good morning and welcome to taylor morrison's first quarter 2026 earnings webcast 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 mckenzie aaron vice president of investor relations thank you and good morning everyone before we begin let me remind you that this call including the question and answer session will include forward-looking statements these statements are subject to the safe harbor statement for forward-looking information that you can review

in our earnings release on the investor relations portion of our website at taylormorrison.com these statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the SEC, and we do not undertake any obligations to update our forward-looking statements. In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in the release, where applicable. Now, I will turn the call over to our Chairman and Chief Executive Officer, Cheryl Palmer.

Thank you, Mackenzie, and good morning, everyone. Joining me is Kirk Van Hefty, our Chief Financial Officer, and Eric Huser, our Chief Corporate Operations Officer. I am pleased to share the results of our first quarter performance and look forward to providing an update on the progress we are making towards our strategic priorities for the remainder of the year. Our first quarter results reflected the effectiveness of our diversified strategy, the quality of our core locations, and the disciplined execution of our teams. We delivered 2,268 homes at an average price of $578,000, generating home closings revenue of approximately $1.3 billion at an adjusted home closings gross margin of 20.6%. This drove adjusted earnings per diluted share of $1.12 and 11% year-over-year growth in our book value per share to $64. On the capital front, we invested $503 million in land and development and $150 million in share repurchases and ended the quarter with $1.6 billion in liquidity. As I shared on our last earnings call in February, early signs heading into the spring selling season were positive and the quarter played out largely as we expected, with sales activity building through the quarter and March representing our strongest month. That momentum is consistent with normal seasonal patterns, albeit with slightly less acceleration than we have seen historically, reflecting continued consumer cautiousness. April started off somewhat slower, as typical, coinciding with the holiday weekend, but momentum then picked back up and we're looking forward to a strong end to the month, even with all the headline noise. Most importantly, as we prioritize the balance between price and pace, we achieved our first quarter sales with a significant increase in the share of to-be-built orders to 38 percent from 28 percent in the fourth quarter. As a result, we began to rebuild our backlog, which increased 23 percent from year-end to 3,465 homes. As we anticipated, this re-acceleration and demand for to-be-built homes suggest that historic buyer preferences are re-emerging as excess spec inventory is cleared across the industry, and our new community openings support compelling value propositions for our shoppers to personalize their new home. One way in which we are helping drive this shift is through design center open houses, which enjoyed record attendance in the first quarter at over 140 events across the country and drove to-be-built sales activity with a strong average conversion rate of 23%. We are further supporting this shift with mortgage incentive programs that provide confidence to our bill-to-order customers and enhance their buying power, generally at less cost than incentives required for spec sales. In addition to this favorable mix shift, we also realized more than 100 basis point sequential reduction in incentives on new orders. And lastly, we made significant progress in selling through our finished inventory, which declined 30% from year-end to 863 homes as we reached targeted spec levels in most of our communities. We have positioned 2026 to be a year focused on setting the stage for re-acceleration of growth in 2027 and beyond. This includes a plan to open more than 125 new communities this year, roughly 30% more than we opened in 2025, including about 40 that already opened in the first quarter. Supported by an enhanced community opening framework that is helping our teams execute these openings successfully, another 45 or so communities are scheduled to open this quarter during the remainder of the selling season. These openings support our expectation that we will end the year with between 365 to 370 communities, which would be at 8% at the midpoint compared to 341 communities at the end of 2025. These communities will generally begin contributing closings later in the second half and into 2027. I'm particularly excited that over 20 of these new openings are in Esplanade communities. This includes the anticipated grand opening of our first Esplanade in Nevada. Providing unmatched views of the Las Vegas skyline, this community is already enjoying significant interest with a $1,400-plus lead list and is expected to command record lot and option premiums. With Esplanade consistently generating superior home prices, mid to high 20% gross margins, and strong demand resiliency, the growth in this unique segment of our portfolio is expected to be an important driver of our future performance. Since we last spoke, the market has been faced with another round of geopolitical turmoil, intensified macro uncertainty, and a shift higher in mortgage rates. As we would expect, consumer confidence has been impacted by these developments, exasperating affordability constraints and AI-related employment concerns. However, we believe the underlying desire for the homes and communities we build remain strong, even as the broader macro environment has given consumers reason to be more deliberate in their decision making. On the policy front, we continue to have positive dialogue with the administration regarding how we and the industry can contribute to enhanced affordability and housing accessibility. While any solutions are likely to be incremental, we are encouraged by ongoing focus on this issue and are pleased with the progress we are making in advancing constructive proposals. Eric will touch on read-throughs to our Yardley business in just a moment. Before I turn the call over to him, I want to touch on the progress we are making in technology. Our online reservation system continues to be a standout example. In the first quarter, we recorded over a thousand reservations with a 58 percent conversion rate. Reservation buyers continue to transact at a higher average selling price with stronger option attachment than our non-reservation sales. Encouragingly, we achieved the lowest co-broke rate we have seen in years, reflecting the power of our reservation platform. On the AI front, we now have more than a dozen AI-powered applications in production across finance, sales, purchasing, and customer experience, and adoption has more than doubled year over year, with over 2.4 million internal AI interactions recorded in the first quarter alone, compared to approximately 3 million for all of last year. On the customer-facing side, our AI-powered contact center is delivering real-time agent coaching and dynamic scripting on every customer call with automated quality management applied consistently across all interactions, driving improved customer satisfaction and sales outcomes. These investments are translating directly into results with an increase to more than 11,000 online sales appointments generated in the first quarter. We are achieving all of this through technology and automation, not incremental spend, with more than half of these capabilities built in-house by our own teams. As a result, our overall technology costs are declining even as these capabilities continue to scale. There are many more initiatives advancing through our project management office that I look forward to sharing as they go live in the months ahead. In closing, our ability to reaffirm our full year 2026 guidance in the face of a more challenging macro environment speaks to the underlying strength of our business and the effectiveness of our diversified strategy. We are concentrating our resources where we have the greatest competitive advantage, managing costs and capital with discipline, and positioning taylor morrison to establish an even stronger and more differentiated portfolio i believe the actions we are taking today will separate us in the years ahead as we look to continue creating value for our customers our communities and our shareholders with that let me turn the call to eric thanks cheryl and good morning everyone at quarter end we owned or controlled 75,000 home building lots, of which 51% were controlled.

