Welcome to Lennar's Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. Today's conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Alex Lumpkin for the reading of the forward-looking statement.

Thank you, and good morning. Today's conference call may include forward-looking statements, including statements regarding Lennar's business, financial condition, results of operations, cash flows, strategies and prospects. Forward-looking statements represent only Lennar's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Lennar's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in yesterday's press release and our SEC filings, including those under the caption Risk Factors contained in Lennar's annual report on Form 10-K most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements.

I would now like to introduce your host, Mr. Stuart Miller, Executive Chairman. Sir, you may begin.

Good morning, and thank you, everyone. So this morning, I'm here in Miami with Rick Beckwitt and Jon Jaffe, our Co-CEOs and Co-Presidents; Diane Bessette, our Chief Financial Officer; David Collins, our Controller and Vice President; Bruce Gross, CEO of Lennar Financial Services; and of course, Alex, who you just heard from. It's been a while since we've done an earnings call together, altogether, but we're all here and happy to be returning to normal. So, today's call is pretty straightforward, so we'll try to keep our remarks as brief as possible and leave time for your questions. I'm going to give a macro and strategic Lennar overview. Rick will talk about market strength, community count, and our growing single-family for rent strategy. And Jon will update our just-in-time land strategy, supply chain, production, and construction costs. As usual, Diane will give detailed financial information, highlights, and guidance, and then we'll attempt to answer as many questions as possible. Please limit questions to just one question per customer and one follow-up. So with that, let me start and I want to start my remarks today with a big shout-out to the entire Lennar operating team. There is simply no way to report our quarterly results without starting with the engine that produces those results. The market conditions have made these the best of times in the housing market. These times have their challenges as well. Performing in these best of times is hard grinding work that requires the coordination of a first-class, hands-on, and engaged management team working in close partnership with extraordinary associates who care deeply about our customers and our company and leave nothing on the field in achieving those results. I'd also like to give a heartfelt shout-out to one person, in particular, and that is our Chief Operating Officer, Fred Rothman. It is noteworthy that Fred is not with us here in the room today. This is because he's probably out in one of our divisions, listening with the management team there. He's connecting the dots between their performance and the performance of the company, and the articulated strategies of the company. Key is with the people. Recently, we had a Fortune magazine article written about the company. Fred wasn't pictured nor interviewed because he was busy out with the people that make things happen. In fact, Fred is the every person of Lennar, not pictured, not interviewed, no limelight, no fanfare, just heads down doing the work that makes this company great. Thank you, Fred. You make us proud. The associates of Lennar from homebuilding to financial services to LENx to the outer reaches of our ancillary business segments perform the impossible on a regular basis. They care for all of our core constituents, our customers, our shareholders, our building partners, and our community as well as caring for each other. The harmony and camaraderie at Lennar is in itself a real source of pride, and it drives us all to excellence in our business to innovation to stay at the cutting edge, to integrity in everything we do, to shared prosperity across our communities with our money and our time in coordination with our Lennar Foundation. I know I joined everyone in this room today in saying a big thank you to our associates and telling our shareholders, bondholders, analysts, and investors that we, here in this room, are proud to have the privilege to present their results to you today. Now, as I've already noted from a macro perspective, the housing market remains very strong as these are the best of times. Demand has continued to strengthen while the supply of new and existing homes has remained constrained. New home construction cannot ramp quickly enough to fill the void of the production deficit that has persisted over the past decade. And while some question whether that deficit is 1 million homes or 5.5 million homes, the bottom line is that supply is short. Land, labor, and supply chain are all limiting factors in the drive to meet current demand. So, supply is short and is likely to remain that way for some time to come. Even though home prices have moved much higher and interest rates have moved slightly higher, overall affordability remains strong. Interest rates are still lower than they were a year ago, and personal savings for deposits are strong. Wages seem to be rising faster than monthly payments. Millennials are moving out of their parents' homes and forming families. Apartment dwellers are finding a first-time home, and demand is strong and growing. Yesterday's first-time homes are selling at higher prices, and that equity is enabling first-time move-ups. Yesterday's move-up home is selling at a strong price and with increased equity enabling customers to consider and purchase a larger home. The upward spiral of a strong housing market is in full swing. Additionally, the iBuyer and single-family for rent participants are providing additional liquidity to the marketplace to purchase and sell homes as they evolve and provide ever more frictionless transactions. They are also solving important industry problems that have needed solutions for a very long time. The iBuyers, led by Opendoor, are becoming more than just a home sale option. They are an ever more effective and instrumental convenience provider as the coordination of the closing of a new home is being complicated by supply chain disruptions. Expected closing dates move and customer plans are disrupted. The fragile dance of selling an old home while closing on a new home becomes frustrated by these delays. Opendoor and other iBuyers have developed flexible programs that are designed to bridge that gap and simplify unpredictable delays. The iBuyer value proposition is more compelling than just a ready and convenient homebuyer. It is becoming the core of a coordinated closing without double moves or double housing costs. The convenience factor is becoming a real value proposition in and of itself. The single-family for rent participants are making a single-family home lifestyle accessible to more families, to working families. Although higher home prices have exacerbated the well-documented affordability crisis across the country, the solution is to build more homes and make a growing portion of that housing stock available for more families to rent if they can't meet the requirements for homeownership. This is simply a social equity program that enables better housing for more families and more diverse families without weakening the mortgage market. Professional ownership of homes enables renters to access a single-family lifestyle