Good morning, and welcome to Taylor Morrison's First Quarter 2020 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to introduce Mr. Jason Lenderman, Vice President, Investor Relations and Treasury.

Thank you and welcome everyone to Taylor Morrison's first quarter 2020 earnings conference call. With me today are Sheryl Palmer, Chairman and Chief Executive Officer; and Dave Cone, Executive Vice President and Chief Financial Officer. Sheryl will begin the call with an overview of our business performance and our strategic priorities. Dave will take you through a financial review of our results. Then Sheryl will conclude with the outlook of the business, after which, we'll be happy to take your questions. Before I turn the call over to Sheryl, let me remind you that today's call, including the question-and-answer session, includes forward-looking statements that are subject to the safe harbor statement for forward-looking information that you'll find in today's news release. 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 Securities and Exchange Commission, and we do not undertake any obligation to update our forward-looking statements. Now, let me turn the call over to Sheryl Palmer.

Thank you, Jason and good morning everyone. We appreciate you joining us today. Before we get started, I want to send my thoughts out to each of you with hope that you and yours have managed to stay healthy during this global health crisis. The COVID-19 pandemic has impacted every corner of the world and Taylor Morrison is just one of the countless organizations navigating its way to the other side of it. Despite the uncertainty and challenges associated with the economic shutdown beginning in March, we are quite pleased with the financial performance that we achieved during the first quarter. Although we will highlight the most relevant data points of our results, our focus will be on the go-forward impacts of our current environment. Even now in early May, the landscape certainly looks a lot different than since a national emergency was declared nearly seven weeks ago when we transitioned a majority of our team members to a work-from-home status. The company finished Q1 with sales orders of 3,466, which was up approximately 33% from the prior-year quarter. This represented a sales pace per community for the quarter of 3.1, which was also up nearly 35% from the sales pace of 2.3 in the first quarter of 2019. Consistent with most of the industry, our sales orders in the first two months of the year started extremely strong, with January sales up 46% and a pace of 3.2. February sales were up 64%, with the pace increasing to 3.5 and continuing into the first half of March. However, the last 10 days of March were slower with the deceleration in the sales pace to 2.5, as our team in the broader market adjusted to our new reality. While we're pleased with our first quarter results, what I'm most encouraged to see is the momentum we built in April, where we saw week-over-week improvement throughout the month in both gross and net sales. Specifically, the number of gross sales in the last week of the month were more than two and a half times the number of sales in the first week, while the number of net sales, given the reduction and cancellations was nearly five times the sales recorded in the first week. During the quarter, we had an average community count of 378, recognizing we only had seven weeks included with William Lyon communities. The cancellation rate for the quarter held relatively steady at 13.8% versus 13.3% during the first quarter for 2019. The rate was about 10% in January and February and year to date through April is at 17%. Closings for the quarter came in at 2,761, which was up more than 42% versus the first quarter of 2019. We saw less of initial impact from COVID-19 in our closings, with our results for March also up more than 42% year-over-year. We ended the quarter with our largest backlog yet with 6,565 homes in backlog and a sales value of 3.1 billion. As we started to see restrictions being put in place to flatten the curve, we moved very quickly to address our backlog and understand which of our buyers had any potential risk. We'll talk more about the mortgage environment later. But having an industry-leading team of seasoned mortgage professionals in-house, the Taylor Morrison Home Funding has been critical during this time. At Taylor Morrison, we pride ourselves on our ability to consistently execute in our market, and I'm amazed and truly appreciative for how our teams across the country have been able to pivot so quickly. And I'd like to take a few minutes to walk you through some of the more meaningful shifts we've made as an organization in response to the pandemic. To help us successfully navigate through this process, we immediately created a COVID-19 task force, comprised of the company's senior corporate and field leaders. Upon creation of the task force, the team met each morning to discuss the pertinent information for the day and make the necessary decisions to strategically guide our business. The experience and diversity of skills represented have allowed us to effectively assess the rapidly changing internal and external parameters and proactively plan and respond. With the spread of COVID-19, there hasn't been a single part of our business that hasn't had to change in some capacity to adapt. When we transitioned to a work-from-home platform in mid-March, we made our sales centers and model homes available by appointment only and staffed our construction sites with skeleton crews appropriately following social distancing orders. As the economy now begins to slowly reopen and find its new footing, we remain as focused as ever on the core elements that anchored our team members together long before the onset of this crisis; performance, culture, and proactive QA communications. When I look at our salesforce and the 180-degree turn they've made to conduct their business completely virtually, it's quite impressive. We've now seen triple-digit sales conducted entirely virtually, meaning no prior physical interaction with that homebuyer whatsoever. While this decision to operate strictly under a by-appointment-only model limited the amount of people in our communities at any given time, it hasn't dampened the creativity and proactive outreach of our sales team. During our customers' greatest time of need, our sales team was available, calling to check in on their well-being and their families, sharing pictures and videos of their construction progress, and financing their new home; answering any questions regarding the mortgage environment and any changes that could impact their closing. While market activity, traffic and sales are all showing up differently, we've begun to see a positive shift in consumer sentiment overall and a pickup in traffic and sales week over week for the last four weeks. It's worth sharing that we've been conducting surveys of all first-time registrants on our website since the week stay-at-home orders were enacted to help us understand the impacts of COVID-19 among potential buyers. Consistently, people have been visiting the website with plans to make a future purchase and to understand available inventory with 30%, specifically looking for move-in ready homes. Most importantly, 74% of visitors have shared that their decision to purchase has not been impacted by COVID-19, and that's up from about 55% a few weeks ago. And many of those that have indicated an impact simply suggest a slight pause as they seek to understand the overall market conditions and mortgage environment. By geography, the west appears to be the hardest hit with the stricter stay-at-home orders in California and the Pacific Northwest. As discussed on our fourth quarter call, we unveiled a new company website in October of 2019, which couldn't have been better timed. The forward-thinking features allowing customers to complete more of the shopping experience online became increasingly important amid the COVID-19 shelter-in-place restrictions. And while transforming the customer experience even further through our new website in 2020 was always in the plan, the need to do so drastically was expedited. With our new website already boasting a more digital retail experience, we were able to quickly pull on our capabilities and elevate our website to serve as an extension for our sales team. We created a dedicated virtual tours landing page, making it possible for shoppers to experience visiting a Taylor Morrison model or community without having to walk out their front door, and we even made it easier than