Good morning everyone and welcome to Taylor Morrison’s Second Quarter 2022 Earnings Conference Call. Currently, all participants are in a listen-only mode. Later, we will conduct a question and answer session. As a reminder, this conference call is being recorded. I would now like to hand over to Mackenzie Aron, Vice President of Investor Relations.

Thank you and good morning, everyone. We appreciate you joining us today. Before we begin, let me remind you that this call, including the question and answer session will include Forward-Looking Statements that are subject to the safe harbor statement for forward-looking information that you can review in our earnings release on the Investor Relations portion of our website at 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, I will turn the call over to our Chairman and Chief Executive Officer, Sheryl Palmer.

Thank you, Mackenzie, and good morning. I’m pleased to also be joined today by Lou Steffens, our Chief Financial Officer; and Erik Heuser, our Chief Corporate Operations Officer. I will share our second quarter highlights and then provide an update on the market environment and how we are positioned to navigate the headwinds facing our industry today. After my remarks, Erik will discuss our strong land position and why we feel confident in the long-term earnings power of our portfolio. After which, Lou will provide a detailed review of our results and updated financial guidance. In the second quarter, we generated record levels of profitability and earning. Most notably our home closings gross margin have 26.6% was up 750 basis points from 19.1% a year-ago, and more than 1,100 basis points from 15.4% two years ago. This improvement reflects strong pricing power as well as the benefit of operational enhancements and acquisition synergies that have transformed our business effectiveness. At the same time, our SG&A percentage improved 140 basis points to 8.8% of home closings revenue the lower second quarter levels in our history as we have leveraged our scale and unique virtual capabilities to operate with greater flexibility and resiliency. These results drove our earnings per diluted share to a new company high of $2.45. In addition, we deployed our strong cash flow to reduce debt and repurchase 172 million of our shares outstanding. Combined with the effective execution of our asset lighter approach to land investment, our return on equity improved more than a 1000 basis points year-over-year to just over 23%. This record performance demonstrates the strength of our scale, team, strategy, land portfolio and well qualified consumer set and is a culmination of our years long acquisition journey. As we go forward, I’m confident these strengths…

Thanks, Sheryl, and good morning, everyone. Starting with our current land position and as Sheryl mentioned, we owned and control a robust land pipeline of approximately 82,000 home building lots at quarter end, which represented a strong foundation of 6.1 years of total supply. Of these lots, we controlled 41% via options and other off balance sheet structures that enhanced the capital efficiency and reduced risk. This controlled share is up from 35% a year-ago and 28% two years ago. In addition to our ongoing use of seller financing and joint ventures, this meaningful shift has been facilitated in part via the land banking agreements we established with Verde Partners last year. Since inception this off balance-sheet vehicle has closed on 6,800 lots across 11 markets. We evaluate each land deal through our portfolio investment committee to determine the optimal financing vehicle by weighing cost of capital, duration and underwriting assumptions to maximize our long-term risk adjusted expected returns. Going forward, further expansion and our controlled share will be dependent on market dynamics, as we are pleased with the current balanced mix of our portfolio. It is also worth highlighting that still more than 60% of our own lots were contracted in 2020 or earlier. 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. During the quarter, our home building land investment told $451 million, of which 52% was spent on development versus 45% a year-ago. As we are working to monetize our well vintage land and drive community account pro. On the acquisition front, we are closely reviewing our deal pipeline to stress test every transaction before closing to ensure each deal still meets our underwriting thresholds, successfully renegotiating terms when appropriate and…

