Good morning and welcome to Taylor Morrison’s First Quarter 2022 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to introduce you to Mackenzie Aron, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. Before we get started, 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 will find in today’s earnings release, which is available on the Investor Relations portion of our website at www.taylormorrison.com. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the SEC and we do not undertake any 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, let me turn the call over to our Chairman and Chief Executive Officer, Sheryl Palmer.

Thank you, Mackenzie and good morning everyone. I am pleased to also be joined today by Louis Steffens, our Chief Financial Officer and Erik Heuser, our Chief Corporate Operations Officer. I will share the highlights from this quarter as well as an update on the market environment and the favorable positioning of our portfolio in today’s rising rate environment. After my remarks, Erik will discuss our land supply and disciplined investment strategy and Louis will give a detailed review of our quarterly results and financial guidance. To begin, we are pleased to share the results of our first quarter performance, which exceeded our expectations across each of our key operating metrics despite the challenges facing our industry from ongoing supply chain constraints, further inflationary pressure and the swift rise in mortgage rates. Among the highlights, our home closings gross margin improved 450 basis points year-over-year to the strongest level since 2013. Our SG&A percentage declined 120 basis points to the lowest first quarter level ever and our return on equity improved nearly 900 basis points to the highest return since 2013. Each of these record results reflect the combination of our acquisition journey, which began nearly 10 years ago and more than tripled our annual deliveries to add critical scale and diversification to our business. As you have heard me discuss before, since completing our last acquisition 2 years ago, we have been entirely focused on operational priorities designed to leverage our core strengths of market scale, prime land positions and consumer-centric products. This primarily includes streamlining and simplifying our production capabilities and driving greater capital efficiency in our land investments. These are long-term structural improvements to our business that are allowing us to compete more effectively than ever before. This positive momentum is expected to drive even stronger results…

Thanks, Sheryl and good morning everyone. I will now discuss our strong land position and the disciplined approach we apply to our land investments. Through both our organic land investments as well as multiple well-timed homebuilder acquisitions, we have established a robust land pipeline of approximately 77,000 owned and controlled homebuilding lots, which represented 5.6 years of total supply at quarter end. The majority of this land, including approximately 70% of our own lots, was contracted for in 2020 or earlier prior to the significant increase in land prices that has occurred over the last roughly 18 months. These lots are booked on our balance sheet at an attractive historic basis, considering today’s land pricing, which is a meaningful source of embedded value that should benefit our margins and returns in the coming years. Additionally, because we already own or control nearly all of the lots needed to meet our 2022, 2023 and 2024 anticipated home closings, we are looking out to fulfilling 2025 and beyond for the land investments we are making today. As a result, we have the flexibility to be highly selective in today’s competitive market as we pursue opportunities that we believe will be accretive to our portfolio throughout the housing cycle. We utilized deep market research and consumer insights, scenario analyses and the expertise of our local land teams and Corporate Investment Committee to judiciously examine every investment decision. In fact, last year, when land price inflation was accelerating, we grew our land portfolio by 10% when the industry’s lot supply increased by roughly a third, highlighting the favorable position we are in to be more patient when deploying our investment dollars. We are also balanced in our approach as evidenced by the increasing share of our total land spend on development. For example, just…

Thanks, Erik, and good morning, everyone. I’ll provide an overview of our strong first quarter results as well as guidance on key metrics for the second quarter and full year. To begin, we generated first quarter earnings of $1.44 per diluted share. This was up 92% year-over-year due to strong upline growth as well as a significant improvement in our home closings gross margin, SG&A leverage and a lower share count. Thanks to the strong execution by our homebuilding and financial services team members, we delivered 2,768 homes during the quarter. Combined with a 23% increase in our average closing price to $594,000, this generated home closings revenue of $1.6 billion. Our closing volume was slightly above the midpoint of our prior guidance range despite increased supply chain pressure on material and labor availability at various points in the cycle. We continue to take steps to address and mitigate these issues by rationalizing our floor plans and option offerings, enhancing our scheduling processes and expanding our trade base. In addition, during the quarter, we accelerated our start pace to 4.2 homes per community per month to begin production on nearly all of our anticipated full year closings. This is earlier than normal to account for the longer construction cycle times we are experiencing. We also increased our inventory of spec homes to nearly 8 homes per community at quarter end from approximately 6 homes at the end of 2021. As we look ahead, we continue to expect to deliver between 14,000 to 15,000 homes, this year, including 3,000 to 3,200 homes in the second quarter. These forecasts do not assume any change in supply chain conditions. And from a pricing perspective, we now expect the average price of our closed homes this year to be at least $625,000, which will…

