Welcome to Lennar’s Second Quarter Earnings Conference Call. [Operator Instructions] Today’s conference is being recorded. If you have any objections, you may disconnect at this time. I will now turn the call over to Alexandra Lumpkin for the reading of the forward-looking statement.

Thank you and good morning. Today’s conference call may include forward-looking statements, including statements regarding Lennar’s business, financial conditions, results of operations, cash flows, strategies and prospects. Forward-looking statements represent only Lennar’s estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect results may cause Lennar’s actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in this morning’s press release and our SEC filings, including those under the caption Risk Factors contained in Lennar’s annual report on Form 10-K, most recently filed with the SEC. Please note that Lennar assumes no obligation to update any forward-looking statements.

I would like to introduce your host, Mr. Stuart Miller, Executive Chairman. Sir, you may now begin.

Thank you. Good morning. Thank you, Alex. And let me say that I am here this morning with some brand new people. I am here with Rick Beckwitt, our Chief Executive Officer; Jon Jaffe, our President; and Diane Bessette, our Chief Financial Officer among others. And let me go ahead and start and say that I am going to give a general overview as I always have. Rick and Jon will then give the real operational overview and Diane will deliver further detail on the numbers. It’s hard to believe, but this is our first full quarter conference call as a combined Lennar CalAtlantic platform, so we have a lot of ground to cover. Jon and Rick will give a comprehensive update on our now combined operations and progress on synergies and Diane will give detail on how purchased accounting has affected our results and reconcile our quarterly results to our guidance and to consensus expectations. When we get to Q&A, as always I would like to ask that you limit your questions to just one question and one follow-up. So let me go ahead and begin by saying that our excellent quarterly results derived from a great deal of hard work that’s been done both in our division offices and here in the corporate office. I said it last quarter and I am going to say it again, it all comes down to a great team of professionals coming together and working cooperatively. From the people here in this room with me today to the many throughout the Lennar offices, we are thankful for their hard, diligent and focused work. Because of the manner in which our team has worked and grown through this acquisition, I have continued to become increasingly enthusiastic about the evolving position of our company…

Thanks, Stuart. Let me quickly start by summarizing our results in the second quarter and then Jon and I will update you on the CalAtlantic integration. Net earnings for the quarter totaled $310 million, up 45% from 2017. Our core homebuilding operations really produced. New orders for the quarter totaled 14,440 homes, up 62% from the prior year, with the dollar value of approximately $6 billion, representing a 79% increase. We delivered 12,095 homes in the quarter, which was up 57% from 2017. Revenues in the quarter totaled $5.5 billion, representing a 67% increase. We ended the quarter with a solid sales backlog of 19,622 homes, with a dollar value of $8.6 billion, up 92% and 114% respectively from 2017. Our gross margin, excluding the backlog and construction in progress write-up, totaled 21.6%, which was the top of the range we guided to last quarter. Finally, our SG&A in the quarter was 8.7%. This marks an all-time second quarter low, significantly lower than our prior guidance and highlights the power of our increased geographic scale and our operating leverage. These results were achieved by a lot of hard work from our associates across the country driving our day-to-day business and focused on the CalAtlantic integration. I can’t think of our associates enough for everything they have accomplished. While these numbers demonstrate the success of our integration, let me give you some additional color on where we stand. Operationally, CalAtlantic is fully integrated into Lennar and we are operating as one company. This transition has proceeded smoothly and we are well ahead of schedule. More importantly, we are now realizing the true operating synergies stemming from our new local and national market scale. As I highlighted last quarter, our homebuilding operation has 5 regions and 38 divisions with operations in 49…