Thanks, Eric, and good morning, everyone. To begin, we generated second quarter net income of $291 million or $2.45 per diluted share. During the quarter, we recorded non-reoccurring gains on the extinguish of debt and land transfers to unconsolidated joint venture. Excluding these items, our adjusted net income was $271 million and our adjusted earnings per share was $2.27. This adjusted EPS was up 139% from the second quarter of 2021 due to strong top-line growth, significant improvement in our home closings gross margin, strong SG&A leverage and a lower share account. Turning to the details of the quarter, we delivered 3032 homes at an average selling price of $621,000, which generated home closings revenue of $1.9 billion. This was up 15% year-over-year. Supply chain challenges remained persistent across various points of the development and construction process, driving a modest extension in our cycle times. Most notably, we experienced increased delays amongst some municipalities for inspections and permitting, which offset stabilization at the front end of the construction timeline, where material and labor availability beginning to show some size of improvement. As we head into the second half of the year, we expect the significant volume of home closings across the industry to further pressure supply chain dynamics, combined with the overall level of uncertainty in the market we now expect our full-year home closings to be around 13,500 deliveries. This includes approximately 3,200 to 3,400 homes in the third quarter. From a pricing perspective, we still expect the average price of our closed homes this year to be at least $625,000. Our home closings gross margin for the quarter was 26.6%, which was up 750 basis points from a year-ago and more than 1100 basis points from two years ago. This improvement reflects strong pricing, power, operational enhancements, and…

Thank you, Lou. To wrap, I would like to share some more detailed market color to give you a pulse of what we are experiencing across the country, while no market has been spared from the slowdown and shoppers broadly are in a waiting pattern until interest rate in economic uncertainty fades, the degree of moderation has varied across geographies, and even more so among bio groups and location quality. Beginning in Florida, typical seasonality during the slow summer months is evident across the state. Although our large active lifestyle portfolio in Naples, Sarasota and Orlando are still seeing traffic. However, these savvy often out-of-state consumers are generally in a wait and see mode. These buyers are less concerned about price and more focused on selling their current home. Our entry level offerings in the state have slowed with Jacksonville being a positive outlier, given healthy non-local demand for its affordable product among relocation buyers. In the Southeast, Charlotte, Raleigh, and Atlanta were more consistent quarter-over-quarter than most other parts of the country. Raleigh delivered the Company’s strongest year-over-year improvement in second quarter sales pace where it is largely first and second move up portfolio showed strong resiliency, as well as the strongest year-over-year gain in home closings gross margin. Moving to Texas, we have begun to see a pickup in traffic sales center appointments and mortgage pre-qualifications in Austin and Houston. Despite Austin experiencing some of the most robust pricing increases, its sales and traffic per outlet were strongest in the state, and its cancellation rate was below average as buyers are well qualified and determined to move ahead. Both Houston and Austin continued to see interest in their active lifestyle communities, which tend to be more dependent on in-state buyers compared to our Florida active lifestyle business. And…

Thank you. Our next question comes from Matthew Bouley from Barclays. Matthew your line is now open.

Good morning. You have Elizabeth Langan on for Matt today. I was just wondering, could you give us an idea of how your current incentives - how that level compares historically? And do you expect to be able to continue to use the targeted financing incentives, given the stress on affordability? Or do you think that you will eventually have to make some pricing adjustments?

Elizabeth, thank you for the question. With respect to the incentives, when we look year-over-year, actually, Q2 was lower than Q1 and certainly all of last year. Obviously, there is a little bit more out in the market from a sales standpoint today. When we think about continuing to use finance as an incentive, certainly, I hope so. Because when you look at the impacts of using finance compared to reducing the overall price, base price, even lots, options for the consumer, it makes a market difference. I mean those dollars work for you four to one. I mean, $10,000 of incentive would be like reducing the price by $40,000. So to the extent, and I can make more of a difference for that consumer with respect to their overall qualifying power. They are absolutely either monthly mortgage payments and our buyer group is going to be hundreds and hundreds of dollars less when I look at the overall interest that they are paying over the life of the loan. A lot of it is going to depend, Elizabeth, on really the market reaction as we are protecting kind of values for our customers in their communities by using finance that would be the preferred approach. If we see tremendous reductions in price from our competitors, we would have to reevaluate.

Okay. Thank you, that is really helpful. And it would also be helpful if you could talk a little bit on the different trends that you are seeing between the different buyer groups. I know that you said that you move up and active adult was more resilient versus the first-time buyer. Can you talk a little bit more about that?