Thank you, Louis. Before we end the call, I want to highlight that earlier this month we published our fourth annual environmental, social and governance report. We integrate sustainable business practices across our organization and are proud of the achievements we highlighted in this year’s report. This includes our emphasis on fostering greater diversity and inclusion, giving back to our communities and combating the homelessness crisis, doing our part to help establish a resilient housing workforce and advancing environmental stewardship throughout efforts such as our exclusive partnership with the National Wildlife Federation in which we have safeguarded more than 5,000 acres of Wildlife habitat in our communities. This year, we are further advancing our ESG initiatives by committing the resources to establishing our greenhouse gas emissions baseline and developing our long-term strategy to reducing our carbon footprint. We are also continuing to focus on ways to expand our racial and ethnic representation as we seek to build on our legacy of industry-leading gender diversity. These are just some of the exciting initiatives we have underway. In closing, I’d like to offer my deepest appreciation to our team members for their tremendous efforts and commitment to our customers and our organization. The housing environment remains as dynamic as ever, with favorable demographics, employment trends and limited supply on one hand and rapidly rising mortgage rates, inflation and geopolitical issues on the other. And I am confident our team will continue to successfully navigate these unique times, and we look forward to updating you on our progress. With that, let’s open the call to your questions. Operator, please provide our participants with instructions.

Thank you. Our first question today comes from Carl Reichardt from BTIG. Carl, please go ahead your line is now open.

Thanks very much. Good morning, everybody.

Good morning.

Sheryl, I wonder if you could talk – good morning – a little bit about over the course of the quarter, how the different segments that you sell to performed order-wise, so first-time buyer versus move-up versus active adult and also into April, if you’d let us know that?

You bet, Carl. We did see a great deal of difference in the quarter when I look at the year-over-year numbers. Interestingly enough, when I look at the entry-level, active adult, our paces were pretty consistent between those two. Our highest pace was in the kind of first second move-up total in the business. But when I look year-over-year, pretty consistent. So we’re seeing, as I mentioned on the call, seeing really robust demand in all consumer sets through the quarter. And no real difference in April. When you go across the country, I would tell you that we have some affordable communities in April where you’re going through a few more pre-calls to get those folks to contract. You’ve got active adult positions across the country that are doing really well. There may be a position where that lifestyle buyer is more worried about the macro. So, there is no trends that are worthy of kind of speaking to. It’s generally pretty good across the board.

Great. Thanks for that Sheryl. And then as a follow-up, you talked about getting starts in the ground earlier this year. So where in the start process, if you have an average point in the vertical construction side, are you beginning to release those homes for sale? And when do you think you can remove those sales restrictions? Kind of what quarter do you feel like you’ll have the product up and ready to go with sort of some confidence in cost and completion time? Thanks.

Fair. You bet. Louis and I will tag team this. On the sales side, I think we’re still finding ourselves in a fairly restrictive environment through April. So I would expect those paces to be more similar to what we saw in the first quarter. I’m hopeful because I think it’s really a healthier environment for us to get to, Carl, that by the time we get to the latter part of the quarter, we find ourselves in a little bit more open environment. Would you want to talk about just this - all the starts in the first quarter?

Yes, sure. Good morning, Carl. So as you’ve seen, our starts have been ahead of our closings as we have increased the number of specs and working down our significant backlog of unstarted homes. Also, as those specs, we’ve gotten to probably where pretty close to where we’d say on a normalized basis we want to be. And those are progressing. We will start to be releasing those – have more release than we have historically. So I think in the future, you’ll see our start pace more align with our future sales as the year progresses.

And Louis, once you agree that generally, we’ve got a pretty good mix across the portfolio, we have some communities. It really comes down to supply-demand by community, community bases, Carl, that we are releasing very early in the process, and there are some where we might be holding closer to frame complete.

Yes. I’d say market-by-market a little bit differ.

Okay.

Okay. Great. Thank you, Sheryl. Thanks, Louis. I Appreciate it.

Thank you.

Thank you.

Thank you. The next question today comes from Alan Ratner from Zelman Associates. Alan, please go ahead your line is now open.

Hey, guys. Good morning. Thanks for taking my questions and all the great detail as always. Appreciate it.

Good morning, Alan.

