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

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

Thank you, Jason and good morning everyone. We appreciate you joining us today. Before we get started, I want to send my thoughts out to each of you with hope that you and yours have managed to stay healthy during this global health crisis. The COVID-19 pandemic has impacted every corner of the world and Taylor Morrison is just one of the countless organizations navigating its way to the other side of it.Despite the uncertainty and challenges associated with the economic shutdown beginning in March, we are quite pleased with the financial performance that we achieved during the first quarter. Although we will highlight the most relevant data points of our results, our focus will be on the go-forward impacts of our current environment.Even now in early May, the landscape certainly looks a lot different than since a national emergency was declared nearly seven weeks ago when we transitioned a majority of our team members to a work-from-home status. The company finished Q1 with sales orders of 3,466, which was up approximately 33% from the prior-year quarter.This represented a sales pace per community for the quarter of 3.1, which was also up nearly 35% from the sales pace of 2.3 in the first quarter of 2019. Consistent with most of the industry, our sales orders in the first two months of the year started extremely strong, with January sales up 46% and a pace of 3.2.February sales were up 64%, with the pace increasing to 3.5 and continuing into the first half of March. However, the last 10 days of March were slower with the deceleration in the sales pace to 2.5, as our team in the broader market adjusted to our new reality.While we're pleased with our first quarter results, what I'm most encouraged to see is the momentum…

Thanks Sheryl and hello everyone. Before I get into my normal financial review, I'd like to take a minute to address our strong liquidity position as this is a focus for every business in today's environment.We ended the quarter with about $750 million in total available liquidity. Over $500 million of that was from cash on hand and the remaining difference was from available capacity on our $800 million corporate revolver.We did have $485 million in borrowings on the revolver at quarter end. But as you can tell, much of that has been held in cash on our balance sheet, as we borrowed $250 million in the middle of March at the onset of COVID-19 to ensure an abundant liquidity for daily operations.Our net debt-to-capital ratio at the end of the quarter was 46.8%. Given our planned reduction in land and development spend over the next several quarters, which I will touch on in a moment, we anticipate Q1 to be the peak of our net debt-to-cap ratio for the year, as we monetize our backlog and begin to pay down our revolver balance.Lastly, we have no senior notes maturities until 2023. As Sheryl mentioned, we've exerted great effort to maintain our backlog and to pull-through every closing we can. We also implemented additional controls on how we spend our cash.As we announced a few weeks ago, all named Executive Officers have voluntarily reduced their base salaries by 25%, and we'll defer those payments through the duration of the COVID-19 restrictions.Additionally, substantially all members of senior corporate management and division presidents have decided to take the same temporary pay deferral and the board of directors have deferred their cash retainers for the current quarter. While these compensation adjustments have helped in the short term, we are evaluating our go-forward workforce…

Thank you, Dave. So, before we move into Q&A, I'd like to turn to a few national local market updates, beginning with what we're seeing in the mortgage interest rate environment. Although rates have remained at historical lows, there has been extreme volatility in the market, in general.Luckily for us, we have one of the most tenured and experienced teams in the homebuilder mortgage industry that has helped us strategically and creatively navigate the erratic interest rate environment.Initially, rates moved higher as strong refinance demand quickly overwhelmed the industry's capacity to meet demand. However, while capacity has somewhat adjusted, credit and economic uncertainty has since added new pressure to lenders as the mortgage market attempts to price for the new higher risk environment.And amid the rapid changing environment, we empowered our mortgage loan consultant to quickly help our customers secure the lowest rate and provide formal mortgage approvals before credit tightening could affect their qualifications. Within days of shelter-in-place orders, our outstanding March projected closings were locked in.And by the end of March, nearly half of our April projected closings were secured. This is important because when a customer locks their interest rate, certainty around closing is significantly higher, as now the lender is able to provide a formal approval giving the customer certainty of payment in terms and also reaffirms the customer's commitment to the transaction.During these unique times, we have seen this as the single most important customer affirmation in the process. This strategy strengthened the visibility into our backlog and provided confidence about closing dates. We continue to see strong lock activity with our projected closings for May, secured with historically low interest rates in June well on its way.Taylor Morrison Home Funding has been a key part of our business for a long time and allows…

[Operator instructions]Our first question comes from the line of Jack Micenko with SIG. Your line is open, please go ahead.