Thanks, Rick. I’d like to bring you up-to-date on where we are with our focus on cost synergies. On last quarter’s call, we communicated that we expect to exceed our synergy’s target of $100 million for fiscal year ‘18 by $25 million. I am pleased to report that we are now on track to exceed that target by an additional $35 million for total fiscal year 2018 synergies of $160 million. For fiscal year 2019, we are now on track to exceed our $365 million target by $10 million for a total of $380 million. Approximately, $160 million of expected savings for 2018 breaks down to about $80 million for corporate expenses and SG&A savings and $80 million for direct construction cost savings. For the corporate expenses and SG&A savings, we have locked in about $80 million of synergies that’s made up of the following categories. Corporate G&A represents about $35 million made up of executive and administrative compensation, along with public company expenses. Operational SG&A savings of about $45 million are from the reduction in associate headcount in the regions and divisions, along with the closing of offices that Rick highlighted. We now estimate that 2019 annual run-rate for these overhead savings at $115 million exceeding our target of $100 million for 2019. Becoming the builder of choice for national manufacturers, suppliers and local trades, it’s a key to achieving our direct construction cost synergies. We have now identified approximately $80 million of savings for 2018 exceeding the increased target of $65 million we gave you last quarter. Our significant market scale, combined with our efficient Everything’s Included platform, are very big drivers of these savings. Additionally, our intense focus on even flow production, jobsite readiness, cycle span accuracy and dynamic pricing all enhance our relationships with our trade…

Thank you, Jon and good morning to everyone. Before I provide the details of our second quarter results, let me give a simple analysis of our numbers as compared to consensus to assist in understanding some of the noise in the quarter. Our reported EPS is $0.94 and the average of all analyst estimates is $0.41. The difference is $0.53. This difference of $0.53 can be separated into two categories: first, non-operating items, representing $0.35 of the difference and second, operating items representing $0.18 of the difference. This $0.18 is our operating feet or our outperformance as you compare expectations to actual results. So, let me give you the details of the two categories starting with the non-operating items. There are three distinct components to this category. The first item is the CalAtlantic purchase accounting write-up of backlog and construction in progress. The expectation for Q2 was to record approximately $350 million of write-up. The actual amount recorded was approximately $240 million. The difference between these two amounts is just timing and will flow through in subsequent quarters. The total amount of write-up for fiscal 2018 is approximately the same. The second item is integration costs such as severance and lease termination. The expectation for Q2 cost was $29 million and the actual costs were just $24 million. The third item is tax rate. The expected Q2 tax rate was 24% and the actual tax rate was 19.7%. The difference relates to the impacts of energy credits that were taken in the quarter. Now, let me turn to the operating items category. The difference between expectations and actual results relate to the increase in Q2 deliveries, average sales price and operating margins or as I previously stated this is our operating out-performance. So with that backdrop, let me walk you…

Thank you, speakers. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Stephen East from Wells Fargo. Your line is open.

Stephen, are you there?

Yes, can you hear me?

There we go. There we go.

Alright. Congratulations on the quarter. Nice quarter and thanks for all the detail. Start first there is a lot of chatter in our side of the world about slowing demand. I guess we haven’t really seen in our fieldwork other than seasonal slowing looking at your numbers given all the integration with CalAtlantic, it looks like you are not seeing it, but I don’t want to put words in your mouth, so are you seeing any slowdown, anything other than seasonal and if so where are you seeing it and in what type of product?

I think seasonal is exactly the right way to describe it, Steve, this is Jon, across the platform. We are seeing the economic environment of strong job growth, good economy and very low inventory supporting demand as you see in your fieldwork. So, we are definitely seeing the seasonal change. We had a strong spring as evidenced by our second quarter results, but we are not seeing anything that causes us to think otherwise.

It goes back to some of my opening remarks, Steve. You are still looking at short supply and a growing demand. It’s very hard to put affordable product on the ground and there is short supply of that in the existing market as well. And I think cutting against some of the headwinds, you just have that production deficit in a growing demand from the millennials that are all coming of that age where they are forming families and demand patterns still seem strong, flies in the face of some of the noise that we hear in the press, but there is a lot of confidence and people are still coming out to buy homes.

Alright, great. And then on the integration savings, I was wondering how long it takes you to bump up the $365 million and it didn’t take you long. So I guess two questions around that. One, does that include as you look out and we continue to see this inflation, is that net of the inflation or is that built into it? And then I guess Jon maybe a little bit more specifically where you are getting if you rank ordered the incremental bumps you are seeing in both ‘18 and ‘19 a little bit more specificity on where that’s coming from?