First question – hi, good morning. First question maybe expanding a bit on the price point segment question, it sounds like maybe no discernible differences yet. But Sheryl, maybe I’m reading between the lines, but I definitely sense a bit more optimism going forward on your comments about move-up and active adult in terms of that buyers’ ability to withstand the move in rates we’ve seen, which I think is logical. If I go back last order, you kind of signaled that maybe your new community openings this year would be a bit more disproportionately weighted towards entry level. I think at the time, you kind of signaled maybe our sales price mix is a little bit lower as these new communities open up. So I guess I’m just curious what your thinking is, your plan is as far as segmentation of the business going forward, has this move in rates, assuming it’s here to stay, which is a big assumption, obviously? Has that altered your thinking as far as the desirable mix of the business as you think about land acquisition going forward?

Thanks, Alan. There is a lot in there. Maybe EriK and I will tackle it. But I would tell you that the overall mix of the business, when I look at the consumer groups and you’re seeing over the quarters, Alan, 3%, 4% movement between the segments year-over-year, I kind of like where we’re at. I mean that quarter of the business being that lifestyle community I love the diversity of the portfolio. You’ve seen the entry level move down to about 30%. As we’ve talked before, even in that entry-level cohort, you have quite a difference between those positions from a very affordable I look at the FHA buyer in our portfolio, and it’s, I think, about 3.7% of our backlog. So it’s a very small piece. As I look at the communities that are coming on board, throughout the year. I think it’s a pretty consistent mix to what we have kind of in the portfolio today. EriK, any real movement?

Yes. I would just reiterate, I think that the balance is: a, very intentional; and b, as we take a step backward, we look at kind of the underwriting in terms of what’s coming through that we can expect to see over the coming years, it’s pretty consistent, and that’s intentional. We spent a lot of time kind of discerning what that project will look like and to be that consumer will be. That’s all.

We’re delighted. We’re bringing more spod communities to the market across the country. So you’ll continue to see the strength there. And then I would say the balance is pretty consistent, really would, Alan.

Yes, that’s very helpful. I appreciate that color there. And second topic I’d love to drill in on, first off, I commend you guys for giving that disclosure on the lot vintage and talking through that because I think it’s very helpful, and I believe you’re the only ones that talk about it that way. So thank you for that.

Sure.

I guess when I look at your lot pipeline, and I think you kind of highlighted that 70% of owned lots were contracted before 2020. So clearly, there is a nice runway there for strong margins even if home price appreciation does moderate here. I guess if we isolate the 30% that has been tied up since COVID or over the last 18 months, what’s the sensitivity on those lots? If we’re in an environment where cost inflation stays at this 10% annualized level for a year plus, incentives start to inch higher prices start to stop going up, what happens to the margins on that land when they eventually flow through to delivery? And that might be a couple of years out. I’m not sure the timing on whether those are finished lots, a developed, etcetera?

Yes. Once again, I think Erik and I will tackle this, but let me just make sure that you heard us correctly. When we talked about kind of the growth of our lot inventory under owned or controlled, what we said is last year, we increased it by 10% when the industry went up by an average of 30%. So we’ve been able to be very selective. When we think about the actual land we’re bringing on, even though we’ve purchased it in the last year, Alan, you’d have to appreciate that, especially on the active adult side, some of these projects are under diligence for months or under contract for months and months well into a year, 1.5 years. So actually, when we look – I mean, Erik, do you want to talk a little bit about the residual and how that stacks up compared to like the prior 10 years?

Yes, it’s a great question today, Alan. And I think you had a number of things in there. I think as we think about the blend of kind of the type of land coming through, I would say that’s relatively consistent. We will get finished lots anywhere we can, but we know we’re going to have to self-serve and develop them a lot. And I think we also alluded to that half of our spend is being dedicated to development these assets that we previously procured. From a residual standpoint, to Sheryl’s point, we track that pretty closely. The residual ratio actually in the deals that we’re underwriting today is slightly less than what we’ve seen in the last couple of years. That obviously is in step with kind of an elevated ASP, but I can assure you that we run lots – use of the word, the right word sensitivities in terms of what the – to these projects look like at various scenarios and kind of conditions going forward.

I think the last thing, Erik, would just be when we look at kind of the margin return margin expectations, over the last 12, 24 months, they have actually been some of the highest we’ve seen in years and years. So even if the market were to settle back, given all the narrative that’s out there, Alan, I think we see ourselves in a very good position.

