Welcome to the First Quarter 2013 Taylor Morrison Home Corporation Earnings Conference Call. My name is Adrianne, and I'll be your operator for today's call. [Operator Instructions] Please note this conference is being recorded. I'll now turn the call over to Calvin Boyd, Corporate Treasurer. Mr. Boyd, you may begin.

Thank you. Please note that some of our comments on today's conference call refer to non-GAAP financial measures, which we believe provide useful information for evaluating our business performance. This information should be considered as supplemental in nature and should not be considered in isolation or as a substitute for the related financial information prepared in accordance with GAAP. In addition, these non-GAAP financial measures may not be the same as similarly entitled measures reported by other companies. Reconciliations to the most directly comparable GAAP financial measures are available on the Investor Relations portion of our website at taylormorrison.com. We recently closed our initial public offering on April 12, 2013, which occurs subsequent to the end of our first quarter of 2013. Accordingly, the results we are providing today represent the pre-IPO operations of Taylor Morrison Communities, Inc. and Monarch Communities Inc. without giving effect to the reorganization to shareholder ownership. Finally, please keep in mind, everything we cover during today's call, including the question-and-answer session, is subject to the Safe Harbor statement or forward-looking statements within the meaning of U.S. securities laws. This may include statements about our current expectations or forecasts of market and economic conditions, our business activities, prospects, strategies and future business and financial performance. These forward-looking statements are not guarantees of future performance and actual results could differ materially from those suggested by our comments made during today's conference call. I call to your attention the description of risk that could affect our future results that is contained in our registration statement on Form S-1 filed with the SEC on April 12, 2013. Now let me turn the call over to Sheryl Palmer.

Thank you, Calvin, and good afternoon, everyone. Thank you for joining us for our first earnings call as a newly established public company. With me on the call this afternoon is: Dave Cone, Chief Financial Officer; Calvin Boyd, our Corporate Treasurer; and Dave Hreha, our Corporate Controller. I'd like to begin with an overview of our results that demonstrates a success of our land strategy over the last 4 years, and then I'll turn to the state of the market. Dave Cone will take you through the financial review, as well as guidance for the second quarter and the 2013 year. Then I will provide an update of the operations of the business, after which we will take your questions. Just coming off of a successful IPO, I am very pleased to share with you our first quarter 2013 results. We started the year in a position of strength with 136% increase in net income, continuing our track record of solid financial performance and adding to our trend of more than 3 consecutive years of profitability. The strong results we generated in the quarter demonstrate how our disciplined yet flexible operating platform has enabled us to both perform well during the recent challenging economic environment and allowed us to take advantage of recovering industry conditions. The results we're releasing today are the manifestation of years of preparation and the company's land strategy during the downturn. Our opportunistic land strategy is conscious and calculated and the foundation of our success. The quality of our locations and our land development capability drives new order absorptions, home revenue and margin growth. For the quarter, our home revenues increased 66% while closings were 63% higher compared to the year-ago period. In the U.S., home revenue increased 118% mainly due to closings, which increased 96%.…

Thanks, Sheryl, and hello, everyone. Today, I will be reviewing our financial results for the first quarter of 2013 and providing guidance for the second quarter and the year. As a reminder, the first quarter results reflect the operations of our subsidiaries, Taylor Morrison Communities and Monarch Communities, without giving effect to the IPO which occurred in our second quarter. For the quarter, net income increased 136% to $24.3 million from $10.3 million for the same period last year. Net sales orders totaled 1,681 units, representing a 52% increase when compared to the same quarter a year ago. Net sales orders in our U.S. operations improved 68% to 1,549 units while our Canadian operations add 132 net sales orders, down 29% compared to the first quarter of 2012. This decline in part was the result of no new towers started that can generate significant new orders for the company in the first quarter of 2013. Also over the last few years, we capitalized on our Canadian business to increase our overall company earnings. While we were successful in driving the Canadian business, these efforts left us with limited product to sell in Canada. Moderation was expected in our Canadian markets as the result. The company's cancellation rate was 11% for both the first quarter of 2012 and 2013. We finished the quarter with an increasingly robust backlog of 3,872 homes. Total backlog at quarter end was valued at $1.4 billion. On a year-over-year basis, this represents an increase of 45% in units and 61% in backlog value with nearly an 11% increase in average selling price. Community absorptions increased to 3.4 per month as compared to 3 in the first quarter of last year. Our average community count increased to 167 from 124 in the first quarter of 2012, primarily…