We talk about the synergy numbers that is from what the marketplace is. So, for example, if lumber went up, but we say $1 a foot and we brought our framing and labor contracts down $0.50, our net might be up $0.50, our synergy is $0.50 if you follow that example. With respect to where we are seeing it, it’s really as I said given a lot of details that come out of ours workshops that deal with perhaps the way a type of lumber for a top plate or the way corner is put together or foundations the way we are working with our framers on some free-cutting of material, panelizing material and putting those panels together, it’s really working across the spectrum of all trades. So, it’s hard to say that it’s all here or there, because you also have geographic differences. So in some markets, we will find we have a bigger opportunity in one category and in another market it will be in a different category.

Got it, okay. On the EI and I know in the field we saw where you are keeping some of the CalAtlantic plans if you will, but you are going to value engineer those, will you get the same type of cost savings from those that you would have gotten from an E&I – from an EI switch?

In many cases, we will get more cost savings from those. So, I really want to reiterate that most of the CalAtlantic product that we will be continuing to build in the future will be EI and there will be few communities that have a handful of communities that have a modified or lighter option program similar to what we do in Texas with village builders.

As I said, Stephen, in my comments we look at an 1,800 square foot plan for a specific submarket for a specific customer type and we had a Lennar plan and a CalAtlantic plan, we look at which is the lower cost plan to produce that also will satisfy the needs of that market. So, it’s very much a, what’s the best plan, which one is the most cost efficient to build, which one has the best cycle plan.

Okay, thanks a lot and congratulations.

Thanks.

Thank you. And our next question comes from Alan Ratner from Zelman & Associates. Your line is open.

Hi, guys. Good morning. Congrats on all of the very impressive progress and congrats to Rick and Jon and Diane and Bruce if you are in the room as well listening quietly. So, what I wanted to touch on a little bit was your comments on the land front and I know you have the quote in the release and you mentioned in the prepared remarks as well just the momentum and progress you are seeing as far as your conversations with landowners and sellers. And I was hoping to dig in a little bit more on that and really determine exactly what you are seeing there? If I look at your lot count about a quarter of your lots today are controlled through options, so when you are reading between the lines what I think I am hearing is you are expecting to see some progress there moving that number higher. So, I was just curious if there is an internal target or goal there that you are willing to share with us and then kind of connecting the dots there on the cash side very impressive generation and de-leveraging this quarter. I was hoping you could just give us an update on your current thinking on cash generation as well as the timing of debt repurchase and any potential buyback activity as well?

So, it’s Rick. On the land side, we have an intense focus right now. Jon and I are regional presidents, Stuart we have been all over the country meeting with these key developers to create some pretty interesting structures to increase our activity. What we found is the deals are coming to us right now, because when you have a 20% to 40% market share, you need to be included. And so where there were times in the past, where we had to hunt them down, the hunt is not happening right now. So based on that, what we are trying to do is increase the amount of option business that we can deal, which is a little bit lower margin business, but a higher IRR business and we are engaged in conversations across the country with these leading developers and capital sources to create something that’s special and it’s you will see an increase in our option business that will help our cash position and it’s going to take a little bit of time to do that, but as we move into 2019, you will see some dramatic change.

Thanks, Rick. And then just on the cash generation, I think you had given the number of $2 billion for the remainder of the year and I think the current thinking is this year, you are really focused on paying down debt getting to a net debt level similar to where you were before the deal by the end of the year and then ‘19 having some capacity either for some share repurchase activity, additional M&A etcetera. So, is that still kind of the right way to think about that?

I think in terms of size and scope the answer is yes. I think we leave optionality open to ourselves in terms of how cash will be deployed particularly as we look ahead numerous quarters. But I think that you can see from the numbers posted today, the cash generation is squarely in the middle of our scope. We are paying down debt at an accelerated rate. We are really pleased that we got through this quarter with the ability to pay down as much as we did without refinance and it sets up the rest of the year, which is even more cash generative. So as we go into next year, I think we will have excess cash and again we leave our options open, but we are going to have a very well crafted balance sheet.

Alan, just as a point of reference, my good friend, Stuart, made my screensaver our debt maturity ladder and I am trying to figure out how to change it.

Got it. Thanks, guys. Good luck.