Yes. And I mean, the market is competitive, right? Pricing is elevated, but as we spoke to, we’re judicious, and we’ve got the ability to kind of be very selective in our acquisitions today.

Yes.

Yes. And definitely, the lot count growth trailing the industry, I view that as a positive as well and obviously, signals the strong position you guys had heading into this period here. So thanks for all the color. I know it’s a tough question to answer, but it’s helpful hearing you talk through that. So thank you.

No, appreciate it.

Thank you. The next question today comes from Jay McCanless from Wedbush. Please go ahead, Jay, your line is now open.

Thanks. Good morning, everyone. Wanted to ask on the rate topic, maybe a different question. Are you starting to see some land that you may have passed on before start to come back to market as these mortgage rates move up and maybe some people have to rethink their assumptions around their original purchase of those lines?

Go ahead.

Yes. Unfortunately, not as of yet. And I don’t think conditions have really kind of force that conversation yet. So the short answer is we’ve not seen meaningful capitulation in the land market to date. And frankly, there is usually about a 9-month lag if that were to occur. And so certainly not today, but again, I think that really comes back to us being – having the ability to be judicious and really selective in the ones that we are bringing to you.

And once would you agree, Erik, that generally that 9-month lag follows, I mean, a real reduction in the market in sales because we’ve talked about before, Jay, there is this remarkable correlation between builder sales and appetite for land. But that’s just not been the case yet.

Yes. We just – we don’t have that kind of arrow in the quiver yet, and there is a delay, so not yet.

Okay. That’s good to hear. I guess my second question is, you talked about with the supply chain wanting to do some SKU rationalization, but then also talked about option. I guess option revenue starting to move up. Maybe being a build-to-order builder, how much can you really cut those SKUs? And I guess have you started to see some gross margin benefit from cutting those? And at the same time, how are you judging that relative to your wanting to maximize that type of revenue with the customer?

It’s a great question, Jay. We’ve talked for the last couple of years to the Street about our Canvas program. So absolutely, I think even as a build-to-suit and we’re, I would call us a fairly balanced builder, I know going into ‘21 and coming out of ‘20, we had a very strong to-be-built business, which actually hurt us a bit last year with what we saw lumber and everything. And a big part of that, and that kind of optionality that consumers had really did take a toll on the business. So I think you see us today as a much more balanced spec and to-be-built. When I look at the Canvas and the simplification strategies across the business, I would say across most consumer groups, they have only taken hold. And I think the consumer appreciates some of the simplification and just the overwhelming process that exists in the design center. I would say the one exception to that is generally that active adult business. We’ve talked in the past about our option revenue in the active adult business being significantly higher than the overall portfolio. We’ve talked about seeing that price opportunity not just in options, but on the land side. And I think our options are something like 2x the company average. Having said that, we actually have introduced our Canvas packages very successfully in our Florida business that probably started there, to be honest, even amongst the active adult, but there is a subset of that, that I think will continue to want that optionality and opportunity to really customize the design selections. So it’s a long answer to say that I think you’ll see both, but I really don’t think there is a product category in total that won’t benefit from the simplified model.

Okay. Great. Thanks for taking my questions.

Of course.

Thank you, Jay. The next question today comes from Alex Rygiel from B. Riley Financial. Alex, please go ahead your line is now open.

Thank you and good morning. Sheryl, can you give us a quick update on the bill-to-rent – your build-to-rent business and the overall market for that?

Yes. Actually, I think I’ll ask Erik to do that since he manages that entire process as well as kind of the deal that we just signed with R-Day. So we can talk about just an update since our last call and the success we’re having and then maybe the new land deal.

Yes. Hi, Alex, thanks for the question. Yes, we’re about 2.5 years into it. And it may be just coming off the last question, it’s wholly aligned with kind of the simplification efforts of the company as you think about only two or three fuller plans and being able to produce an aspirational 20 homes a month. So we’re kind of moving our way from nine to 10 markets. As a reminder, it is a hybrid model. So it’s kind of a single family living experience but within the context of kind of an apartment-like community. And the good news is there is not a whole lot of them across the country. So we do continue to believe that we’re relatively early on in the venture. Maybe just to give you kind of a brief update on one of our early communities here in Phoenix, we did able – we were able to get 20 a month produced and leased. We were able to pre-lease 90% of the units before the first move-ins, and we expect to sell that asset by year end. From a pipeline standpoint, we’ve got two going vertical, three going horizontal and then a pretty good pipeline of 35-plus coming beyond that. And then to Sheryl’s point, from just a capitalization standpoint to make sure that we can kind of affordably scale this business, we recently announced the relationship with Pardee Partners that really would enable us to grow it and scale it, but really be able to do so without really hindering the core business.