While our controlled ratio has recently declined due to normal course takedowns and our active re-evaluation of our deal pipeline against current market conditions, we still intend to manage toward our long-term target of at least 65% control. Based on trailing 12-month home closings, we owned three years of lots out of a total of 6.2 years of a controlled supply, which we believe is the right balance in today's environment, a cerning customer base with approximately $2 billion of planned home building acquisition and development spend in 2026. In the first quarter, we invested $579 million for lot acquisitions and $224 million for development. As we deploy this capital, we will remain prudent and balanced in our use of land financing tools. These include seller financing, additional option agreements, and land banking, and we selectively deploy each as we seek to and return at the individual asset level, financing when available, as it tends to be the lowest cost. When it is not, we evaluate JV structures as a diversified and flexible pool of structures that allow us to cost-effectively control lots off balance sheet or defer cash outflows to improve our returns and manage our portfolio risk. Given the increased investor focus as of quarter end, approximately 10,000 of our control lots were in a land bank, representing approximately 13% of our total lot supply and about 25% of our control lots. Our remaining control lots were sent in JVs, 26% in single takedowns, and 16% in traditional lot options. Our selective use of land banking in context, in the first quarter, only 6% of our lots approved by our investment committee were tagged to be financed via a land bank. We believe this balanced competitive advantage and one that is reflected in our relative gross margin performance with only about 25 to 30% interest in the first quarter attributable to land banking and seller financing related project finance. Turning to another area of focus, our built-to-rent platform, Yardley, department communities. Our engagement with policymakers and their general recognition that Yardley's model is fundamentally distinct as that policy dialogue evolves with flexibility around product and execution. We closed on the sale of one JV-owned Yardley community for approximately $41 million dollars during the quarter. We now have 16-13 projects currently under development. Supported by our land bank, roughly 90% of Yardley's total units are approximately $320 million at quarter end. While we await greater clarity on the regulatory front, we remain confident in the long-term demand dynamics for this unique rental offering that provides affordable housing solutions for those seeking an alternative to traditional multifamily apartments, often before being ready to commit to homeownership. Now, I will turn the call to Kurt.