Yes, certainly. So I think there has been a lot of discussion around the different consumer groups and how they are each performing. So let me walk through them. When I look at kind of the year-over-year or even the two-year trend, we are seeing the greatest reduction in sales and pace from the entry-level buyer. That is where we saw in Q2 quarter-over-quarter, year-over-year, the most significant reductions. They are still, by the way, our strongest pace, but the greatest reductions from period-to-period. Not really surprising if you think about how the combination of interest rates and price appreciation has affected them from a true affordability standpoint. And I’m talking true demand. I’m not sure, some of the numbers could be masked by selling to that consumer to institutional investors. But when I’m looking at true consumer demand, which is what our quarter is showing, they are clearly the most affected. We tend to serve a more financially secure kind of first time, maybe even first-time, first-time move-up buyers, so they are doing a little bit better. But when I look at the cans and I look at the greatest reduction and their ability to qualify, it is certainly that consumer. It makes sense. They don’t really have the equity to bring to the table. We know cash to close is the second greatest challenge for the consumer right behind monthly mortgage payments. And then when I look at their overall qualification criteria at both the conventional and the FHA first-time buyer, as I said in my prepared remarks, they are just a little bit tighter right now, when I look at our backlog, that consumer, the first-time buyer, they still have some room in their back-end ratios. But honestly, if they were paying higher interest rates that would…

Thank you.

You bet.

Thank you. Our next question comes from Carl Reichardt from BTIG. Carl your line is now open.

Thanks. Good morning everybody. Can you talk, Sheryl, about the percentage of your orders this quarter that were on build-to-order versus specs, regardless of the consumer segment and if that is changed over the last couple or three quarters?

Yes. Lou, what is that?

Yes. Good question, Carl, it definitely - we have actually seen some strength in the to-be-built this month to date. It is actually picked up through what we have seen earlier in the year. And as we talked in the prepared remarks, we are starting to see some of that normalization as these buyers are choosing what they want in their homes. It is a small uptick, but it is 500 to 600 basis points higher than we have seen in the last couple of quarters.

And if you were to kind of dissect it, do you agree, Lou, that where we are seeing the real strength of that to-be-built is the active adult. It is the move-up, luxury and where we are really focused on, back on, no surprise would be in that entry-level buyer.

Sure. And is the - so roughly what is the split between the two, if you have that, Lou?

Sure. Month-to-date 45% to-be-built. And last quarter was at 37%.

Okay, great.

So moving back closer to our historical averages.

Correct.

Okay, thank you. And then sort of the same question on cancellations. If you look at - again, they are not enormous in terms of the unit increase. But is there a differentiation between cancellations on to-be-built versus pre-started?

Good question. I think the most interesting step, Carl is, really that when I look at our cans for Q2, 75% of those cans were written this year. So what does that really say? It says the folks that probably pay towards the peak or at the peak are the ones that said, we are going to take that kind of wait and see. I would say, generally, it is a little bit more heavily weighted toward those spec sales because when you just look at the percentage of specs we were selling, it would align there. But there absolutely is some to-be-built, once again for the consumer that bought early this year.

And generally, on the spec sales, we don’t take as larger deposits if they are quick closes. So we see a little bit more movement on cancellations there.

Yes. Lowest.

Okay. I appreciate it. I will get back, thanks.

Thank you, Carl.

Our next question comes from Jay McCanless from Wedbush. Jay your line is now open.

Hey good morning. Thanks for taking my questions. So, excited to see the land bankings moving forward, I guess, with the potential for more interest rate hikes on the way and kind of an uncertain consumer, what are you hearing from those land bankers around terms? And just any kind of color you can give us there, because I like the strategy, but just wondering if it is going to get more expensive and potentially weigh on gross margins out in the future?

Hi Jay, this is Erik. I will take a crack at that. Yes, I think as the market evolves, I think it is natural for that conversation to kind of have a tenure that evolves with a little bit north with regard to interest rate expectations. That said, I would tell you as far as our facility is concerned, we feel real good about it. So it really depends on, I think, the partner that is selected, as well as the terms associated with the land bank deal. So there is really - as far as ours is concerned, there is really no unusual terms in there. And from a cost standpoint, our facility was really negotiated at a really attractive point in time. So I think we feel real good about our facility. We still have some about 25% room in there to grow it. And we will just kind of address that as the market evolves. It is a lever that we have to pull. It is not the only one. So we think it is one that we can continue to holding the lever for us.

And we must expect that land sellers to evolve as the market is evolving, too. So our priority would always be to go back to kind of land seller financing, JV. So, like you said, it is just one of many of our levers.