Thank you. And our next question comes from Stephen Kim from Evercore ISI. Your line is open.

Yes, thank you very much guys. Hi, congratulations and boy, so many things to talk about, which I guess is good. I just wanted to follow-up on Alan’s question about land if I could. Rick in your answer to his question about land and your intentions going forward, you use a couple of phrases that are interesting, you said interesting structures trying to create something special and a dramatic change is likely in 2019. So I just want to follow-up on that and trying to make sure that I am understanding what you are saying, because options are not a new structure in the industry? So could you give us some hint as to what aspect of the deals and arrangements you are looking into is particularly interesting or special and when you said dramatic changes likely in 2019, was that referring to dramatic changes in, let’s say, land spend as a percentage of revenues or something else?

Stephen, I don’t want to going into a lot of detail, because there is a lot of conversations going on right now and with some developers, capital sources internally within our organization, but our stated objective is to do two things, number one is increase our returns and number two, become more efficient in how we utilize our cash. With that in mind, the natural end result would be to increase in some sort of programmatic structure, our just-in-time ability to close on land. So, those are the touch points that, Stuart, Jon and I are focused on and we are all over it to figure out and create something that gets us those objectives.

And the one piece that Rick left out was increase cash flow.

Correct.

Alright, excellent. I am going to leave others to sort of follow-up on the cash flow point, because I am sure they will. I wanted to jump if I could to Stuart, your commentary about technology and Open Door as I imagine you probably expect I would, I was very intrigued to hear what you had to say about that, because obviously I share your enthusiasm about what can happen there. But I was wondering if you could talk specifically about your investments across these technology initiatives, you said, they weren’t just investments but rather a strategy. The last I recall when we visited you down in Miami, you talk a lot about how your vision for harnessing these innovations was to try to improve the new home industry’s premium that it garners over existing homes, which I thought was very interesting. I was curious if you could talk about whether that vision also includes the ability for Lennar specifically to benefit from a competitive advantage in any material way from the things that you have invested in thus far?

Well, that’s a lot of questions. And first of all, Steve, I want to say thank you for hearing and listening to what we are talking about in technology, because it’s not easy for everybody to get their head around it and there are some of the elements of our initiatives that are more about our customer interface, others that are more oriented towards the product offering that we have, many have heard and asked about the Amazon relationship and home automation that we have included in and perhaps most importantly, our Wi-Fi certification that we include. So, our technology initiatives are very, very focused on identifying technologies that can alter our landscape. Altering our landscape can mean reducing our own internal SG&A or cost of building homes, some of those are going to be like Open Door. The Open Door technology has enabled us to bring our cost of customer acquisition down and has furthered our initiatives in those arenas. We are working on technologies in and around building construction. Those technologies will help in terms of construction technique and enable a more efficient delivery system and production system and reduce cycle time. We are also working with technologies around the inclusions in our home. Wi-Fi certification is really all about Wi-Fi distribution through the home from wall-to-wall floor-to-ceiling, no dead spots, no speed loss. That’s a big differentiator between the existing home and the new home. The new homes advantage is that we can be enabled for seamless Wi-Fi distribution. We know we can bring the internet to the home, but distributing it through the home is where everybody is running around with their phone looking for that hotspot that works best and we can heat map and engineer our homes to have seamless Wi-Fi distribution that it enables future technologies in an agnostic way. Right now, we are working with Amazon, but we want to be enabled for all platforms. At the end of the day, we believe that our technology initiatives which are not as you know about shiny objects and a lot of hype, they are about execution and building a better mousetrap, they will enable us to drive our costs down both at the SG&A level and at the production level and improve our product offerings to our customer, which will differentiate the new home market from the existing market and I think with our aptitude and drive towards technologies and their inclusions will separate Lennar from other homebuilders. We are very enthusiastic about this and I think the single most important differentiating component of Lennar versus other builders is our ability to disseminate. We have built lines of communication out to our divisions to disseminate new initiatives out to the field and get them adapted and adopted in orderly fashion so that we can reap the benefits of those new technologies and improve our margins, our customer interface, and our product offering.

That’s great. Appreciate it. Do you actually have specific targets or goals, let’s say, for next year with respect to any of these initiatives?