Thanks, Eric, and good morning, everyone. I will begin with the details of our first quarter financial performance and then review our guidance. Reported net income was $99 million, or $1.1. Adjusted net income was $109 million dollars or one dollar and 12 cents per diluted share a million dollars this compares to reported debt income of two cents per diluted share in the first quarter of 2025 roughly in line with our guidance with 2 268 homes delivered at an average price of 578 thousand dollars generating home closings revenue of approximately 1.3 bound from 1.8 billion dollars in the first quarter of 2025 closing volume adjusted home closings gross margin of nearly 20 percent driven by several factors including favorable costs as well as product and geographic mix during the quarter on a reported basis home closings gross margin was 20 percent inclusive of 8.2 million dollars the gross margin of 24.8 percent and reported gross margin of 24 4% in the first quarter of 2025. As anticipated, the decline reflects a higher mix of spec home closings and elevated incentive levels. Looking ahead, we expect that our margin trajectory will be shaped. On one hand, the recent rise in mortgage rates and a more cautious demand environment are likely to sustain. On the other hand, the progress we are making in rebuilding are to be gross margins than spec closings and as those sales convert to closings to be the primary driver of margin recovery. The margin improvement beginning in the second half of the year depended on how the sales and interest rate backdrop evolved through the remainder of the this also assumes relatively stable construction costs at mid single digit lot cost 149 million dollars in the first quarter or 11.4 percent of home closings revenue compared to 9.7 and 25 due to the de-leveraging impact of lower revenue sgna expense 18 year over year and payroll costs as we have effectively managed our over ramp through the year we expect the sgna ratio to improve toward our full year target in the mid 10 orders in the first quarter total 2 914 homes down 14% year-over-year, $1,000, up from 2.4 in the fourth quarter of 2025, but below 3.3 in the first quarter of 2025. Both sequential cancellation trends remained manageable, with our cancellation rate at 10% of gross orders in the quarter, down from 12.5% in the prior events a year ago. this was the lowest cancellation rate 24 2.2.1 in the prior quarter and 3.3 a year ago reflecting our management of spec production as we work through existing year over year we have greater flexibility to start and close homes we also made progress in working through our decline 30 while total specs declined nine percent to two thousand six hundred in 92 which is roughly in line with targeted levels. Net interest expense was 11.2 million and banking activity increased modestly year-over-year. Approximately one hundred and of eighty percent of quality in balance sheet. We ended the quarter with total liquidity of approximately 1.6 and no outstanding utilization ratio was until 2020 after investing for one hundred and fifty million dollars and sixty one dollars per purchases this year with $863 million remaining on our $1 billion from our full year 2000, all key metrics, $2,000. Community count is $365 and $370 by year end. Expect our home building land investment repurchase approximately $95 million for the full year. Expect to deliver between two and gross margin of any inventory. Community count expected to be approximately bridge diluted share count is expected to be approximately $95 million.

Thank you, Kurt. As I reflect on the first quarter, I am proud of what this team delivered. In a market-facing, elevated uncertainty and consumer caution, we exceeded our gross margin guidance, rebuilt our backlog, made meaningful progress on spec inventory, and reaffirmed our full-year outlook, all while continuing to advance the strategic priorities that will define Taylor Morrison's next chapter. None of this happens without the dedication and discipline of our team members who show up every day to serve our customers and execute our strategy. To our teams, thank you. Your commitment is what makes this company exceptional. Looking ahead, I'm confident in the strategic direction we have chartered, the pivots we are making, concentrating our portfolio in the strongest markets and consumer segments, scaling our footprint, and especially our Esplanade Resort lifestyle brands improving our sales mix and deploying technology to drive efficiency are already bearing fruit as we continue to execute through 2026 we're laying the groundwork for a re-acceleration in 2027 and beyond i look forward to sharing our continued progress with you thank you to everyone who joined us today operator please open the call to questions We will now begin the question and answer session.

Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Matthew Booley with Barclays. Matthew, your line is open. Please go ahead.

Good morning. You have Elizabeth Langen on for Matt today. I just want to say thank you for taking the questions. thank you i was wondering if you could touch thank you um i was wondering if you could touch on the you know maybe your expectations around the cadence of margin here with your 2q guide it's implying you know maybe you have to step down um and then you noted that things should improve through the back half as you increase your mix of to be built homes is that going to look more like a one-time step up, or is that going to be more of a sequential improvement throughout the year?

Yeah, hi, Elizabeth. Great question. Maybe just to kind of start with kind of Q1. In Q1, as we alluded to in our prepared comments, we did have several factors that went into the margin, and I just want to touch on a couple of those relative to the mix. So on the mix front, we did close more homes than anticipated in our higher margin divisions. So that was a key contributor. We also closed more to be built in the quarter than anticipated as we pulled some in from Q2 into Q1. And finally, what I would say is we closed fewer homes on lower margin homes that we had anticipated and now have moved into Q2. So when we begin to think about the margin guide for Q2, all of those are then going to reverse and have that impact for Q2, which is kind of one of the main drivers as we looked at developing the guide for the quarter. And so we looked at cost mix, incentives, higher interest rates, and where we kind of landed was when we look at maybe three key areas, the reverse of the mix dynamic in Q1, two, the continued kind of moving through and clearing our inventory, and three, just the higher interest rates that are in the market. And of course, we tend to work with all of our consumers on a one-on-one basis to make sure we're maximizing the efforts for each person's situation. And so that's kind of behind the backdrop from a Q2 perspective. And then when we begin to think about Q3 and beyond, we haven't necessarily guided to that. But based on the progress that we've done relative to clearing the inventory and increasing our to-be-built mix of sales in Q1, we do continue to expect to see that gradual increase in our margins in the back half of the year. Now, the tough thing about that is what is the magnitude of that? And that's going to be highly dependent on interest rate, the market backdrop, consumer sentiment, a bunch of different things. But if all things hold here today, we would expect a gradual increase in margin in the back half of the year.