And then Sheryl, just to follow-up on that, how do you think about that business in a rising rate environment?

Actually, pretty excited. I think that missing middle piece, Alex, is really when we started this, we started 2.5 years ago, but I would tell you the work on it started probably 3.5, 4 years ago. And then we – once we have that, the business these was about how to play and part of the original thesis was at some point in time. Rates will go up and this missing middle piece of apartments to the single-family rentals, the hole is tremendous. So we see the benefits, one, for the consumer in these really well-located positions, allowing them to have a lifestyle family opportunity in a lifestyle gated secure community. We also see this as a wonderful test kitchen for lack of a better description from a building science standpoint. And then lastly, we see it as an opportunity to garner these relationships with this consumer set that allows them to naturally progress when they are ready into homeownership through building the relationship with Taylor Morrison. So this is the culmination of 3, 4 years of work, Alex. And I would tell you, we can never planned the timing. But given the kind of macro environment, I don’t think we’re better positioned.

Yes. Great. And I would add simply that maybe on the front end of your question relative to cap rates, it’s certainly part of our underwriting, just like the core business, right? The scenario sensitivities, we’re very mindful of that. But at the same time, we actually like the fact that rents tend to be less volatile than sales prices and housing. So even though we have the core business, and that will remain the core of our Taylor Morrison, but rents can be a hedge of an inflationary environment. There is lots of money in the space chasing it. And another reminder, at an average of 150, 175 homes in a community, we have the ability to be relatively flexible and to pivot in this business as well.

Yes. We will move through each of these very quick. Yes.

Thank you.

Thanks, Alex.

Thank you. The next question today comes from Matthew Bouley from Barclays. Matthew, please go ahead. Your line is now open.

Good morning. This is Ashley Kim on for Matt today. Thanks for taking my question. So can you talk about if you are still seeing long waitlist of communities home selling relatively quickly or any kind of bidding activity that may confirm that you could take more orders today if you had the supply?

Certainly, Ashley. Through the first quarter, as we said, we manage the pace and a large majority of our communities and the strategy on how we that is very different across the country. Some markets, it’s through the Habo , the highest and best offer. Some it’s through just a natural release process every couple of weeks, some it’s lotteries. I think that continues. When I look at the Habos as we have moved into April, we still have markets that Habos would be the key strategy. Honestly, I am very hopeful that we start moving away from that strategy. We moved off of it. I would tell you it was probably third, fourth quarter last year, came out the gate strong, has to go back into it. But it’s not a wonderful experience for the customer. It’s a very frustrating experience. So ideally, just like I said, a few minutes ago. I am hopeful that as we move through Q2, we get to a play that allows us to have a more open sales floor and a more natural experience. The other thing is we are really benefiting from, Ashley, is I would tell you back in the end of February, in addition to our kind of online reservation system, we actually modified it for both our to-be-built and our spec reservations where we started acquiring a deposit because the reset frenzied environment, not just walking in the door, but on the web where people were trying to tie it multiple houses. So, we wanted them to have more skin in the game. Just since – I mean, over the last, I would tell you, eight weeks, we have done hundreds and hundreds of website deposits. So hopefully, that shares with you just the consumer acceptance and need of this virtual environment and the demand that we are seeing.

Thanks for that detail there. Sheryl, that’s helpful. And then if I could ask, how cycle times progressed compared to last quarter? And any signs of relief that could suggest improvement through the year, even if that’s not kind of the underlying assumption?

Yes. Hi Ashley. I would definitely say the labor and supply chain environment has remained equally difficult as it was in the fourth quarter. Our cycle times last year, since the beginning of COVID, probably extended six weeks to eight weeks and this first quarter, probably another one week to two weeks. We are seeing significant municipality delays in inspections as well as we have talked about material and labor availability issues, although we feel like we have taken significant steps to allow us the comfort and confidence with our closing projections. This year, 97% of our units were closed or under production at the end of the first quarter compared to 87% last year. As we pivoted to starting more specs, 28% to 24% of our backlog were sold in spec versus less than half that same quarter of last year. And I think Sheryl spoke about earlier, our option and SKU rationalization process is also helped significantly improve the building process so that at least our homes cycle times on specs is a little bit quicker and having some of that simplification in our portfolio now helps us ensure our confidence in our deliveries this year.