And typically, the land seller is the cheapest way of - having controlled a lots. So that is - I agree completely. You started to see that in the softening or early.

It is good to hear. The second question I had, Lou, and I apologize I didn’t catch all this, but I think you were saying in your prepared comments that you guys are still seeing a lot of municipal issues. I’m assuming on the back-end, in the last 60-days of the build, but the front-end of the build is getting better. Did I hear that correctly?

Yes, definitely. That remains tight on the back-end. Probably for the quarter, we saw our cycle times increase one week to two weeks, seeing a lot of municipality delays, a lot longer from the time you get your final inspections to them, issuing (Ph), meter delays from the utility companies, but are seeing some signs of light on the front-end and a lot more inbound calls from people looking for work as starts have started to soften across the sector.

Yes, a little fearful, if you agree, Lou, that it is not going to have a great impact on the deliveries for this year. We have got that bottleneck. But it is really nice to see the kind of forward visibility. And I think the one that is really progress the most is the municipalities kind of evolution because we haven’t seen any relief there at all and from a staffing standpoint and back to work. So we will see how that one continues to move.

Yes. And when you really look at the overall lengthening of cycle time from the beginning of COVID is, where we saw the biggest increase is frame start to installation and that is - the area that we will start to see in the middle that we get some relief on the cycle time and start returning back to more normal long-term cycle time averages.

Okay that is great, thank you. And then just one other quick follow-up. The cans that you are getting, how much luck are you having reselling those and/or maybe getting a little bit higher price on them?

Yes. A lot of it is going to depend how old the can is, like I said, most of those cans were written early this year. So I would say pricing is relatively neutral. Maybe you have some additional finance incentives, if they were written in the first quarter versus the second quarter. But we still have a very, very low finished inventory. So we are able to move through them.

Okay, great. Thanks again for taking my questions.

Thank you.

Our next question comes from Alan Ratner from Zelman & Associates. Your line is now open.

Hey good morning guys. Thanks as always for the great commentary and information. I guess, first off, I would love to expand upon maybe Sheryl, some of your July commentary, which on the surface sounds pretty encouraging given what we have seen kind of in June and early July. Is there any way you can help quantify some of the trends you highlighted for us? I think you mentioned the sales programs were responsible maybe for some of the renewed activity or what exactly does that mean? How have those incentives on orders maybe compared to where you were running at in the second quarter? And any quantification of where your actual absorption rate is in July versus June?

Yes. I can give it a shot, Alan. I think we have to keep these last many weeks in perspective is where I would start, because I think some of this, we really - you have to almost go back to the end of the first quarter when the Fed really made their move. But there was so much momentum still that it didn’t really show up in communities, I would say, until sometime in early June because there was, like I said, just so much momentum and the consumer just had to catch up with everything they were feeling and seeing in the economy. So we started feeling it, I would say, in early June. If I kind of dissect Q2, April was good, May was better. That was actually our peak sales month and then we saw it move the other direction in June. And I would say, as you got to the 4th of July, that probably was the trough. Now it is hard to call peak to trough all in 30-days. But if I’m going to just use the last 60-days, 90-days, that is absolutely the case. Since the 4th of July week, what we have seen week-over-week, I think are encouraging signs, but that is three weeks, Alan, we need some more time under our belt. But we have seen pre-quals move back up on a week-to-week basis. We have seen web traffic significantly move up. I would say foot traffic fairly similar. And I think you have to look at both sales and retaining the backlog. At the same time, we have also - our financial services team has spent quite a bit of time making sure that we are in touch with our backlog, closings month-by-month. We are in a tremendous position right now when I look at how much of our backlog we have got locked for the balance of the year, it is 150% up from what you would typically see. So I feel good on the programs that our sales team have in front of them using finance as a sales tool, and I also feel good on the work that is being done in the backlog. We will see what the next many weeks hold. But the consumer, it is almost like you had to refill the pipeline, Alan, because the folks that were there in the first and second quarter, there was a lot of fatigue in going from hobos and lotteries to not being able to get lots, to then moving into a new environment of finance incentives. So it is great to see the pipelines getting back full, and we will see how the coming weeks could perform.