Okay, thank you. And kind of a follow-up to that, with the potential for the gradual margin increase throughout the year, is that, can you maybe speak about, you know, incentives, like how much that could play into it and you know are you assuming that that 100 basis point stepped down is that something that should be consistent throughout the year or was that more a one-time step down in one queue hi elizabeth this is cheryl thanks for the question um you know the 100 basis point sequential reduction i believe was a real positive and reflects a number of different factors the mix as kurt mentioned the mix of to be built versus inventory homes with that $1,000 basis point improvement.

As you know, these incentives programs tend to be less costly, so the mix is a tailwind, and I hope it continues to be with our focus on to-be-built. Even with the progress we made in selling through finished spec inventory, which declined, as Kurt mentioned, 30%, we were able to be more disciplined in pricing, even on the spec home. Some were correlated to, you know, competition, probably getting off the year-end aggressive incentives, but mostly a discipline in how we are, how low we're willing to go. I think our sales teams did a great job holding the line. As I've said before, we aren't going to sell at any cost. We place just too much value within our communities and we'll continue to sell them from a position of strength. Some communities are going to be about volume, particularly as we sell out of these more remote locations, but others, it's all about capturing value. We also replaced, in many instances, our most expensive forward commitment programs with another version of our proprietary buy-build program, which is allowing our customers to get a lower monthly payment than some of our most aggressive forward commitment rates. rates. I do expect that to continue. And as we've said before, it's all about personalizing a program to meet each consumer's needs. So to your, you know, will it continue overall? The rate environment will clearly be a factor. And, you know, we should expect incentive pressures to persist as long as rates remain elevated. That said, we are very focused on community by community optimization, using every tool available to balance that pace and price as we did in the first quarter. I'd say in total, we're cautiously optimistic that incentive levels will stabilize, but we'll be prepared to adjust as the market dictates.

All right. Thank you very much.

Thank you.

Thank you.

Your next question comes from the line of Mike Dahl with RBC Capital markets mike your line is open please go ahead hi this is a chris on for mike um i was hoping you guys could touch on the your expectations for start cadence in the coming months and the delivery outlook for the second half of this year um you know the 2q guide implies a sequential step down and some some increase in the back half as a result just want to get your thoughts on on timing there 3Q versus 4Q on delivery.

Yeah. Hey, hey, Chris, I can take that one. Thanks for the question. Relative to the starts cadence, as you saw in Q1, I think we started 2,371 homes, you know, and we sold 2,900. So in Q2, and you know, that part of that was as we were clearing out some of the inventory. And now as we look to Q2, we would expect our starts to approximate our sales, which is kind of what our consistent message has been, even though we had to work through some of the inventory on a go-forward basis. So that's kind of what we're aligning to on a go-forward basis for Q2, is aligning our starts with sales. And so you can imagine that we would be taking up our starts in Q2 relative to that.

And the good news is, given what's happened to cycle times, Kurt, we can actually start homes, Chris, much later in year than you've seen over the past so you'll see much more of an even cadence than this you know huge spurt or you know to uh to get to the year and finish line understood appreciate that just going back to the second half gross margin trajectory i realize you guys are putting out guidance but the modest improvement um is there any way you could put some numbers around the mix The mix of step up sounds like your new communities are slated towards the back half of the year. Esplanade is margin of credit. Is there any kind of qualification provided to just the mixed dynamic alone in terms of delivery timing?

I think it will ultimately depend on the spec sales that we sell and close in the quarter. So it's hard to quantify exactly what that looks like. But, you know, as Kurt mentioned, we still have, you know, a number of finished specs, but we've made great progress. We'll continue to make our way through those in the coming quarters. But as you noted correctly, you will see a heavier back end on the tubi belts based on the success we've had first quarter and our new openings with a high focus on tubi belts.

I appreciate all the callers.

Your next question comes from the line of Michael Riho with J.P. Morgan. Michael, your line is open. Please go ahead.