while they build the credentials to own, and while commercial and professional owners manage the risk profile. Better housing for families produces better outcomes for families, and the industry is rewiring to make better housing accessible and affordable to more families. Rick will cover this in more detail shortly. The housing market is not only very strong, but it is also going through some very interesting structural changes that will promote stability in the market and extend housing benefits to the breadth of a diverse society. The iBuyer space promotes liquidity, frictionless transactions and enables mobility, while professionally owned single-family for rent provides workforce housing with social equity and upward mobility that has never existed before. These changes will also act as circuit breakers for the cyclicality of the housing market in the future. But for now, the housing market is strong while it is evolving in some very constructive ways. In the context of a very strong overall market condition, Lennar's very strong second quarter results reflect a lot of hard work and a consistent and focused strategic plan. We remain focused on orderly targeted growth with our sales pace tightly matched with our pace of production. We have limited growth at the top line while in favor of an even greater growth at the bottom line. We focused on gross margin by selling in step with production while controlling costs and reducing our SG&A. We have built a just-in-time delivery system for land at the front end, and we have built a just-in-time delivery system for our finished homes at the back end with our single-family for rent program. We are focused on cash flow; debt reduction and stock buyback; land owned versus controlled; return on capital and return on equity; and of course, on innovative technologies. And we've carefully managed an already stressed supply chain by maintaining our delivery targets for the year rather than increasing them while we focus on delivering high-quality homes to our customers. All of this strategic focus shows through in our second quarter results and will carry through throughout the year and into 2022. In the second quarter, we grew our deliveries 14% year-over-year and grew revenues 22%, which drove a net after-tax income increase of 61% and an after-tax pre-extraordinary item increase of 79%. Our bottom line increase is driven by our second quarter gross margin of 26.1% versus 21.6% last year. And as noted in our press release, we expect our deliveries for the year to be consistent with prior guidance given the stressed supply chain, while our gross margin continues to grow consistently throughout the year. At the same time, we've remained focused on improving our operating efficiency, driving our SG&A down to a second quarter all-time low at 7.6% versus 8.3% last year and driving our net margin to 18.5% this year versus 13.3% last year. Alongside our homebuilding operations, our Financial Services Group has continued to exceed all expectations with $121 million of earnings contribution, in part due to excellent secondary market execution. The consistent performance beat from this group, however, continues to be driven by constant work and rework of the cost structure even while costs are going up generally. Together with our asset-light focus, strong gross and net margins and financial services execution, we are driving significantly higher cash flow, which is driving balance sheet improvement as well. In our second quarter, we achieved our 50% owned versus controlled land ratio goal 2 quarters earlier than expected, and we reduced our land supply to 3.3 years from 3.9 years last year. All of these events drove our balance sheet to a 23.1% debt-to-total capital ratio with almost $2.6 billion of cash and zero borrowed on our bank line. Let me briefly focus attention on return on equity, return on capital and our inventory turn. I've noted to many of you that we remain very focused on cash flow, returns and inventory returns, and we have. Our return on equity stands now at 18.8%, which is a 550 basis point improvement over last year. Our return on capital is now 15% and a 500 basis point improvement. And our inventory turn, which is just starting to move, now stands at 1 turn, which is up from 0.9 last year. While Diane will give more detail and our guidance in her comments, it's important to note that these components are squarely in our focus. They continue to make a compelling case for multiple expansion, and they are at the top of our minds as we consider, configure and size our proposed spin-off. These dramatic points of improvement, which we expect to continue through the year, have enabled us to reconsider the size of our spin-off and actually aim for a larger asset base in order to further fortify this new business. Accordingly, we are now targeting an asset base of $5 billion to $6 billion, which will lead the remaining Lennar pure-play homebuilding and financial services company with an appropriately liquid balance sheet and no material loss of reported earnings. We continue to believe that the best way to enhance Lennar's business model is as a standalone pure-play, asset-light high inventory turn, homebuilder manufacturer and financial services company. Aside from size, we have very little to update on the spin this quarter. As noted last quarter, the new company will be configured as an independent and active asset management business that raises third-party capital to support our ongoing business vertical. Two of these verticals have raised third-party capital and are active asset managers. That's LMC, our multifamily platform, and LSFR, our growing single-family for rent platform. Both of these platforms are neatly configured as independent self-sustaining operations. Additionally, we have a dynamic and growing independent land and land management business, and we have a growing technology investment business, which is part of LENx. As I noted last quarter, this separation from the homebuilder will enable these blue-chip businesses to thrive and excel independently. And while I'm certain that you all would like a lot more detail, you can expect to hear a lot more about the spin in our next quarter's earnings release. So let me wrap up by saying that we have never been better positioned financially, organizationally and technologically to thrive and grow in this evolving and exciting housing market. We have an amazing group of talented associates driving our business forward and caring about the world around them. We are performing excellently on all metrics, driven by strategies that have worked to our benefit. The market condition remains extremely strong for the foreseeable future. As I've noted, we expect a very strong second half of 2021. While we are not projecting more deliveries, given the very tight land, labor and materials market, we are projecting growing gross margins and a very healthy bottom line. As we begin to look to 2022, we see continued strength in the market. Simply put, supply is short and demand is strong. Some are concerned that demand is slowing as prices move higher and interest rates move. It feels to us that sales are slowing because many sales were made early, and building through those sales is slower than expected. We believe that home production has been constrained for a decade, and we are making up for the deficit now, which should keep the housing market thriving for some time to come. With that, let me turn it over to Rick.