Hi, good morning. And I hope everybody's well and Sheryl, thanks for the increased detail on operations and that sort of thing. A number of -- you gave us a lot of color on sales pace in April and net versus -- or not sales pace rather, order trends and activity. Can you -- is it possible -- I know you integrated William Lyon Homes recently. Is it possible to give us an apples-to-apples on what April activity was versus a year ago on a sort of a same-store basis?

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

Okay. Okay. And then Dave, without giving guidance, obviously, when the visibility is limited for everybody, you did speak with some confidence around the margin improvement in the back half of the year.So, I guess the question there is, I would assume or it sounds like a lot of that is already maybe in the bag, so to speak. What kind of incentive environment are you looking for in that improvement scenario? How much of the purchase accounting kind of burns through -- kind of help us understand in that statement. How much of that is what you can control versus what you can't control?

Right, Jack. Great question. First of all, let's say, purchase accounting. That's the biggest driver. And when we talk about overall margin improvement in the back half, we're really about burning through that purchase accounting. You saw the number, about 220 basis points in Q1.I mentioned that we're going to see something similar to that in Q2 as we work through the WIP inventory. But then that should start to moderate in the second half of the year.So that will be the big driver. You look at several things; you mentioned incentives, but also for the cost environment in there. Costs from an input standpoint, many of those are down relative to where they were. So, that should help as we move forward.When we look at just the kind of underlying business, we are leveraging AV, as the margins are coming in line with our overall business. So, we're through all that integration work on the AV side.I think where we have -- the headwinds, obviously, are any kind of discounting our incentives based on the market conditions that we're seeing out there right now. Going into kind of this time period, for Q1 deliveries, our incentives were down year-over-year, as well as down sequentially from Q4.Now, this quite possibly could increase in Q2 as we battle through the current market conditions. We'll take a similar approach to what we've done when we saw other previous slowdowns.But right now, we're spending a lot of time kind of repackaging our incentives to keep them refresh and drive some urgency as well. And then of course, we'll have some incentives as we work through finished spec inventory as we stay focused on turning the assets as well.

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

I'd probably just -- I think the known for all of us, probably the biggest factor going forward is just going to be the lasting impact of COVID-19 and how long this will disrupt the economy, but we'll just play through that as it comes.

Okay. So, it sounds like there is some expectation incentive -- increased incentives in that broader view, though, right?

Jack, I think it's hard to say. When I look today, we are seeing some increased incentives out in the market. I'd say where there -- where folks have a lot of inventory. I think it's been responsible. It's generally on quick closes. But we have seen some increased incentives in the market. I think we've stayed relatively disciplined. But when you're head-to-head, you're going to move the inventory.But like I said, even with those incentives, we're seeing about half the sales come without incentives because they're on to-be-built where the consumer gets to pick a lot and make all their own selections. The incentives that were used to-date aren't actually on top of incentives. They've really been just targeting the incentives on the credit opportunity that Dave discussed.

Okay. Thanks. And good luck.

Thank you.

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

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

No, no. Ivy, absolutely. Like I said, we've taken -- looking at the exposure that got brought into the industry, we absolutely have had to make some shifts. So, we're using aggregators who -- and co-issue servicers, so that we're not as impacted by the correspondent lending channels.And I think Ivy, you know all the reasons this has happened, but to ensure our ability to execute the best mortgage experience for our customer without getting those, what I would call, very disruptive overlays we've seen in pricing issue.Today, we're selling to Fannie and Freddie because we think that's been our best execution and providing pricing advantages. And before the crisis, we were selling all of our loans volume to aggregators, servicing released was most often our best execution.But now we've been able to open that service loans and utilize a sub-servicer, which I think is a -- given TMHF increased optionality and allows us to better leverage the risk and profitability advantages with minimal disruption.

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

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

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

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

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

So, as I said, Ivy, we are -- we scrub our backlog and are very proactive to understand where our customers are and the ones that have a home to sell, home to close. I think last time I looked at the -- a couple of weeks ago, I think it was about 6% or 7%, had a contingency in the backlog.And as, I believe, Dave mentioned in our prepared remarks, we're taking a second look at our backlog before we begin construction. And we want to make sure we have full visibility if we're considering starting a new home for a customer.Nothing is 100% Ivy, but I think it absolutely reduces our risk. And I think we've demonstrated over time, with our very low can rate, the tight controls we have in our backlog.So, I feel pretty good. Part of the TMHF process has also been tracking all COVID-related risks, on furloughs, and job losses, and pay cuts. So, we've been paying very close attention and have a pretty rigorous process in place on the backlog. And I said -- like I said, got very aggressive.I guess, lastly, what I share is when I look at the progress in our can rate over the last, oh, my goodness, four, five, six weeks, it would have started six weeks ago at something like 50%. And this past week, it's single-digits. So, I think we're getting back to a pretty normalized place on the backlog.