Great. Thanks. Good morning, everyone. Thanks for taking my questions. First, I'd love to, you know, there's been some encouraging trends, I guess, with yesterday's report by one of your large competitors. and this morning around seasonality kind of holding in there. You alluded to maybe the month starting out, month of April starting out a little slower, but starting to pick up again. And I'm curious, as you look at the trends in March and April, maybe better than fear, just given all the macro noise, if you're seeing any relative strength within that across your footprint either by buyer segment you know and in particular I'm thinking about move up or you know active adult or even by region that kind of stands out and in your view is kind of you know anchored or you know led the results that you've seen yeah it's a it's a fair question Mike you know as I

mentioned in the prepared remarks, April started that first week, the holiday week, just a tad slower. But once again, I think when I looked historically at when Easter falls, that was pretty consistent. But then momentum immediately picked up and we're looking forward, as I said, to a strong end of the month, even with all the headline noise we're seeing. But more broadly, I think what we saw through Q1 was pretty consistent with normal seasonal patterns. You know, sales built through the quarter with March being the strongest month. In fact, I think we've seen an improvement in sales every month since late summer. You know, as everyone's mentioned, consumer confidence was clearly has been impacted by the war and just overall macro uncertainty. But as we've said in the past, for the most part, for our customers, it's about should I buy now, not can I? And so what we're seeing is really the underlying desire for home ownership remains strong. I think last year we felt a lot of folks were just hanging around the hoop and they've come off the sidelines. Traffic in our communities remains steady. In fact, we had our lowest cancellation rate since the third quarter of 24. So at 10%, I think that says a lot about the way the consumer is feeling. They're transacted. The ones that are transacting are committed and they're qualified. If I think about some of the regional differences, Mike, you know, as you'd expect, performance was slightly varied across the markets. The West was, I'd say, our most resilient area with orders just down about 8 percent. And they were led by the bay that was actually up year over year. And the rest of the markets in the West were just slightly down. Phoenix was also a pretty nice standout with year over year improvement and absorptions. I also think as I look across the West markets, they were aided with low resale inventory across each of the markets. And once again, pretty consistent across each of the West divisions. When I moved to the East Coast, it was down a bit more, 17%. But I'd remind us that Florida had a very strong first quarter last year and some very difficult comps. But each of the Florida markets held their own. We saw a nice resurgence in Naples for the season. The Orlando business was probably down the furthest. And that was, we had a number of closeout and open new community openings. And we also saw a really good mix shift in communities with our average sales price in Orlando up over $100,000 year over year. when i think about other markets in the east atlanta saw the greatest increase year over year in sales across our entire company and that growth came in both community count and pace and particularly nice to see the job growth in our florida markets and the continued reduction in new supply pretty much across the entire east central was down somewhere in between the two on orders with a sharper, probably what I describe as a sharper closings decline, partly a function of mix and timing of community life cycle transitions. A number of new openings in Houston and Austin. Austin actually finally saw what I would say some stabilization and backlog, had the best sales month in quite some time, and can seem to stabilize. So, in total, Mike, I think, you know, as we continue to shift our strategic priority to core, well-located communities, reduce exposure to non-core locations where we've seen just the greatest pricing sensitivity, I think you'll see continued pickup in our central markets. Across all the regions, we're executing on the same strategy, calibrating incentives, pricing community by community, really balancing that pace and price, doing it through differentiating our product. And I should also mention leveraging our online sales capabilities that really were helpful throughout the course.

Great. That's a great overview. I appreciate it, Cheryl. I guess secondly, you know, I'd love to kind of understand, you know, incentive trends across your markets as well. And, you know, don't necessarily have to go through the, you know, around the world per se, but just maybe even on a broader basis, on a consolidated basis, how would you characterize, you know, incentives as they trended through the quarter? and if you expect, you know, we're starting to hear about some level of stability potentially if you're seeing that and expecting that to persist into the second quarter. And, you know, if that has anything to do in your view with how inventory trends may have potentially also started to stabilize as well, both new and existing.

Yeah, it's a fair question. We talked already about the 100 basis points improvement in sales, but if I were to talk about it broadly, Mike, I would say similar to past quarters, the most expensive incentives tend to be with our first-time buyer group. Obviously, with the success we're having on the To Be Built, that was a good part of the 100 basis point improvement. But honestly, just as much of it came through a reduction in our spec incentives. So it was nice to see it in both areas. When I look at the cost of our forward commitments, the more expensive incentives, they were down quarter over quarter. When I look at our non-contract incentives, they were down. When I look at our contract incentives, they were down. So I'd say pretty much across the business, the exception would be where we had a higher penetration of, you know, specs and first-time buyer business.