So, Steve, hype would tell us to put out a number that’s exciting and market moving. The reality is that change happens in basis points and 10 basis point increments quarter by quarter and a piece at a time. We have internal targets, but to try to articulate them for the outside world. The road is bumpy and we are respectful. It’s all about execution. And I think directionally you will see improvement in terms of goal setting, I don’t think we want to get out over our skis.

Okay, thanks very much. Thanks.

You bet.

Thank you. And the next question is from John Lovallo from Bank of America. Your line is open.

Hey, guys. Thank you for fitting me in here. You are clearly executing at a really high level and that’s certainly encouraging, but the market is much more concerned at this point, interest rates affordability in the cycle. So what I just want to be really clear on, are you seeing anything, anything at all that would suggest that higher rates, higher home prices are negatively impacting demand and are you seeing any evidence that the best days of this cycle are behind us at this point?

So, let me start, it’s Rick. We are still seeing good solid traffic in our communities. We are still seeing ability by our customers to qualify for homes across all price points. We have not seen a movement to a variable rate product on the mortgage side, which is generally the first sign that there is affordability issues, so while there is a lot of focus in the press on rates going up, we got to keep in mind, as Stuart said in his opening comments, that wage growth is real and it’s happening out there. Confidence is solid. So we put all those things together and look at the headlines we operate our business and the business is strong.

Okay, that’s exactly what I wanted to hear. And then as a follow-up there is a huge disconnect at least in our opinion with where your stock is trading and where it should be trading. I mean, if you would share that view or if you do share that view, I mean and I understand that you want to de-lever I understand your focus on that, but why not just put a big authorization out and just buy the heck out of the stock?

Look, I think that we are very stay straight with the Street on what our strategy is, we are not trying to send signals or anything else. We made a significant acquisition, strategic combination with CalAtlantic and our first order of business was integration and operations, our second order of business was cash flow and rightsizing our balance sheet. In sequence, we will we will continue to generate cash flow, I have highlighted that we are focused on orderly cash flow from operations, enhancing that cash flow cash flow by reverting to our core business, enhancing that cash flow through land strategy. And as we have excess, then we will articulate what the strategies are for the deployment of capital at that time. So we just want to be straight, we don’t want to send out signals and stuff like that. Our focus right now was on rightsizing the balance sheet and operating this business and I think we are at the top of our game.

Very helpful. Thank you guys.

Thank you.

Thank you. And the next question is from the line of Michael Rehaut from JPMorgan.

Good morning, Mike. Are you there?

Again, Michael Rehaut, your line is open.

Yes, I am here. Can you hear me?

There we go.

Okay. I wasn’t on mute, don’t know what happened there. Anyway, what I was about to say was good afternoon now and congrats on the results. First, just looking at demand from another perspective and appreciate all your comments on that already. I just wanted to confirm, I believe Diane reaffirmed the order growth or order numbers for 3Q and 4Q. As part of that original guidance you had given pro forma kind of organic, I guess pro forma for CalAtlantic I believe 2Q with a 3% number and I don’t have amount of the office don’t have 3Q and 4Q, but just wanted to know what the pro forma was for 2Q and if it’s part of the reiteration for 3Q and 4Q those pro forma numbers are still the same as well?

Mike, I am just trying to understand the number. So, are you asking those pro forma for Q3 and Q4 are still the same right and they are still compared to the reaffirmation that that I made a few minutes ago.

I think the way to think about it is that the beat in Q2 is additive to the year.

It’s not taking away from the third and fourth quarter.

Right. I think you had given a 3% pro forma guidance number for 2Q and I just wanted to know if that is what indeed you reported if there was upside to that, because the full number of 62% growth was above our 55% estimate?

So maybe I will answer that. We were about depending on how you look at 8% to 10% above the prior year pro forma number and the balance of the year based on the pro forma that we gave you in the schedule that we released when we did our last call. Q3 was projected to be up about 12% and Q4 was projected to be up about 7%. And as Stuart said notwithstanding the fact that we sold and delivered more homes in Q2, because we guided to a 3% number, we are maintaining our Q3 and Q4 guidance.