ever to schedule a virtual or in-person appointment. Just three weeks into the shelter-in-place orders, we saw our website engagement begin to increase again, week over week, and in most instances, with much higher conversion rates. We are excited that we've seen more than 1,500 appointments scheduled within the past four weeks through our new online scheduling feature, a first of its kind in our industry. While website visitors can schedule in-person or virtual appointments, which make up more than 85% reappointments, they can also schedule time specifically to complete and sign their contract. In fact, more than 20% of our April net sales were completely virtual. As you are all aware, residential homebuilding was deemed an essential service across most of our markets from the very beginning, allowing us to continue having trades on our job sites. Fortunately, to date, we have been able to avoid any significant supply chain issues. Depending on the specific product, there's about three to six months of supply in the market, and most of our key vendors have been able to sustain operations despite any current or prior restrictions. We have many mitigating measures in place to ensure that no single product will disrupt our construction processes and timelines. From a production standpoint, the biggest hurdle we've had to work through is some of the changes municipalities have implemented. Although many municipalities are working through social distancing standards to still supply permits and complete inspections, albeit sometimes on a slower timeline, there are some that have been forced to get more creative to keep local construction moving. As buyers move toward closing their home, our title company, Inspired Title Services, has adopted a practice we refer to as curbside closings, whereby a notary delivers the closing package at a safe distance and witnesses signatures from outside the buyer's vehicle window. Today, all of our closings are handled using alternative methods to ensure the safety of our team and our customers. Closings are expedited using our e-closing process, where we provide the vast majority of documents electronically days before the actual settlement date. The combination of e-closing and curbside offerings is making a positive impact on our customers' experience. And as the industry and states adopt e-close as a standard, we expect that our innovative practices will become part of our new normal, allowing our customers to close on their home in a safe, convenient, and efficient way. One area of Taylor Morrison that didn't need any adjusting when the pandemic unfolded was our philosophy around transparent, timely communications with our workforce. In fact, we doubled down on it as the cornerstone of our crisis management strategy. When we launched our daily stand-up huddles in July of 2019, as part of our quest to create a differentiated customer experience, we did so hoping they would help us become better at communicating and collaborating to better serve our customers. And they have also proven to be a key tool in ensuring that our William Lyon integration efforts remain on track. It's really difficult for me to imagine how we could have completed any of the integration work or sold or closed any William Lyon Homes in this environment, appreciating that the pandemic impacts happened just over 30 days after the transaction closing without having our huddles in place. But now the huddles are our lifeline, and we were extremely fortunate to have had so much practice communicating daily and in real-time, especially as our workforce was forced to physically disconnect through social distancing. All of that said, I'm happy to share that even though these challenging times continue, we have progressed with the integration of William Lyon. We completed town hall meetings pre and then immediately post-closing with all team members to begin the onboarding and integration process. Of course, we then had to reprioritize some items given the current environment, but major systems and processes continue to be transitioned. We were also able to complete the renegotiation and implementation of all of our national and regional contracts, which has benefited both legacy brands more than initially anticipated. From a financing and accounting perspective, we've reconciled accounting policies and mapped all accounts to ensure a timely and accurate closing of the books on an ongoing basis. We've also been able to add the William Lyon communities to many of our key operating reports that track sales, margin, and construction cycle times. The William Lyon divisions are also up to speed on our investment committee processes for current and future land deals, and our risk management team has updated all of our policies to account for the new combined business. Although we've made progress on many fronts, there are some items that have been impacted. For example, in-person training has been transitioned to virtual training sessions until we can bring teams from across divisions together again. This was particularly challenging initially in our virtual selling environment, as the legacy business had not started down that path across their company. The other area that has been more difficult to advance as quickly as we like are the new non-overlapping markets in the portfolio. Unfortunately, these markets have had added pressures with Seattle deeming construction as a nonessential business and Las Vegas being uniquely shut down with a peak in unemployment. We are encouraged that last week, construction was able to resume in Seattle, albeit with some exceptionally strict protocols. Assuming a normalized environment, we remain confident in achieving the $80 million annualized synergy levels previously discussed for 2021. With that said, I couldn't be prouder of the work that the teams have put in since the close of the acquisition and specifically since the onset of the COVID-related work restrictions to ensure that the critical integration work continues to be executed with a great deal of focus and energy. Lastly, before turning the call over to Dave, let me spend just a moment on the benefit from the sheer diversity and strength of our consumers and product offerings. Through a number of our acquisitions, we've expanded our presence in entry-level the last few years, and it's been an important piece of our product strategy, even as we've maintained strong positions across other consumer groups with our family, move-up, and lifestyle community buyers. As we've shared before, our first-time buyer is more of a professional entry-level buyer, and as a result, tends to be better qualified and may have a better chance of weathering some of the current volatility. As I mentioned earlier, we have seen different actions by different consumer cohorts. The first-time move-up buyer has represented the most consistent behavior across all markets with steady sales and low cancellations, followed by first-time buyers. The first-time buyer has been the most active on the sales front, but the most volatile in the backlog. And at the most affordable price points, the most challenged in this new credit environment. COVID has impacted the timing of the 55-plus lifestyle buyer, as these are the least likely consumers to complete the entire process virtually and the consumer that has been asked to be sure to stay home during these last many weeks. We know we won't be immune to cancellations given the current uncertainties and its impact on consumer sentiment, but after spending a considerable amount of time understanding the position of our homeowners and backlog, we believe that we're well positioned to close these homes throughout the year. Similar to our prior acquisitions, we have taken a very aggressive stance in cleaning the backlog and COVID only increased that urgency for us. We have a strong backlog with average deposits near 7% of the purchase price, illustrating that our customers have put forth a serious financial commitment toward closing their new home. I believe Taylor Morrison and our industry are prepared to weather this storm as today's environment is very different than the financial crisis. Inventory levels for new and resale homes were extremely low prior to COVID-19 and remain low today. And although we're seeing a surge in forbearance claims, homeowners today have sizable equity in their homes and the demographics support continued household formation over time as we work through the reopening of America and people begin to get back to work. With that, I'll turn the call over to Dave for the detailed financial review.