Fantastic. Good -- very impressive. Could you -- lastly for me, and then I'll get back in queue. Just in terms of your stock being hit so hard, has a lot to do with the old adage of Houston exposure and with the energy prices. So, maybe just go around the horn a little bit. Obviously, you're in Vegas. You said -- where you can provide sort of the market color, where you're seeing the greatest impact as opposed to where you're seeing outperformance, would be helpful.

You bet, Ivy. I mean Texas; I think you have a few different things going on. Austin, has continued remarkably strong. I mean with an integration on their plate, with, I would say, very conservative stay-at-home protocols. I believe last week, Austin had our highest both growth and net sales in the company, not something I would have expected. So, just very strong.I would say even though we've reopened the state of Austin and we entered into -- excuse me, we entered the state of Texas and entered into Phase 1 of our back-to-work. I think the markets are all responding a little different. Austin probably remains the most conservative as far as just how the consumer is viewing things. Dallas, I would say, middle of the road. And Houston, kind of COVID, they didn't stay-at-home during the COVID stay-at-home, and they're not staying at home now.Interesting about Houston specifically, Ivy, like you said, we're in a -- I think the just crisis, in general, is and the oil pressures, in general, very different than what we saw last time. It'd be hard to say it's not creating additional headwinds in the market. But there are certainly a number of new facts that I think you have to look at to put it all in appropriate context.The market's changed dramatically since we were wholly reliant on oil and gas. I mean I think if we look at the Houston workforce, it's something like 1.2%, is reliant on -- and certainly, there's lots of ancillary roles.When I look at Taylor Morrison and compare us from 2014, Houston represented about 23% of our total community count. That's dropped to less than half of that. So our volume is very different. When I look at our balance sheet, it's a very low percentage.And…

Absolutely. Thank you so much. Good luck.

Thank you.

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

Thanks very much. Good morning everyone. I hope everyone's safe and healthy. First question, I guess, just circling back, Sheryl, appreciate the down 30 for April. But I think what was really the most important part of that is, as you described in the press release, in your prepared remarks, was around the improvement that you saw during the month. You also noted that your sales rate or your sales pace was around 2.5 during the last, I guess, 10 days of March.I was curious and obviously, typically, you wouldn't expect to -- or we wouldn't ask a week by week, just given the volatility, in general, and the inconsistency week to week.But I was just kind of hoping on the back half of April, as things perhaps started to stabilize a little bit, where that sales pace, that net sales pace ended up that could obviously kind of take out some of the noise that you saw in the first half of the month?

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

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

Yes.

Okay. Yes. That kind of makes sense. I guess secondly, the comments around mortgage tightening at points and some of the moves that you've done on the servicing side or working with sub-servicers, just wanted to delve into both of those aspects a little bit.On the tightening or the lending standards, if you can give us a sense kind of how that's affected, what portion of potential buyers that you have out there? You kind of mentioned that you have 8% FHA, another 8% VA and then a little bit jumbo.But even on the conventional product, just trying to get a sense of how you feel, in general, if it's kind of shrunk your buyer pool at all. What type of impact that's had on what kind of rough percentage of your buyers?And secondly, just to be clear, on the sub-servicer moves that you've made, whether or not that has any type that -- whether or not those actions or alliances or partnerships have any type of servicing risk that comes back on to Taylor Morrison itself or the home lending company?