Great, that is really helpful Sheryl, thanks for walking through the chronological developments there. Second question, I guess, just on the land spend guidance reduction for the full-year. I think, obviously, it makes sense given the uncertainty and given your strong land position. Can you talk a little bit about specifically what is driving that reduction? Is that you assuming that you are going to maybe walk away from some option deals as they come up for takedown because you don’t need that many lots or is it mothballing development on raw land that is currently sitting on your balance sheet. What specifically is driving that reduction in land spend expectations for the back half of the year?

Alan, it is Erik again. So I wouldn’t say mothballing is part of the equation that is not. I would say it is really more of an opportunistic stance maybe to take one step backward and just kind of repaint the backdrop. We actually did add among the least of land to our portfolio since second quarter of 2020. And that is for a good reason because 60% of our owned land was negotiated in 2020 and prior. So we feel real good about the land we have and the associated balance associated with it. As we start support today, we are really focused on co-locations. As you know, that has been kind of a key mantra of ours over time, and that will consistently be the case. And so, I think kind of that forcing ourselves to be focused on co-locations is somewhat related to that moderation and spend. And then again, I think just feeling good about where we are with 6.1 years. I think we also said that 2023 and 2024 is very secure. So, we have kind of earned the right to be very selective. We do like our balance of 41% control. And we do have all those levers to pull, 52% of our spend is being dedicated to the development. So we have got a lot of flexibility there in terms of pulling that lever. And so that kind of puts us again in that kind of selective position. As Lou has stated, we have got a really strong cash position and so that really sets us up to be opportunistic as we think about the spend going forward. So we are seeing a little bit of capitulation in the market, not a lot, there hasn’t been any systemic resets in the market, but we are seeing a little bit of cracks and we are prepared to take advantage of that.

And would you agree, Erik, I mean, if we are very transparent, 2020 we have pulled back because of little bit of COVID, and we just closed on a very large acquisition, we filled the portfolio quite nice. 2021, Alan, if you saw prices move fairly meaningfully on land. I think the number was about 30%. When things start to get that frenzy, that is the time that you really should pull back. And if we kind of pull on our old playback from prior - playbook from prior cycles, it is really the time we become very selective last year, which may be added such a little amount to the portfolio, and you really keep your dry powder for another day. And I think that is what we are doing, we don’t have to go buy land today. So we will be prepared to be very opportunistic to Erik’s point as we see any capitulation in the markets.

Yes. Really hard to be a day trader in the land game, but I think we did our first normalization study in the third quarter of last year. So we really have been kind of looking forward to this kind of transpiring at some point, not knowing exactly when and what duration and magnitude, but really an eye on it. And that is why we are spending so much time today from an underwriting standpoint, really stress testing the deals and making sure they are filling the right pieces of the business plan and not being afraid to modify deals. I would say a high percentage of the deals coming through, we are modifying in some way.

If we move forward, yes.

Great. I appreciate that guys, thanks a lot.

Thanks, Alan.

Our next question comes from Truman Patterson from Wolfe Research. Your line is now open.

Yes. Actually, this is Paul Przybylski, good morning everyone. I appreciate the color you gave on the out-of-state active adult buyer trends. I was wondering if you could provide some color on the relative mix of inter and intra demand trends across the greater portfolio or is that migratory buyer slowing at the same pace or slowing faster than the intra-market buyer?

It is really interesting, if I’m understanding your question correctly, Paul. But as we look at kind of the migration patterns, we are continuing market-by-market to see some pretty significant kind of out of - in-state migration. If I look at Florida, for example, I mean, more than half of our business is coming from out of state. If I look at Nevada, more than half of our business is coming from out of state. So as we look really over the last, I’m going to say, three, four years, we continue, and I could - I won’t bore you by going market-by-market, but we continue to see some very significant movement. And it is not really different between our shoppers and our buyers, as you would expect. I think I have pointed the most meaningful and it is really across consumer groups. Because when I think about a market like Las Vegas, like I said, more than half of our buyers are coming from out of state, and that is not necessarily an active adult market for us. It is really a first-time market. When I look at Florida, I’m seeing it both in Sarasota and Naples where you would expect to see it with that active adult consumer, but I’m also seeing those same penetrations in Orlando and Tampa, which has a very high first-time buyer segment. So truly continuing to see the same trends we have been talking about.