Thanks Sheryl and hello everyone. Before I get into my normal financial review, I'd like to take a minute to address our strong liquidity position as this is a focus for every business in today's environment. We ended the quarter with about $750 million in total available liquidity. Over $500 million of that was from cash on hand and the remaining difference was from available capacity on our $800 million corporate revolver. We did have $485 million in borrowings on the revolver at quarter end. But as you can tell, much of that has been held in cash on our balance sheet, as we borrowed $250 million in the middle of March at the onset of COVID-19 to ensure an abundant liquidity for daily operations. Our net debt-to-capital ratio at the end of the quarter was 46.8%. Given our planned reduction in land and development spend over the next several quarters, which I will touch on in a moment, we anticipate Q1 to be the peak of our net debt-to-cap ratio for the year, as we monetize our backlog and begin to pay down our revolver balance. Lastly, we have no senior notes maturities until 2023. As Sheryl mentioned, we've exerted great effort to maintain our backlog and to pull-through every closing we can. We also implemented additional controls on how we spend our cash. As we announced a few weeks ago, all named Executive Officers have voluntarily reduced their base salaries by 25%, and we will defer those payments through the duration of the COVID-19 restrictions. Additionally, substantially all members of senior corporate management and division presidents have decided to take the same temporary pay deferral and the board of directors have deferred their cash retainers for the current quarter. While these compensation adjustments have helped in the short term, we are evaluating our go-forward workforce structure as well. We are limiting all non-essential cash expenditures, including, but not limited to, working with land sellers and developers and our internal development teams on approximately $320 million of land and development spend which pushed out or reduced payments on over 8,000 lots. These partners understand the impact of the current environment and, in most cases, are more than willing to work with us. We have also been quite discerning on any new land acquisitions and have increased scrutiny on the next phase of development dollars to limit expenditures and extend the timeline where appropriate. With respect to vertical WIP, we've implemented a revised cadence on all new home starts, both inventory and sold homes to assure greater certainty on closing performance. We have always had a stringent prequalifying process at the time of sale for our homebuyers, but we have added a requalification process at the time of home start to ensure continued viability. Turning back to the results for the quarter. Net income was $70 million, and diluted earnings per share was $0.57 when adjusted for expenses related to the William Lyon Homes acquisition. Including the acquisition expenses, we reported a net loss of $31 million and diluted loss per share of $0.26 on a GAAP basis. Total revenues for the quarter were $1.35 billion, including homebuilding revenues of more than $1.26 billion. Homebuilding revenues were up more than 40% from the prior year. For the quarter, GAAP home closings gross margin was 15.4%, inclusive of capitalized interest and purchase accounting. The impact from purchase accounting adjustments during the quarter was about 220 basis points. We anticipate the Q2 purchase accounting impact to be at or slightly below Q1, recognizing that it will be a full quarter impact of legacy William Lyon operations and then should moderate through the year. Also, we had a focused effort on selling through finished spec inventory from legacy William Lyon, which pressured margins during the quarter. We anticipate margins increasing closer to our pre-acquisition levels as we move through the second half of the year working through purchase accounting, finished spec inventory, and realizing purchasing and construction synergies. Moving to financial services, we generated approximately $28 million in revenue for the quarter and more than $11 million in gross profit when adjusted for the impact from William Lyon. Our mortgage company capture rate for the quarter came in at 75% compared to 69% during the first quarter of 2019. We are pleased with the capture rate as our legacy Taylor Morrison and William Lyon financial services team have come together, both quickly and efficiently. Our April backlog capture rate for the new combined business is at 86%. We transferred the William Lyon book of business to our platform, and the team members are now licensed under Taylor Morrison Home Funding. We look forward to enhancing our efficiencies as our mortgage operation also moves forward as one brand. SG&A as a percentage of home closings revenue was 10.8%, representing 70 basis points of leverage over the same quarter last year. The leverage was driven by increased scale, as well as strong market conditions we experienced ahead of the COVID-19 pandemic. Adjusted EBT margin was 7%. In Q1, we had approximately $123 million of purchase accounting and one-time expenses related to the William Lyon Homes acquisition. This represents the majority of the acquisition expense, but we will continue to see additional expenses over the next few quarters as we continue to integrate the business. Income tax was less than $1 million, as tax expense attributable to core operations was largely offset by certain deductible one-time expenses from the William Lyon acquisition and the benefit of energy credits. During the quarter, we spent over $300 million in land purchases and development. At the end of the quarter, we had approximately 75,000 lots owned and controlled. The percentage of lots owned was just under 74% with the remainder under control. This is down from almost 80% at year-end, as we positively benefited from the lower percentage of owned land that William Lyon carried. On average, our land bank had approximately 5.3 years of supply, of which 3.9 years were owned at quarter end based on a trailing 12 months of closings, including a full-year impact of the William Lyon acquisition. Total specs at quarter end were 2,694, of which 655 were completed or about 1.7 per community. This is up from about 1.1 finished specs per community at year-end, but the majority of that increase was anticipated as part of the acquisition as William Lyon operated with a higher percentage of inventory homes. Although some of the increased cancellations from COVID-19 will result in additional specs, we and the industry more broadly were fortunate to be operating with a limited inventory supply when the pandemic started. With that said, we are focusing some incentive dollars toward moving our completed inventory homes. Through Taylor Morrison Home Funding, we are currently offering to pay all closing costs on an inventory home with a closing date before June 30, and we'll pay 1% toward a lower interest rate. We believe reducing cash out-of-pocket to assist customers with their financing is a prudent use of our incentive dollars and a compelling value to keep moving inventory homes. Near the end of February, we announced a new $100 million share repurchase authorization from our Board. The authorization was substantially exhausted during the quarter, as we bought 5.4 million shares for just over $90 million. We ceased repurchasing stock as the pandemic developed so we could focus on liquidity, but we will continue to evaluate the opportunity to repurchase stock as a key part of our capital allocation framework in the future. We also want to provide an update on the continued progress of our build-to-rent strategy. Currently, we have two projects in Phoenix under development with construction activity planned for late this summer and early fall, with occupancy in early Q1 2021. We recently closed on a credit facility for the first project, which aids the capital efficiency of the BTR model. The team is also actively managing a pipeline of projects in Phoenix and Dallas with lease activity for our subsequent projects in late 2021 and 2022. Charlotte and Florida projects are under review but slightly behind Dallas, given the realities of current stay-at-home orders. We have been encouraged as we track the performance of the current Christopher Todd Communities despite the impact from COVID-19 rent forbearance to many multifamily assets that are resulting from renter job losses. To date, the Christopher Todd Communities have held up better than the overall multifamily market as these single-family lifestyle communities provide a true detached lifestyle and possess, on average, higher income renters than typical multifamily apartments. We strongly believe this asset class is meaningfully underserved and provides opportunity through the market recovery and beyond as we hear buoyancy in the investment arena as well. As Sheryl mentioned, we're encouraged by our efforts to continue to secure our backlog, but due to the uncertainty surrounding the current environment, we are unable to provide guidance on what we think the second quarter or full year might look like. We have always prided ourselves on the level of transparency and information we're willing to provide, but at this time, it's just too difficult to predict, with accuracy, given the impacts of COVID-19. Thanks and I'll now turn the call back over to Sheryl.