Thanks, Stuart. As you can tell from Stuart's opening comments, the housing market is very strong, our team is extremely well coordinated and our financial results continue to benefit from solid execution of our core operating strategies. Key to that has been running a finely tuned homebuilding machine where we carefully match homebuilding production with sales on a community-by-community basis. In this environment, it makes no sense to sell too far ahead because you lose your ability to offset potential pricing cost increases with sales price increases. In addition, in this appreciating market with slightly longer cycle times, we are strategically selling our homes later in the production cycle of the home to allow for further cost protection and sales price appreciation. Our first quarter results prove out the success of the strategy, as we achieved gross margin increases of 450 basis points year-over-year and 110 basis points sequentially. During the second quarter, we started 5.5 homes per community, which was a 90% increase from last year and a 20% increase sequentially. This production and margin-driven, sales-focused program will drive further margin improvement and increase deliveries in the back half of the year, given our ramp-up in starts in the second quarter. In the second quarter, new orders, deliveries and gross margins were up strongly in each of our operating regions. In addition, we saw strength in all product categories from entry-level to move-up and in our active adult communities. The strength of the market was also reflected in a historically low cancellation rate, which was 8.6% in the quarter, down 1,020 basis points from last year and 100 basis points sequentially. This is additional evidence that our buyers have the required down payment and mortgage qualifications to purchase a new home. As we look across the country, we're seeing strength in all of our markets. Here's some color on some of our stronger markets. Starting in Florida, Florida continues to benefit from core local demand as well as in-migration from the Northeast and the West Coast, which is driving both sales pace and price. Inventory is extremely limited, and buyers are moving fast to go to contract. The hottest markets in Florida are Naples and Sarasota in the Southwest; Miami, Broward, and Dade in the Southeast; and Tampa. These are all markets where we are the leading builder with the best land positions. In the Carolinas, Raleigh, Charlotte, and Charleston are extremely strong markets, benefiting from limited inventory, job growth and quality of living. We are the top builder in each of these markets. Texas continues to be the strongest state in the country with in-migration from the East and West. The state's pro-business, employer-friendly economy is driving corporate relocations and tremendous job growth, especially in the technology sector. The state is also benefiting from the recovery in the oil and gas sector. The strongest market in the United States today is Austin. Notwithstanding out-migration from parts of California, the markets in California are strong. Driven by the state's severe housing shortage, there is more demand than supply, making housing the #1 agenda item for the governor. The Inland Empire, Sacramento, and the East Bay area are the strongest markets. All are seeing a migration from the coastal markets due to a higher level of affordability, compounded with the opportunity to buy a larger home for the money. This extra boost in demand, combined with limited inventory in great schools, is fueling demand in these areas. Phoenix and Las Vegas are strong markets. Both are benefiting from business-friendly environments, real job growth and in-migration from California. Las Vegas is benefiting from the full reopening of the casinos and increased tourism, and Phoenix is thriving due to real affordability. The Pacific Northwest continues to be strong. The market has natural supply constraints and constraints by urban growth boundaries that limit production. As I said, these are some of the strongest markets, but there’s strength and depth of market across the country. Now I'd like to spend a few moments talking about growth in community count. Even as we continue to close out communities at a much faster pace than expected given the strength in the market, our community count at the end of the second quarter grew to 1,225 communities, up 63 communities or 5.4% from the end of the first quarter. We are also still on track to end fiscal 2021 with approximately 10% more communities on a year-over-year basis. This should position us for consistent continued growth in fiscal 2022. Finally, I'd like to give you some additional details on LSFR, Lennar's single-family rental platform. As we discussed last quarter, Lennar formed LSFR to facilitate a better time delivery of our homes with reduced cycle times and to make the single-family lifestyle accessible to more families. At the end of the first quarter, LSFR formed the Upward America Venture, which was capitalized with $1.25 billion of equity from blue-chip institutional investors. Just after the end of the second quarter, LSFR closed a $750 million credit facility with Deutsche Bank, which, combined with the equity commitments, positions the Upward America Venture with extremely cost-effective capital to acquire over $4 billion of purpose-built communities and scattered site homes from Lennar. We expect Lennar's peak capital investment in the venture to be $50 million over the duration of the vehicle. Since the beginning, the Upward America Venture has purchased 216 homes for approximately $48 million. These homes were located in 18 communities in 7 markets across 3 of Lennar's operating regions. 188 of these homes were purchased in purpose-built communities, and 28 were scattered homes purchased on a just-in-time basis from available inventory in Lennar's existing for-sale communities. All of these homes fit a predetermined buy box approved by the venture's equity investors. To facilitate the purchase of these homes, LSFR worked hand-in-hand with LENx to develop proprietary technology that produces automated underwriting and pricing that harnesses Lennar's data management and business intelligence systems along with third-party data to evaluate which of Lennar's homes fit within the venture's buy box. At the end of the second quarter, the Upward America Venture had a pipeline of 2,534 homes under contract located in 29 communities across 11 markets with a total purchase price of $596 million. 2,500 of these homes are in purpose-built communities and 34 homes are scattered homes in Lennar's existing for-sale communities. As Stuart mentioned in his opening comments, the social aspect of providing affordable housing and making the single-family lifestyle available to more families is a critical aspect to the Upward America Venture. This is proving to be just the case as the average leased rent in the portfolio to date is $1,729, meaning that a household making $59,280 a year or more can afford to live in a brand-new home without a down payment. To put some perspective on this, the average teacher salary in 2019 and 2020 in the U.S. was $63,465. This lines up squarely with our goal of providing brand-new, high-quality homes at affordable prices. This is workforce housing with a single-family lifestyle. To expand on the potential to provide real home ownership to a broader base of families, we have focused on developing a rent-to-own program for scattered home purchases within the Upward America Venture. We are in the final stages of developing this program with Divvy, a LENx portfolio company. Divvy is a market leader in upward mobility for renters across the country. We expect this program to be up and running in the third quarter. We are very excited with the progress we've made so far with LSFR, the demand for single-family rental homes remains strong, lease up times are compressing, and we have seen real rent growth. Now I'd like to turn it over to Jon.