So, we are all anxiously awaited some real…

Not counting on a birthday.

Yes. We are hoping.

Thanks for the color everyone. And I will leave it there.

Thank you.

Thank you. The next question today comes from Truman Patterson from Wolfe Research. Truman, please go ahead. Your line is now open.

Thanks. Actually, it’s Paul Przybylski. Good morning. I guess on your growth – on your gross margin guide increase, any way you could break that out how much is being derived from maybe those internal efficiency gains versus a more favorable price/cost relationship or maybe just some conservatism in the original outlook.

It’s really hard to break it down with simplification, how much that contributes. I think in our script, we noted that we are seeing approximately a 10% annualized cost increase, which includes the higher lumber costs that we are anticipating in the second half. Q2 will have the best tailwinds from lumber. But sequentially, Q3 will probably be our highest point in lumber this year. Near the end of Q4, we will start to see a little bit of tailwinds near the very end of the year. And then going into first quarter of ‘23, we will start to see a bit of relief there. But each quarter, we will see sequential growth despite the increasing lumber headwinds in the third and fourth quarter.

And I don’t know that I would call it conservatism, Paul. I would say appropriate, given the timing and the volatility of what’s out there. That’s why we used the words at least in some of our guidance, and we have hopefully articulated the confidence in the growth because there is a lot of moving parts right now.

Okay. Fair enough. I guess you mentioned the year extended rate lock, what percent of your buyers are actually taking you up on that offer? And then as we look over maybe the past four weeks to six weeks, have you noticed any deceleration in your pricing power trends?

You bet. So, as far as the rate lock, we just introduced this. I mean we have always had rate locks, right. But I would tell you the extended rate lock in, I would call an extended rate lock, Paul, really anything that over 60 days. But since the middle of April, we have had over 380, nearly 400 locks that have an expiration date over 60 days. And then I would tell you, we had probably 100 in the last 10 days, these extended locks, which would be 6-month, 9-month or 12-month locks. I would tell you we have seen more in the last 10 days than we have probably seen in the last 5 years in total. So, the buyer has really got an appreciation for the environment we are in and the – and there is no harm to them because of rates settle back they get a free one-time float down. So, it really does give them the ability to have the confidence on what’s the absolute high end of their payment would be, and it’s been really well received. And then as I mentioned in my prepared remarks, the fact that they are having to put 1% out gives them some skin in the game because right now, the environment is fairly frothy for different reasons, right. You have got the large banks that are doing everything they can to grab share given the fact that the refi business has really, really dried up. And then you have got the independent mortgage bankers and brokers that are just fighting for their lives. And so the REITs out there have been relatively silly that have been offered. So, for us, this gives us a really – getting that capture gives us really great visibility into our customers and their ability to get to the closing table.

Okay. And then any color on your pricing power trends over the past four weeks to six weeks?

When I look at the first quarter, Paul, the – we actually saw pricing accelerate through the quarter each month. We did a company-wide increase as we went into the new calendar year. But then when we look at the numbers, we continue to grow that through March. I would say, in April, I don’t have the monthly stats yet because I will get those at the end of the month, but based on the feedback I am hearing, it would be your normal environment where we are still taking increases as we release new to the marketplace. I am hopeful, once again that that the size of these increases continues to moderate. I know we have – everyone has been doing what they can to keep up with the cost pressures that we have been seeing. But the sustainability, I mean I think we just saw the numbers come out this week of year-over-year, 20% again. This is not a sustainable formula. So, I am hoping we get to kind of a more normalized place.

Perfect. Great. Appreciate it. Thank you.

Thank you.

Thank you. The next question today comes from Ken Zener from KeyBanc. Ken, please go ahead. Your line is now open.

Good morning everybody.

Good morning.

In relation to starts, and you guys did comment about most or if not all your guidance actually under construction. Do you mind, Sheryl, I know we spoke about this in the past, the actual inventory units? I know the 10-K that you report includes some backlog that’s not started, just so we could get a sense of what those starts are adding to on an actual unit level?

Yes, sure. We ended the quarter with 1,100 – sorry. If there is a follow-up...

No, go ahead.

Yes. We ended the quarter with 11,265 units under construction. One of the areas like I spoke about earlier, we have made huge strides in reducing our sold not started. Q1 of ‘21, we had 2,708 units sold not started, and we are down to 825. So, really working to get our backlog that’s been aging, started and another reason for some of the accelerated starts the last couple of quarters.