Thank you, Dave. So, before we move into Q&A, I'd like to turn to a few national local market updates, beginning with what we're seeing in the mortgage interest rate environment. Although rates have remained at historical lows, there has been extreme volatility in the market, in general. Luckily for us, we have one of the most tenured and experienced teams in the homebuilder mortgage industry that has helped us strategically and creatively navigate the erratic interest rate environment. Initially, rates moved higher as strong refinance demand quickly overwhelmed the industry's capacity to meet demand. However, while capacity has somewhat adjusted, credit and economic uncertainty has since added new pressure to lenders as the mortgage market attempts to price for the new higher risk environment. And amid the rapidly changing environment, we empowered our mortgage loan consultants to quickly help our customers secure the lowest rate and provide formal mortgage approvals before credit tightening could affect their qualifications. Within days of shelter-in-place orders, our outstanding March projected closings were locked in. And by the end of March, nearly half of our April projected closings were secured. This is important because when a customer locks their interest rate, certainty around closing is significantly higher, as now the lender is able to provide a formal approval giving the customer certainty of payment in terms and also reaffirms the customer's commitment to the transaction. During these unique times, we have seen this as the single most important customer affirmation in the process. This strategy strengthened the visibility into our backlog and provided confidence about closing dates. We continue to see strong lock activity with our projected closings for May, secured with historically low interest rates in June well on its way. Taylor Morrison Home Funding has been a key part of our business for a long time and allows us to assess the strength of our customers' financial situation and ability to consummate their home purchase. This has always been vital to our business, but never more than it is today, given the impact of the government's forbearance plan and rising delinquency rates on the broader mortgage industry. As these dynamics continue to unfold, we expect continued disruption. However, at Taylor Morrison, our platform gives us the ability to navigate these headwinds while ensuring we can continue to serve our homebuyers with attractive and convenient financing options. Historically, we've strategically chosen not to retain servicing of our mortgages. So, the company does not have the forbearance servicing financial burden that other mortgage companies are currently facing. However, we have quickly pivoted in response to the contraction in sub-servicer availability and chose to engage in loan servicing for a portion of our loans that we originate going forward. This decision alleviates the overlay challenges that have constricted credit availability across the industry and importantly illustrates the nimbleness and strength of our mortgage platform that allows Taylor Morrison to provide strong mortgage options for our homebuyers. One last point worth mentioning is that although an incredible amount of work went into innovating our business operations seemingly overnight for the current virtual environment, we expect these innovations to serve us well beyond these challenging days, a silver lining in tough times. We also know a second wave of tremendous work is upon us as the economy begins to reopen, and we blend our new virtual wins and innovation into our normal business operations. We have documented our plan to generally align with how the President's three-phase approach will work for our business, and we stand ready to get to a fully reopened state on a market-by-market basis. In fact, that work has already begun in Texas, Georgia, and the Florida market, which lead the nation in reopening. While transitioning is going to be hard work for all companies, Taylor Morrison included, we do feel comfortable that we've positioned ourselves to move as quickly as possible, given the size of the business, our daily communication and the decisions we've made to preserve liquidity. One of the lesser talked about challenges when it comes to reopening businesses will be how we delicately handle the anxiety from team members and customers alike, who are fearful about reentering back into society. A focus on health and wellness is one of the core tenets of our culture, and we have a long history of caring deeply about the health of our communities. As a result, a significant part of our plan to fully reopen includes aiding our customers, team members, and trade in ensuring they are healthy on all levels and feel safe. During these difficult times, it was really nice to receive some good news a couple of weeks ago when we found out that Taylor Morrison was named Builder Magazine's 2020 Builder of the Year by Hanley Wood and Meyers Research. There were many achievements that elevated Taylor Morrison to the top for this award, but a few key reasons they noted were our talent, trust, and litany of M&A milestones, but more importantly, for the compassion and customer care we infuse into every interaction. This award is a nice reminder of how our organization continues to be perceived, and I'm truly honored to receive the distinction, knowing wholeheartedly, we accomplished it with so much passion across our entire organization. I'm very proud of the Taylor Morrison team members for this achievement, and I look so forward to celebrating with all of them as soon as we can. So, before wrapping, I would like to acknowledge how incredible it was to watch the entire homebuilding industry come together to collectively support the communities and cities that we build in. As the PPE shortage came to light in certain parts of the country, team members gathered masks, face shields, and goggles, industry-related organizations like HomeAid also stepped up and served as a conduit to aggregate these supplies and get them delivered to the places where they have the largest impact, primarily the medical community. While we're normally seen as competitors, it's times like these that make you take a step back and realize there are things outside of the industry that can bring us all together to support a common cause, much bigger than any of us. I always end our calls with an enormous thank you to our teams across the organization. I also don't want to forget our trade and business partners as well. They all deserve that recognition now more than ever. It's a true honor to lead such a selfless and caring organization. Their innovation in times of crisis and the relentless pursuit of doing the right thing for all of our customers, both internal and external, is inspiring. And lastly, but certainly not least, a special thank you to the front line of Americans across medical, emergency, and service industries that have worked tirelessly through this global healthcare crisis. With that, I'd like to open the call to questions. Operator, please provide our participants with instructions.