Thank you, Rick. Today, I'm going to walk you through 2 topics: how we execute on our asset-light land strategy for a just-in-time delivery system of home sites and how we are managing the current unprecedented challenges of supply chain disruptions and labor shortages. As Stuart noted, Lennar has made significant strides in strengthening our balance sheet with improved cash flow generation, driven primarily by the reduction in land owned versus optioned in the years of land owned, which respectively stand at 50% option and 3.3 years. In the second quarter, we added about 38,000 home sites net to our controlled total and purchased about 21,500 home sites. We began our asset-light focus years ago, starting with several large regional land relationships who own and develop land on Lennar's behalf. We then created a strategic national process around our approach. The first critical step in formulating this approach was to separate land into 3 distinct risk categories. The first category is finished land that is ready for the construction of homes to be started. The second is land under development being readied for the first category and is typically less than 4 to 5 years from being ready for construction starts. Land in the third category is beyond the 4 to 5-year period that may need some entitlement, significant planning, and has not yet started development. After separating land into these 3 buckets, we then match the risk profile of each asset with the right source of risk-adjusted capital and expertise. The first category of land is carried on our balance sheet as it is the land under the homes we are building. This land has no risk to it, and our cash on hand or revolver are the lowest cost of capital for it. The second and third categories of land are structured as option agreements with various strategic relationships that have the strength in capital that fits the specific land profile. Assets that are low in risk profile may go into land banks, which have the next lowest cost of capital. Other more complex land is a good fit for our large regional relationships. More recently, we have added significantly larger national relationships structured to match the type and land asset, and also contractually structured option agreements, which will survive potential market shocks that have historically created risk to defaulting on option deposits and maintaining control of the option land, thus further reducing risk. The distinct land business is compromised of an operational team with a singular focus on executing our asset-light strategy by closely coordinating with our local division teams and our strategic third-party relationships. This independent team works to ensure a consistent application of processes and procedures to execute on all of the moving pieces from land underwriting to acquisition, development, and completion of just-in-time home sites. Importantly, the independence of this team takes the burden off of our homebuilding divisions from negotiating unique individual option agreements with third parties, thereby allowing our divisions to be laser-focused on running our core homebuilding operations. It also provides all of our third-party relationships the ability to work with one voice from a large geographically diverse company. Our focus on separating our land purchases into these 3 distinct risk buckets has allowed us to secure the most cost-effective capital for each land asset. As a result, we are lowering Lennar's cost and risk associated with purchasing each category of land. Now I'd like to discuss how Lennar is managing the current environment of supply chain disruptions. You are all familiar with what is occurring. The supply chain has been impacted by the pandemic, by the storms in Texas, and by the surge in demand from new construction and big box retailers. Many manufacturers are finding themselves without the materials and/or capacity to keep up with their orders. Additionally, there's a nationwide shortage of trucks and drivers that add to the disruption. As you would expect at Lennar, we have brought an intense daily focus on managing this situation. We are effectively managing it through leveraging our strategic supply chain relationships as well as having unprecedented internal connectivity between our division, regional and national purchasing teams. Today, we work very closely with the leadership of our strategic supply partners as a result of having been focused on being their builder of choice over the past 5 years. We have been deeply involved and over time in developing relationships, processes and procedures to improve their businesses. This is not just lip service as over the past 5 years, Lennar's changed the way we run our business to improve the bottom lines of our strategic partners’ businesses. Our actions have earned us the right to sit down with our strategic suppliers and find solutions to today's challenges. Sometimes, it's expediting orders and even warehousing early deliveries. In some cases, it's substituting products. But in all situations, we, together with our partners, are finding solutions. The net effect of these disruptions is about a 2-week increase to our cycle times. With respect to our local trade partners, the shortage of labor persists now more than ever. Like the supply chain situation, we have brought an intense daily focus to manage this. Again, our Builder of Choice focus for the past 5-plus years is paying dividends. We've also changed the way we do business with our local building trades over this period of time. Significantly, we have refined the forecasting and communication of starts and have implemented Lennar's level-scheduling program for greater visibility of the upcoming workloads for our trade partners. Today, we now have real-time dashboards showing exactly how many tasks each trade has in the coming weeks and months. This enables them to accurately plan for their labor needs and keep our job sites productive. We believe these dashboards to be a best-in-class forecasting and communication solution. Also significant for both our suppliers and our local trade partners is our adherence to Lennar's Everything's Included program. This has never been more important. It simplifies the number of SKUs or suppliers and local trades need to carry. In addition, in this current environment, we've taken further steps to reduce the number of SKUs we use in certain constrained categories. Other areas of focus for us are using our level-scheduling dashboards to support our ongoing even flow commitment to our trade partners, along with maintaining our production-first focus on matching sales to starts, as Rick discussed. Turning to the cost impacts from the combination of supply chain disruptions, the spike in lumber and trade shortages, our construction costs in the second quarter were up 3.9% sequentially and 4.5% year-over-year. However, even as construction costs increased, they decreased as a percent of revenues from 41.8% and 44.5% sequentially and year-over-year, respectively, down to 41.3% in our second quarter. With respect to lumber specifically, we all know that lumber reached an all-time high before very recently coming off of that. Q4 of 2020 is when we saw the first significant increase in lumber costs, which impacted primarily our Q2 deliveries. The lumber increases, which occurred in Q1 and Q2, will mostly flow through our deliveries in the second half of the year. But as we noted, and Diane will cover in more detail, we believe that Lennar's pricing power will more than offset this, and we expect to deliver stronger gross margins. Looking forward, we expect to see some limited relief on our lumber costs for our July starts as more expensive lumber works its way through the system. And if the current downward trend holds, we will see a more significant benefit for our August starts. Lastly, I want to thank the associates of our national land team led by Casey Davis and Jim Bavouset, with close coordination with all of our division land teams effectively executed our land-light strategy and just-in-time home site delivery strategy. I also want to thank our national, regional and division purchasing associates led by Kemp Gillis, who have the difficult job of battling through these unprecedented supply chain disruptions, has done so with tremendous focus, effort and poise. Now I'd like to turn it over to Diane.