Okay. There's a lot packed in there, but let me give it a shot, Michael. I mean TMHF has had a real -- a strong group of aggregators with long-standing relationships that I think have allowed us to leverage and maximize our product offerings with really best execution.As you know, we're also approved with Fannie and Freddie as the Fannie and Freddie lender, which means we can sell our loans directly to the agencies rather than going through third-party aggregators.And that's really important for us, as it allows us to avoid some of the overlays you're referring to that they've imposed, given, I think, the disruption that we've seen in the servicing market.So, as a result, TMHF has really been able to mitigate much of the credit tightening for our own customers, no matter which category you're talking about. We're seeing most lenders and aggregators raise their minimum credit scores to anywhere from 640 to 660 in the FHA space and jumbo, probably around 700 with 20% down.I'm pleased we're still able to qualify customers at our 640 credit score, although the pricing that's available today does reflect the risk at those lower FICO scores. We reacted to the environment by opening our ability to retain the servicing on a portion of the loans where the servicing market has either dried up or become what we'd call irrational on the pricing side, that's why we did it.It gives us the ability to continue to serve these customers while avoiding the credit tightening that the broader markets are experiencing. FHA, when I look at our book, has been most impacted, as we said.And about 10% of our past was FHA. When I look at their credit scores today, our closed in the quarter FHA buyers were like at a 696. Our backlog is, I believe, at 709 for first-time buyers. So, we're in a really good place.Once again, with jumbo, even though Jumbo is also in non-QM programs have probably been equally or more impacted. The relationships that TMHF has with different mortgage product providers has really not in any way hampered our ability.Our sub-servicer is Dovenmuehle, Michael, very strong respected servicer because of when we are now just beginning the servicing; we don't have any of that prior liabilities that others have had. We also have a very stringent process in helping the consumer understand what forbearance is, what we have to do before we close the loan. So, I really don't see -- I see any downside risk very limited, if any.

Thank you.

Thank you.

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

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

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

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

Okay. I will follow-up later on.

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

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

No, they are -- it's a great question. They're behaving a little different. Like in Houston, interestingly enough, we've actually seen quite a pickup in our active adult buyer in the last couple of weeks.I think in Florida, we've seen -- if I look at Naples, for example, we've seen -- that's a very discretionary buyer. I would say that was really hard hit at the beginning, that's a second homebuyer. We're seeing some pickup in activity there. Sarasota, we're seeing the sales pick up week over week.But like I said, this is a buyer that needs to kind of feel and touch. They're generally not -- they're going to be a very small percentage of that virtual buyer that goes online, makes an appointment to do a virtual tour.And then from there, we'll do everything through virtual. We're even about to -- we'll be introducing -- sorry, I'm going to take a sidebar on yet because it's another area I don't think this fire will take advantage of.We'll be introducing a lot reservation system online where you can actually go in and reserve a lot, mostly on inventory to start, and then we'll move it to the rest of the product offerings from there. But this isn't a buyer that will play quite as much in that space.So, as Florida reopened and given what we've seen in the last two weeks, I'm encouraged, and they've stayed very engaged. I think that's what's most encouraging. Our salespeople are talking to them every day, setting up appointments to chat, and now we're starting to see them come into the sales offices.

That's great. Thanks for taking my questions.

Of course.

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

Hi, thanks for taking my questions. One more on the mortgage side. It seems like you guys have been fairly proactive and then your words rigorous around scrubbing the backlog. I just wanted to ask for a little more detail there.Can you actually kind of just walk us through what that process has been? What percentage if you have of your backlog that's scheduled to close over the three -- the next three months or in 2Q. Just -- have you been able to actively verify employment income still there, qualifications are still there.And Sheryl, sorry, this is multipart, but I think you talked about the rate lock, which is really interesting. But one of the things that I think we've all heard is lenders are requiring reverification at the closing table, some of these things.So, any color you have on, have there been any instances where you've gotten those rate locks, then by the time you get to the closing table, the deal still falls through because of qualification changes?

Yes. I know it's a great question. And we spent a lot of time talking about that upfront when we were, like I said, very proactive on really delegating the authority to our frontline, our loan consultants, not to say, okay If we need to do this to make sure we get the rate to a place that the consumer is more comfortable because what's happened with guidelines.That rate lock has really assisted us. I'm looking for the number real quickly. But I think that our lock pull-through is somewhere in the low 90% range. So, interestingly enough, Michael, even though it's an emotional commitment, we are not losing those buyers once we lock which why -- like I said, why we think it's such an important part really understanding the backlog.We do obviously go through a confirmation process before we lock, and you're absolutely right, we have to do it three days before. But we are pulling those buyers through. It's been an integral part of our process.So, April is behind us. May is locked. June, I think last time I left, we were in the probably 30% to 40% range. So we're continuing to get ahead of that. Maybe actually, over the last few days, 58%, sorry, my most recent report. So, I feel good about the next 90 days and we're still selling specs for the quarter, Michael.

