obvious question we get from investors is if you have a traditional kind of build to order builder go into the next year with backlog down that much, how can you possibly drive to even flat revenues or do you have a significant gap out? So maybe can you Can you just talk to how you're viewing that as you go into the spring? It sounds like maybe you're a little more willing to put some specs in the ground where others are pulling back a little, but just give a little more detail on how we should all be thinking about that positioning.

Yeah, I think you have to hit it from a number of angles. First of all, I think we've been very clear that we're going to do look at each community and make sure we understand the right need and put the right number of specs in the ground. Our specs, as I said, I think both Curt and I said in our prepared remarks, are a little higher. We pulled back a little bit in the third quarter to see what happened to sales paces. We have the fourth quarter, given the reduction in construction cycle, it gives us much more time. And I think back to a year ago where we probably had to have houses in the ground by January and February and probably no later than March, depending on the community or market. Today that can go until next July or August. So you've fundamentally picked up at least another quarter of production cycle next year. You combine that with our ability to add new to be built well into next year and the community count growth. And then we're going to really seek to understand the market. And we have the platform. to ramp up starch if the market is there for it. But as I've said, we're not going to force inventory in the ground. In some communities, we find that pricing has been inelastic. And so we really have to make that decision community by community and balance profitability along with volume.

OK, thank you.

Thank you.

Thank you very much. As a reminder, if you'd like to raise a question, please go now by pressing star followed by 1 on your telephone keypad. Our next question comes from Michael Rehart from JPMorgan. Michael, your line's not open.

Great. Thanks very much. Good morning, everyone, and congrats on the results. Thank you. Wanted to first drill down on, you know, how you're thinking about, you kind of, talking specifically about spec inventory, sorry. you know, kind of saying early that it remains elevated. I think that's kind of one of the key reasons why you're looking for a little bit of a dip down sequentially in 42 gross margins. Uh, I'm trying to get my arms around how you're thinking about this going into the first half of next year. If you would expect, you know, this kind of drag or headwind to remain in place or even accelerate, um, And, you know, if you're kind of working through excess spec inventory, let's say at the current fourth quarter pace, when might, you know, assuming the market trends, you know, follow normal seasonality, when might that overhang dissipate?

Yeah, I think similar to what I said to Mike Dahl, I think it's a balancing act, Mike. I mean... Obviously, it's our intention to work through the inventory, and then we obviously have a lot of new communities that will be bringing new inventory to the marketplace, and we'll be monitoring it month by month as we look at our fourth quarter starts. You know, we've always said we're going to align sales pretty close to starts. You saw us pull back a little bit on that in the fourth quarter because the inventory was... Third quarter. Excuse me, in the third quarter. Thank you. going into the fourth quarter. And so we're going to play that by ear, but we're in a position, if it's permits on the shelf, ready to respond to the demand in the marketplace. But like I said, we're not going to flood the market with inventory, so we're really going to pace it based on sales and opportunity.

Okay. I appreciate that. And I guess just looking at your different regions, You know, you talked about September being a little bit better from within the quarter and perhaps that's continued into October. From a regional standpoint, I'm curious if you've seen the strength more concentrated in any areas and, you know, specifically maybe kind of go around the world in terms of, you know, which markets remain on the margin stronger than average, weaker than average. We heard comments yesterday that maybe Florida is showing a little bit of signs of stabilization. So love your thoughts on that as well.