Our first question comes from Jack Micenko with SIG. Your line is open, please go ahead.

Hi, good morning. I hope everyone is doing well. Sheryl, thank you for providing more details about operations. You shared a lot about order trends and activity in April. Given that you recently integrated William Lyon Homes, could you provide a comparison of April activity this year versus last year on a same-store basis?

Yes, interestingly enough, Jack, I don't have the numbers split because we integrated all the communities and obviously, all the overlapping markets. But what I would tell you is if you go back to 2019, you'll see that through the year as our sales success ramped up, we closed out of a number of communities. So when I look at the comparison of communities from the end of Q1 2019 to the end of Q1 2020, the good and the bad is there was not a real difference. There was only an average of six communities' difference because of our closeouts last year and our ramp-up moves through this year. So, you don't really have to peel them apart because candidly, the numbers quarter-over-year are pretty similar. So, the pace is up, and that's what really mattered.

Okay. And then Dave, without providing guidance, you've expressed some confidence regarding margin improvement in the second half of the year despite limited visibility for everyone. So, the question is whether a lot of that improvement is already secured. What kind of incentive environment are you anticipating in that scenario? How much of the purchase accounting impacts this, and could you clarify how much is within your control versus what isn't?

Thank you for the question, Jack. To start, the primary factor driving this is purchase accounting. When we discuss overall margin improvement in the latter half of the year, we are essentially working through that purchase accounting. In the first quarter, we saw around 220 basis points from this, and I expect something similar in the second quarter as we address the work-in-progress inventory. However, we anticipate a moderation in the second half of the year, which will be a significant contributor to improvement. Additionally, while you mentioned incentives, we are also considering the cost environment. Input costs have generally decreased compared to previous levels, which should benefit us moving forward. In terms of our core business, we are effectively leveraging our advanced vehicles, as their margins are aligning with our overall business. We have completed the integration work on the advanced vehicle side. However, we are facing challenges due to discounts and incentives related to current market conditions. Looking ahead to the first quarter deliveries, our incentives have decreased both year-over-year and sequentially from the fourth quarter. There is a possibility for an uptick in Q2 as we navigate the current market atmosphere. We plan to adopt a similar strategy to what we've implemented during past slowdowns. Currently, we are focusing on refreshing our incentive offerings to create urgency and will also implement incentives as we work through our finished specifications inventory to ensure we efficiently manage our assets.

I think one interesting point to add on is, as Dave said, our incentives were down year-over-year sequentially. About half our sales have been spec homes, and about half our sales have been out front to be built. Our incentives are focused on quick closings. So, even with that, it's been interesting to me to watch the amount of future business that's coming in the door today.

Okay. Thanks. And good luck.

Thank you.

Thank you and our next question comes from the line of Ivy Zelman with Zelman & Associates. Your line is open, please go ahead.

Thank you and good morning guys. Appreciate all the excellent insights, and I know how tough it must be in this environment. But kudos to you on the website and the virtual sales. So, first, let me just understand, Sheryl, did you say you guys are servicing now or are you servicing with a sub-servicer? Just want to clarify.

No, Ivy, absolutely. As I mentioned, we have had to make some adjustments due to the exposure that emerged in the industry. We are now using aggregators and co-issue servicers to reduce the impact from the correspondent lending channels. I believe you understand the reasons behind this shift, but our goal is to ensure we provide the best mortgage experience for our customers without encountering the disruptive pricing issues we've faced. Currently, we are selling to Fannie and Freddie as we find this to be the best execution strategy with pricing advantages. Previously, we sold all of our loan volume to aggregators, with servicing released often being our best option. Now, we have started servicing loans and using a sub-servicer, which increases our options and helps us better manage risk and profitability with minimal disruption.

No, I understand why you did it and makes sense. Could you break down the products in terms of mortgage type? How much is conventional versus government versus jumbo?