Okay, that’s helpful, Rick. I think also just on clarification on demand before I get to my second question. I think you had alluded to from an affordability standpoint that you haven’t seen any difference between price points. I was just curious affordability aside just from a basic demand trend and observational standpoint, if you are noticing any areas of relative strength or weakness by demographic or price point segment or geography?

It’s Jon. As I said earlier, we are really seeing because of the economic conditions strength across the platforms, where you have entry level product and pricing, there is this very strong demand where you have a move-up product in 8 locations, there is very strong demand. I think maybe give you a couple of data points to sort of besides what we are seeing that underlies the demand and our view forward that, that demand is still strong is that we see most of our lead generation start on the internet and lennar.com. And in the second quarter, the traffic on lennar.com was up 50% year-over-year to $4.5 million and that turned into leads, which means people ask me for specific information about communities that was up 43% year-over-year to over 170,000 leads for the quarter. So, there is really good clarity that there is strength and demand across the entire platform. And of course you have higher velocity at a lower price point than a move-up product, but in the markets where we have the move-up products we are still seeing exceptional demand.

That’s great, Jon. Thank you for that. I guess just second question going back to your comments, Rick, regarding land how you are going to be purchasing land going forward in the different types of conversations you are having with land developers, which is of course very important and great to hear particularly again leveraging your size and increased strength in the marketplace. I was curious if any of those conversations or your strategic approach to this more broadly is inclusive of your current-owned lot position given that, I believe, Diane had reported at quarter end that you are about I guess roughly 75% owned, almost 200,000 lots of your 261 owned, if there is any kind of thought towards moving some of that own position to any of your land developer partners in a greater effort to become more capital efficient?

What I would like to do is I’d like to put a thought on this and come back to it at another time. What we are doing as a company right now is really evaluating what as I said earlier how we can increase returns and maximize cash flow. And so there is a lot of conversations going on that will evolve over the next year. And I would like to really address that when and if that happens.

Okay, fair enough. I appreciate it. Thanks, guys.

Thank you. Okay, last question.

Thank you. The next question is from the line of Buck Horne from Raymond James. Your line is open.

Hey, thanks. It’s Buck. Quick question just on pricing power during the quarter, just wondering if you could tell us roughly what percentage of communities you were able to raise price in during the quarter and if you held back on that a little bit because of the integration of sales effort at CalAtlantic?

So, we don’t really track that kind of information, because the pricing and the price increases happen at the local level on the division by division really community by community basis. But what I will say is you look at the Case-Shiller Index that came out this morning, it was up comfortably year-over-year April over April. I think it’s almost 7%. I think that pricing power, pricing pressure continues to exist as supply is really constrained and demand continues to come to market. I think Jon did a good job of highlighting that demand is strong and even advanced demand relative to the traffic that we are getting on our website is a real good indicator if the traffic continues to build against a really constrained supply.

Okay, that’s helpful. And last one is just on the multifamily division, just wondering any updated thoughts about the longer term prospects of the business in terms if you think you are going to hold it next to the core homebuilding operation, there is obviously a wall of private equity money that’s trying to still get invested in multifamily, has that evolved your thinking about the right time to move multifamily outside the cord?

We are just so proud of the multifamily programs that has been put together I think that we highlighted or Diane highlighted, $9.5 billion in production. We have a very attractive platform and a core strategy of reverting to core, whether that happens, we certainly have not engaged process at this point, because we still think there is some maturity to be had, but we are openly thinking about how that will evolve and expect after to mature over the next year or so.

But the thing that we are very focused on is when you are doing – when you are involved in construction of about 10,000 apartment homes a year. That gives us additional synergies with regard to cost and maturities. So, it’s core to a large degree and we need to just really focus on the evolution of that business.

That’s perfect. Thank you. Thank you, guys. Congratulations.

Okay. So, for those who are still with us, I know we went over a little bit in time. We are really pleased with how things are progressing. We look forward to continued success. Just in conclusion, I will say once again, it all comes down to people. We thank the associates of the company, our trade partners, people across our platform, that’s what makes it happen and we look forward to reporting again in third quarter. See you then.

Thank you. And this concludes today’s conference. Thank you all for participating. You may now disconnect.