Okay, Fair enough. And then I’m just curious, how is your virtual community? How is the performance of that holding up in this new sales environment?

It has been really strong. We started, as you probably remember, Paul, our virtual kind of very slowly back in the spring of 2020. I think weeks after the COVID shutdown in April, late April 2020, we started reservations. When I look at what is happened between 2020 and 2021, and I compare it to the first six months of 2022, our sales from a virtual standpoint, have doubled on a monthly basis, actually a little bit more than that. The actual penetration of our total sales has doubled as well. So our inventory homes virtual sales have been in play for a while. Our to-be-built is just now really starting to take hold across the portfolio. Our to-be-build virtual sales have our highest conversion, followed closely by our spec virtual sales. So I’m actually pretty excited given that the consumer - this is not COVID-related, right. When I look at this doubling of sales from a penetration standpoint, albeit a small piece of the business still in total and now we really put it through the whole portfolio. This is the consumer saying, meet me where I want to be met and they are showing up. So it is pretty exciting, I think, as we continue to roll this forward.

Okay, okay. You had some really nice SG&A control in the quarter, flat basically year-over-year. Were there any one-times or timing benefits, et cetera, that we need to be aware of?

No. It was just our revenue leverage, I would say, and the growth we have experienced over the years.

Okay, thank you.

Thank you.

Our next question comes from Mike Rehaut from JPMorgan. Your line is now open.

Hi good morning guys. Doug Wardlaw on for Mike. I was just wondering if you could give a little bit more color, I know you talked about - you gave great color on market-by-market. I was wondering if you can talk more about incentives in some of the hotter markets before the little bit of the slowdown. So have you seen less incentives being used in Texas, for example, Austin and markets in Florida and then kind of the other markets you operate in and if so, moving forward, do you anticipate that remaining the same?

Yes. Interesting. Good question. I know nobody loves this answer, but it is the honest one. And I would be very careful to paint a incentive brush over a market, because within our markets, I would tell you there are some - very few communities that we might still be doing a controlled sales floor where there is absolutely no incentives. And that would generally be on the luxury side, where we are still seeing that kind of activity. But then I can move to a different consumer group in that same market, and we could be offering strong finance incentives. So, I wouldn’t look at it by market. I would look at it by community, and I think we are seeing a range of those finance incentives in each of our markets, from very little to 5%.

Interesting. Thank you. And then in terms of - I know you guys have kind of seen a pickup from the June lows, and you kind of gave a little bit of color on that earlier. Are there any particular markets that have had improved performance from June that you can see now? Obviously, you have a few more weeks to go. But has there been anywhere that surprised you in terms of their performance from last month?

Yes. I don’t know that there is anything that is really surprised. I think as we have found kind of the right programs by consumer group, we have gotten footing. I think SoCal is probably a good one. If you think about the Inland Empire, a lot of competition, really being able to get in front of that consumer, letting know how these finance tools can work for them to really tailor, squeeze the pun, but kind of tailor a program to their very need be that helping them on a buy down, maybe it is a 2.1 or 7.1 arm, one that is been very successful for our consumers to really help monthly payments is paying down their mortgage insurance. So being able to customize the program for them and helping them understand as we have gotten that message out across the market, I think that is what is giving us the strength. But I don’t know that I would point out one market over another.

Okay, interesting, thank you.

You bet.

Our next question comes from Dan Oppenheim from Credit Suisse. Your line is now open.

Thanks very much and just given the comments you talked about, some of the inflection or some improvement since the 4th of July, with the environment where buyers have a bit more choice out there, are you seeing some of the better conversion based on what you have done in terms of looking for community - having communities in the more established areas. And you are seeing that helping in terms of both traffic and conversion?

Yes, locations always matter. So I would say your very well-located communities, good transportation, good school. Absolutely, that is where you are going to continue to have the greatest strength. And there is a direct correlation, Dan, to the further you go out, that tends to be the more affordable buyer, and that is where we are seeing the greatest pain. So I would say, yes, our larger master plans, I would say, would be the other thing I would point to that continued to perform very well.