Great. Thank you.

And, you know, Mike, the last thing I probably mentioned on that, just because I think it's an interesting stat as we looked at all the numbers, is our incentives were down even though we offered the lowest average interest rate, as we've seen in a number of quarters. So to think that our customers got the benefit of a lower rate and our incentives were down, it was a nice trajectory.

Cheryl, I think as Mike suggested, I think the supply factors are also helping a little bit. If you look at unsold finished inventory, it's really down in almost all markets. across the u.s and the starts per community um have kind of rationalized and so you know as we think about the general new home inventory there seems to be some stabilization and on the resale market i would say in a good way it's somewhat boring you know our markets average about four and a half months um we've seen real stabilization on listings you know only up one percent month on month and pricing actually a little bit of pricing power in the markets in resale so it seems like a general stabilization that's helping that backdrop for both new and resale and we saw what about a third of our communities kurt with some pricing that was just base price adjustments

obviously it'd be a much larger number if we considered a reduction in incentives great thanks again appreciate it thanks mike thanks mike your next question comes from the line of jonathan bettenhausen with truest securities jonathan your line is open please go ahead hey guys uh thanks for taking the questions so you made a comment in your prepared remarks about buyer preferences returning to you know kind of more historical norms can you give us more specifics on what exactly you mean by that you know is that more of a preference towards build to order or are you also you know referring to specific teachers of the home as well

yeah um no fair question i think uh honestly it was more relating to the shift in the 38 percent in to-be-build orders from the 28 percent in the fourth quarter. I think an important milestone and reflects what we think is a re-emergence of, you know, for us, historic buyer preferences. Obviously, clearing the spec inventory is helping that. You know, I mentioned on the call as well that we have hosted a number of design center open houses, and that's certainly been a key catalyst. We held over 140 events in the first quarter with a 23% conversion. But I think most importantly is that most of those sales were to-be-built sales. So we really saw customers coming in wanting to personalize their house. So I'd say it was more on the mix but we also saw an overall increase in design center revenue so i think it's also on the personalization of what they want in their homes and also the share of the community right cheryl as you think about 82 percent of our buyers say that the community is as important as the house and so i think it's it's it's beyond just the offering and hopefully that that long-term gravitation to the overall community as well and and you're saying it's a fair point eric because we're also seeing it in lot premiums being generally slightly up in most divisions, flat overall.

So I hope that helps.

Yeah, yeah, no, that's helpful color for sure. And then also, it's a strong quarter for the financial services business on a year-over-year basis. What kind of went into that? And should we expect that performance to continue through the balance of the year?

Yeah, great question, Jonathan. A couple of things that I would say the main drivers there one is the high investor demand in the secondary market was very favorable in the quarter and the second thing i would say is we're operating the business with just a lower cost structure overall so those are kind of the two main contributors to that as we look forward a lot you know for the rest of the year a lot of that will be dependent on again that investor demand in the secondary market and we'll just kind of keep our fingers crossed and we'll see how the rest of the year plays out.

Perfect. Thanks, guys.

Good luck.

Thank you.

Thank you.

Your next question comes from the line of Rafe Jadrosich with Bank of America. Rafe, your line is open. Please go ahead.

Great. Thank you. Good morning, and thanks for taking my question. Of course. I really appreciate all of the color that you gave on the land banking exposure. Just a couple follow-ups on that. Can you talk about the accrued interest or the option maintenance fees relative to what's flowing through your P&L today and if it's matched up and how we think about the potential margin implications longer term? And then how do you think about seller financing, like relative to land banking as you continue to sort of increase the option mix?

Yeah. Hi, Ray. It's Eric. I'll start and then maybe when it gets to some of the accounting, ask Kurt to jump in as well. When it comes to seller financing, it's always been a preferred tool of ours. You know, when we have the ability to talk to a land seller and really add value over time to their property we found that cost of capital to be lighter than most other sources so historically it's it's kind of gravitated in that six to seven percent range so that is a preferred methodology when it comes to land banking yeah we did make mention of kind of the gross margin impact to the business we do cost it in two different buckets being capitalized interest and interest expense and it does flow over time so depending on on what you have flowing through the portfolio the timing of those communities you're going to see a little bit of kind of pig in the python as it moves through the the financial statements yeah rave generally

speaking when a site is under development we capitalize the interest into inventory and then when those houses close they get they come through on the closing on the margin front relative to that home when a site is done with its development we then treat that interest expense as It's a period cost, and it gets run through the P&L down in interest expense.