Thank you, Dave. I want to say again how pleased we are with our first quarter 2013 performance. Our continuing strength in backlog at the end of the quarter provides a firm foundation and excellent visibility for 2013 and into 2014. Given the success we have had these last few years, we believe that Taylor Morrison will continue to operate profitably and be among the leaders in the homebuilding industry. We continue to see evidence of a constrained supply of finished lots available for purchase in favorable locations. Fortunately, as I mentioned earlier, we are also a land developer with the expertise to develop our own land supply. Thus, we can ensure that adequate lots are available to meet future demand while also maximizing returns throughout the homebuilding cycle. In fact, we spent $143 million in land purchases and development during the first quarter and $778 million in 2012. As we look to the end of 2013, we plan to continue to increase our community count and are well positioned to spend over $1 billion in land acquisition and development for the right opportunities in 2013. Approximately 1/3 of that is planned development spent. We believe we are one of these few builders that already have the lots for 2014 in place and 2015 is in good condition, allowing us to selectively fill our pipeline for the future. Our land acquisition strategy of providing buildable lots at the right time positions us well into 2014 with our continued focus on profitability first and then gaining market share. We anticipate our 2013 growth to come from across the U.S., led by our Phoenix, Houston and West Florida markets. Our purchase of Darling Homes was a complementary acquisition for us as it expands our footprint in Texas and provides entry into a…

[Operator Instructions] And we have Ivy Zelman from Zelman & Associates on line with a question.

I guess, I'd love to focus in on your strategy and understanding how you have to balance selling with pricing being strategic and taking advantage of maximizing profit per unit at 3.4 homes per month per community. I think you can talk about the balancing and how you approach each of your communities and think about maximizing value, and also your backlog and how you have to make sure you're not pushing backlog out too far. So maybe just a little bit more elaborated, is 3.4, the magic number, and we should expect to stay at that level? And appreciating the backlog extension as well.

Yes. Absolutely. Let's start with the pricing and the 3.4. I think to begin, what I would share with you is what we are quite pleased with the absorptions we got per community as well as the pricing power we've seen in each of our communities. We actually -- when we're looking at our sales strategy, it's very project-by-project specific. It's much more at a local community level than at a market level. There are some communities around the country that we limit releases fairly significantly based on the overall competitive environment, the pricing power in that market, trade availability. And then there might be other positions, where we let the machine run a little bit harder. I would tell you that I think it's the overall quality of the communities and our specific sites, coupled with the individual strategy that we have in each of our sites that's created kind of the maximum opportunity that we've seen on both the absorption side, as well as the margin side. We're raising prices in just about -- I think we raised prices in about 85% of our communities in the quarter. So we're really trying to make sure we get the maximum benefit of both. I don't think there's any magic around the 3.4. In fact, we've actually slowed down our pace. In fact, we brought it down even further in April because we want to -- and I'll go to your second question, Ivy. Because we want to make sure that we're managing that backlog. There's no reason to sell ahead of ourselves. When we look at what's happening from a commodity standpoint in the labor resources, we want to make sure that the units that we're selling; we actually know what they're going cost us to build. So it's a balancing act. And what we have now in most of our markets is some pretty good even flow that's allowing us to keep pace with the absorptions that we're seeing.

That's very helpful. And then just one follow-up, Sheryl, with respect to -- you mentioned the labor constraints and material inflation, it sounds as if you're managing well through whatever those cost increases and constraints might be. We've heard more recently specifics about utility, not getting utilities to sites. Can you comment on anything that would stand out that's concerning to you? Or is it all, in your mind, manageable?

I think we're managing through most of it. I prefer that we don't see the increases, Ivy. But we are and we're seeing them pretty much across the trades. I would tell you they've slowed down a little bit. From what we were seeing last year, there clearly was a catch-up period. But at the end of the day, I think the teams are doing just an excellent job managing through them and pushing back where they just don't make sense. And as you can see through the margin, we're well ahead of that game.

I'm going to sneak in one more, Sheryl. On Canada, a lot of concern recently by clients that the Canadian market is rolling over. Can you comment within the Greater Toronto market, in your single-family detached, what you've seen in trends with respect to specifically in pricing in the last several weeks that you've had? And are you worried about it?

Yes. I'm glad you asked, Ivy, because there are some questions around it. But no, I'm really not worried about it. I mean, the housing market is stabilizing. It's stabilizing at lower levels from what we saw at the peak for these last couple of years. The overall demand is certainly down from the last couple of years. But as you saw in the paces that Dave went through at 3 per month per community, we actually think what we've got is getting them back to a more normalized level. There's a lot of things that are impacting that. Most importantly, probably some of the work that the financial ministry did to make sure that the market didn't get ahead of ourselves. Very specifically, from a low-rise perspective -- excuse me, from a single-family detached perspective, our biggest challenge is just product availability. As we bring new product to market, we actually still have pricing power in each of our releases. So when we look at the greater Toronto Area and we look at the lack of supply, that continues to be the regulator in that market.