Yes, absolutely. I think it's interesting. We haven't seen any real shift over many, many quarters. But right now, if I look at Q1 2020 about 81% with conventional, about 8% FHA. That's up from 6% last year, but that makes sense with the added units with William Lyon. 8% VA and only 4% jumbo, which is way down from close to 9% last year.

Got it. And while you provided very good detail around the change from beginning of April to the end of April, you really didn't say just flat out what the year-over-year decline was like other builders have provided. So, is there a reason that you're not telling us?

No, there's not a reason. I would tell you that year-over-year, it's about 30%. But I look at the gross sales and the net sales. When I look at the total net, the net is down about 30% because, as I said, we really took an aggressive stance in cleansing our backlog, started that in early mid-February with the acquisition, just to make sure we clean that up and then obviously continued forward with COVID. When I look at the growth sales, I'm quite pleased, but I'm happy to cleanse our backlog, which gives us a net about 30% down year-over-year.

Great. And it's relative to the industry, that's kind of a little bit better middle to better than average, I'd say, with respect to what we've heard so far. Within your backlog, the move-up buyer likely has a home to sell, and selling homes right now is difficult. Do you have concern? Or do you feel the deposits are big enough? Can you just give us some color around those buyers that have a home to sell and backlog?

As I mentioned, we are actively reviewing our backlog to understand our customers' situations, particularly those with homes to sell or close. A few weeks ago, I noted that about 6% or 7% of our backlog had a contingency. As Dave highlighted in our prepared remarks, we are reassessing our backlog before we commence construction. We want to ensure we have complete visibility when starting a new home for a customer. While nothing is guaranteed, this process certainly minimizes our risk. Our track record shows a very low cancellation rate, demonstrating our strong controls over the backlog, which gives me confidence. Additionally, we have been monitoring all COVID-related risks, including furloughs, job losses, and pay cuts, and have implemented a rigorous process regarding the backlog. I would also like to mention that in the last four to six weeks, our cancellation rate has significantly improved. It started at around 50% six weeks ago and has now fallen to single digits, indicating that we are returning to a normalized state in our backlog.

Fantastic. Good, very impressive. Could you lastly provide some insight regarding your stock being affected significantly, particularly in relation to Houston exposure and energy prices? It would be helpful to discuss where you are seeing the greatest impact compared to areas of outperformance, especially since you're in Vegas.

Texas is experiencing a variety of situations. Austin has remained exceptionally strong. With ongoing integration and conservative stay-at-home guidelines, last week, Austin achieved the highest growth and net sales across the company, which was unexpected. Although we've reopened Texas and begun Phase 1 of returning to work, market responses differ. Austin is still quite conservative regarding consumer outlook, while Dallas is more moderate, and Houston didn't adhere to stay-at-home orders during COVID and isn't now either. Houston is facing unique challenges, especially concerning oil pressures, which are presenting additional market headwinds. The landscape has shifted significantly since we were heavily dependent on oil and gas. Currently, around 1.2% of the Houston workforce is linked to oil, and our community count there has reduced from 23% in 2014 to less than half now. Our business volume in Houston has transformed, reflecting in our balance sheet as a low percentage. Remarkably, we continue to secure deals even over the past month. Kansas is performing similarly to the national average. In Georgia, particularly Atlanta, we're serving first-time buyers well, maintaining the lowest cancellation rate in the company, and affordable offerings are thriving. The in-town market is slower to rebound, but we've noted significant website traffic in the last ten days. In California, markets are responding differently. Southern California is performing consistently, with sales strong in the Inland Empire and lower price points gaining traction as inventory diminishes. However, the ethnic buyers in Irvine are returning slowly, particularly at higher price points. In the Bay Area, there have been very restrictive measures, but we’re seeing some improvement lately. Similarly, the PAC Northwest, including Seattle, faced restrictions but has just reopened, though public activity is still cautious, leading to an inventory backlog. Portland, conversely, is thriving with solid sales across various sectors. Arizona remains robust, having previously shown strong performance before COVID, and is expected to reopen soon. Colorado is becoming a key market for us with more affordable price points and is doing well. Lastly, in Florida, active adults are very engaged yet slow to schedule appointments, but cancellation rates remain low. I hope this overview helps clarify our market positions.

Absolutely. Thank you so much. Good luck.

Thank you.

Thank you and our next question comes from the line of Michael Rehaut with JPMorgan. Your line is open, please go ahead.

Thanks very much. Good morning everyone. I hope everyone is safe and healthy. My first question is for Sheryl. I appreciate the update on the 30% decline for April. However, what stands out most to me is the improvement you mentioned in the press release and your prepared remarks. You noted that your sales rate or pace was around 2.5 during the last 10 days of March. I’m curious, although typically we wouldn’t ask about week-to-week fluctuations due to general volatility, if you could share what the sales pace was in the latter half of April, as things may have started to stabilize. This could help clarify some of the fluctuations we observed in the first half of the month.

Yes, I don't have the pace by week, Michael, in front of me. I don't know if you do, Dave. But when I get to the last one week or two, Michael, it's certainly not going to be the pace of what we saw in January, February. But I would tell you it's more akin to the historic business when you're on appointment-only in some parts of the country completely closed, I'm just really encouraged by the paces we've seen.

Yes, I mean to Sheryl's point, Michael, if you look at like February, if you were to kind of extrapolate week by week, we're probably out of four and end of March. And then the last two weeks of March, kind of early April, that was one. And then as we kind of got to mid-April through the rest of April, again, extrapolating week by week, you're probably a two-plus building throughout the weeks.

Yes.

Okay, that makes sense. I would like to explore the comments regarding mortgage tightening and the adjustments you've made on the servicing side with sub-servicers. Specifically, how has the tightening of lending standards affected the potential buyer pool? You mentioned that you have 8% FHA, another 8% VA, and some jumbo loans, but I'm curious about the conventional product as well. Can you provide insight into whether this has reduced your buyer pool and any rough percentage impact on your buyers? Additionally, I would like to clarify whether the changes with sub-servicers pose any servicing risks for Taylor Morrison or the home lending company.