Right. No, that makes a lot of sense, and I appreciate that disclosure. Related to that, I guess you usually file it in your K, but do you have the actual WIP inventory then that you are running against those units?

We can get it to you afterwards, Ken.

Great. And then how do you think – I appreciate that. Yes, I realize that was a kind of 1.2. And then the deposits, it’s very interesting, right, that you are – how do you take deposits online? Is that – I am just curious as to the efficiency of that in terms – excluding someone that might be would try to buy two or three houses? Do you see that deposit limiting them? And is that a PayPal, or is that just – I find that very interesting, if you could expand on that a little bit.

Yes. No, we are the first ones to do it and quite excited about it. It’s a technology, I think called Stripe. But really what the process is, Ken, is it’s a modest, it’s $100 at this point. I think you will see over time that that’s going to become something very different and how people can make their payments and the process will continue to be enhanced. But right now, what they are doing is they are really reserving a lot for 48 hours, 24 hours, 48 hours in time for us to deliver them the contract. And – but the fact that they have to give their credit card, give a deposit, the technology also prevents them because I would tell you, when we first introduced people were going in and putting those deposits on multiple lots. So, the technology has got a little smarter and now the same e-mail address can’t do it. And at some level, you are trying to control it. But what we really want is to put the energy and the consumers that are really most interested and qualified. And so the conversions that we are seeing, we saw our top conversions have been in this platform of to-be-built reservations where they could go in and pick a lot and pick a house. That’s second to our spec reservations. I would expect when we have a good 30 days, 60 days under our belt, we will find our strongest conversions here because people actually have to wipe out their credit cards. But we will be in all markets, I think by – within the next 30 days with that reservation with that $100 deposit. So, it’s pretty exciting. Continue to watch for the enhancements.

Very innovative. Thank you.

Thank you.

Thank you. The next question today comes from Mike Dahl from RBC Capital Markets. Mike, please go ahead. Your line is now open.

Hi. This is Ryan Frank on for Mike. Thanks for taking my question and for squeezing me in here. So, my question is really on kind of the demand environment and your decision to prioritize production over sales right now given kind of your maybe dislike for some of these higher and best and final offer and things like that. So, can you talk about why you are pursuing the strategy now to start more than you are selling when you kind of want to be selling faster?

Well, I would say first, based on the supply chain challenges, we made a conscious decision to start more specs and selling them a little further along in the process so that we had more confidence in the closing dates to make the experience for our customers better. So, I would say we have pretty much made that pivot at this point with over 2,700 specs under construction. And now that those are moving further along, we will start to see the releases of those increase over time. So, that pivot has been occurring in the last couple of quarters, essentially there at the – what we consider the optimum spec level. So, we will start to see more of those being released going forward over the next couple of quarters.

Yes. And the only thing I would add to that, Ryan, is coming out of the experience last year and the supply chain challenges, it’s really important that when we sell a to be built, that we do everything we can to expedite that start. I mean Louis reviewed the numbers of how many we had sold not started last year, that’s a very painful process for a consumer. So, we felt it was most critical to enhance the journey. We have a large tube build population and that we focus our energy on getting those starts in the ground. One, because of their need and two, because of our ability to get them delivered for the year.

Okay. That’s helpful. And then I guess if, let’s say, demand were to stay at the current level, would you try to match sales pace with start pace over the coming quarters?

Yes. I think as we have said our intent would be that we have really done the good work the last two quarters where you have seen the starts elevated over sales and because the intent is that they should really align. And so I think as you look forward, that should be what you expect from us.

Okay. And then I guess on the flip side, if demand were to slow, would you then slow your start pace at this point, or would you kind of maintain a little bit of a gap?

Well, you are going to manage to a spec inventory that makes sense by community, and you are going to continue to put your to be built in the ground. So yes, if the market shifts, you are going to look at your sales, your spec pace and decide what’s the right trajectory by community as you always do. But – so yes, there would obviously be some sort of alignment there.

Yes. And the really big indicator for us will be how many finished specs we have. At the end of the quarter, we had 20. So, we will keep an eye on that. But if we see a buildup of our finished back inventory, we would make adjustments going forward.

Yes. And arguably, when you look at what’s the perfect kind of place from an inventory, you want some at all stages. So, when you look at the 320 communities, we are about 300 finished spec short. So, we have got a ways to go.

Got it. That’s helpful. Thank you very much.

Thank you.

