Q3 2023 Taylor Morrison Home Corp Earnings Call

Hello, everyone and thank you for standing by today's Taylor Morrison's third quarter 2023 earnings calls the school will be beginning in just 10 minutes time, we thank you for your patience and we will begin shortly.

[music].

Good morning, and welcome to Taylor Morrison's third quarter 2023 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 Mackenzie Iron Vice President of Investor Relations. Please go ahead. Thank you and good morning, everyone. We appreciate you joining us today.

Before we begin let me remind you that this call, including the question and answer session will include forward looking statements. These statements are subject to the safe Harbor statement for forward looking information that you can review in our earnings release on the Investor Relations portion of our website at Taylor Morrison Dotcom.

<unk> 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 our release and in our filings with the SEC and we do not undertake any obligation to update our forward looking statements.

In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in the release.

Now I will turn the call over to our chairman and Chief Executive Officer, Cheryl Palmer.

Thank you Mackenzie and good morning, everyone, joining me as Kurt and hefty, our Chief Financial Officer, and Eric Hughes, Our Chief Corporate operations Officer.

I will briefly cover this quarters performance and then discuss the strategy behind our balanced operating model, which we believe is critical to our success in the current housing environment.

After Eric who will discuss our healthy land portfolio and investment strategy, while Kurt will review, our financial results and guidance metrics.

In the third quarter, our team once again achieved strong results, including the delivery of over 2600 homes at a better than expected adjusted home closings gross margin of 23, 9%.

At the same time, we flexed each of our capital allocation priorities to increase our land investment retired debt outstanding and repurchase our shares all while ending the quarter with a significant liquidity position of $1 $6 billion in total this drove a 21%.

Operator: Hello everyone and thank you for standing by. Today's Taylor Morrison's third quarter 2023 earnings concert school will be beginning in just two minutes time.

Year over year increase in our book value per share to a new high of nearly $47.

Operator: We thank you for your patience and we will begin shortly.

Our core performance was healthy with margins and returns remaining well above our historic norm given the meaningful enhancements to our operating model over the last several years that we believe will continue to drive enhanced long term performance.

However at the same time it is important to recognize that this quarter reflected the temporary impact of last year's slower starts and sales activity and compared to record profitability achieved this time last year.

We also acknowledge that the rapid reacceleration in interest rates in September has once again injected some hesitation into the market and drove a moderation in sales momentum that has continued into October alongside typical seasonal slowing.

Cause I will spend some time discussing the strength of our diversified consumer strategy and balanced product portfolio better equips, our homebuilding and financial services teams to effectively manage these headwinds.

As a result, I am pleased that despite the challenges we are once again, raising our full year guidance for home closings and adjusted home closings gross margin as Curt will discuss.

Sheryl Palmer: your patience and we will begin shortly and thank you[inaudible] your patience and we will begin shortly[inaudible] Thank you, Mackenzie, and good morning, everyone. Joining me is Curt VanHyfte, our Chief Financial Officer, and Erik Heuser, our Chief Corporate Operations Officer. I will briefly cover this quarter's performance and then discuss the strategy behind our balanced operating model, which we believe is critical to our success in the current housing environment. After Erik will discuss our Healthy Land Portfolio and Investment Strategy, while Curt will review our financial results and guidance metrics.

The resiliency of our business as a function of our diversification across buyer groups emphasis on high quality community locations and return focused investment strategy that has been years in the making our portfolio meets buyer demand across entry level move up and resort life.

Style consumers with the necessary local and national scale to compete effectively.

By consumer group, our third quarter net sales orders were comprised of our move up category at 43% our entry level segment at 35% and resort lifestyle at 22%.

With different needs and preferences. Among these consumers that this approach allows us to operate both a spec and to be built operating model with our spec business largely serving our entry level and first move up buyers, while our to be built homes are most prevalent in our second move up and resort lifestyle.

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Approximately 55% of our third quarter sales were for our spec homes, while the other 45% were to be built orders similar to recent quarters.

This balanced community driven approach provides several important advantages our spec protection offers cost efficient consistency and repeat ability that drives affordable just in time offerings for our entry level buyers, while our to be built business generate outsized high margin revenue.

When buyers pay a premium to personalize their home on their desired law.

This two pronged production approach also improves our starch cadence expands our land investment opportunities and minimize portfolio risk.

That was back end to be built homes, the strong utilization of our nationally managed canvas option packages further streamlines, our purchasing and construction processes without sacrificing option revenue.

In addition to these production advantages our consumer diversification is strategically critical especially in the current environment because each of these groups respond differently to interest rate volatility on one hand, right and affordability concerns are least acute for a resort lifestyle and second.

Sheryl Palmer: In the third quarter, our team once again achieved strong results, including the delivery of over 2600 homes, at a better than expected adjusted home closing's gross margin of 23.9%. At the same time, we flexed each of our thoughtful allocation priorities to increase our land investment, retire debt outstanding, and repurchase our shares, all while ending the quarter with a significant liquidity position of $1.6 billion. In total, this drove a 21% year-over-year increase in our book value per share to a new high of nearly $47.

Move up buyers as they typically have significant financial flexibility.

In fact, the vast majority of our 55 plus buyers pay all cash at a rate that is three times higher than younger buyers.

Our financial strength is also evident in our sizable third quarter lot premiums and option revenue, which averaged nearly 110000 in total and can contribute up to a several hundred basis point advantage for to be built gross margins compared to our spec margins. This is.

With the long term premium commanded by to be built sales prior to the pandemic that we expect will persist going forward.

Sheryl Palmer: Our core performance was healthy, with margins and returns remaining well above our historic norms, given the meaningful enhancements to our operating model over the last several years that we believe will continue to drive enhanced long-term performance. However, at the same time, it is important to recognize that this quarter reflected the temporary impact of last year's slower starts and sales activity and compared to record profitability achieved this time last year. We also acknowledge that the rapid re-acceleration and interest rate in September has once again injected some hesitation into the market and drove a moderation in sales momentum that has continued into October alongside typical seasonal slowing.

On the other hand, our entry level and first move up communities benefit from a deep demand pool that we expect will continue to grow in coming years alongside household formation, but with much greater sensitivity to pricing that often requires outsized incentives.

Ultimately both ends of the buyer spectrum are important to our long term success and we aim to serve each of our targeted consumer groups with appropriate product offerings pricing and incentive tools and an exceptional customer experience.

Let me share a bit more color on the sales front during the quarter. Our net sales orders increased 25% year over year, driven by a monthly absorption pace of 2.7 per community as compared to 2.1 a year ago.

Sheryl Palmer: As I will spend some time discussing the strength of our diversified consumer strategy and balanced products portfolio, better equips our home building and financial services teams to effectively manage these headwinds. As a result, I am pleased that despite the challenges, we are once again raising our full-year guidance for home closing and adjusted home closing gross margin as Kurt will discuss. The resiliency of our business is a function of our diversification across buyer groups, emphasis on high-quality community locations and returns focused investment strategy that has been years in the making.

This healthy demand allowed us to raise pricing and approximately 60% of our communities.

It's worth sharing that 15% of our third quarter sales originated from online reservations at an outsized 45% conversion rate.

By month sales were healthy and consistent in July and August had healthy paces.

However, alongside normal slower seasonal patterns the rapid rise in rates in September drove a moderation in sales momentum that has continued into October as would be expected with this magnitude of rate volatility.

Sheryl Palmer: Our portfolio meets buyer demand across entry level, move-up and resort lifestyle consumers with the necessary local and national scale to compete effectively. By consumer group, our third quarter net sales orders were comprised of our move-up category at 43%, our entry level segment at 35% and resort lifestyle at 22%. With different needs and preferences among these consumer sets, this approach allows us to operate both a spec and to be built operating model.

In this current environment, our long standing strategic prioritization of finance incentives is even more critical to our sales strategy. As you have heard me discuss before the benefit to our homebuyer from finance incentives outweighs that of a price reduction by nearly four to one for our typical home.

Well, we will also adjust pricing and other incentives as necessary to maintain appropriate shelf cases in each of our communities. This finance first strategy better protects our gross margins community values and consumer confidence while also further differentiating our value versus retail.

Sheryl Palmer: With our spec business largely serving our entry level and first move-up buyers, while our to be built homes are most prevalent in our second move-up and resort lifestyle community. Rehaut. Approximately 55% of our third-quarter sales were for our spec-home, while the other 45% were to be built orders, similar to recent quarters. This balanced community-driven approach provides several important advantages. Our spec-production offers cost-efficient consistency and repeatability that drives affordable, just-in-time offerings for our entry-level buyers, while our to-be-built business generates outsized, high-margin revenue when buyers pay a premium to personalize their home on their desired lot.

Homes in today's inventory constrained market.

There are a number of ways, we leverage our finance incentives to best serve each borrower one way is by providing closing cost assistance, which we have typically offered to most borrowers to offset various transaction costs.

More recently over the last several quarters, we have expanded our incentive programs with the purchase of forward commitment below market interest rates.

These rates can be used on spec homes with moving dates as well as with to be built homes when combined with an extended rate locked for up to one year offering permanent interest rate security.

If rates improved during the build cycle, we offer a free float down.