Well, thank you, Jon, and good morning, everyone. Although you've heard some of our financial results from Stuart, Rick and Jon, I'll begin by recapping certain Q2 2021 highlights and then providing detailed guidance for Q3 2021 and high-level guidance for fiscal year 2021. So starting with homebuilding. For the quarter, new orders totaled 17,157 homes, a 32% increase year-over-year. We ended the quarter with 24,741 homes in backlog with a dollar value of $11 billion and 1,225 active communities. Our cancellation rate was 8.6%. For the quarter, deliveries totaled 14,493 homes, up 14% year-over-year. Our gross margin was 26.1%, up 450 basis points from the prior year. This increase was primarily driven by a continued focus on maximizing sales price while controlling cost increases, as Jon described. Additionally, our margins benefited by a 20 basis point decrease in interest expense as compared to the prior year as a result of our consistent focus on debt reduction. Our SG&A was 7.6%, an improvement of 70 basis points from the prior year. This decrease is primarily a result of our intense focus on incorporating technology to gain efficiencies across our homebuilding platform. So for the quarter, we generated a net margin of 18.5%, the highest quarter net margin of a repeat. Our financial services team also executed at high levels, reporting $121 million of operating earnings. Mortgage operating earnings increased to $92 million compared to $81 million in the prior year. Mortgage earnings benefited from an increase in secondary margins. Title operations’ earnings were $24 million compared to $76 million in the prior year. The prior year included a gain of $61 million on the deconsolidation of states title now called Doma. Excluding this gain, title earnings increased due to growth in both volume and margins as technology initiatives improved agency productivity. And then turning to our Lennar Other segment. During the quarter, we closed on the sale of our residential solar platform to Sunnova Energy International in exchange for shares in that company. At the time of the closing, we recorded a gain of $151 million. We are required to mark-to-market our investment in Sunnova as well as our investment in Opendoor, which went public in our first quarter, at each quarter end based on their stock prices at that time. Accordingly, we recorded mark-to-market losses in the second quarter of approximately $273 million. And now turning to the balance sheet. We ended the quarter with $2.6 billion of cash and no borrowings outstanding on our $2.5 billion revolving credit facility. We continue to execute on our strategy to become asset-lighter by developing a just-in-time delivery system for land and homes, improving returns and generating significant homebuilding cash flow. At quarter end, we owned 189,000 homesites and controlled 192,000 homesites. This resulted in our year supply owned decreasing to 3.3 years from 3.9 years in the prior year and our homesites controlled increasing to 50% from 32% in the prior year, thus achieving our controlled percentage goal midyear instead of end of year. All of this progress resulted in achieving a 20% return on inventory, excluding consolidated inventory not owned, and is consistent with our intense focus on increasing all of our returns. During the quarter, we paid dividends totaling $78 million, and we repurchased 1 million shares totaling $98 million. At quarter end, our homebuilding debt-to-total capital was 23.1%, down from 31.2% in the prior year. After quarter end, in fact, just this week, we retired early at par our $300 million 6.25 senior notes that were due in December 2021, further reducing our senior note balance and saving about $9 million in interest. Our next maturity, $600 million due in January 2022 as a 3-month par call, which we will utilize to prepay those notes in October of this year. After that payment, we will have no senior note maturities until October 2022. And just a few final points on our balance sheet. Our stockholders' equity increased to approximately $20 billion from $17 billion in Q2 of the prior year, and our book value per share increased to $62.68 from $52.98 in the prior year. And finally, last week, we were upgraded to investment grade by S&P. We are really pleased with the rating agency upgrades we have achieved in recent months and are now investment grade with all 3 agencies. So in summary, our balance sheet is very strong, and we will, of course, continue to remain focused on generating high returns for our shareholders. So with that brief overview, now let's turn to guidance. I'll first provide detailed guidance for the third quarter, and then some high-level guidance for the fiscal year, starting with homebuilding. We expect Q3 new orders to be in the range of 16,000 to 16,300 homes and our Q3 deliveries to be in the range of 15,800 to 16,100 homes. Our Q3 average sales price should be between $420,000 and $425,000. We expect our gross margin to be in the range of 27% to 27.5% for Q3, and we expect our SG&A to be in the range of 7.3% to 7.4%. And for the combined homebuilding joint venture, land sale and other categories, we expect a Q3 loss in the range of $10 million to $15 million. And then looking at our Other business segments. For Financial Services, we believe our Financial Services earnings for Q3 will be in the range of $95 million to $100 million. And for our multifamily operations, we expect a loss in the range of $5 million to $10 million. And for the Lennar Other category, we expect a loss in the range of $10 million to $15 million. Note that this guidance does not include any potential mark-to-market adjustments on our current or future publicly traded technology investments. We expect our Q3 corporate G&A to be about 1.4% of total revenues. Our Charitable Foundation contribution will be based on $1,000 per home delivery for the quarter. We expect our tax rate to be approximately 22.5%, and the weighted average share count for the quarter should be approximately 310 million shares. When you pull all this together, this guidance should produce an EPS range of $3.07 to $3.32 per share for the quarter. I will now provide some high-level guidance for the fiscal year. We still expect, as we mentioned, our deliveries to be between 62,000 and 64,000 homes, but with a now higher gross margin guidance of 26.5% to 27% for the year and an even more efficient operating platform with SG&A guidance of 7.3% to 7.5% for the year. We believe our average sales price for the year will be about $420,000, and we still expect our community count to increase approximately 10% year-over-year by year-end. Our Financial Services earnings will be in the range of $460 million to $470 million. Finally, our tax rate should be about 23.5%. As we continue to execute our core operating strategy, maintain a strong balance sheet, and remain focused on cash flow generation and returns, we are well positioned for an excellent year. And with that, let me turn it over to the operator.