Thank you. The next question today comes from Dan Oppenheim from Credit Suisse. Dan, please go ahead. Your line is now open.

Great. Thanks very much. I was wondering, I guess just given that last question, maybe just continue with that in terms of the specs in terms of talking about it based on sort of the level of finished specs. Would you – like is your – if you think about the second quarter, would your goal for the end of the quarter, are you trying to get to think about sort of an appropriate level of specs per community overall so that the level having eight at the end of this quarter, does that seasonally want to think maybe we got a little bit lower there, but how are you thinking about that through the end of the second quarter? And are you really managing it based on finished or just overall specs there in this environment?

It’s a combination, Dan. Good to talk to you. It’s been a while. It’s a combination. You want some finished specs. You want buyers that are coming in certainly as you move through the second quarter, school season ending, you want inventory that buyers have the opportunity to quickly move on. What we have said for probably since the acquisition of William Lyon is that, that kind of seven to eight is about the right number for us when you look at across the portfolio. And in today’s environment, I think has been even more important. So, you look at your product mix, you look at your community mix across the country and kind of right size that. But we feel pretty good about the total numbers right now.

Great. And then in terms of the community count, you had talked about the sort of obviously the dip down in the second quarter. And then thinking about where it will end the year, is that – how much of that is sort of based on getting a lot of those open in the fourth quarter just before the end of the year, or how much should we see coming through the third quarter before the fall season there?

We will sequentially Q3 as you said, start to see the improvement in our outlet count. For the year, we are counting on somewhere around 150 openings and first is 130 closings to get us at net 20 by the end of the year, increasing the overall outlets.

Yes. And for the third quarter or the second quarter, we said that we would be 310, 315. So, you might see a modest dip before you see that sequential enhancement.

Probably the largest increase in the fourth quarter.

Yes.

Okay. Great. Thanks so much.

Thank you.

Thank you, Dan. The final question today comes from Alex Barrón from Housing Research Center. Alex, please go ahead. Your line is now open. Alex Barrón: Yes. Thank you for squeezing me in. I know you guys generally track the other state buyer. So, I was curious how that’s tracking today versus a year ago, whether it’s similar or higher, how are you guys looking at that? And the second question is, I am not sure if you discussed stock buyback plans. I might have missed that, but just your thoughts on that at this time.

You bet. I will start with the first one and let Louis take on the share repurchase. Out-of-state, we have talked about this a little bit each quarter, Alex, and it’s interesting. We are continuing to see both shoppers and buyers. When I look at the first quarter compared to first quarter a year ago, I would tell you our out-of-state buyers have doubled. Where it gets more interesting for me is when I kind of deep dive and are there any trends that we are seeing. And it really does fall into the active adult category. We have some parts of the country where, like I would tell you, California, generally, that’s a very local buyer that buys in our lifestyle communities in California, with very little exception. But then when I start traveling through the rest of the country, company, whichever, I can see some tremendous shifts. I can see as much as in Phoenix, for example, I can see 25% to 40% coming from other states and really being led by California, probably 30% from California and another 10%, 15% from some of our other states like Washington or Colorado, in Florida, a huge penetration from New York, New Jersey and Illinois, Nevada, very significant, Arizona, California. So, it’s a great deal of that. Obviously, you have your reloads across the country for business. But I would tell you a great deal of that migration is happening in the active adult business.

Hi Alex, and related to your second question, we expect a strong year of operating cash flow based on our improved earnings outlook. Additionally, based on that increased shift to more controlled lots will also generate significant additional cash flow. And based on that, first and foremost, we want to reinvest in our existing core business. Second, I would say we want to follow through on our meeting our net debt guidance to be in the mid-20s by the end of the year. And then lastly, we are going to continue to be opportunistic as we really believe our stock is undervalued, but mindful again of our upcoming maturities in the upcoming years. Alex Barrón: Okay. Very helpful and best of luck. Thank you.

Thank you so much.

Thank you, Alex. There are no additional questions waiting at this time. So, I would like to pass the conference over to Sheryl Palmer for closing remarks.

Thank you. We really appreciate the opportunity to share our first quarter results with everyone. I can’t miss the opportunity to send out another shout to our field teams and thank them for the great work in the first quarter and probably most importantly, to recognize our National Admin Day and really thank our support who keeps our company running day-in, day-out for all their great work. Take care. We look forward to seeing you next quarter.

That concludes the Taylor Morrison’s first quarter 2022 earnings conference call. Thank you for your participation. You may now disconnect your lines.