Sheryl Palmer: This two-pronged production approach also improves our starts cadence, expands our land investment opportunities, and minimizes portfolio risk. For those spec-and-tibi-built homes, the strong utilization of our nationally-managed Canvas option packages further streamlines are purchasing and construction processes without sacrificing option revenue. In addition to these production advantages, our consumer diversification is strategically critical, especially in the current environment, because each of these groups respond differently to interest rate volatility. On one hand, rate and affordability concerns are least acute for our resort lifestyle and second move-up buyers, as they typically have significant financial flexibility.

And lastly, we can utilize our incentives to provide temporary interest rate buy downs, allowing borrowers to ease into home ownership, while still having the confidence that they are qualified at the permanent note rate are they below market fixed rate mortgage.

These incentives can be combined as needed to optimize their effectiveness and we are highly targeted with how we leverage these tools to meet each borrower's unique circumstances and based on each community sales strategy.

Generally our entry level and first move up communities prefer rate buy downs to eight affordability.

As a result in the third quarter, while only 18% of our closings utilized a forward commitment and outsized 50% of those were first time buyers.

Sheryl Palmer: In fact, the vast majority of our 55-plus buyers pay all cash at a rate that is three times higher than younger buyers. Their financial strength is also evident in our sizeable third quarter lot premiums and option revenue, which average nearly 110,000 in total, and can contribute up to a several hundred basis-point advantage for two-be-built gross margins compared to our spec margins. This is consistent with the long-term premium commanded by two-be-built sales prior to the pandemic that we expect will persist going forward.

The other hand, our second move up and resort lifestyle buyers, which as I highlighted earlier are much less reliant on financing tend to favor closing cost assistance and other concessions to minimize upfront cash out of pocket.

In total we tend to attract well qualified consumers even among our first time homebuyers to illustrate in the third quarter. Among our buyers financed by Taylor Morrison home funding, which achieved an all time capture rate of 88% credit metrics remain excellent borrowers had an average <unk>.

<unk> score of 753 provided average down payments of 24% and our average household incomes of nearly a 180000.

Sheryl Palmer: On the other hand, our entry level and first move-up communities benefit from a deep demand pool that we expect will continue to grow in coming years alongside household formation, but with much greater sensitivity to pricing that often requires outsized incentives. Ultimately, both ends of the buyer's spectrum are important to our long-term success, and we aim to serve each of our targeted consumer groups with appropriate product offerings, pricing, and incentive tools, and an exceptional customer experience.

The strength extends to our backlog where customers are secured with average deposits of more than 62000 or about 9% per home, providing critical financial commitment that minimises cancellation risk.

In addition, our financial services team has thorough prequalification standards and as diligent and locking in our backlog buyers interest rate to further reduce risk and provide confidence during the build cycle.

Sheryl Palmer: Let me share a bit more color on the sales front. During the quarter, our net sales orders increased 25% year-over-year driven by a monthly absorption pace of 2.7 per community as compared to 2.1 a year ago. This healthy demand allowed us to raise pricing in approximately 60% of our communities. It's worth sharing that 15% of our third quarter sales originated from online reservations at an outsized 45% conversion, by men's cells were healthy and consistent in July and August at healthy paces.

With all of these compelling programs, we are well positioned to navigate the headwinds from today's higher interest rates and macro uncertainty.

<unk>, let me once again reiterate that our strategy will remain focused on serving our buyers with appropriate product offerings pricing and incentives and an exceptional customer experience. We are focused on capitalizing on the benefits of both spec and to be built production driven by the needs of our targeted.

[noise] tumor groups together, the exceptional quality of our buyers the location of our communities and ability to use powerful finance incentives to overcome interest rate headwinds enables our business to be resilient.

Sheryl Palmer: However, a long side normal slower seasonal patterns, the rapid rise in rate in September drove a moderation in cells momentum that has continued into October, as would be expected with this magnitude of rate volatility. In this current environment, our long standing strategic prioritization of finance and sentence is even more critical to our cell strategy. As you have heard me discuss before the benefit to our home buyer from finance and sentence outweighs that of a price reduction by nearly four to one for our typical home.

Our experienced and dedicated team members are focused on continuing to drive smart accretive growth and we will remain nimble in our operating decisions as we move into the new year supported by significant liquidity and a healthy committed backlog.

Sheryl Palmer: While we will also adjust pricing and other incentives as necessary to maintain appropriate sales cases in each of our communities, this finance first strategy better protects our gross margins, community values, and consumer confidence, while also further differentiating our value versus resell homes in today's inventory constrained market. There are a number of ways we leverage our finance incentives to breast serve each borrower. One way is by providing closing cost assistance, which we have typically offered to most borrowers to offset various transaction costs.

With that let me turn the call to Eric.

Thanks, Cheryl and good morning.

Orlando investment approach is focused on achieving capital efficient and accretive growth in markets that are well positioned to benefit from long term demand drivers and meet the needs and preferences of our well balanced consumer sets.

At quarter end, we owned and controlled approximately 74000 homebuilding lot.

This represented six one years of total supply with 42% of these lots controlled via options and the other off balance sheet structures. Our supply of owned lots was three five years.

When underwriting new deals, we evaluate duration risk and long term return potential to determine the optimal financing vehicle for each asset weighing the capital efficiency of off balance sheet financing with the cost of that Optionality.

Sheryl Palmer: More recently over the last several quarters, we have expanded our incentive programs with the purchase of forward commitment below market interest rates. These rates can be used on spec homes with put move and dates, as well as with to be built homes when combined with an extended rate lock for up to one year offering permanent interest rate security. If rates improved during the build cycle, we offer a free flow down. Lastly, we can utilize our incentives to provide temporary interest rate buy downs, allowing borrowers to ease into home ownership, while still having the confidence that they qualified at the permanent note rate of a below market fixed rate mortgage.

With a strong balance sheet and multiple financing tools available we will continue to balance our owned and controlled lot inventory within our targeted ranges.

In the third quarter, we invested $320 million in homebuilding land acquisition and $232 million in development for a total of $552 million.

Year to date, our total land investment has been approximately $1 $3 billion, leaving us on track to invest around one $8 billion for the full year as compared to $1 $6 billion in 2022.

Looking ahead, we expect to further increase our Atlanta investment in 2024 with an initial production of total spend of approximately $2 billion based on a robust deal pipeline.

Sheryl Palmer: These incentives can be combined as needed to optimize their effectiveness, and we are highly targeted with how we leverage these tools to meet each borrower's unique circumstances and based on each community sales strategy. Generally, our entry level and first move up communities prefer rate buy downs to aid affordability. As a result, in the third quarter, while only 18 percent of our closings utilize a forward commitment, an outsized 50 percent of those were first-time buyers.

For new lot acquisitions, we are primarily focused on providing home closings for 2027 and beyond as we were either fully subscribed or on track for the next three years.

This provides us with significant flexibility on the land acquisition front on.

On the development side, our priorities anyway to convert our attractive existing land portfolio, it's a new community openings to support future growth.

In addition to this growth we are equally focused on the efficiency of our new communities.

Sheryl Palmer: On the other hand, our second move up and resort lifestyle buyers, which as I highlighted earlier, are much less reliant on financing, tend to favor closing cost assistance, and other concessions to minimize upfront cash out of pocket. In total, we tend to attract well-qualified consumers, even among our first-time home buyers, to illustrate in the third quarter, among our buyers financed by Morrison Home Funding, which achieved an all-time capture rate of 88 percent credit metrics remained excellent.

As we have shared previously we have increased the average size of our underwritten communities by approximately 50% in recent years, allowing us to magnify our scale with a like level of resources.

As an illustration of this pivot and impacts we can share that in Houston. For example, we have reduced our outlet count by half since 2018, while driving greater autonomy through self developed larger communities as well as pieces that are significantly higher.

Ultimately, we are driving for greater overhead leverage and returns here in Houston and across the business and this is just one example of similar strategic shifts across our portfolio.

Sheryl Palmer: Borrower's had an average credit score of 753, provided average down payments of 24 percent, and earned average household incomes of nearly 180,000. This strength extends to our backlog where customers are secured with average deposits of more than 62,000 or about 9% per home, providing critical financial commitment that minimizes cancellation risk. In addition, our financial services team has thorough prequalification standards and is diligent in locking in our backlog buyer's interest rate to further reduce risk and provide confidence during the build cycle.

Reporting our long term annualized sales physical in the low three range.

That I will turn the call to Kurt.

Thanks, Eric and good morning, everyone.

In the third quarter, our adjusted net income was $180 million or $1 62 per diluted share.

Including an inventory impairment charge related to our early debt redemption.

Our reported net income was $171 million or $1.54 per diluted share.

During the quarter, we delivered 2639 home closings had an average closing price of $611000, which produced total homebuilding revenue of $1 $6 billion. This was down from $2 billion a year ago.

Sheryl Palmer: Equipped with all of these compelling programs, we are well positioned to navigate the headwinds from today's higher interest rates and macro uncertainty. To wrap up, let me once again reiterate that our strategy will remain focused on serving our buyers with appropriate product offerings, pricing and incentives and an exceptional customer experience. We are focused on capitalizing on the benefits of both spec and 2B build production driven by the needs of our targeted consumer groups.

Cycle times for homes closed to improve meaningfully in the third quarter with a nearly eight weeks sequential reduction driven by clearing of older backlog homes and improvement in many of our trade categories.