There’s a lot of information to unpack, but I'll do my best, Michael. TMHF has built a solid network of aggregators with long-term relationships that have enabled us to enhance our product offerings and ensure the best execution. As you know, we are also approved as a lender with Fannie and Freddie, which allows us to sell our loans directly to the agencies instead of relying on third-party aggregators. This is crucial for us, as it helps us avoid some of the restrictions they’ve instituted due to the disruptions in the servicing market. Consequently, TMHF has been able to reduce much of the credit tightening for our customers across various categories. We are noticing that many lenders and aggregators are increasing their minimum credit score requirements, with FHA scores ranging from 640 to 660 and jumbo loans around 700 with a 20% down payment. I’m pleased that we can still qualify customers at a 640 credit score, although the current pricing reflects the risks associated with those lower FICO scores. We adapted to the market conditions by allowing ourselves to retain the servicing on some loans where the servicing market has become less favorable or irrational in terms of pricing. This strategy enables us to continue serving our customers while sidestepping the broader market credit tightening. Our FHA segment has been most affected, as noted, with about 10% of our past being FHA. Currently, our closed FHA buyers this quarter have an average credit score of 696, while our backlog for first-time buyers is around 709. We are in a strong position. Additionally, while jumbo and non-QM programs have also faced significant challenges, TMHF's relationships with various mortgage product providers have not hindered our capabilities. Our sub-servicer is Dovenmuehle, a well-respected servicer. Since we are just starting with servicing, we aren't encumbered by any prior liabilities like others might be. We also have a strict process to help consumers understand forbearance and what needs to happen before closing a loan. Therefore, I believe any downside risk is very limited.

Thank you.

Thank you.

Thank you and our next question comes from the line of Jay McCanless with Wedbush. Your line is open, please go ahead.

Hey good morning. Thanks for taking my questions. The first one I had is, could you give us what the community count was, the actual count at the end of the quarter? And then also maybe what your split is now in the community count between first time move-up and active adult?

The ending count is 410. And then the breakout between type, I don't have that.

I don't think we have it by community. We could pull that, we don't have that with us today.

Okay. I will follow-up later on.

What I would share is a third of our buyers generally are that first-time buyer. And when I look at total units, I don't have it by community count. 20%-some, 20%, that's 50%-plus, depends if you're talking age-restricted communities or serving that buyer. So, the ratios haven't moved very much.

It's good to hear. And then just staying on the active adult. If, I think, I heard your comments correctly, Sheryl, that the cancellation rates aren't moving up but the traffic isn't really coming back. I mean has that changed since we moved into May or is that buyer still pretty tentative? And I know you talked about that in terms of Florida, but you guys also have some active adult in North Carolina, as well as Arizona. Are you seeing the same responses from that active adult customer in all those different states or is it mostly just a Florida issue?

No, that's a great question. The behavior is a bit different. For instance, in Houston, we have observed a noticeable uptick in our active adult buyers over the past couple of weeks. In Florida, particularly in Naples, we're dealing with very discretionary buyers who were hit hard initially since they represent second homebuyers. However, we are noticing some increase in activity there. In Sarasota, sales are improving week over week. As I mentioned, these buyers typically desire a physical experience and represent a small portion of the virtual buyers who prefer online tours and appointments. We are also planning to launch an online lot reservation system, initially for inventory, which will eventually expand to other product offerings. That said, these buyers are not likely to engage significantly in that virtual experience. With Florida reopening and the developments we've observed in the past two weeks, I feel optimistic about the engagement levels. Our sales team is actively communicating with them daily and scheduling appointments, leading to an increase in visits to our sales offices.

That's great. Thanks for taking my questions.

Of course.

Thank you and our next question comes from the line of Mike Dahl with RBC Capital Markets. Your line is open, please go ahead.

Hi, thank you for taking my questions. I have another one regarding mortgages. It appears that your team has been quite proactive and thorough in addressing the backlog. Could you provide a bit more insight into that process? What percentage of your backlog is expected to close in the next three months or in the second quarter? Have you been able to verify that employment income and qualifications are still intact? Additionally, Sheryl, I apologize for the multipart question, but you mentioned the rate lock, which is interesting. We've also heard that lenders are requiring reverification at the closing table. Do you have any information on whether there have been cases where rate locks were secured, but the deals fell through at closing due to changes in qualification?

Yes, that's a great question. We discussed this thoroughly at the start and made a proactive effort to empower our frontline loan consultants. We adjusted our approach to ensure rates are more favorable for consumers given the changes in guidelines. The rate lock has really helped us with this. Our lock pull-through is in the low 90% range. Interestingly, even though there is an emotional commitment, we are successfully retaining those buyers once we lock. This is why we believe it's crucial to understand our backlog. We have a confirmation process before locking, and you’re correct that we need to do it three days in advance. We are managing to pull buyers through, and it's a critical part of our approach. April is behind us, and May is locked. I believe last time I checked, we were in the 30% to 40% range for June, but it’s now at 58% based on my most recent report. I’m optimistic about the next 90 days, and we are still selling spec homes for the quarter.

Okay, great. That's helpful. And my second question, obviously, there's been some concern within the investment community just around the timing of the William Lyon close relative to then a precipitous drop in home builder valuations. You guys didn't have any impairment, this quarter, not surprising, so early on. But can you give us any more color on just as you kind of close the deal and then subsequent to the COVID issues as you've kind of reevaluated or walk us through what you've done to get comfort around the William Lyon land values post us entering into this downturn?