I'd certainly be happy to. Yeah, you know, I would agree with the comments on Florida, Mike. You know, we continue to be very bullish around Florida. You know, I think Florida was the last to really adjust if we think about the last few years. But the good news is given how late it was to the adjustment party, you know, we're already seeing green shoots on inventory, sales activity. When I look at our sales, half of our Florida markets were up year over year. In fact, Orlando had the highest paces in the country. Closings for the quarter were up almost across the board in all of our Florida markets. And half the markets saw improvement in their margin in the quarter year over year. You know, heading in the shoulder season, like I said, I stay optimistic that we'll have a good season for the resort lifestyle business. We're also seeing a decent reduction in both new and resale inventory. And once again, I'm delighted to see that. You know, if I go to Texas, and you see it in the numbers, Mike, you know, it was a tougher quarter from a volume standpoint. Inventories have been elevated in Texas. If I kind of run around the state, you know, often they've been at this for it feels like darn close to three years. So it does feel like we're starting to see the bottom, which I would say is encouraging. Months of supply have come down. And it feels like it's holding pretty steady. You know, we'll go a couple more months and see if that's true. But when we look at, like, under production QMIs in the market, they've settled to more reasonable levels. Margin recovery, you know, we've seen them up a little bit quarter over quarter. And the land market, I would tell you, continues to be tough. The teams have been very diligent in their assumptions not to get ahead of themselves until we really find final pricing in the market. But the good news is we have a very strong portfolio of quality assets, and that will continue to carry the day. You know, Dallas, I think it's slowed down a bit, a little bit more. The lowest price points in Dallas are hypercompetitive. And most builders, it appears, have subscribed to, I would say, more of an inventory strategy. Resales have remained generally stable, maybe up a bit. Once again, I tell you, our balanced portfolio gives us some great opportunities because it's a high-growth market for us as we look forward. Great land pipeline, margins are still strong. Probably the thing I'd point to in Dallas, and I think I said it in my prepared remarks, say that three times, prepared remarks, Mike, is the H-2-1 buyers. We've seen that both in the demand and from a cancellation standpoint. And then if I wrap up with Houston there, the first time buyers, it's competitive, very competitive for them. The good news is there's lots of them. It actually has one of our highest paces in the quarter in the country. Our core communities continue to do well. But you have to put it on a relative basis. Paces are down from the peak levels, certainly in Texas, more than we've seen across the board. But I think our locations doing well, the ones in the core are doing better. Qualifications, qualification seems to be the biggest issue for our first time buyers there. And we're having to use both rate incentives, buy downs, really every tool we have in our toolbox to assist these buyers get to a payment that they can afford. I'd probably describe it as competitive but steady, but like I said, pulled back from our peak levels. Carolina is broadly doing really good. You can really start to see the difference between core and some of the fringe markets, and our core assets are really performing nicely. If I move to California, you know, we've been discussing for a while on the capital front, we've really, you know, tightened up our investment. The communities we have in SoCal are doing well. We have pulled back the investment a little bit. You know, once again, SoCal's above the company average, or even though it's pulled back from its peaks, their absorptions are above the company average. If I go to the Bay, I would say TAC has had an impact on both probably Bay and Seattle. And if I go to SAC and the Roundout California, You know, I'd say they're holding steady. They're getting more than their fair share in the marketplace. When I look at our resort lifestyle business there, we have one that's approaching closeout, one that's in the new stage, in the newer stages of opening without the amenity. So those are kind of balancing each other out. I'd say Sacramento overall, stable, consistent community count, paces year over year. And then maybe I'll wrap up with Phoenix. I think that market probably provides the most diverse offering across all consumer groups for us. It's a balanced market with our to be built and inventory offering. We've seen good improvement on cycle time. We definitely with our move up buyers here have a more discerning buyer, but we have the options to meet their needs. Paces have been constant sequentially. Once again, I'd say this is a market that's kind of punching about their weight, strong margins for us, modest incentives compared to the rest of the country. You know, and the land market's a little bit mixed. We're seeing some wonderful opportunities. We're very deal-specific. We've been able to renegotiate terms and price. We've seen, you know, just coming out of an auction, a state auction that was pretty frothy, so a little bit of everything in the marketplace. You know, I just wrapped. with just a macro that I know there's been a lot of discussion on California, I mean, excuse me, Florida and Texas. But when you look at migration patterns, they're still leading the country. They continue to be very important markets for the industry. Consumers still have strong equity in their homes. Income networks are growing. So I'd say, you know, the green shoots are starting, but Eric, I'm sure I missed a lot. Anything you can think of?

You covered it. Long-term, you know, excited about the population gains and net move-ins that we've seen in those markets over time. And specifically, as you think about month of supply and price in the resale market, which are two key indicators we've watched carefully, you know, seeing some real stabilization, a few examples maybe. Sarasota and Tampa, by way of example, where months of supply are actually down and pricing has stabilized, so no real movement there. Houston's been interesting in that the months of supply are down about 4% on a moving average and stable pricing. And so some real examples of some stabilization. Of course, we'll continue to watch seasonality and evolution. And on the new inventory side, this cycle is a little different than all others. There is always a little bit of seasonality. But we continue to monitor the core versus non-core benefits that we think we have.