This faster than expected normalization in most markets helped to offset hurricane related closing delays in Florida.

Sheryl Palmer: Together, the exceptional quality of our buyers, the location of our communities, and ability to use powerful finance incentives to overcome interest rate headwinds enables our business to be resilient. Our experienced and dedicated team members are focused on continuing to drive smart, a creative growth, and we will remain nimble in our operating decisions as we move into the new year, supported by significant liquidity and a healthy committed backlog.

Well back in construction schedules remains somewhat extended due to tight labor capacity. We are encouraged by the normalization, we havent experienced especially in this year's new starts.

As a result of this improvement we now expect to deliver approximately 2950 homes in the fourth quarter.

This will drive a full year total of around 11250 homes as compared to our prior full year guidance range of approximately 11000 homes.

Erik Heuser: With that, let me turn the call to Eric. Thanks, Cheryl, and good morning. Our land investment approach is focused on achieving capital efficiency, a creative growth, and markets that are well positioned to benefit from long-term demand drivers and meets the needs and preferences of our well-balanced consumer sets. At quarter-end, we owned and controlled approximately 74,000 home-building lots. This represented 6.1 years of total supply. With 42% of these lots controlled via options and other off-balance sheet structures, our supply of owned lots was 3.5 years.

Continue to expect the average closing price of these deliveries to be around $625000 for the full year, including approximately $615000 for the fourth quarter.

Our teams are focused on managing starts to align with sales plus targeted inventory levels on a community by community basis.

At quarter end, we had about 2700 spec homes available of which only 280 were finished with a skew towards our entry level communities were first time buyers prefer quick move in homes.

We started approximately 2800 homes during the quarter equaling $2 nine starts per community per month, which was down from three five in the prior quarter, but up from one five a year ago.

Erik Heuser: When underwriting new deals, we evaluate duration risk and long-term return potential to determine the optimal financing vehicle for each asset, weighing the capital efficiency of off-balance sheet financing with the cost of that optionality. With a strong balance sheet and multiple financing tools available, we will continue to balance our owned and controlled lap inventory within our targeted ranges. In the third quarter, we invested $320 million in home-building land acquisition and $232 million in development for a total of $552 million.

As a result, we ended the quarter with about 8100 homes under production.

During the quarter, our adjusted home closings gross margin of 23, 9% exceeded our guidance due to favorable mix and less incentive cost pressure.

Including a $12 million of inventory related charge tied to one legacy community in the west facing a scope change due to municipal requirements are reported home closings gross margin was 23, 1% for.

Erik Heuser: Year to date, our total land investment has been approximately $1.3 billion, leading us on track to invest around $1.8 billion for the full year as compared to $1.6 billion in 2022. Looking ahead, we expect to further increase our land investment in 2024 with an initial projection of total spend of approximately $2 billion based on our robust deal pipeline. For new lot acquisitions, we are primarily focused on providing home closings for 2027 and beyond as we are either fully subscribed or on track for the next three years.

For the fourth quarter, we expect our home closings gross margin to be around 23%.

The sequential moderation reflects an increase in expected incentives on spec homes sold and closed during the quarter due to the recent increase in interest rates.

This would result in a full year adjusted home closings gross margin of around 23, 7% up from our prior guidance of approximately 23, 5%.

Turning to financial services, our team produced revenue of $40 million at a gross margin of 42, 2% aided by an all time high capture rate of 88%.

Erik Heuser: This provides us with significant flexibility on the land acquisition front. On the development side, our priority is continuing to convert our attractive existing land portfolio and to new community openings to support future growth. In addition to this growth, we are equally focused on the efficiency of our new communities. As we have shared previously, we have increased the average size of our underwritten communities by approximately 50% in recent years, allowing us to magnify our scale with a light level of resources.

Erik Heuser: As an illustration of this pivot and impact, we can share that in Houston, for example, we have reduced our outlet count by half since 2018, while driving greater economy through self-developed, larger communities, as well as cases that are significantly higher. Ultimately, we are driving for greater overhead leverage and returns here in Houston and across the business. And this is just one example of similar strategic shifts across our portfolio that are supporting our long-term annualized sales base goal in the low free range.

This was up from $28 million, and 26, 5%, respectively a year ago.

As Cheryl noted our net orders in the quarter increased 25% year over year to 2592 homes.

Driven by a 26% increase in our monthly absorption pace to two seven per community and a flattish ending community count of 325 outlets.

As we look ahead, we continue to expect our community count to be between 320 and 325 at year end.

Cancellation rates remained consistent with long term norms at 11, 4% of gross orders.

<unk> was 15, 6% a year ago.

Taking a step back year to date through the end of the quarter, our monthly sales pace averaged two nine per community.

As we shared last quarter going forward, we are targeting an annualized the absorption rate in the low three range as compared to our historical low to mid twos.

Curt VanHyfte: With that, I will turn the calls occur.

Curt VanHyfte: Thanks, Eric, and good morning, everyone. In the third quarter, our adjusted net income was $180 million or $1.62 per diluted share, including an inventory impairment and charge related to our early debt redemption. Our reported net income was $171 million or $1.54 per diluted share. During the quarter, we delivered 2,639 home closings at an average closing price of $611,000, which produced total home building revenue of $1.6 billion. This was down from $2 billion a year ago.

The increase was a function of the shift in our community mix and geographic footprint as we have positioned our portfolio for higher long term returns.

SG&A as a percentage of home closings revenue was 10, 4%.

For the year, we are still forecasting that in SG&A ratio in the high 9% range.

To wrap up we ended the quarter with a total liquidity position of approximately $1 $6 billion.

This included $614 million of unrestricted cash and $1 $1 billion of available capacity on our revolving credit facilities, which remained undrawn outside of normal course letters of credit.

Curt VanHyfte: Second times for homes closed to improve meaningfully in the third quarter, with a nearly eight-week sequential reduction driven by clearing of older backlog homes and improvement in many of our trade categories. This faster than expected normalization in most markets helped to offset hurricane-related closing delays in Florida. While back-end construction schedules remain somewhat extended due to tight labor capacity, we are encouraged by the normalization we have experienced, especially in this year's new starts.

Our homebuilding net debt to capitalization ratio was 18, 8% as compared to 34% a year ago.

During the quarter, we redeemed the full $350 million outstanding principal amount of our 562, 5% 2024 senior notes.

As a result, our next senior note maturity is not until 2027, leaving us with significant runway ahead.

Curt VanHyfte: As a result of this improvement, we now expect to deliver approximately 2,950 homes in the fourth quarter. This would drive a full-year total of around 11,250 homes as compared to our prior full-year guidance range of approximately 11,000 homes. We continue to expect the average closing price of these deliveries to be around $625,000 for the full-year, including approximately $615,000 for the fourth quarter. Our teams are focused on managing starts to align with sales plus targeted inventory levels on a community by community basis.

Since 2020, we have repaid approximately $1 $8 billion of senior debt driving a significant reduction in our net capitalization from 46, 8% in the first quarter of 2020 as we have successfully executed our post acquisition debt reduction strategy.

In total these payments have reduced our annual interest expense by about $105 million.

Due in part to these ongoing efforts to fortify our balance sheet along with strong operating momentum. We are pleased to have recently received an upgraded credit rating from S&P global to double B plus from double B with a stable outlook.

Curt VanHyfte: At quarter end, we had about 2,700 spec homes available, of which only 280 were finished, with a skew towards our entry-level communities where first-time buyers prefer quick move-in homes. We started approximately 2,800 homes during the quarter, equaling 2.9 starts per community per month, which was down from 3.5 in the prior quarter, but up from 1.5 a year ago. As a result, we ended the quarter with about 8,100 homes under production. During the quarter, our adjusted home closings gross margin of 23.9% exceeded our guidance due to favorable mix and less incentive cost pressure, including a $12 million inventory related charge tied to one legacy community in the west facing a scope change due to municipal requirements, our reported home closings gross margin was 23.1%.

And lastly, during the quarter, we spent $100 million on share repurchases.

Since 2020, we have deployed approximately $865 million to repurchase our shares reducing our diluted share count by about $33 million or approximately 30% driving higher earnings per share and return for our shareholders.

Quarter end, we had $176 million remaining on our repurchase authorization.

Going forward, we expect to maintain our disciplined and opportunistic capital allocation framework as we evaluate our main priorities of investing for future growth, maintaining strong liquidity and balance sheet health and returning excess capital to shareholders.

Now I will turn the call back over to Sheryl.

Curt VanHyfte: For the fourth quarter, we expect our home closings gross margin to be around 23%. The sequential moderation reflects an increase in expected incentives on spec homes sold and closed during the quarter due to the recent increase in interest rates. This would result in a full year adjusted home closings gross margin of around 23.7% up from our prior guidance of approximately 23.5%. Turning to financial services, our team produced revenue of $40 million at a gross margin of 42.2%, aided by an all-time high capture rate of 88%.

Thank you Kurt as we have discussed the third quarter with healthy despite the headwinds from last year's slower activity and the interest rate pressure that unfolded during the quarter.

As we head into year end there are many factors at play complicating, where there's always a high volume push for the industry to deliver homes to customers and ready inventory for the coming spring selling season.

The sharp spike in interest rates over the last two months is once again pushed affordability to unsustainable levels for many buyers, especially at the entry level and is weighing on by a competent and urgency even among some with the financial ability to move forward with uncertainty around the federal reserve a wider than normal spread.