Great. And then, I guess, secondly, just wondering in terms of the spec homes, which is still obviously very modest relative to the community count. Of those 3,000, where would you say they are sort of generally in terms of construction cycle given sort of buyers shifting closer to a near-term close and such?

Yes. Now that is a great question. Most of our specs are still more in the earlier stages before drywall. And that is, I think, one of our opportunities as the year progresses. As you saw, we only have 60 finished specs. And so what we are hearing from our sales teams are as those get closer to completion, we are having a lot more interest in them. So as we did that pivot late last year, early this year to start more spec, as those are progressing through the process, we hope we will also get some more sales activity on those, so just get a little closer to drywall and beyond.

Great. Thanks very much.

Thank you.

Our next question comes from Mike Dahl from RBC Capital Markets. Your line is now open.

Hey guys this is Ryan Frank on for Mike. Thanks for taking my question today. So, I wanted to get back to the monthly cadence a little bit, if we could. Because to us, it seems like June might have been down 40% or 50%. So is that the right magnitude? And then appreciate the color with the week-over-week improvements in July. But I mean does that mean we are exiting July around down 40% or is that more like 25% like you were in the quarter?

Yes. I would tell you from the monthly cadence, but although we don’t generally give the individual details, absolutely May was our peak. And yes, June certainly was two times April. And July, I think it is a little too early to say, we have still got another week to go here, but so it is hard to tell you where July is going to finish up. But once again, I think what we are seeing is all the green shoots. So far in July, and those early indicators around pre-quals, around web traffic, kind of even sales in the pending pipeline would put us kind of at a two-year and probably down mid-20s, 30s and we will have to see how the one year finishes out.

Okay. Got it, thank you. That is helpful there at the end. And then the follow-up to that is, if your pace is currently closer to two a month than three a month, it might be pretty expensive to kind of incentivize back to that three a month range. So, how are you guys thinking about what the right pace is to target today? And then how are incentives kind of impacting that?

Yes. Good question. Once again, we do this kind of supply-demand analysis on a community-by-community basis. And there are some where the competition might say that you support a strategy. We have got a couple of positions that neighbors that are selling out and being very aggressive. So you will probably deal with a lower pace for a short time, and there is others where now you got to find market and make sure you are selling. So, our pace is across the board, probably to your point, range from anywhere in that two, maybe even under to mid-3s depending on the position. So we are not going to manage to a specific pace across the portfolio. We are going to manage the paces by community. And really what the intent for our teams are is to get to their underwriting numbers. You also community-by-community, really understand what kind of elasticity you find with those incentives and where you can get that pace through, once again, looking at your overall offering on financial incentives, recognizing that so much of the pricing over the last year has come through lot premiums, looking at those. You have a number of different tools in your toolbox to pull out.

Got it. That is very helpful. Thanks for taking the questions.

Thank you.

Our next question comes from Alex Rygiel from B. Riley. Your line is now open Alex.

Yes. What percentage of homes are all cash? And how has that changed over the last couple of quarters, and how might it change in the new environment?

I think it was about 16% in Q2, but let me just verify that for you real quick. Again, it picked up a bit, I think to that 16%, I think we were probably more historically in that low teen, 13% to 14%, if I’m not mistaken. And yes, we were 16% in the quarter, last year that was 12%. Hard to say what happens looking forward. But when I look at the overall kind of mortgage and I look at on a higher price, like I said in my prepared comments and overall LTVs continuing to go down. I mean, we are seeing, what, 77%, a year-ago it was 80%. So we are seeing more all cash, and we are seeing higher cash down payments. And once again, we are seeing higher incomes as well, so very supportive of that, which is, I think, why in total, even the comments I made about our buyer and the research we are doing, both our shoppers and buyers believing today that their financial picture is better than it was a year-ago. And when they look forward to the next year, they expect it to even be stronger compared to national averages. I think that is why you continue to see the strength in our cans and things like that.

Thank you very much.

Thank you.

Our next question comes from Deepa Raghavan from Wells Fargo Securities. Your line is now open.

Hi good morning. Thanks for taking the question. Sheryl, when you provided the initial soft guide for 2022 gross margins of 20% plus, this was roughly a year-ago, did you have in mind a 25% to 26% number that you have currently guided to or was it less healthy than this? The ultimate question I’m trying to ask is, what is the post-integration gross margin versus the margin benefit that was driven by the pandemic lift? And how sustainable is just the post-integration gross margin in a moderating environment?