There's a really big difference in performance. Right. Yeah.

Great. Thank you very much.

Thank you.

Thank you very much. Our next question comes from Matthew Burley from Barclays. Matthew, your line is not open.

Good morning, everyone. Thank you for taking the questions. So I wanted to ask on the, I guess the over 100 new communities to come next year. I'm curious, any detail on how that may break out either from a regional or product perspective? And specifically, I'm curious on your Esplanade expansion. I think you said it's still hanging around kind of 10% of sales today. I know you guys had some, you've got some ambitious goals of expanding that product. Should we expect to see any movement on that mix of Esplanade next year as well with all those openings? Thank you.

You know, we really leaned in, Matt, talking about 26, so we're not going to go too far, but I will give you a tidbit. I'll give you, in Esplanade specifically, we have three new Esplanades opening in the first quarter, along with amenity centers, nine holes of golf in one of our communities, So very exciting when I look at next year and just across the Esplanade portfolio with the amenities that are opening along with new communities, I think we're excited, very consistent with what we discussed at our investor day. But I think before we get into more detail, I think you want to add to that? We really want to wait until next quarter.

Yeah, I think we'll wait, Matt, until we kind of wrap up the year. But as you can imagine, I think the outlet growth will be pretty broad-based kind of throughout the country. So I think we'll leave it at that for now, and we can handle that more when we wrap up the year.

Okay, got it. I appreciate that. Secondly, just SG&A, look like a lot of leverage there despite sort of flattish home building revenue year over year. Can you speak a little more around what you're doing to control costs here? Was there anything one time in that pre-Q result, or should we think you've kind of found a new run rate level here in Q3 that we can kind of use to model out the next year on SG&A? Thank you.

Yeah, Matt, thanks for the question. SG&A, yeah, that's a focus of ours. ideally it's part of the culture. The teams are focused on it. We're constantly looking at kind of our throughput kind of results that we get on various metrics. In the quarter specifically, we benefited from some lower kind of payroll related costs and lower commission costs as well. And as we said in our prepared comments, you know, we're tracking to be in that mid 9% range for the year. T. All in all, I'm very happy with where we're at from an SG&A perspective. The teams are focused on it. T. And we're doing a lot of good things from a cost control perspective. And I should also highlight the fact that from a back office standpoint, T. we're continually trying to find ways to improve kind of how we're operating, whether it's, you know, our shared contract kind of program that we have where we're centralizing all of our contracts and We're moving the needle on that as well on some of the other aspects of the business.

The other one I'd point to, I think our contracts department that we've had in place for a year now, where all the contracts are centralized, I think that's a good one. I think the other one I'd point to, Kurt, is what we're seeing in the reservation system. Even just in September, we saw about an 800 basis point reduction from our overall business to those that came in reservation and co-broke. So if we can keep that up, generally month to month we've been seeing 400 or 500 on average. 800 September was a peak for us. But obviously the more we get through our reservation system with that reduction, that will continue to show the leverage in the SG&A.

Got it. Super helpful. Thank you, Cheryl and Kurt. Good luck, guys.

Thank you.

Thank you very much. Excuse me. As a reminder, if you'd like to raise a question, please signal now by pressing star followed by one on your telephone keypad. Our next question comes from Alan Ratner from Zambian Associates. Alan, your line is now open.

Hey, guys. Good morning. Thanks for all the detail so far and nice quarter. I guess just first on the SG&A, just since that was the last topic there, you know, you I'm just trying to back into what the implied guide for 4Q is and to get to mid-nines for the year. I think it does imply that that rate does tick up a bit sequentially on a fairly similar revenue base. So is that just some conservatism around that 800 basis point reduction in the broker side that you just mentioned, Cheryl, or is there some other thing that I should be aware of on that?

Yeah. Hi, Alan. I think it's a couple things. A, yeah, we are seeing a potential influx of commission costs for Q4 as what we're seeing from some of the competitors in the marketplace and what everyone's doing to drive maybe their closings for the year.

With brokers, right?