Curt VanHyfte: This was up from $28 million and 26.5% respectively a year ago. As Cheryl noted, our net orders in the quarter increase 25% year over year to 2,592 homes driven by a 26% increase in our monthly absorption pace to 2.7% per community and a flatish ending community count of 325 outlets. As we look ahead, we continue to expect our community count to be between 320 and 325 at year end. Cancellation rates remain consistent with long-term norms at 11.4% of gross orders versus 15.6% a year ago.

<unk> mortgage and treasury yields and significant headline noise I expect that these issues will evolve and stabilize when there is greater clarity on the feds timing of any future actions. Nevertheless, I am confident that our balanced consumer driven portfolio an experienced dedicated team.

Taylor Morrison is well positioned to excel during these market disruptions houses evidenced by our increased guidance for the year.

While the near term outlook is somewhat cloudy the intermediate to longer term opportunity for housing and Taylor Morrison remains clear.

Curt VanHyfte: Taking a step back year to day through the end of the quarter, our monthly sales pace averaged 2.9 per community. As we shared last quarter, going forward, we are targeting an annualized absorption rate in the low free range as compared to our historical low to mid-toes. The increase is a function of the shift in our community mix and geographic footprint as we have positioned our portfolio for higher long-term returns. SGNA as a percentage of home closings revenue was 10.4%. For the year, we are still forecasting an SGNA ratio in the high 9% range.

Country is significantly under supplied and there is an undeniable need for new construction based on the aging evolution of younger generations to meet the needs of today and Tomorrow's consumers at the same time, we will be working to solve for the current multi million rooftop deficiency that exist in our country today.

Okay.

Thank you to all of our team members for another great quarter before we wrap up I would be remiss not to share. The Taylor Morrison was recently awarded two brand new accolades, which are a testament to our talented and dedicated team.

The first comes from Newsweek 'twenty 'twenty four is America's Greenest companies, where we were included among just 300 U S companies recognized for progress in positively changing its sustainability footprint. The second comes from U S News and World report, where we were included on the publications inaugural best companies to work for less.

Curt VanHyfte: To wrap up, we end the quarter with a total liquidity position of approximately $1.6 billion. This included $614 million of unrestricted cash and $1.1 billion of available capacity on our revolving credit facilities which remain undrawn outside normal course letters of credit. Our home building net debt to capitalization ratio was 18.8% as compared to 34% a year ago. During the quarter, we redeemed the full $350 million outstanding principal amount of our 5.625% 2024 senior notes.

With that let's open the call to your questions. Operator, please provide our participants with instructions.

Thank you.

I'd like to ask a question today. Please do so now by pressing star followed by the number one on your telephone keypad.

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Curt VanHyfte: As a result, our next senior note maturity is not until 2027 leaving us with significant runway ahead. Since 2020, we have repaid approximately $1.8 billion of senior debt, driving a significant reduction in our net capitalization from 46.8% in the first quarter of 2020 as we have successfully executed our post acquisition debt reduction strategy, in total, these payments have reduced our annual interest expense by about $105 million. Doing part to these ongoing efforts to fortify our balance sheet along a strong operating momentum, we are pleased to have recently received an upgraded credit rating from S&P Global to double B plus from double B with a stable outlook.

Our first question comes from the line of Carl Reichardt with BTG. Please go ahead. Your line is now open.

Thanks, Good morning, everybody.

Joe I wanted to.

Question about buyer.

Hesitancy.

So is your sense that some consumers are hesitant because they're concerned not about the mathematics of home prices, but a fear that home prices might come in read headlines. They see a lot of conversation about this topic in the press and I'm just curious if that's something you're hearing from your consumers.

Right now.

Good morning, Karl Thanks for the question you know that's not what we're hearing we're hearing that Theres. Just overall just you know there's a lot going on right now there's a lot of attention around.

Curt VanHyfte: And lastly, during the quarter, we spent $100 million on share repurchases. Since 2020, we have deployed approximately $865 million to repurchase our shares, reducing our deluded share count by about $33 million or approximately 30% driving higher earnings per share and returns for our shareholders. At quarter end, we had $176 million remaining on our repurchase authorization.

What's happened to interest rates the way the media is portraying that and honestly the impacts it has entre affordability. When you look at the difference or we were a year or two ago.

So I don't think it's specifically that they feel that prices are going to drop I think actually at some level Carl it's the opposite because inventory is so tight that I don't think they're expecting them that they're going to see that we're going to see a reduction in pricing overall.

Once again I think it's as much around just general affordability for that first time buyer.

Curt VanHyfte: Going forward, we expect to maintain our discipline and opportunistic capital allocation framework as we evaluate our main priorities of investing for future growth, maintaining strong liquidity and balance sheet health, and returning excess capital to shareholders.

As I said in my prepared remarks, though it's a very deep pool. So we're seeing the traffic we're seeing demand, it's just working with customers to get them qualified.

And then when you look at the other consumers I think are being appropriately.

Sheryl Palmer: Now, I will turn the call back over to Sheryl. Thank you, Kurt. As we have discussed, the third quarter was healthy despite the headwind from last year's slower activity and the interest rate pressure that unfolded during the quarter.

Diligent and understanding what choices are and what's happening when I look at our October trends you know, we're still up I expect we'll still be up considerably year over year, but to say that it's the same that we saw you know for a minute the kind of early summer when rates were in the mid sixes versus a day I think it would be unfair.

Sheryl Palmer: As we head into year end, there are many factors at play complicating what is always a high volume push for the industry to deliver homes to customers and ready inventory for the coming spring selling season. The sharp spike in interest rates over the last two months has once again pushed affordability to unsustainable levels for many buyers, especially at the entry level and is weighing on buyer confidence and urgency even among some with the financial ability to move forward.

Okay. Thanks for that Joe I appreciate that and then secondly.

Was interested in the SG&A line and as you look going forward, we've talked before about.

Overall initiatives to improve asset turns it at Taylor Morrison and construction times can you talk a little bit about the fixed cost side SG&A, how youre feeling about how that's playing out and what you might see in terms of long term ability to improve that ratio as you go.

Sheryl Palmer: Well, then certainty around the federal reserve, a wider than normal spread between mortgage and treasury yields and significant headwind noise. I expect that these issues will evolve and stabilize when there is greater clarity on the Fed's timing of any future actions.

Yes, good morning, Carl how are you.

Good.

Carl I can attack that for you a little bit SG&A I think historically has always been roughly about the G&A side of it it's always roughly been about half of our SG&A in total so.

Sheryl Palmer: Nevertheless, I am confident that our balanced consumer driven portfolio and experienced dedicated team at Taylor Morrison is well positioned to excel during these market disruptions as is evidenced by our increased guidance for the year. While the near-term outlook is somewhat the intermediate to longer-term opportunity for housing and Taylor Morrison remains clear, our country is significantly under supply and there is an undeniable need for new construction based on the aging evolution of younger generations to meet the needs of today and tomorrow's consumers. At the same time, we will be working to solve for the current multi-million rooftop deficiency that exists in our country today.

That's something we look at it a lot of its driven by kind of our fixed cost with our people.

Office facility those types of things and we're always looking at ways to kind of monitor and evaluate those costs on a go forward basis. The bigger question for US is on the kind of the variable side, which is kind of where we're up a little bit year over year.

And that was in large part due to our commissions are external commissions, while our broker kind of cooperate is consistent.

Over time, it's just that we're paying a little bit for now today than we were a year ago.

For every transaction and then of course, we had a little bit more from a marketing standpoint relative to adjusting to kind of the conditions of the market today.

Sheryl Palmer: Thank you to all of our team members for another great quarter. Before we wrap up, I would be remiss not to share that Taylor Morrison was recently awarded to brand new accolades, which are a testament to our talented and dedicated team. The first comes from Newsweek 2024's America's Greenest Companies, where we were included among just 300 US companies recognized for progress in positively changing its sustainability for the future. The second comes from US News & World Report, where we were included on the publication's inaugural best companies to work for.

Okay that makes sense. Thanks very much appreciate it guys.

Thanks, Karl Thanks Karl.

Our next question comes from Paul <unk> with Wolfe Research. Please go ahead, Paul Your line is now open.

Thank you I guess.

To start off I mean, I appreciate the the demand commentary I was wondering if you could provide us maybe.

Operator: With that, let's open the call to your questions. Operator, please provide our participants with instructions. Thank you. If you would like to ask a question today, please do so now by pressing start, followed by the number one on your telephone keypad. If you change your mind and would like to be removed from the keys, that is start followed by two. When preparing to ask your question, please ensure that your device and your microphone are unmuted locally.

The monthly cadence a bit.

<unk> through <unk> through the third quarter and into October.

Yeah, you know.

Good morning, Paul July was good honest was even stronger which is honestly quite unusual when you look kind of historically at the numbers September was not far off of.

Carl Reichardt: Our first question comes from the line of Carl Reichardt with BTIG. How please go ahead, your line is now open. Thanks more than everybody.

But we've got we definitely saw tiny.

September so cadence was pretty steady with August being the peak and as we've moved into October as I've said, we're still you know I think from a historical perspective from a seasonal perspective things are still looking really nice and we're seeing good traffic in sales. It's just I can feel the difference.