Thank you. We will now begin the question-and-answer session of today's conference call. Our first question comes from Michael Rehaut from JPMorgan.

First question, I just wanted to hit on probably the #1 area of concern today, which is around demand trends. And I think there's been concerns specifically around the potential for demand slowing a little bit in the face of the extraordinary amount of home price appreciation that's occurred over the last several months. Stuart, you mentioned in your prepared remarks that you view that sales have been slowing more due to, in effect, production constraints and managing the sales pace. I was hoping for any sense of how you view demand as it progressed throughout the quarter, and what makes you comfortable around the idea that overall the demand backdrop remains not only robust, but it appears still well in excess of available supply.

So look, let me start with a notion, proposition that the market has been extremely, extremely hot. So, when you go from extremely, extremely hot to extremely hot, that's a step down that is really quite acceptable. It's actually a little bit better. And of course, as pricing goes up, fewer people can afford. So, I would just say, Mike, that while the market might have a mild cooling, it is just from such a high level that demand is still well in excess of supply, and we see this on the ground at our Welcome Home centers on a regular basis, and this is not in any specific market. It really is across the country. So, when we look at the temperament, the tempo of sales in our Welcome Home centers, the traffic that's coming in, the discussions that we're having, we're still seeing very strong demand. We still see very limited supply, and we recognize that the country and the production of housing has been in deficit for the better part of a decade, and we can argue whether the deficit is one size or another. I think that there are a lot of competing views on that. But still, based on what we see in the market and the logic that we're applying to what we've seen over the past years and the appetite of the buying public, the millennials that still haven't come out of their parents' homes, we think there's a very, very strong demand profile that is out there for an extended period of time.

Yes. I guess I'd add to that, Michael, that if you look at the quarter, we sold over 17,000 homes during the quarter, and the variability between the months was plus or minus 100 homes. So, we really see no impact associated with the cooling.

And again, for us, that ties into our match strategy of sales to production. We're able to hit exactly that pace. As Stuart said, when you go from very, very hot to very hot, that's still well above the levels we were at a year ago, which were very strong.

Right. That makes sense. Another key point of discussion currently revolves around the sustainability of gross margins. Given the success you've had this year in managing sales pace and improving margins opportunistically, while also addressing cost inflation, it’s noteworthy that you're projecting gross margins for 2021 to exceed the peak margins from 2005. Additionally, your homebuilding revenue is on track to more than double that of 2005. One would expect there to be scale benefits associated with this growth, so I would like to hear your thoughts on gross margins moving forward over the next couple of years. While I'm not seeking specific guidance for 2022, I'd like to understand more broadly how you perceive the gross margin levels generated this year versus the last cycle, especially considering the factors outside of sales incentives, which are challenging to predict.

We should focus on the volume aspect of margin improvement. The composition of our margins reflects increased efficiency in how we manage our company, the technologies we utilize, the efficiency of our land program, and the just-in-time delivery of land. Additionally, our management of single-family rental inventory has introduced significant efficiencies. We are integrating these efficiencies into our core operations and believe they will become increasingly crucial. Our supply chain management emphasizes absolute efficiency in our operations. As a company and as an industry, we are restructuring our cost framework, addressing everything from hard costs like labor and materials to softer costs such as SG&A. This restructuring is designed to support a lower cost structure, enabling us to maintain healthy margins while ensuring housing affordability, which is a significant aspect of our approach. Moreover, we benefit from reduced debt levels, which lower our capital costs and enhance our margin outlook. We plan to continue reducing our debt. All elements, from technology and business operations to lower debt levels and just-in-time procedures, contribute to a safeguard around margins for the future, and we are optimistic about our trajectory.

I'll add that as I’ve mentioned in my comments focusing on purchasing, we’ve reduced our direct costs to 40.1% of our revenues. If you analyze that ratio, we still have significant room before the revenues and costs intersect, allowing us to maintain our margins.

And I guess the final point I'd make is if you look at what we're building today compared to that 2005, 2006 timeframe, our homes are so much more value-engineered and efficient to build. So, the cost structure associated with the production of those homes is significantly different than the last cycle.

Our next question comes from Stephen Kim from Evercore ISI.

I believe people would appreciate hearing more about the SpinCo and particularly your thoughts on the book value reduction when it's spun off. You mentioned the assets, but understanding the book value is important as well. My questions will focus on the core homebuilding business. In this environment, where you're intentionally holding back sales to age your work in process inventory, it seems that future sales are better indicated by how many homes you're building rather than the current sales figures. I noticed that your starts in the second quarter increased by about 28% compared to the first quarter, while the national starts only rose 7% sequentially, not seasonally adjusted. This clearly shows that you're gaining a significant market share. You had over 20,000 units started in the quarter, and I believe your production capability should continue to grow with the increasing community count. So, my question is, is it reasonable to expect that in the near future, your closings could exceed 20,000 units in a quarter?

Let me clarify a couple of points. First, Steve, it's important to note that we never deliver units; we always refer to homes at Lennar. We need to make sure we get that distinction right. Second, regarding SpinCo, when we discuss a spin in monetary terms, we're specifically referring to book value. So, to address your question about SpinCo and its impact on book value, it is a straightforward 1:1 dollar relationship. Is that understood?

Right. Yes. Thank you.

Okay. Yes. And then as it relates to our starts, our starts I think are not 19.5, over 20. But I'll let Jon and Rick address the question.

Look, we've been very laser-focused on our even flow production and just gradually ramping that up to the increased start level that you noted. And that ultimately does flow through. As I noted, we're seeing about a 2-week cycle time delay. So it's not going to perfectly flow through, but we should see in subsequent quarters, our deliveries matching that start pace.

Yes, and just to further what Jon said, we purposely did start a higher number of homes in the last quarter because we've seen demand. And so if you look at it from a start sales differential, it was about 2,500 more homes started than sold, but we could have sold all of those homes. We're just choosing to sell them later in the construction cycle in order to maximize margin and to take advantage of a more finely tuned delivery cycle.

Yes, absolutely. Makes sense. Very sensible strategy, I would say. The second question relates to home prices. I think the most striking development across the market has been this massive surge in home prices, not just that you're experiencing, but across the market. According to some measures, resale pricing is up 25% year-over-year. When people hear this, and they instinctively think it's a setup for home prices to fall in the future, which, by the way, would set off a pretty bad chain of events if it happened, our own view is that the price jump is a correction rather than an overshoot. It's the result of years of undersupply and pent-up demand and not just low interest rates. And so it makes it very different from like '05, when demand was very speculative and supply wasn't constrained. But I think people would really like to hear from you how you see the longer-term outlook for pricing. Are we seeing a blow-off peak like what happened recently to lumber futures or something? Or have we found a new level of home price that can be resilient in the face of potentially higher rates?