With brokers. And then what I would also say is that based on our guide of the midpoint of our range of 3,200 units, But our average sales price at 590, we are losing a little bit of leverage just because of the top line is going to be a little bit less than it was in Q3.

Got it. Okay. Understood. Thanks for that, Kurt. Second question, and I apologize, I missed some of these numbers, but I thought the detail that Eric gave surrounding some of the successes you've had on land renegotiation was really encouraging to hear. So I was hoping, you know, first, can you just repeat that? And second off, you know, on the deals where you were actually able to get lower pricing, can you quantify, like, what maybe the margin impact is on those particular projects and just the general timing of when, you know, we should expect to see that benefit beginning to flow through?

Hi, Alan. Yeah, great question. Appreciate it. It was about 3,400 lots in the quarter that rolled through our investment committee that were renegotiated. And that renegotiated, a renegotiation took the form of deferrals. So those on average were about six months. But a relatively surprising level were actually on price. And it was basically an 8% decrease in the original purchase price on deals that were rolling back through the investment committee that had been negotiated from fourth quarter 23 through relatively current. Um, so, you know, as you think about navigating this particular cycle, it's been interesting to me in participating in it, um, that this one's been relatively quick, um, in terms of seller receptiveness for the call. Um, but also, you know, our proactiveness and making sure that we're playing offense and communicating clearly, um, and we've seen success. And so maybe to your question relative to what should we expect? You know, as we review deals that we have an original expectation in terms of gross margin and return production, we want to make sure that we're holding those. And sometimes that does require an adjustment. And so I wouldn't say that's a result in significant upside, but we are maintaining our original expectations in most cases. And then in terms of timing, those are going to roll through, you know, over time. So, again, relatively early. current on deals that we'll be closing on in the next few months developing. And so it's going to take some time for that to roll through the system. The last thing I would say, interestingly, as we're talking about the land environment, this one being a little bit different than past, is we have seen some interesting finished lot pickups. And so about 25% of the land rolling through our system most recently are actually finished lots. And those have been difficult to find over the last couple of years. And I think that's likely the case of some other builders may be walking from deals and our ability to renegotiate those in a way that makes sense for us. And as I alluded to, we're also seeing some development cost relief. So those would be a couple other upsides that we see.

And Eric, would you, just so we don't get over our ski tips, I mean, it's been interesting, right? Because to your point, we've had some tremendous renegotiation and we've had other guys that just won't move and we've been forced into a position to walk away.

Completely agree. The success cases I mentioned are the deferrals and the purchase price reductions and in some cases just some restructuring of the deal. But there are also instances where they just don't work and we're standing our ground and just having to walk from those. And so those you'll see roll through the system as well.

Hey Eric, can I squeeze in one more on that topic because I think it's really interesting. Have you seen any common thread on the deals that you have been able to renegotiate? Are you seeing more success with, say, land bankers or your more institutionalized land sellers and developers, or more success perhaps with the one-off mom-and-pop landowners, farmers, etc.? I'm just curious if there's a common thread on the deals that people are holding their guns versus the ones that seem to be a bit more willing to negotiate.

Yeah, it's really all categories, Alan. And so we start with the seller financing, asking, can you just carry this? And we need some more time on it. And so we've seen success there. The land banking appetite continues to be relatively strong. And so we use that in a surgical way where we can optimize our return by using land banking. But I would say the supply of the availability of land banking has been very high. And then lastly, with regard to just the price changes, you know, as I mentioned, of those 3,400 lots, about 75% of the lots actually resulted in some kind of price change. And so it's been really interesting as we think about the solutions, which are many.

Great. Thanks for all the detail, guys. I appreciate it. Thanks, Alan.

Thank you very much. Our next question comes from Raf Jaworski of Bank of America. Raf, your line is now open.

Hi. Good morning. It's Raf. Thanks for taking my question. I wanted to just ask, in terms of the incentive change, you comment sort of that entry level was where you're seeing the most pressure, but you're also seeing some hesitancy on the move up in resort lifestyle, can you sort of quantify where the margins are for each of the segments and then maybe how much the incentives have changed for each of them? Like how different is it across the different segments?