That's really helpful. And then on the margin outlook side, I think you're assuming sort of stable construction costs. Have you seen any impact from inflation related to the geopolitical backdrop yet? And what's the expectation there? We've seen some price letters, and obviously diesel costs are up. Do you have contracts that, like, lock you near term? And what's the potential just overall in time?

Yeah, great question, Rafe. What I would say, first and foremost, our costs, quarter over quarter, we're down. So we're very proud of that. Our teams continue to do a lot of great work in working with our trade partners and our suppliers on trying to execute on our house cost reduction and mitigation strategies. Relative to what we're seeing on relative to the Middle East conflict is today, nothing tangible has come through. To your point, there's been a lot of news out there relative to potential increases coming. But thus far, we have not seen any of those come through yet to us and hit us. Now, if they were to happen to come through, based on what I articulated a second ago, is that we continue to work on our house cost reduction strategies overall. And if so, if there is some impact, I think we can overcome a lot of that and offset a lot of it based on some of those strategies. And if there is some flow through for this year, it's going to be mainly a Q4 event if it does impact us. but I'm pretty optimistic about our team's ability to continue to work on our strategies to minimize overall cost increases.

Very helpful. Thank you.

Your next question comes from the line of James McCandless with Citizens Bank. James, your line is now open. Please go ahead.

Hey, good morning, everyone.

So a couple of questions, and Cheryl, thank you for all the color around the design center events I guess could you maybe give us some context of how many of those y'all ran last year and and what type of conversion improvement you saw versus last year or was this a new initiative that you all did this year to try and see what kind of to be built demand was out there now we've been doing it design days for years I would say we ramped it up pretty meaningfully um we've gotten better at it um and we really have focused it it's not exclusively um around to be built but by giving folks the time with design um experts uh you know

in a very relaxed evening environment we've just found it to be a remarkable tool so i don't want say it's doubled but it's close to that okay and then um the the second question you guys talked about mid single digit land inflation i guess kind of a two-part question one has the has the resurgence of to be built demand come faster than than you all expected and i guess two is there an opportunity to maybe rebalance some of your land portfolio to to walk away sell however you want of term it, some of the more entry-level dirt to focus on more of the A and B locations that you have sitting in the land portfolio now and maybe help offset some of that land cost inflation with higher gross margins, et cetera?

You know, it's a great question, Jay, and we continue to open up. If we look at the community strategy, I think it really has set us up for a repositioning and a re-acceleration into 27. When you look at the communities we opened in the first quarter and a number of what we have planned to open in the second and the back half, many of them are focused on the move up. Yes, we do have to continue to sell through on what I would call our first-time buyer positions. But when I look at some of the success in those openings, you know, specifically, you know, it's, I'd mentioned Atlanta. Our team there opened two new move up communities in the quarter, booking nearly 60 sales. Only three of those 60 were specs. They did just a great job in pre-sales. A lot about, you know, what I talked about with the new, the enhanced framework on our community openings, really making sure that we're doing a nice job in the pre-sales. And it's just continuing to yield dividends for us. Last quarter, I think I talked a great deal about Verdon, a new community that we opened in Phoenix with the success we had. In fact, that's a community that's mostly move up and we're restricting sales in that community to assure that we can align sales and construction cadence and have the ability to raise prices. So it's evolving through our investment committee approvals. But yeah, you'll continue to see a greater pivot to the move up and the esplanade.

And Jay, that kind of inflationary number is kind of the historic perspective of what's running through the P&L. So to Cheryl's point, and you know that we've spent some time and energy kind of pairing the portfolio fourth quarter and first quarter as you see some of those walkaway costs and so to your point is we look forward um that in step with what's coming through the investment committee i think last quarter we mentioned about 85 of what came through um in 2025 we we would um deem core and 100 of first quarter so that will continue to to kind of evolve and get us back to where we want to be okay that sounds great appreciate it thanks jerry your next question comes from ken zenner of seaport research

ken your line is open please go ahead thank you um good morning everybody um could you looking at order seasonality which historically peaks in one q then kind of moderates uh can you talk to the expectations given that orders and starts you know are going to kind of be reflective of each other? It sounds like in your commentary. And is that driven by new communities? Thank you very much.

Yeah. We've talked about a fairly significant opening cadence. So I think to Kurt's point, that will align well with starts. We talked a little bit about April and the momentum we're seeing there. So given the increase in communities and just the robust reception that we're seeing from the consumer. I think you'll continue to see a balanced view on specs and to-be-built, but overall, I don't see much difference in our overall absorption levels as we continue to work our way through the second quarter.

So when you say absorption, are you referring to the pace kind of holding the same? Cheryl, thank you so much.