From everything we're observing in the market, it seems we are reaching a new level. I wouldn't have initially viewed it as a correction, but your way of expressing it makes sense. Home prices have clearly reached a point where there’s a sort of correction towards a higher price level, and prices continue to rise. This hasn’t slowed down. Home prices have stagnated for an extended time due to years of underproduction and possibly challenges in the mortgage market following the downturn. However, we are now witnessing a fascinating shift where the mortgage market has normalized in a credible and protective manner. There's significant demand emerging from the single-family rental market. While there are questions surrounding single-family rentals, they provide a single-family lifestyle to a wider audience who may struggle to make a down payment or meet mortgage qualification criteria, yet can afford to rent. The evolution of living arrangements and housing availability for a greater demographic is crucial for family outcomes. The growth of the single-family rental market is making homes accessible to more people, which is beneficial overall. We believe, as Rick emphasized, that providing more workforce housing expands demand. While this may lead to slightly higher housing costs due to increased demand and limited supply, it also encourages the industry to enhance accessibility for more individuals. This represents a positive development for the industry.

Yes, I agree. The stepping stone there or the single-family for rent is really an important development.

Our next question comes from Alan Ratner from Zelman.

Actually, it's Ivy Zelman. So maybe, Stuart, just to clarify. So maybe, Jon, you said that you're purposely starting more, so you can sell later in the process. But your guidance for sales for next quarter, just to be clear, it remains. The gap is still there prevalent. So does that just mean that you're going to hold those? Or you just don't want to guide to the full production capacity that you can, in fact, produce?

We think that's accurate guidance, Ivy, based on us very methodically scheduling when we're going to sell a home. It's not the same in all markets. It's later in some markets than others, but it's a very carefully, very meticulous plan not to sell out ahead of ourselves.

Okay. I wanted to clarify something. Let me ask a broader question, Stuart. We are witnessing strong inflation across the entire market, including home prices that Steve Kim just mentioned, as well as rising rent inflation, particularly for single-family homes. For instance, Invitation Homes and American Homes have increased their new move-in rates by 14% and 17%. Home prices in areas like Austin have risen by 25%. Do you believe there will be a point where affordability becomes an issue for both asset classes, especially considering that wages aren't increasing at the same pace? What do you see as the limit where housing is no longer affordable for renters or home buyers?

I don't believe there's a mathematical formula to determine where the ceiling is. It appears that while wages are rising, the costs associated with homes and living are also increasing, contributing to the inflationary environment. The challenge is finding a way to make housing affordable. Rick did an excellent job of explaining how the single-family rental market serves as an equalizer in this scenario. Our initiative focuses on addressing housing affordability which may be out of reach for many by developing a rental program that facilitates upward mobility, allowing renters to work toward ownership and meet the requirements needed to achieve that goal. Providing access to single-family living for our workforce starts with rental opportunities, enabling them to eventually afford higher-priced homes as they transition to ownership. While it's clear that at some point pricing will stabilize, we are currently uncertain about when that will happen. We will navigate this situation together.

Ivy, also remember from a macro view that today, the home is the hub of people's life, very different than it was in the past. So it's not just where they live. It's where they work. It's where they educate. It's where they recreate. Post pandemic, that's still going to be the case for the large part, and therefore, people view the home as more valuable and will put a larger portion of their income towards that more important asset in the home.

No, that's helpful. And just to clarify, we've noticed that much of the single-family rental production being leased is comparable on a square-footage basis, if not higher, than a monthly payment for a home for sale. Are you suggesting that the workforce housing you offer in the single-family rental space will be priced below the monthly payment, considering that costs are incurred monthly and consumers perceive it as such? We are seeing prices not only align apples-to-apples but even at a premium. So are you adopting a different strategy than your competitors?

Our strategy is to provide single-family home ownership for workforce housing for people that can afford to rent and qualify for that housing. So if you look at comparable rents in the neighboring areas, it's stacking right on top of what comparable rents are. And most of the issues are, Ivy, is these people don't have the down payment that's required to afford to buy a home. It's not that they can't pay the mortgage payment; they just can't qualify in other ways.

And so our focus is on a monthly payment that's very similar to what a mortgage payment would be, but, as Rick highlighted, without the down payment.

Our next question comes from Susan Maklari from Goldman Sachs.

My first question is, you talked about the focus that you have on ROEs and improving that. And when we think back to the last housing cycle, your ROEs were at least in the mid-20s, maybe even the high 20s in our model, and granted there's changes in the business today relative to them. But back then, it was more of an output of what was going on in the housing market. When you think about the focus that you have today on expanding those ROEs and all the different elements of the business that are coming together, where do you think your returns can get to this time? And how do we think about that path relative to the past?

Well, look, I think that one of the limiting factors is the fact that the equity is growing at a sizable clip. That's a positive, but a limiting factor relative to ROE. At the end of the day, we continue to see growth in our earnings and therefore, growth in our returns limited by the fact that the equity is growing at a pretty sizable clip. I think you have to think in terms of as we move forward with our spin, it also helps to define the efficiency and the effectiveness of the way that we're running our business in our core homebuilding business, where we’re able to focus an equity base that is just geared towards the homebuilding business. I think you'll see that return kind of revert back to some of the ROEs that define the industry at an earlier time. So it's a combination of things, but the efficiency that we're injecting in our business is going to continue to grow our returns, which will be even further enhanced by the separating of logical businesses to where they can operate most effectively.

Our next question comes from Truman Patterson from Wolfe Research.

I wanted to follow up a little bit but ask about affordability in a little different way. So very, very strong gross margins, strong pricing. Fourth quarter gross margin suggests that you all are more than covering peak lumber costs, right? And now we've seen lumber roll over. So that likely will be able to offset some other cost pressures that are picking up. So if inflation aggregated kind of levels off in the back half of the year, especially as you all are opening more communities, just want to understand your philosophy on pricing. Are you all looking to step off the gas to maintain affordability if rates begin to rise? Or is it truly pricing to the market really without regard for potential rate hikes?