Yeah, I mean the incentives by consumer group, you know, I always hate averages because I think it doesn't tell the whole story. But certainly you would expect our most expensive incentives go with those forward commitments. And those are generally our first time buyers and we're having to help them get the rate as low as we can. So as to total dollars, the sales price is less. So the total dollars are a little less. But the percentage, you know, that's where once again I think our most expensive sits. You go all the way to the resort lifestyle buyer where that ASP is probably about $200,000 higher than our average. And those folks aren't generally as concerned about interest rates. And so those incentives work differently. We'll see a lot of support there on helping them with options. If you spend this, we'll give you that. Sometimes it's reduction in lot premiums. They're more sophisticated. They know what's happening in the market. They don't want to overpay, and if they can't get it in a mortgage incentive, they want it somewhere else. But I'd say, you know, generally, you know, we're using incentives across the board. It's just the how for each customer. But I wouldn't point to significant differences in range, except for the call out that our most expensive incentives tend to be with first timers. Kurt, is that?

I think generally speaking, you're in the ballpark. And, you know, Rafe, we don't really provide kind of margins based on kind of the segment overall, but I think you could probably imagine. I think what we have said in the past is that our resort lifestyles margins are typically the highest kind of in the portfolio. But to Cheryl's point, it comes down to kind of each buyer's specific situation and we apply and we try to align the incentive to maximize each buyer's situation.

Okay, that's helpful. And then you sort of mentioned that cycle times are still coming down. um how do we think about how much higher the backlog conversion can go and then how much opportunity do you have on the the cycle the um the cycle times from from from here how much more can can they come down yeah rave i would say that just from a cycle time perspective we're essentially at pre-covered levels for the most part we have a couple of markets that maybe still have a little bit of opportunity

to kind of run through the tape there. So we do feel like there's continued opportunity there overall for the entire business. Relative to the conversion kind of rate, I think we were at about 74, 75% in Q3. And based on our closing guide and where backlog is today, I think you can expect that that conversion rate will be higher in Q4. just based on kind of the sheer numbers of the numerator and the denominator there. So you can expect that to be higher probably in Q4 than it was in Q3.

Is that like a sustainable level going forward, or is that just because of the mix of spec relative to BTL?

Yeah, Rafe, it's more of a function of where specs are today. As you've heard Cheryl talk about, you know, we intend over time to be able to see an influx or to raise the level of 2B builds over time. It's a point in time kind of where we're at today. And then, as I said, we'll see what we can do on the to-be-built side of the business in the coming months and quarters.

But the next couple of quarters are going to likely be higher.

It's going to be a higher conversion for the next couple of quarters, yes.

Okay. That's helpful. Thank you.

Thank you.

Thank you very much. As a reminder, if you would like to raise a question, please signal now by pressing star followed by one on your telephone keypad. Our next question comes from Ken Zenner from Seaport Research Partners. Ken, your line's not open.

Good morning, everybody. Hi, Ken.

Good morning.

So a couple things here, just kind of housekeeping, but with incentives, if you were to think about the bucket, I think some of the builders have been describing to me like, you know, Half of the incentive is price reduction, and then the other half is kind of split equally between mortgage buy-downs and closings. Do you, within those three buckets, do you have a comment?

Yeah, I would tell you that, you know, it moves a little bit quarter to quarter, and it will be a little different if you're talking growth or net price or you're talking units. You know, somewhere around 45% of our incentives are specific to financial services. And a subset of that would be what we would call the most expensive forward commitment. And then the balance, the other 50%, is going to be a combination of all the other things we've talked about. You know, it could be options. It could be lot premiums. In some instances, we may have had to reset pricing to market. But it's a combination.

Just to be clear, when you say financial services, Cheryl, you're recording all that stuff in the home builder segment, net pricing. Is that correct, or is there stuff running through financial services, just to be clear?

No, it's running through the margin. Most of the financial services are running through the margin. I mean, actually, all of them. Some are running through ASP, and some are running through cost of goods.

Right, okay, just wanted to clarify. And then, you know, obviously with orders, you generally want to follow your starts, will generally follow your orders. I'm just wondering, you know, looking back, so 3Q starts were below orders, pull it down. Inventory units make sense. 2Q, it was higher, and the idea was there you wanted to build, right, to have spec. Which, you know, if, let's say spring is, softer than expected. Would you guys still be in the position where you want to keep that volume up? Um, relative to relative, you know, the start volume up relative to orders. And I'm thinking you did so much work on the fixed DNA, right? It's like down 20% comparable to your inventory units. I'm just trying to think about how you guys playbook works there. Um, or if you really just have starts, follow orders, wherever they go, you know, in, spring of next year?