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

Sure. You can imagine, Michael, you're not the first one to ask that question. So, we have had a lot of time to really dig through the assets over these last couple of many weeks. And I'd tell you, we have the same level of conviction around this transaction as we did when we came to an agreement last summer.This wasn't a short-term play for us. And although I could have not, in my wildest dream, imagined or planned for a pandemic in that we would 30 due after the closing, send people to work from home, as I said in my prepared remarks.We haven't missed a step in the integration, and that includes really understanding the land bank. So, when I look at the deal, the strategy hasn't changed for us. We added some really good long-term markets to the portfolio. We added good assets to the portfolio.We added scale in Austin, Denver and Southern California, and it's a great consumer complement. We will, as we get reopen, continue to dive into the individual assets and put it through the same process we put all of the Taylor Morrison assets through.We'll continue to pull on the synergies. As we said in the prepared remarks, we feel confident on the $80 million. And I think as we continue to scale up the business, we'll continue to see the enhancements.When you do a -- when a business like this is for sale, you have work to do. That's why we bought the business around book. We've built a great muscle in fixing the -- or creating the opportunities in the businesses. These assets are going to be with us well beyond COVID, and we're going to optimize their performance. We feel good about it.

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

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

Okay. Thanks. That's really helpful.

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

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

Yes. No, great question. We're excited about it. It's just -- it's the beginning of, I think, where this goes, allowing our customers to interact with us in a way that they prefer to. It's a direct line to our sales team, where they can go in, set up an appointment online. And they have a laundry list of ways that they can interact with us. It's through a virtual tour. They can set up an appointment to do a tour.They can set up an appointment online to talk with the salesperson to come in and have an in-person appointment to write a contract or to do option selections. It's interesting, about 80% to 85% of the appointments that have been made online have been to make an appointment to come in and meet with the salesperson.So, most customers still prefer to ultimately get face-to-face with a sales team member, but I think there's something about this more personal touch. It's this private exclusive kind of opportunity for them.This is going to continue to evolve when we are fully open, allowing our customers to kind of self-service the way they want to work with us in the way that they're shopping for other things.Like I said, we'll be introducing our lot holds where they can make a deposit online. So, I'm excited. But that 20% of those sales, those were folks that created an online appointment.They had never been in our -- had any contact with the company before that. They made an online appointment. They went through it virtually and then we did a contract with them virtually, and they never came and saw a model in-person. I think a year ago, nobody could have imagined that would happen in certainly at these numbers.

That's great color, yes.

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

Yes. No, it is a very interesting dynamic. And then, I guess, shifting gears on the construction side. Have you sensed any changes around the construction process? I know this has happened so quickly. And I guess it's got to be market specific, but just with social distancing on the job sites, perhaps any incremental move toward off-site manufacturing or perhaps going forward, would you think this accelerates some of those trends?

It's a great question. I'd say, first, as we look out there we've seen, obviously, changes out in the field. We haven't seen it come much in the way of impacting the cycle times as of yet, but obviously, COVID-19 is still fairly recent. So, we're watching that closely when it comes to trades and I'd say municipalities as well.I don't know from an off-site standpoint I think our position is still the same. There is opportunities ahead that will impact the industry going forward. This may help further that along. But again, this is all just so recent. I don't think we've seen any great strides or changes in that short term. But this, just like it did with virtual sales, could add maybe another layer of progression to the industry over time.

Health and safety, in general, has been -- I think I saw a stat, not too long ago, that construction was one of the safest or had the best members when you looked at COVID cases. The safe distancing has actually been pretty easy to execute in the field, and our trades have done a tremendous job with it.But the trades have remained where they fit with a few exceptions, on-site and very productive. In fact, I think in some areas, we've actually seen improvement in cycle-times. And as Dave said, I think some of the other work will be a little bit more on the margin. We're continuing to be involved, but it hasn't been the focus the last six, eight weeks.

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

Thank you and the same with you.

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

Yes, thanks for taking my question. I know this has gone on a while. Hope you guys well. I just wanted to ask about the transaction costs. Did you guys pretty much book them all this quarter or is -- can we expect anything else for next quarter?

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

Okay, great. Thanks and stay safe.

Thank you.

Thank you. And I'm showing no further questions at this time. And I would like to turn the conference back over to Sheryl Palmer for any closing remarks.

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

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