Sheryl Palmer: Sheryl, I wanted to ask a question about fire hesitancy. So is your sense that some consumers are hesitant because they are concerned not about the mathematics of home prices, but a fear that home prices might come in. Read headlines. They see a lot of conversation about this topic in the press. And I'm just curious if that's something you're hearing from your consumers right now. Good morning, Carl. Thanks for the question. You know, that's not what we're hearing.

I'm sorry, what we saw earlier in the summer.

Okay.

As you know as you look at your traffic.

Any color maybe on the percent of traffic that's not qualifying.

Versus maybe the second quarter and a year ago.

Yes, it's an interesting interesting question I mean, our traffic here every year for the quarter was Ah I would tell you that our conversions when I look at like our conversions for example on our web.

Sheryl Palmer: We're hearing that there's this overall just, you know, there's a lot going on right now. There's a lot of attention around, you know, what's happened to interest rates, the way the media is portraying that. And honestly, the impact it has on true affordability when you look at the difference that we were here two ago. So I don't think it's specifically that they feel that prices are going to drop. I think actually at some level Carl, it's the opposite because inventory is so tight that I don't think they're expecting that they're going to see that we're going to see a reduction in pricing overall.

They're higher when I look at conversions, unlike our chat bot, they're higher and when I look at our reservations there higher I think what I'm, what I really want people to take away is once again on that first time buyer pool.

It's deeper it just takes if it used to take you know a five to one to get to convert and I would say in today's environment. It's you know seven to eight to one once again, that's going to depend on community and market.

Sheryl Palmer: Once again, I think it's as much around just general affordability for that first time buyer. And as I said in my prepared remarks, though, it's a very deep pull. So we're seeing the traffic. We're seeing demand. It's just working with customers to get them qualified. And then when you look at the other consumers, I think they're being appropriately diligent in understanding what choices are and what's happening. When I look at our October trends, you know, we're still up.

But we have the tools that are helping our buyers even in today's environment kind of withstand the challenges that have been bought by interest rates and pricing and just kind of the overall inflationary environment, but it just takes a few more certainly on that first time buyer.

Sheryl Palmer: I expect we'll still be considering a year-over-year, but to say that it's the same that we saw, you know, from an early summer when rates were in the mid-sixes versus eight, I think would be unfair. Okay. Thanks for that. I appreciate that.

Okay. Thank you I appreciate that color.

Thanks, Bob.

Yeah.

Our next question comes from the line of Matthew Bouley with Barclays. Matthew. Please go ahead. Your line is now open.

Good morning, do you have any could walk you on for Matt. Thanks for taking my question.

Curt VanHyfte: And then secondly, I was interested in the SDA line. And as you look going forward, we've talked before about overall initiatives to improve asset turns at Taylor Morrison and construction times. Can you talk a little bit about the fixed cost side, SDA, how you're feeling about how that's laying out and what you might see in terms of long-term ability to improve that ratio as you go? Thanks. Yeah, good morning, Carl. How are you?

So first off I Wonder if you can provide a little more color on the buy build secure program.

Specifically, how our consumers considering this versus other incentives.

And then how does this differ from the buy Downs you guys are currently offering and then more specifically how large of an impact on margins. Thanks.

Yeah.

Yeah. Thank you for the questions when I really honestly was trying to get across and our prepared remarks was the power.

Curt VanHyfte: Carl, I can attack that for you a little bit. SG&A, I think historically, has always been roughly about the G&A side of it. It's always roughly been about half of our SG&A in total. So, you know, that's something we look at. A lot of it's driven by kind of our fixed costs with our people, office facility, those types of things. And we're always looking at ways to kind of monitor and evaluate those costs on a go-forward basis.

Incentives and how necessary. They are when you compare to 2021 rates of about 3% and what we're seeing in today's market of eight so if I run through the programs quickly for you.

Without going into too much detail about 94% of our closings in the quarter had some sort of discount points paid by either the buyer or seller.

Curt VanHyfte: The bigger question for us is on the kind of the variable side, which is kind of where we're up a little bit year over year. And that was in large part due to our commissions, our external commissions, while our broker kind of co-operate is consistent over time. It's just that we're paying a little bit more now today than we were a year ago for every transaction. And then of course, we had a little bit more from a marketing standpoint relative to adjusting to kind of the conditions of the market today. Thank you. Thanks very much. Thank you. Thanks, Sarah. Thanks, Carl.

That number is not really any different than what you would've seen historically, maybe somewhat influenced by the percentage of cash because really everyone. That's got a mortgage we're helping in some way and on those discount points. The average was probably just under about 2.5%.

And then if you go to the attempt by downs, where the costs are calculated based on the loan amount that's been running about two and a quarter per cent for two one by down.

Those costs are obviously paid by the seller and that was only about 13% of our third quarter closings that used a temporary buy down.

Paul Przybylski: Our next question comes from Paul Przybylski with Wolf Research. Please go ahead. Paul, your line is now open. Thank you. I guess to start off, I mean, I appreciate the demand commentary. I was wondering if you could provide us maybe, you know, the monthly cadence of absorptions through the third quarter and to October? Yeah, you know, good morning, Paul. July was good. August was even stronger, which is honestly quite unusual when you look kind of historically at the numbers.

And then to your question, specifically, but I think it's important to see the stock the fact.

As our forward commitments, which include our buy build just care program for extended lock programs.

And this is where we purchase a former tranche of money on a specific date were doing that potentially daily weekly depending on the need.

And that allows us to offer an interest rate below market.

We have to buy those funds before the customer is in contract and that way honestly. The dollars are not included in our seller contribution limits limitations, but when we look across the portfolio that was only 18% of our Q3 total closings.

Paul Przybylski: September was not far off of August, but we definitely thought 2019 September. So cadence was pretty steady with August being the peak. And as we've moved into October, as I've said, we're still, you know, I think from a historical perspective, from a seasonal perspective, things are still looking really nice. And we're seeing good traffic and sales. It's just I can feel the difference for what we saw earlier in the summer. Okay, I guess, you know, as you look at your traffic, any color, maybe on the percent of traffic that's not qualifying versus maybe the second quarter and a year ago?

So when you put that against the margin, it's actually a very small kind of less than 1% on.

On forward commitments, specifically them across the portfolio for Q3.

Interestingly as well the average interest rate for four commitments in Q3 was just about 5.5%.

That gives you a little bit of an overview.

Super helpful. Thank you.

Then I guess my second question looking a little I'm Max I'm. So in second quarter spec to be T. O is about 60 to 40 I believe now we're seeing <unk> 55 to 40 spec V T O.

Paul Przybylski: Yeah, it's an interesting, interesting question. I mean, our traffic year every year for the quarter was I would tell you that our conversions, when I look at like our conversions, for example, on our web, they're higher, when I look at our conversions, on like our chat bot, they're higher, when I look at our reservations, they're higher. I think what I really want people to take away is, once again, on that first time buyer pool, it's deeper.

How do you expect this mix to change based on the rate move.

Movements the rate environment. We're in and then can you just remind us on the margin spread between spec and Bto I think I heard you say several hundred bps I'm wondering if that's still that 300 to 400 bip range from previous quarters, or if you're seeing that narrowing at all thanks.

Yeah, maybe it will tackle this one together I think in fourth quarter, Kurt We would expect the specs that'd be a you know probably closer to what we saw in Q2, given just availability.

Paul Przybylski: It just takes, if it used to take, you know, a five to one to get a conversion, I would say in today's environment, it's, you know, seven to eight to one. Once again, that's going to depend on community and market. But we have the tools that are helping our buyers, even in today's environment, kind of withstand the challenges that have been brought by interest rates and pricing and just kind of the overall inflationary environment. But it just takes a few more, certainly on that first time buyer. Thank you. I appreciate that color. Thanks, all.

No I would say so I mean generally speaking I think we've said before.

We've been kind of our mix between spec and to be built it's been 60 40 40 60.

Over time and today, we're a little more heavy relative to specs and that kind of I guess ratio and.

And we would probably look to continue to see that go forward here for the next quarter or so.

Relative to that but again.

It's very consumer base for us.

We kind of mirror that program relative to the communities that we have and to the customers that we're serving and today that mix is just right in that like we said, 55% spec and 45%.

To be bold and then when we look at the margin impact, which I think was the second part of your question.

Matthew Bouley: Our next question comes with a line of Matthew Boulay with Barclays. Matthew, please go ahead. Your line is now open.

Anika Dholakia: Good morning. You have Anika Delacion for Matt. Thanks for taking my question. So first off, I wonder if you can provide a little more color on the buy build secure program, specifically how are consumers considering this versus other incentives? And then how does this differ from the buy downs you guys are currently offering and then more specifically how large of an impact on margins. Thanks. Yeah, thank you for the questions. What I really obviously was trying to get across in our prepared remarks was the power of our incentives and how necessary they are when you compare to, you know, 2021 rates of about, you know, 3% and what we're seeing in today's market evade.

Yeah, you're right you know, there's a spread there there's a generally a few hundred basis points 300.

Larger when I look at the the 55 plus resort lifestyle. So much of that is when you look at that consumer picking their own lot and their design features in the house I mean, our spec lot premiums.

<unk> are about half of to be built and that's really focused on the active adult.

Our option revenue is about 50% higher than our specs so when you're when.