Yeah, Ken, great question. You know, at this point in time, relative to next year, we're probably not going to get into specifics there. But what I can say is we're going to continue to probably, you know, we've adjusted our starts in Q3 relative to sales to kind of right-size our inventory position. And generally speaking, we're going to stay sticky from a start standpoint to sales. But then it's going to come down to a community by community kind of analysis and how each community is doing. And we'll fluctuate that as necessary based on, A, the community. Entry level is going to be more spec. Townhomes are going to be more spec. And then, of course, as we move our way up in the consumer segmentation profile, we'll look to kind of hopefully pursue more to-be-built business. But I think the market's going to tell us and lead us to that path down the road.

Okay, no, I appreciate that. I wasn't trying to get next year's guidance as much as kind of your thinking about when to start, you know, go above and below orders. Thank you very much for your time.

Thanks, Ken.

Thank you very much. Our next question comes from Jay McCandless from . Jay, your line's not open.

Hey, good morning, everyone. Wanted to ask, where is the spread now between spec closings and bill-to-order closings?

On a closing standpoint, we were 60-40, 60% spec or 61% spec and 39% to be built for the quarter.

Okay. Then what's the gross margin spread on that now?

Yeah. We continue to run in that several hundred kind of basis points. As you can imagine, Jay, Nothing new there. Within our esplanade communities, you know, with the high premiums and the high option revenue, we can see, you know, some of these differences get up to, you know, 1,000 basis points. But generally speaking, it's at several hundred basis points. And then we continue to track it.

Also, I believe, do you think it's fair, Kurt, even within our Esplanade, non-Esplanade resort lifestyle, we have a spread, right? Because our Esplanade tends to deliver the highest, and our non-Esplanade still age-targeted restricted is a little lower.

Okay, thanks. And then the second question I had, It's encouraging to hear that maybe land prices are breaking a little bit. But just as we think about when that can start to help the gross margin, is it going to be a back half of 26 event? And also, one of your competitors called out, it was a small number, I think it was like $1,500 per home tariff impact. Have you all tried to assess what impact the new tariffs might have on costs for next year?

I'll start with Land J. You know, from a timing standpoint, this is current updates to our underwriting, so you're probably practically not going to see it really roll through until 27 and beyond for most of that. And in some cases, I would tell you that we're just holding our original underwriting expectations in terms of retrading. T. And in some limited circumstances we are seeing some opportunistic deals well through, and those are the ones that you might see some you know future upside on but kind of a blend of the two. T. I would just and then with regard to terrorists i'll just make a brief comment on the land market and Kurt can take. T. The balance and and vertical but you know we are hearing from our teams that generally speaking on the land development release standpoint and there's not going to be a whole lot of specific terrorist impacts but. kind of the magnitude of 5% to 6% relief on cost on the development side.

Yeah, and Jay, on the house side, yeah, I think we subscribe to the thinking that it'll be a modest increase from a tariff standpoint. There's, you know, the cabinet stuff that came out, the vanities, the steel is out there. But again, I think what I would also add to that is We're doing a lot of things behind the scenes just from an operational kind of execution standpoint, working with our trade partners, our suppliers on what I'll call cost reduction strategies that the teams are doing a great job working through. Actually, I would also add that we've recently hired a new national of purchasing and construction that is helping us lead that charge. And that's one of its focal points as well. So all in all, I think we have a pretty good balanced approach. in dealing with the tariff potential increases through some of the other things that we're working on behind the scenes relative to our cost reduction strategy in light of some of the start activity that we're seeing.

Okay. That's great. That's all I had. Thank you.

Thanks, Jay.

Thank you very much. We currently have no further questions, so I'd like to hand back to Cheryl Palmer for any further remarks.

Thank you very much for joining us for our third quarter call, and wish you all a wonderful holiday season, and we'll look forward to talking to you early in the new year.

As we conclude today's call, we'd like to thank everyone for joining. You may disconnect your lines.