And your next question comes from Will Randow from Citigroup.

I guess, my first question, given your exposure in West Florida on a lot count basis, we're hearing a lot of positive things regarding pricing in that market in the last 2 quarters that aren't evident in national numbers that are broken out like the Case-Shiller. Can you talk about what you're seeing in regards to pricing in that market and how that's recovering?

You bet you, I'm happy to. Very similar to all of our markets, as I shared, we're seeing pricing power across the board, Will. If I look specifically at the West Florida market just in the quarter, we saw prices move anywhere in 1 community from just under 1% to well over 6% in the quarter. So we've actually had, and some of that is our new communities, we've introduced a couple new active adult positions that have played very, very well and have been in very high demand. But the West Florida market is actually doing very well for us.

My second question, and sorry to ask this again, I know we've talked about it, but in terms of unabsorbed inventory in the Toronto market, it's a little frothy in terms of comps. How do you think about that when you're thinking about the market? Obviously, you have risk controls in place, and maybe you can elaborate on both.

Yes, I'm happy to. When we talk about inventory in the market, I think most of the challenge is not unlike what we saw here. Sometimes the media doesn't report all the facts. And so when you just put these big headlines out there, it doesn't really tell the whole story. So some of the numbers that we've seen quoted around inventory talks about, let's say, 20,000 high-rise units of inventory. It doesn't mention that almost 13,000 of those units are, what we call, in the preconstruction phase. And those units may or may not actually make it to a construction start. When you actually look at the inventory that's on the ground or under construction, we are very much at long-term norms. That number is more like 6,000 to 7,000 units, and that's about 2.5% of the total condo inventory. So if anything, to date, inventory is not keeping up with -- starts in inventory is not keeping up with household formation. When I kind of bring that into Monarch and our business, as we've talked about, and we look at our towers, we have 6 towers that are delivering this year and next year and those are virtually sold out for this year, maybe a handful of units and a couple handfuls for next year. We really only have 1 tower that's even got an active sales program going, and that would be our Lago tower, and that's in the 70%. So our biggest challenge is we actually don't have the product to meet the demand.

And we have Michael Rehaut from JPMorgan on line with a question.

First question on the -- kind of going back to one of your comments, Sheryl, on the sales pace for April, and it's -- I guess, pace versus price is a topic being bought up on every conference call virtually. But if I look at the year-ago numbers for sales pace, they were right around 3.4, 3.5 in the year ago. And so if you're slowing sales in April versus March, I'm sure there's some seasonality there, maybe March was a stronger sales pace versus January. But would that imply sales pace down year-over-year and the orders would grow more from the community count?

Historically, Michael, April generally does trend off a little bit from March. The makeup of your communities change year-over-year. So I would probably point you there first. For example, obviously, this year, we have the Darling communities within our portfolio, well we don't operate those at the same pace on a per-community level than we would some of our other price points. So year-over-year, once again, we are actually -- last year, I think the machine was probably running a little harder as we were entering into the recovery phase. Now we are being very, very diligent from a pricing standpoint. And so yes, if we believe it's the right thing to do to slow down pace to make sure we're maximizing margins, that's exactly what we would do.

Okay, great. That's very helpful. I appreciate it. The second question on the gross margins kind of leads into the next question, talking about going from pace to now price. But with the very strong year-over-year improvement that you've seen in the first quarter, I guess, maybe a two-parter, if I could sneak an additional one. Yes, a la previous questions. But number one, if it's possible at all, if you have a sense of what portion of the year-over-year improvement was driven by mix versus pure price? And number two, now with -- as you look forward into the year, I know the guidance, you just kind of said continued year-over-year improvement for gross margins, but certainly that's a pretty healthy year-over-year notch on the first quarter versus 1Q '12. How should we think about the year-over-year improvement for the remainder of the year?

Sure. I'll start probably with probably the last one first on the improvement as we look out for Q2. So we didn't give any specific guidance, as you said. But we do expect to see some accretion. The spread might not be as much as in Q1, couple things that are going on there. One, if you look at Q2 of last year, Michael, we had purchase price accounting adjustments related to our 2001 acquisition and -- sorry, 2011 acquisition. And that compressed margins a bit as it did in Q1 also. As we move into Q2 and Q3, that's going to lessen that impact, so we're not going to get that tailwind into Q2 and Q3 of this year. And then we're also going to have a bit of headwind again from purchase price accounting but this time on the Darling acquisition. So if you look at that, that's kind of some things that we're up against that are more on the one-time nature. But we still think we have some pricing power, so there's obviously some opportunity to get some price ahead of cost, and then obviously a little bit of mix shift as we continue to focus on that first- and second-time move-up buyer. And then I'm sorry, what was the first question again? On the pure price versus mix. On that one, what I would say is for what we got on the price side, we gave back about half of that in mix, and that was primarily due to regional distribution. So as you saw, the West has picked up quite a bit and the West has a tendency to have a little bit lower margin than, say, the East and the Canadian side, as well as the Darling piece that's there in the East. So we did lose a little bit just from that overall distribution of the West gaining strength.