Sure. You can imagine that you’re not the first to ask that question. We have spent considerable time reviewing the assets over the past few weeks and I can assure you that our conviction regarding this transaction remains as strong as it was when we reached an agreement last summer. This wasn’t meant to be a short-term initiative for us. Although I could never have anticipated a pandemic that would lead to a situation where, shortly after closing, we had to send employees to work from home, we have maintained our integration efforts and our understanding of the land bank has remained consistent. From my perspective, the strategy continues to be unchanged. We have incorporated some excellent long-term markets into our portfolio as well as high-quality assets, and we have gained significant scale in Austin, Denver, and Southern California, which enhances our consumer offering. As we move towards reopening, we will continue to evaluate the individual assets and apply the same processes we used for the Taylor Morrison assets. We will keep leveraging the synergies. As mentioned earlier, we are confident in achieving the $80 million target, and as we expand the business, we expect to see further improvements. When a business like this is up for sale, there’s work involved, which is why we acquired it at book value. We have developed strong capabilities in enhancing business opportunities, and these assets will remain valuable to us well beyond the COVID crisis, and we are committed to optimizing their performance. We are feeling positive about it.

And the ancillary benefits, as Sheryl said, around scale. I mean you're seeing what that's helping to do on the SG&A line. Our backlog has remained strong, relatively intact. And like other folks, we're focused on building up cash, getting that liquidity and the combined business and what we're able to generate from a cash flow perspective is actually really strong, and you saw our net debt-to-cap ratio. It's ahead of where we thought it would be. So, yes, the timing is tough, sure. But when we look at the longer play, we're still very excited about the William Lyon transaction.

And sorry, I think I'm going to throw one more thing on top. Dave talked in his prepared remarks about the great work the team has done on looking at the deals that were coming through the pipeline, I would say two-thirds of the deals that have come through our investment committee have had some changes made to it and those have generally been around deferring dollars. On average, we've deferred takedowns on average about 150 days on about $300 million. A good chunk of that is William Lyon. And so that gives us more time, Michael, to really get under the skin. A lot of that is those landing deals that they had to really work with those land sellers to be able to optimize those assets.

Okay. Thanks. That's really helpful.

Thank you and our next question comes from the line of Matthew Bouley with Barclays. Your line is open, please go ahead.

Hey, good morning. Thanks for all the detail today. Hope you guys are well. Sheryl, I wanted to ask about the 20% of sales that are coming through virtually in April. I guess, number one, presumably, that's more weighted to spec product. And number two, if there is some traditional to-be-built in there. I guess what are those customers that are closing virtually? What are they doing with the design features and options and upgrades through that process? Thank you.

Yes, great question. We're excited about this development. It marks the beginning of allowing our customers to interact with us in their preferred manner. They now have a direct line to our sales team, enabling them to set up appointments online. Customers have various ways to engage with us, including virtual tours or scheduling an in-person meeting to discuss contract signing or option selections. Notably, around 80% to 85% of online appointments have been for in-person meetings with our sales team. This indicates that many customers still value face-to-face interactions, but this process offers a personal touch and a more exclusive opportunity. As we move forward, we plan to further enhance this self-service approach to align with how customers shop for other products. For instance, we're introducing lot holds that allow online deposits. I'm enthusiastic about this, especially since 20% of those sales involved customers who had no prior contact with us. They made an online appointment, navigated through the process virtually, and then completed a contract without ever visiting a model in person. Just a year ago, such a scenario would have seemed unimaginable, especially at these numbers.

That's great color, yes.

And the last thing, as I think forward and the real opportunity is the co-broke. Imagine what the future opportunity that is for the industry and the business if not everyone's represented at the same levels we've seen with brokers.

It's a very interesting dynamic. And then, I guess, shifting gears on the construction side. Have you sensed any changes around the construction process? I know this has happened so quickly. And I guess it's got to be market specific, but just with social distancing on the job sites, perhaps any incremental move toward off-site manufacturing or perhaps going forward, would you think this accelerates some of those trends? It's a great question. I'd say, first, as we look out there we've seen, obviously, changes out in the field. We haven't seen it come much in the way of impacting the cycle times as of yet, but obviously, COVID-19 is still fairly recent. So, we're watching that closely when it comes to trades and I'd say municipalities as well. I don't know from an off-site standpoint I think our position is still the same. There are opportunities ahead that will impact the industry going forward. This may help further that along. But again, this is all just so recent. I don't think we've seen any great strides or changes in that short term. But this, just like it did with virtual sales, could add maybe another layer of progression to the industry over time.

Health and safety in general has been quite strong. Recently, I came across a statistic indicating that construction is among the safest sectors regarding COVID cases. Implementing safe distancing measures in the field has been relatively straightforward, and our trades have excelled in this regard. The trades have mostly remained on-site and maintained high productivity, with some areas even showing improvements in cycle times. As Dave mentioned, some other work may be more marginal. We are still engaged, but it hasn’t been the primary focus over the past six to eight weeks.

Got it. Thanks again for all the details. Hope everyone stays well.

Thank you and the same with you.

Thank you and our last question comes from the line of Alex Barron with Housing Research. Your line is open, please go ahead.

Thank you for taking my question. I appreciate your time. I wanted to ask about the transaction costs. Have you booked all of them for this quarter, or should we expect more for the next quarter?

We had about $86 million in the quarter. What we've said previously is it's probably going to be around $100 million. I think you'll see a chunk of that probably in the second and third quarter, but then we'll obviously dissipate after that.

Okay, great. Thanks and stay safe.

Thank you.

Thank you. And I would like to turn the conference back over to Sheryl Palmer for any closing remarks.

Thank you, operator and thank you all for joining us for our Q1 call. Thanks for hanging with us. I know it's a long call; we wanted to make sure you had all the information. Stay well, stay safe and we will talk to you next quarter.

Ladies and gentlemen, this concludes today's conference. You may all disconnect.