Yeah, I think PACE generally holding the same and then obviously a ramp up in communities.

Thank you. Thanks, Ken.

Your next question comes from Alan Ratner of Zellman & Associates. Alan, your line is open. Please go ahead.

Hey guys, good morning. Thanks for squeezing me in. So, I appreciate all the callers so far. I was hoping to dig in just real quickly on the pace and price kind of decision or strategy and really kind of trying to figure out the elasticity you're seeing in demand right now. Because when I look at your orders for the quarter down 14% year over year, it seems like that was in line with your plan, given the fact that you reiterated the guide. But it does seem a little bit lighter than what we've seen from some of your competitors. And I'm curious, you know, as you kind of drill into the local market data, do you feel like you lost a little bit of share in the quarter? And was that at all a function of dialing back those incentives and maybe prioritizing the price and margin over pace in the quarter? Or am I, you know, perhaps thinking about that the wrong way? Just curious if you've done any analysis on that front. Thank you.

Yeah, no, I appreciate the question, Alan. You know, interestingly enough, and I understand that we missed consensus on orders, but when I look at our internal plan, we were actually spot on. So when we planned the year, guided to the 11,000 closings, our internal expectations on sales, pretty accurate. When I look at the pace, market by market, as I said, we had a couple markets that had larger misses. I pointed to Orlando with some of the repositioning, SoCal with a reduction in community count, a little bit in Denver, but across the rest of the business, I'd say exactly within expectations. You know, as far as dialing back incentives, we've always talked about, alan that certain communities are intended to operate at a higher pace and some we're going to extract all the value out of um and i really believe that we have too much confidence in the communities we build that we're just not going to succumb to some of the aggressive discounting that we've seen we don't need to we think we can create more value this way So in total, a little lighter, I know, than what the market expected, but actually in line with our expectations.

Got it. I appreciate that. And I guess I'll leave it there since the market's open. So I appreciate you squeezing me in. Thank you.

Thank you.

Thanks, Alan.

Your next question comes from Paul Brubolinski with the Wolf Research. Paul, your line is open. Please go ahead.

Good morning. Thanks for getting me. as well. I guess, you know, Cheryl, you mentioned that, you know, geopolitical events, the rate increase tied to that, you know, has been a headwind to consumer confidence in the first quarter. In prior shocks like this, how long has it taken the consumer to rebound, if you will?

Would you expect, you know, maybe the spring selling season extends into the second half of the year or is the consumer more apt to wait until you know 27 for more certainty no i think we're already it's interesting question paul and i'd say each market performing a little different on you know what the consumer is saying um on the sales floor i mean our web traffic is up considerably year over year, which I find a very encouraging sign. Foot traffic down a bit in most of our markets. But, you know, certain markets, like I'll speak to Denver, it seems to be very, very tied to interest rate volatility. Other markets, I would say the macro just hasn't seem to impact the way the consumer's thinking. So my instinct is you're right that we will see the spring selling season behave a little bit differently this year. It has been pretty consistent to what I'd say has been more historic norms if we know what normal looks like anymore and probably will go a little bit longer based on the level of activity that we're seeing and the engagement on the website and with our sales and online sales team members.

And maybe just one encouraging thing, Cheryl, as you think about generations, you know, millennials specifically, 88% when they show up, they say they're definitely or seriously considering a home purchase. And so it's just one data point, but it is encouraging to see when they are engaged, that they are serious. And so, you know, you always imagine that, Paul, to your point, there's some things that pull people off the fence. Some of it will be some of the things you mentioned, and for others, it'll be something else. But it's encouraging to see some of the folks that are showing up very engaged.

Well, and our conversions are at record highs. So the folks, to your point, Eric, that are showing up have intent to buy.

And then you mentioned AI employment concerns. Is that still pretty much contained to the IT sector?

Are you seeing that you know broad now across your your consumer segmentation yeah you mean as far as any resistance because of concerns around jobs yes yes yeah you know it's not something that our sales team hear a lot about um certainly there are some tech markets that may be a little bit But I wouldn't say to date that it's been a significant factor when I look at the cancellations, even though they're low, and I tried to get any trends there, Paul, you know, there's some, there's been some job concern, but it's actually a very small piece of the total cans.

I appreciate it. Thank you very much.

Thank you.

Take care. there are no further questions at this time we reached the end of the q a session i will now turn back the call to cheryl palmer for closing remarks well thank you very much for joining us to discuss our first quarter um we wish everyone um a good few months and we'll look forward to speaking you at the end of q2 this concludes today's call thank you for attending you may now disconnect.