When I look at the portfolio that three to 400 basis points is about right when I look at the active adult.

It's actually the spreads even greater.

Anika Dholakia: So if I run through the programs quickly for you without going into too much detail, you know, about 94% of our closings in the quarter had some sort of discount points paid by either the buyer or seller. That number is not really any different than what you would have seen historically, maybe somewhat influenced by the percentage of cash because really everyone that's got a mortgage, we're helping in some way. And on those discount points, the average was probably just under about two and a half percent.

Awesome. Thank you guys I'll pass it on.

Thank you. Thank you.

Our next question comes from Michael Rehaut with J P. Morgan. Please go ahead, Mike Your line is now open.

Hi, guys. Good morning, its Doug Boardwalk on for Mike.

If I heard it correctly in terms of seasonality you said August was stronger than usual.

September kind of taper off a little bit from August and October was still looking nice from.

The historical standpoint, so I'm just wondering looking forward in terms of the rate environment. We're in.

Anika Dholakia: And then if you go to the 10 buy downs where the costs are calculated based on the loan amount, that's been running about two and a quarter percent for a two one buy down, those costs are obviously paid by the seller. And that was only about 13% of our third quarter closings that used a temporary buy down. And then to your question specifically, but I think it's important to see the stacked effect is our forward commitments, which include our buy, build secure program for extended lock programs.

Where do you guys think things would be in terms of typical seasonality moving into 2024 do you think it continues to stay in line are just very much so.

The rate environment.

Forward into next year.

Anika Dholakia: And this is where we purchase a forward trance of money on a specific date, we're doing that potentially daily, weekly, depending on the need and that allows us to offer an interest rate below market. We have to buy those funds before the customer is in contract. And that way, honestly, the dollars are not included in our seller contribution limits limitations. But when we look across the portfolio, that was only 18% of our Q3 total closings.

I think that will be always weighing on you know the.

The mind of the consumer today, along with some of the other macro factors at work.

I think the consumers being faced with them, but I get grounded very quickly on the lack of supply that we have and the needs of consumers to get shelter.

So as I look forward you know once again, assuming no significant shifts and what we're seeing in today's environment. This kind of rate for longer I think we all have to be prepared for that until the fed give some clarity around that.

Around M. B S. I think that's going to continue to weigh on FX, but when I look at next year I think across the industry and certainly for Taylor Morrison, we expect to see.

Anika Dholakia: When, so when you put that against the margin, it's actually a very small kind of less than 1% on forward commitment specifically across the portfolio for Q3. Interestingly, as well, the average interest rate per for commitment in Q3 was just about five and a half percent.

See you know movement upward on both sales and closings.

Sales starts and closings got it thanks and then.

Got it. Thank you and then lastly in terms of you know incentives on a market by market basis, where there any particular markets that were surprising in terms of not meeting.

Sheryl Palmer: Probably that gives you a little bit of an overview. Super helpful. Thank you. And then I guess my second question, looking a little at mix. So in second quarter, respect to BTO is about 60 to 40, I believe. Now we're seeing three Q 55 to 40 spec BTO. So how do you expect this mix level to change based on the rate, you know, movements, the rate environment we're in. And then can you just remind us on the margin spread between second BTO.

Many incentives offers are more than you anticipated it and do you feel that trend if there is one.

We'll be available moving forward.

Yeah. It's a good question you know when we look at where we're expanding.

They are a forward commitment dollars there have been a couple of surprises I would say not surprising as where we have the strong the greatest penetration of first time buyers as where we're at.

Sheryl Palmer: I think I heard you say several hundred bips, wondering if that's still that 300 to 400 bit range from previous quarters or if you're seeing that narrowing at all. Thanks. Yeah, maybe we'll tackle this one together. I think in fourth quarter, Kurt, we would expect the spec Stabia, you know, probably closer to what we saw on Q2 given just availability. Is that no, I would say so. I mean, generally speaking, as I think we've said before, we've been kind of our mix between spec and to be build has been 60 40 40 60 over time.

Where we're seeing most of those forward commitment standby died by down dollars.

Sure what places that we really haven't used them much forward commitment that the consumer just has it needed. It in these communities would be places like.

Sacramento.

The Bay area.

Seattle.

We've I mean barely used forward commitments is in our tool chest at all when I look at places, where we have a more affordable consumer, let's say Orlando and Houston, that's where we've probably.

Sheryl Palmer: And today we're a little more heavy relative to specs in that kind of, I guess, ratio. And we would probably look to continue to see that go forward here for the next quarter or so relative to that. But again, we're, it's very consumer based for us. We kind of mirror that program relative to the communities that we have and to the customers that we're serving. And today that mixes just right and that like we said, 55% spec in 45% to be built.

Lean down a little bit more on forward commitments, but once again I would say as a percentage of total incentives are pretty small number but a wonderful marketing tool that starts to conversation and helps us give confidence to the consumer if theyre going to buy.

You know with the inventory home, that's going to close in 30, or 60 days or they're working on a buy build secure because theyre going to select their lot and build their home to be able to lock them in with that kind of confidence for 12 months is a very powerful tool.

Sheryl Palmer: And then when we look at the margin impact, which I think was the second part of your question. Yeah, you're right. You know, there's a spread there. There's a generally a few hundred basis points, three, four hundred that can get larger when I look at the 55 plus resort lifestyle. You know, so much of that is when you look at that consumer picking their own lot and their design features in the house.

Got it thank you.

Thank you. Our next question comes from Alan Ratner with Zelman and associates.

Please go ahead your line is open.

Okay.

Hey, guys. Good morning, Thanks, as always for all the great color so far.

Sheryl Palmer: I mean our spec lot premiums are about half of to be built. And that's really focused on the active adult and our option revenue is about 50% higher than our specs. So when you're, When I look at the portfolio, that three to four hundred basis points is about right. When I look at the active adult, it's actually the spread's even greater.

Sheryl first one arnie the rate buy down topic Ah.

Sheryl Palmer: Awesome. Thank you guys.

Morning.

So if I'm thinking about this right 18% of your closings are kind of the forward commitment full 30 year by down another 13% temporary buy downs I think is what you said so roughly 30%. So a third of your businesses is quite seeing a rate buy down of some sort right now we've heard from some other builders share much.

Sheryl Palmer: I'll pass on. Thank you.

Higher than that and I'm curious why not offered more more across the board in an effort to maybe drive that absorption rate closer to that low three target you guys have.

Doug Wardlaw: Our next question comes from Mike Rehaut with JP Morgan. Please go ahead, Mike. Your line is now open. Hi, guys. Good morning. It's Doug Wardlaw on from Mike. If I heard correctly in terms of seasonality, you said August was stronger than usual. September, kind of tapered off a little bit from August and October was still looking nice from a historical standpoint. So I'm just wondering, looking forward in terms of the rate environment we're in.

And I guess within the fourth quarter guide for margins to be down 100 bps are you able to share kind of explicit forecast on how high that that share ultimately does go in the fourth quarter.

Yeah.

Okay.

Yeah.

Thanks, Alan and Theres a lot in there. So let me try so the reason I went into such great detail on kind of the different programs as I do think there's some real confusion out there when we talk about discount points versus four commitments. We've always had some form of discount point or closing cost assistance.

Doug Wardlaw: Where do you guys think things will be in terms of typical seasonality moving forward? I think in the 2024, do you think it can use this day in line are just very much so varied on where the rate environment goes moving forward into next year? I think that will be always weighing on the minds of the consumer today along with some of the other macro factors that we're seeing as consumers being faced with.

We didn't even talk about the buyers that really just want some support on cash out of pocket and that's more important to them. So that's why that 94% I think that's getting blurred across some of the chatter out there on how many are getting forward commitments.

So when I look at 30% and you align that you know with our.

Doug Wardlaw: But I get grounded very quickly on the lack of supply that we have and the needs of consumers to get shelter. So as I look forward, once again, assuming no significant shifts in what we're seeing in today's environment, this kind of rate for longer, I think we all have to be prepared for that until the Fed gives some clarity around next moves around MBS. I think that's going to continue to weigh on folks.

First time buyer mix, you align that with our cash.

It actually makes a lot of sense, we have those programs available.

For each of our consumers. So it's really about once they come in the door and we work with them understanding which program is going to make the most sense for them to get that payment where they need it.

When I look into Q4 generally the fourth quarter Allen is a higher penetration of inventory homes I expect that we'll see that in this Q4 as well when I look at the penetration of inventory homes in backlog today, it's higher than what we would've had in Q3. So that's.

Sheryl Palmer: But when I look at next year, I think across the industry, and certainly for Taylor Morrison, we expect to see, you know, movement upward on both sales and closings. Thank you. And then lastly, in terms of, you know, incentives on a market by market basis, whether any particular markets that were surprising in terms of not needing as many incentives offers are more than you anticipate it. And do you feel that trend if there is one will be a available moving forward?

Going to have an impact we also benefited in the third quarter from some pull in of some larger higher margin, which kind of blurs to Q3, and Q4 margin trajectory what I would keep focused on is we're taking our margin up for the year from what we said last quarter.

Okay, that's really helpful Carol and I appreciate the discount points, because I feel like we might be talking apples and oranges across some of these disclosures in the industry right now.