And we have Dan Oppenheim from Credit Suisse on line with a question.

Just a quick question. Just wondering if you can comment on just the overall integration of Darling and how that's progressing at this point as you're seeing it through sort of the spring season here.

Yes, I'd be happy to. I would tell you the integration is going really quite well. We recently appointed a Division President in the Darling Houston business, so now we have it fully staffed. It's always a transition, but I think that all in all, when I look across the board, I couldn't be more pleased. Culturally, it's been a very good fit. I think the team members are very aligned. We have a lot of passion in both the Darling and the Taylor Morrison, and they're working well together. We have started some of the IT integration. We should conclude that probably early fall, maybe late summer on our ERP system and that would be the final piece. So as we look at kind of integration in the land process, kind of the opportunities we're seeing in the market from a capital perspective, really I put a check mark almost across the board. We're really quite delighted and we have great expectations as we continue forward.

And we have Adam Rudiger from Wells Fargo on line with a question.

You mentioned, I think, over 500 specs in your prepared commentary. And I had kind of gotten the impression that, that wasn't as big of a focus for you. So can you outline what the spec strategy is and, I guess, correct me if I was wrong?

Yes, no problem. The spec strategy, very similar to our pricing strategy. That's a community-by-community discussion. And with our mix of attached product, it kind of skews the per-community spec count. But I would tell you, in general, I probably wish we had a few more. We don't on average have one completed spec per community. But generally, we've been running -- the ideal environment would be 3 to 4 total specs per community, once again accounting for where we have attached units.

Okay. And then just to clarify, Dave, your guidance, when you mentioned quarter-over-quarter, that's, just to be clear, that's sequential, you mean by that?

No. That would be year-over-year.

Year-over-year. Okay. So what does -- I'm trying to do my math real quickly then. And I'm just trying to think about what that means then for -- you've got a much slower backlog conversion, I think, this year. Can you give us any guidance on how you expect that to trend for the year?

Backlog conversion is a tough metric for us just because we have the high-rise product in there as well. So it's typically a bit lower for us. So that's not one that we spend a lot of time on. We're focused a little bit more on the absorption side of it.

And generally, Dave, would you add that everything that we have, pretty much everything in the U.S. right now that we have with a few exceptions is still going to close in 2013?

Yes, that's correct.

And we have Jeff [ph] from [indiscernible] on line with a question.

Hopefully, a clarification, doesn't count against my 2. Did I hear you correctly; you said that the Lago has bumped up to a 70% presale rate? I think the last numbers we had out of the S-1 were back to year-end '12. Is 70%--

You did. I actually think it's like 72%.

Yes, 72%.

Okay. Do you have Picasso while we're on this subject?

Picasso is in -- it's high 80s, if I am not mistaken.

86% at the end of the quarter.

Okay. So 83% at the end of the quarter.

Okay, great. Dave gave a lot of specific guidance. Looking at the land sales, though, obviously that number bounces around every quarter. But given your comments around being pretty comfortable with your 2014 positioning, is there -- can you help us out in any way to think about modeling that number out? Is that number -- should that number decline? Or should we think about a comparable run rate on the land sales, assuming you've got some visibility on the land strategy per your earlier commentary?

It's going to be lumpy from time-to-time, a couple of things are going to be in there first. We do sell lots to our JVs, which is why you don't see much of a margin on the land sales. But we're always looking at our communities to determine if there is a strategy there to sell that to other builders or if we're going to make a greater profitability by developing it and selling it ourselves. But from a modeling perspective, I think a run rate is what you see now is pretty safe.

Yes, I think I would agree with that. I think generally what you've seen is what we expect. If we look forward, we might assume that we're going to -- lot sales will always be a healthy part of our business and our larger master plans, but we'll continue to evaluate that and kind of on an as-needed basis to make sure that we're not better served retaining them for our homebuilding operations.

Okay, great. And then the margin in financial services seemed to come in a little bit in the quarter compared to sort of the annualized run rates we've seen. Anything in the quarter specifically that would have caused that or how to think about that?

Yes. No, it's just more of the timing in the year. That's just more or less how the first quarter works.

We have no further questions. I will now turn the call over to Sheryl Palmer, CEO, for closing remarks.

Well, thank you, everyone. We really appreciate everyone attending our first earnings call and wish you a very nice day. Take care.

Thank you, ladies and gent