So, Lou and I will tag team this one for you, Deepa. When we guided to something, I think, to 2022 a year-ago, you always give yourself a little room, but we also clearly recognized the pressures that we were seeing from the supply chain and you have to account for that. So you have had a number of things kind of assist you. One has been, I think, we have done a much better job than we would have initially planned on getting some of those synergies to actually hold into the business. We have certainly had nice pricing power and the efficiencies the teams have recognized and our national purchasing and starting off of kind of increases have all served us well. And then I’m sure, Lou, there is some number specific anything if you can talk to as well.

Yes, Deepa, I would say the simplification, which we have talked about after acquisition of our options and floor plans, I think, has added a lift. Our vintaged lots, well-vintaged lots, I think, also is a strength we have had and will continue to be. And the fact that we have focused more in core markets has really helped us through the pandemic in terms of strong market strength in terms of pricing. So all those combined, I think, helped us do a little bit better than we expected.

And the last thing I would throw on is, as you parse apart the portfolio, Deepa, once again, the entry-level buyer, which was certainly primarily lifted in our portfolio from the last two big acquisitions, those have an embedded lower margin. When we look at our margin from kind of the more vintaged Taylor Morrison land, that is the active adult, the move up, the luxury, we are seeing margins that are obviously much higher. So there is a little bit of a mix penetration issue as well there.

That is helpful. Thanks very much. A broader industry question from me. Just given the moderating housing outlooks, are you seeing any aggressive pricing from builders in your markets? And also, any markets you would expect to see the most fragile pricing, should we head into a down cycle?

Deepa, I think that as we have heard and you have on these calls, the builders are generally trying to look at the use of kind of financial incentives because of the greater impact that that has on the consumer and protecting valuations. When you are - and everyone is also managing through kind of backlogs and making sure that we do everything we can to protect the pricing in those communities. When you are bringing new communities to market and you don’t have the backlogs in tow, I would tell you the builders are doing exactly what they should do, and that is pricing to market. So you can play this game two ways, right. You can say how high are your incentives and what is - are you right priced at market. So I think it is a healthy combination. And once again, I would not point to holistic market, Deepa, I would point to certain positions. Once again, as you get more fringe, kind of on the outskirts, I would expect that is where you will see more pricing pressure. And that is where they are just going to - if there is big positions out there, that is where you would likely see your greatest adjustments.

I think, Sheryl, that, that environment is partially informed by the resale market too, right, because that is part of our competition. So I think we are keeping a key eye on kind of listings and any trends there. So that is something to be mindful.

So, true.

That is fair. Thanks very much and good luck.

Thank you.

Thanks Deepa.

Our next question comes from Alan (sic) Barron from Housing Research Center. Your line is now open. Alex Barrón: Yes, thank you. I’m not sure if I missed it, but if you already gave it or if not, can you provide what the starts was in the quarter and what - how are you thinking about starts over the third quarter?

Sure, Alex. This is Lou. We had 3,283 starts in the quarter. And as we talked about in our prepared remarks, they will probably more closely align with our go-forward sales base. As we got - as we ramped up our spec starts to more desired levels and as well the last few quarters, we have really made a lot of progress reducing our sold not started. Alex Barrón: Okay, great. And then I think you mentioned that you are getting more inbound calls from the front-end trades. I guess, given the lower volumes, are you guys also getting better pricing?

Yes, I would say it depends by market a little bit. For sure, we have been able to push up increases and we are starting to hear by market opportunities in terms of the initial slab or framing crews actually even making adjustments downward. Expect more of that to come. Alex Barrón: Okay. Great. I think that is it for me. Thank you.

Thanks, Alex.

Thank you, Alex.

Thank you, everyone. That concludes the Q&A session for today. I will now refer you back to Mackenzie Aron for further remarks.

Thank you for joining us on today’s call and we look forward to speaking to you next quarter.

That concludes the Taylor Morrison Home Corporation Second Quarter 2022 Earnings Call. Thank you for your participation. You may now disconnect your lines.