So Truman, the first thing I want to say is thank you for acknowledging our Everything's Included quarter. We were all touched by that. Look, your question is to throw back to discussions that we've had many times over quarters in the past. It's been less of a discussion point as the market has evolved more recently, but we're very, very focused on our pricing to meet market conditions. And our dynamic pricing model is all about measuring where the market is and going to the pricing at where the market is currently. So the answer is, as prices might fluctuate, as price increases perhaps moderate or plateau, our dynamic pricing model is very much focused on getting us to the exact pricing to reach our deliveries commensurate with where our production has been. So the answer is you can very much expect that our pricing will moderate, as the market moderates or accelerate as the market accelerates, can be very tuned into market conditions.

Yes. And this is so consistent with everything we've talked about really for the last 3 or 4 years. We've been matching sales with production. Jon and I tinker with where we'll sell during the production cycle based on that fundamental demand in the marketplace. So it's a very precise production-driven sales program.

And we haven't talked about our dynamic pricing program for a while, but it's just become part of the fabric of the way we operate, and it's getting better and better with each passing quarter. It's just not top of discussion right now.

Our next question comes from Diane Bessette from Goldman Sachs.

Yes. So, Truman, $2.6 billion in cash on the balance sheet, we're expecting a lot of free cash flow in the back half of the year, next year, well over $2 billion plus, right? A couple-part question. One, what cash balance do you feel comfortable maintaining? And then how should we really think about share repurchases going forward, either a quantitative discussion. Is it programmatic, opportunistic, especially in regard with the equities pulling back recently.

Yes. I think, Truman, that we saw we jumped back into the market again this quarter with 1 million shares. And I guess my thinking is that it's probably a little bit of both programmatic as well as opportunistic. And on that, I mean buying some level of shares every quarter is the right answer. However, I think we should also be opportunistic. So as there are dips in the stock, then we can take advantage of those dips because we have the cash to do so. I think just having a consistent program is, first and foremost, the most important thing, but you'll find that we'll be opportunistic within each quarter to take advantage of whatever the market might bring to us.

Yes. But let me just say that with that said, Truman, you bring up the fact that we have a lot of cash on the book right now and are likely to generate more in the back half of the year, isn't it great? I mean we've been laser-focused on cash flow.

Yes.

Our focus is clearly reflected in our results. While you might anticipate a stronger announcement regarding stock buybacks, we are not providing specific details about our future intentions. It's important to remember that we are also concentrating on the composition and magnitude of our spin-off, as well as ensuring that our balance sheet can effectively support our goals. Our efforts extend beyond simply enhancing our homebuilding and financial services group; we aim to replicate the success we achieved with our previous spin-off in the '90s by building a robust and sustainable new entity. We are excited to share more updates in the future, but as we align our balance sheet, cash position, and the spin-off's scale, everything is interconnected. Please be patient with us as we finalize these elements, as they all relate to our stock buyback program.

Okay. Is there a certain cash balance that you want to maintain to support the core homebuilding operations?

The way we think about cash is more.

Yes.

We're not going to restrict cash flow, and to emphasize that point, don't assume that a 50-50 balance between land owned and controlled is our final approach. We reached our goal ahead of schedule, and we're still focused on moving forward. Jon has clearly outlined our land strategy, including the short-term, medium-term, and long-term plans, and how we're organizing these to optimize cost of capital, where we acquire land, and how we generate cash flow. This is something that Rick, Jon, and I address every day. Therefore, cash flow remains a key priority for our company.

Yes. And Truman, just to add also, as I mentioned, alongside also with the continued debt focus. So you see us reaching into 2022 with those debt maturities, pulling them forward and really getting some positive impact to our margin as we have done that.

And so for punctuation at the end of your question, I want to say again, thank you for the Everything's Included call out.

And our last question comes from Jade Rahmani from KBW.

I appreciate the chance to ask a question. I just wanted to ask at a high level, to what extent do you think Lennar in particular, but also the major production builders are in control of their own destiny? You mentioned various factors, including the land strategy, relationships with suppliers. So to some extent, since new home sales are only about 10% of total aggregate home sales, you can tailor the product to the market. Just an overall question, do you think that the company is a price taker, a price giver? And overall, how would you respond to that question?

Well, it's great that we're going to get to metaphysics in the call today. But I guess I'd always say, Jade, that we're always a little bit of both. The fact of the matter is market conditions dictate a portion of what defines what we're able to do, but also our ability to work and act within market conditions is in part a driver of how we perform and how our product is received and the pricing that we get for that. So I would say there isn't a binary answer to the question of whether we're a price taker or a price maker. I think in every market condition, there is a dynamic that is, in part, given to us and, in part, maximized by us. In that regard, I've tried to be very clear in my comments, and I think Rick and Jon as well and Diane have all daylighted that we're sitting in the midst of market conditions that are very strong. And those market conditions are moving around a little bit, but very, very strong short supply, long demand. And that's the market that is given to us. But within the condition of that market, we're probably reporting our numbers saying that we have maximized the market that's in front of us. We've made strategic moves that has enabled us to navigate these waters as well as can be. And we think we've done a really good job, and we think that we can continue to get better and better being posed, at the same time, a price taker and a price maker navigating interesting waters. So that's how I'd answer that. I don't know.

Yes. To give a little bit additional perspective, it varies dramatically by market. We have some markets where we're 30% to 40% of the share of the market. And in those markets, we have the ability to control things a little bit more, and we're setting the cadence in that market. In markets where a smaller percentage, we're really pricing to market as we've done in for really the last several years. So it really varies across the board depending on the market.

So why don't we go ahead and end it there? And let me say just kind of as a last word, I want to apologize. We tried to keep our remarks brief. We didn't do a very good job of that, but I hope we gave you a lot of detail. We know we didn't leave a lot of time for Q&A. That's why we went over a bit, but we think it's important to get as many questions as we can. And of course, we'll speak to many of you offline. Thank you for joining us today, and we look forward to reporting on our progress as we go forward. Thank you.

Thank you all for participating in today's conference. You may disconnect your lines and enjoy the rest of your day.