Sheryl Palmer: Yeah, it's a good question. You know, when we look at where we're spending, say, our forward commitment dollars, there has been a couple of surprises. I would say not surprising is where we have the strong, the greatest penetration of first time buyers is where we're seeing most of those forward commitment and by by down dollars show up. Places that we really haven't used much forward commitment. The consumer just hasn't needed it in these communities would be placed by Sacramento, the Bay Area, Seattle.

So.

We need to be separate.

Yeah, exactly no I hopefully others can follow suit and provide similar disclosures that you guys do coming forward.

Second question.

Was hoping you could help me better understand kind of the.

Bridge that gap from your current absorption pace, which is running for the year, you're probably going to end up somewhere in the high twos 2728 range maybe versus that that's.

Intermediate term target I guess, it's something in the low threes. So basically you do you expect your absorptions to probably Klein, 15%, 20% from here.

Sheryl Palmer: We've, I mean, barely used forward commitments in our tool test at all. When I look at places where we have a more affordable consumer, let's say Orlando and Houston, that's where we've probably leaned in a little bit more on for commitments. But once again, I would say as a percentage of total incentives, a pretty small number, but a wonderful marketing tool that starts the conversation and helps us give confidence to the consumer if they're going to buy, you know, with an inventory home that's going to close in 30 or 60 days, or they're working on a buy, build secure because they're going to select their lot and build their home to be able to lock them in with that kind of confidence for 12 months is a very powerful. Paul Toul. You got it. Thank you.

What timeframe should we think about that occurring and what should.

Should we think about the mix of your business doing that happens either from a price standpoint and margin standpoint.

The market kind of stays where it is today rates stay elevated and maybe there is some some choppiness there what needs to happen for that absorption rate to move higher into that low three range.

Yeah, I think the timing is moving into next year, Alan I'm, just saying that we're not giving any specific guidance for 2024, yet, but I think as we've said all year that we've got a shift in our overall mix of communities Erik talked about some of those where we've taken communities with more.

Positions to really push mix returns so as you look into 2024.

Alan Ratner: Our next question comes from Alan Ratner with the Zellman in the associate. Alan, please go ahead. Your line is open. Hey guys, good morning. Thanks for always throwing all the great colors so far. Sheryl, first on the rate by down topic. Good morning. So if I'm thinking about this right 18% of your closings are kind of the forward commitment full 30 year by down another 13% temporary by down to think is what you said. So roughly you know 30% or so a third of your businesses is kind of seeing a rate by down of some sort right now.

I'm with you on you know 2023, as we move into the fourth quarter with the environment. We're in we'll probably be somewhere in that high two number but as we look at 'twenty 'twenty four you should expect something in the three range below three range and Allen from an underwriting perspective, we've been underwriting to kind of that three threshold for.

Some time and so just ensuring that the math makes sense for every sub market and every asset so that we're looking at the elasticity and there have been times in the cycle, what we've really pushed for price and margin.

So we've got that kind of that lever to pull but between those two and so we can shrink that from an underwriting standpoint, we're setup for the future.

Sheryl Palmer: We've heard from some other builders share much higher than that and you know I'm curious a you know why not offer more more across the board and never to maybe thrive that absorption rate closer to that low three target you guys have. And I guess within the fourth quarter guide for margins to be down 100 bits you are you able to share kind of an explicit forecast on how high that that share ultimately does go in the fourth quarter.

No.

Okay.

Got it I appreciate that guys. Thank you.

Hi.

Oh. Thank you Austin comes from along with Ken Sena with Seaport Research Ken. Please go ahead. Your line is now open.

Thank you and good morning, everybody.

Sheryl Palmer: Yeah. Thanks Alan. There's a lot in there. So let me try. So the reason I went into such great detail on kind of the different programs is I do think there's some real confusion out there when we talk about discount points versus forward commitment. We've always had you know some form discount points or closing cost assistance. We didn't even talk about the buyers that really just want some support on cash out of pocket and that's more important to them.

Good morning.

Good morning.

Okay.

So I really do appreciate your disclosures I think.

Actually kind of raising more questions then.

Answering.

That's probably why people don't do it but thank you very much.

I Wonder if you can summarize these incentives.

Your dividend.

But is there a way for you to talk about the incentives you've offered related to these different <unk>.

Sheryl Palmer: So that's why that 94%. I think that's getting blurred across some of the chatter out there on how many are getting forward commitments. So when I look at 30% and you align that you know with our first time buyer mix you align that with our cash. It actually makes a lot of sense. We have those programs available for each of our consumers. So it's really about once they come in the dorm we work with them understanding which program is going to make the most sense for them to get that payment where they need it.

Aspects that are part of the operating environment.

You know.

Two influenced buyers is there it can be saved four percentage or six or so.

Perspective, obviously, you are giving us much more detail.

Yeah, I can try and cover maybe.

Okay.

So I would say that last thing one more 10, Ken and builders say what.

Sheryl Palmer: When I look into Q4 generally the fourth quarter Alan is a higher you know penetration of inventory homes. I expect that we'll see that in this Q4 as well when I look at the penetration of inventory homes and backlog today it's higher than what we would have had in Q3 so that's going to have an impact. We also benefited in the third quarter from some pull-in of some larger higher margin which kind of blurs the Q3 and Q4 margin trajectory.

Oh yeah.

Yeah. They are just.

Some of the builders just talked about it being 4% or 6% of Asps maybe.

Maybe while you are thinking about that so you did give us such good granular details is there a way to think about your options.

As a percent of your Asps I know you've mentioned the 110000 on your to be built but is there a total.

Number you have for <unk> percent of your reported Asps.

Yeah, we've run for years and years somewhere in that 15% to 16% range and honestly, we haven't seen much movement. There. The other area you didn't ask but I'll mention that we haven't seen much movement in is our square footage range over the last many years you would think that given the environment. We're in.

Sheryl Palmer: What I would keep focused on is we're taking our margin up for the year from what we said last quarter. That's really helpful. So I appreciate the discount points because I feel like we might be talking apples and oranges across some of these disclosures in the industry right now. So I think so and need to be separate. Yeah exactly now hopefully others can follow student provide similar disclosures that you guys do coming forward.

Same square footage has really moved down and that's just doesn't seem to be the case, particularly on our to be built when the consumer is the one that makes the choice.

They want to build.

Now with respect to more color on it.

Sheryl Palmer: The second question you know I was I was hoping you could help me better understand kind of the bridge that gap from your current absorption pace which is running you know for the year you're probably going to end up somewhere in the I-2-2-7-2-8 range maybe versus that that intermediate term target I guess of something in the low three. So you know basically you expect your absorption to probably climb 15% 20% from here.

The programs.

I think a couple of things worth mentioning you know obviously, we've seen interest rates double since 2021, but even having said that most customers have really expected that the low rate environment of 2021 is not coming back at home values have remained relatively steady so what that has done.

<unk> has obviously made a significant impact on our consumers.

Payment for the same house and the income requirement that would be necessary to buy what was a $500000 house two years ago versus the 500000 dollar house today.

Sheryl Palmer: What timeframes should we think about that occurring in what should we think about the mix of your business doing as that happens, either from a price standpoint, a margin standpoint, assuming the market kind of stays where it is today, rates stay elevated and maybe there's some sharpiness there, what needs to happen for that absorption rate to move higher into that low three range? Yeah, I think the timing is moving into next year.

Generally I.

I would tell you that we've been since the consumer has really kind of met us halfway generally speaking we've been marketing 5495, 0.99, 30 year fixed rate there may be a really affordable community or two well.

Sheryl Palmer: Alan, I'm saying that we're not giving any specific guidance for 2024 yet, but I think as we've said all year that, you know, we've got a shift in our overall mix of communities, Erik talked about some of those where we've taken communities with more positions to really push the mix in terms. So as you look into 2024, with you on 2023 as we move into the fourth quarter with the environment we're in, we'll probably be somewhere in that high two number, but as we look at 2024, you should expect something in the three range below three range.

We would look at a $4 99, but generally we're not having to do that in fact, if you look at it.

The coupon note rate of our closings in the third quarter I'm going to tell you a job to something like 620 compared to 5.8 last.

Last quarter, so the consumers moving along with US which is has us generally marketing rates in the fives.

Sheryl Palmer: And Alan, from an underwriting perspective, we've been underwriting kind of that three threshold for some time and so just ensuring that the math makes sense for every cell market and every asset so that, you know, we're looking at the elasticity and there have been times in the cycle where we've really pushed for price and margin. And so we've got that kind of, you know, that lever to pull between those two and so we're some sharing that from an underwriting standpoint, we're set up for the future. Yeah. Got it. Appreciate that guys.

Thank you very much.

Very good color.

Yeah.

Worse.

Yeah.

Next question comes from Jay Mccanless with Wedbush. Please go ahead. Your line is now open.

Sheryl Palmer: Thank you.

Good morning, everyone and thanks for taking my questions.

Quick one on capital allocation, especially when I look at the June 27 notes trading at a decent discount to par.

Could could opportunistic debt reductions be part of the capital allocation discussion going forward.

Ken Zuna: The question comes along with Ken Zuna with seaport research. Ken, please go ahead. Your line is now open. Thank you. Good morning, everybody. Good morning. Good. So I really do appreciate your disclosures. I think it's actually kind of raising more questions and answering, which, you know, that's probably why people don't do it. But thank you very much. I wonder if you can summarize these incentives. You know, you're giving it. But is there a way for you to talk about the incentives you've offered related to these different aspects that are part of the operating environment.

You guys raised your land spend number for 'twenty three last quarter.

And you're expecting the land spend to be up in 'twenty four.

Just wanted to kind of balance that against the potential to start chipping away at that stack in 2007.

Yes, good morning.

Never say never right I think we're pretty grounded in our overall capital allocation strategy.

With the payoff of our senior notes here for Q3 that were going to be doing first quarter of next year, we have those behind US now and so right now our number one priority is we will be investing in the business will continue to be opportunistic from a share repurchase standpoint and to your point.

We will continue to look at whether or not we want to take anything else out from our senior notes standpoint, but to your point that would be an opportunistic kind of perspective.

Ken Zuna: You know, to influence buyers, you know, is there a, can you say it's 4% or 6% or where. The perspective, obviously, you're giving us much more detail. Yeah, I can try. So say that last thing when we're 10 can build or say what? Oh, yeah, there's just some of the builders have talked about it being, you know, 4% or 6% of ASP. And why maybe while you're thinking about that, so you did give us such good granular details.

Okay.

And then.

I guess could you talk about.

You said during the third quarter you raised prices at 60% of communities have you been able to hold that type of pricing given what you've seen thus far in October you're having to maybe talk about what type of pricing power or pricing stability, you're seeing thus far in the quarter.

Ken Zuna: Is there a way to think about your options as a percent of your ASP? I know you mentioned 110,000 on your to be built, but is there a total. Number you have for oxygen percent of your reported ASP? Yeah, we've run for years and years now and that's 15% to 16% range and honestly we haven't seen much movement there. The other area you didn't ask but I'll mention that we haven't seen much movement in as our square footage range over the last many years.

Yeah, we haven't.

I don't know that I could give you a tremendous amount of color for October on what percentage of the communities. We've raised prices, but I would tell you that I don't think theres anything meaningfully different.

October than what we've seen.

Q3, with the exception of probably leaning in a little heavier with that first time buyer.

On the forward commitments.

We're always going to start with Eric.

That's the power.

Ken Zuna: You would think that given the environment we're seeing square footage is really moved down and that just doesn't seem to be the case. It's particularly on our 2B builds, one that consumers, the one that makes the choice, what products they want to build. You know, with respect to more color on the programs, you know, I think a couple things worth mentioning, you know, obviously we've seen interest rates double since 2021, but even having said that most customers have really expected that the low rate environment of 2021 is really not coming back and values have remained relatively steady.

You bet you.

Our next question comes from the line of Alex Barron with housing Research Center.

Please go ahead. Your line is now open.

Okay.

Yes. Thanks.

Generally the number a few quarters.

<unk> talked about.

A couple of years ago used to talk about.

Your your analysis would show that consumers could pay up higher interest rates.

I'm wondering if.

If you did the same analysis today is that still the case or are we kind of at that level where.

Ken Zuna: So what that is done is obviously made a significant impact on a consumer's payment for the same house and the income requirement that would be necessary to buy what was a $500,000 house two years ago versus that $500,000 house today. Generally, I would tell you that we've been, since the consumer has really kind of met us halfway, generally speaking, we've been marketing 5.49, 5.99, 30 year fixed rates. There may be a really affordable community or two where we would look at a 4.99.

With the maximum.

Is is right.

The analysis used to show you.

Yeah.

Yeah now we still do that analysis every quarter. So I appreciate the question and I think it's exactly what you would expect when I look at the conventional buyer, we have still nearly 400 basis points when I look at the fourth quarter closings like I said they.

On average closed with an average note rate of 623.

And with that $6 two three they still had nearly 400 basis points of room. So I would say very very healthy on the conventional consumer and once again. That's just that's just on one bucket that is before we look at assets another qualifying needs.

Ken Zuna: But generally, we're not having to do that. In fact, if you look at the coupon note rate of our closings in the third quarter, I'm going to tell you a jump to something like 6.20 compared to 5.8 last quarter. So the consumers moving along with us, which is has us generally marketing rates in the 5. Thank you very much. Very good color. Of course.

I think probably more.

What we've seen on the FHA side, and we have seen a little bit more compression. If I were to go back to you know this time last year, we probably had we had close to 240 basis points and they're qualifying kind of room and today that has dropped to 140 base.

At this point.

Probably more important.

When I look at the backlog.

I would tell you that our backlog when I look at all of their qualifying kind of conditions are in a very good place.

Curt VanHyfte: Our next question comes from Jay McCannes with Woodbush. Jay, please go ahead. Your line is now open. Good morning, everyone. Thanks for taking my question. Quick one on capital allocation, especially when I look at that the June 27 notes trading at a decent discount apart could could opportunistic debt reductions be part of the capital allocation discussion going forward. You guys raise your land spend number for 23 last quarter, and you're expecting a land spend to be up in 24. I just wanted to kind of balance that against the potential to start shipping away at that stack in 27.

Our conventional buyer when I look at incomes and Ltvs and FICO scores ratios they continue to improve.

And on the FHA side, they continue to get a little bit tighter.

Okay.

Got it.

My other question was in terms of.

Sales pace is there any.

Can you describe how the entry level versus move up versus active adult or are doing lately.

Yeah, actually our strongest pace for the quarter with entry level.

And then followed by move up active adult would've been third up and that would be expected in Q3, when generally we're in kind of the summer.

Curt VanHyfte: Yeah, good morning. Yeah, never say never, right? I think we're pretty grounded in our overall capital allocation strategy or number with the payoff of our senior notes here. For Q3 that we're going to be doing first quarter of next year. We have those behind us now. And so right now our number one priority is we'll be investing in the business. We'll continue to be opportunistic from a share repurchase standpoint and to your point. We could, you know, we'll continue to look at whether or not we want to take anything else out from a senior note standpoint. But to your point, that would be an opportunistic kind of perspective.

Moving to the shoulder selling season so.

As I sat at deep deep pool of first time buyers and so we're seeing the traffic and we're getting we're getting the sales we just have to.

But the right programs fourth to make sure we can get them qualified.

Okay.

Got it thank you so much.

Thank you.

Yeah.

Those are all the questions we have I'll turn the call over to Cheryl for closing remarks.

Sheryl Palmer: And then, I guess could you talk about, I think you said, during the third-quality race prices at 60% of communities, have you been able to hold that type of price and given what you've seen thus far in October or you haven't maybe talk about what type of price and power or pricing stability you're seeing thus far in the quarter? Yeah, we haven't, I don't know that I could give you a tremendous amount of color for October on what percentage of the communities we've raised prices, but I would tell you that I don't think there's anything meaningfully different in October than what we've seen in Q3 with the exception of probably leading in a little heavier with that first time buyer on the forward commitments. We're always going to start there because of the power you betcha.

Well. Thank you I appreciate everyone joining us for our third quarter results I wish you all a wonderful fourth quarter, a happy holiday season, and we'll look forward to talking to you in the new year.

Goodbye.

Thank you everyone for joining us today. This concludes our call and you may now disconnect your lines.

Alex Barron: Next question comes from the line of Alex Barron with Housing Research Center. Alex, please go ahead, your line is now open. Yeah, thanks, Cheryl, I remember a few quarters ago you used to talk about maybe a couple of years ago, you used to talk about your analysis which show that consumers could pay up higher interest rates. I'm wondering if you did that same analysis today, is that still the case or are we kind of at that level where the maximum is what your analysis used to show?

Alex Barron: Yeah, now we still do that analysis every quarter, so I see the question and I think it's exactly what you would expect when I look at the conventional buyer, we have still nearly 400 basis points when I look at the fourth quarter closings. Like I said, day on average closed with an average note rate of 6.23 and with that 6.23, they still had nearly 400 basis points of room, so I'd say very, very healthy on the conventional consumer and once again that's just that's just on one bucket that's before we look at assets and other qualifying needs.

Alex Barron: I think probably more telling what we've seen on the FHA side and we have seen a little bit more compression, if I were to go back to this time last year, we probably had we had a close to 240 basis points in their qualifying kind of room and today that has dropped to 140 basis points. Probably more important is when I look at the backlog, I would say that our backlog when I look at all of their qualifying kind of conditions are in a very good place. The conventional buyer when I look at incomes and LTVs and bike scores ratios they continue to improve and on the FHA side they continue to get a little bit tighter. Got it.

Sheryl Palmer: My other question was in terms of sales pace, is there any, can you describe how the entry level versus move up versus active adults are doing lately? Yeah, actually our strongest pace for the quarter with entry level. And then followed by move up, active adults would have been third up, and that would be expected in Q3 when generally we're in kind of the summer season before we move into the shoulder selling season.

Sheryl Palmer: So as I said, a deep, deep pull of first time buyers, and so we're seeing the traffic and we're getting the sales, we just have to put the right programs forth to make sure we can get them qualified. Got it. Thank you so much. Thank you.

Sheryl Palmer: There's all the questions. We have to have Michael over to Sheryl for closing remarks. Well thank you. Appreciate everyone joining us for our third quarter result. I wish you all a wonderful fourth quarter a happy holiday season and we'll look forward to talking to you in the new year. Bye bye. Thank you everyone for joining us today.

Operator: This concludes our call and you may now disconnect your lines.