On Wednesday, Taylor Morrison Home (NYSE:TMHC) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
Taylor Morrison Home reported strong first quarter results with home closings revenue of $1.3 billion, driven by 2,268 homes delivered at an average price of $578,000 and an adjusted gross margin of 20.6%.
The company invested $503 million in land and development and $150 million in share repurchases, ending the quarter with $1.6 billion in liquidity.
Strategic initiatives included increasing the share of to-be-built orders to 38%, opening 125 new communities in 2026, and enhancing technology and AI applications to improve efficiency and customer satisfaction.
Taylor Morrison Home plans to focus on core, well-located communities, with an emphasis on the Esplanade resort lifestyle brand, expecting it to be a key growth driver.
Management reaffirmed the full-year 2026 guidance, expecting approximately 11,000 home closings, and highlighted a gradual margin improvement in the second half of the year, contingent on market conditions.
Full Transcript
OPERATOR
We will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to introduce Mackenzie Aron, Vice President of Investor Relations. Thank you and good morning everyone.
Mackenzie Aron (Vice President of Investor Relations)
Before we begin, let me remind you that this call, including the question and answer session, will include forward-looking statements. These statements 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 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 obligations 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 where applicable. Now I will turn the call over to our Chairman and Chief Executive Officer, Cheryl Palmer.
Cheryl Palmer (Chairman and Chief Executive Officer)
Thank you Mackenzie and good morning everyone. Joining me is Kurt Van Hechte, our Chief Financial Officer, and Eric Huser, our Chief Corporate Operations Officer. I am pleased to share the results of our first quarter performance and look forward to providing an update on the progress we are making towards our strategic priorities for the remainder of the year. Our first quarter results reflected the effectiveness of our diversified strategy, the quality of our core locations and the disciplined execution of our teams. We delivered 2,268 homes at an average price of $578,000, generating home closings revenue of approximately 1.3 billion at an adjusted home closings gross margin of 20.6%. This drove adjusted earnings per diluted share of $1.12 and 11% year over year growth in our book per share to $64. On the capital front, we invested $503 million in land and development and 150 million in share repurchases and ended the quarter with $1.6 billion in liquidity. As I shared on our last earnings call in February, early signs heading into the spring selling season were positive and the quarter played out largely as we expected, with sales activity building through the quarter and March representing our strongest month. That momentum is consistent with normal seasonal patterns, albeit with slightly less acceleration than we have seen historically, reflecting continued consumer cautiousness. April started off somewhat slower as typical, coinciding with the holiday weekend, but momentum then picked back up and we’re looking forward to a strong end to the month and even with all the headline noise. Most importantly, as we prioritize the balance between price and pace, we achieved our first quarter sales with a significant increase in the share of to be built orders to 38% from 28% in the fourth quarter. As a result, we began to rebuild our backlog which increased 23% from year end to 3465 homes. As we anticipated. This reacceleration in demand for to be built homes suggests that historic buyer preferences are reemerging as excess spec inventory is cleared across the industry and our new community openings support compelling value propositions for our shoppers to personalize their new home. One way in which we are helping drive this shift is through Design Center Open Houses which enjoyed record attendance in the first quarter at over 140 events across the country and drove to be build sales activity with a strong average conversion rate of 23%. We are further supporting this shift with mortgage incentive programs that provide confidence to our build to order customers and enhance their buying power, generally at less cost than incentives required for spec sales. In addition to this favorable mix shift, we also realized more than 100 basis point sequential reduction in incentives on new orders. And lastly, we made significant progress in selling through our finished inventory which declined 30% from year end to 863 homes as we reached targeted spec levels in most of our communities. We have positioned 2026 to be a year focused on setting the stage for re acceleration of growth in 2027 and beyond. This includes a plan to open more than 125 new communities this year, roughly 30% more than we opened in 2025, including about 40 that already opened in the first quarter. Supported by an enhanced community opening framework that is helping our teams execute these openings successfully. Another 40 so communities are scheduled to open this quarter during the remainder of the selling season. These openings support our expectation that we will end the year with between 365 to 370 communities, which would be at 8% at the midpoint compared to 341 communities at the end of 2025. These communities will generally begin contributing closings later in the second half and into 2027. I’m particularly excited that over 20 of these new openings are in Esplanade communities communities. This includes the anticipated grand opening of our first Esplanade communities in Nevada, providing unmatched views of the Las Vegas skyline. This community is already enjoying significant interest with a 1400 plus lead list and is expected to command record lot and option premiums with Esplanade communities consistently generating superior home prices mid to high 20% gross margins and strong demand resiliency. The growth in this unique segment of our portfolio is expected to be an important driver of our future performance. Since we last spoke, the market has been faced with another round of geopolitical turmoil, intensified macro uncertainty and a shift higher in mortgage rates. As we would expect, consumer confidence has been impacted by these developments, exasperating affordability constraints and AI related employment concerns. However, we believe the underlying desire for the homes and communities we build remains strong even as the broader macro environment has given consumers reason to be more deliberate and in their decision making. On the policy front, we continue to have positive dialogue with the administration regarding how we and the industry can contribute to enhanced affordability and housing accessibility. While any solutions are likely to be incremental, we are encouraged by the ongoing focus on this issue and are pleased with the progress we are making in advancing constructive proposals. Eric will touch on read throughs to our Yardley business in just a moment. Before I turn the call over to him, I want to touch on the progress we are making in technology Our online reservation system continues to be a standout example. In the first quarter we recorded over 1000 reservations with a 58% conversion rate. Reservation buyers continue to transact at a higher average selling price with stronger option attachment than our non reservation sales. Encouragingly, we achieved the lowest co broke rate we have seen in years reflecting the power of our reservation platform. On the AI front, we now have more than a dozen AI powered applications in production across finance, sales, purchasing and customer experience and adoption has more than doubled year over year with over 2.4 million internal AI interactions recorded in the first quarter alone compared to approximately 3 million for all of last year. On the customer facing side, our AI powered contact center is delivering real time agent coaching and dynamic scripting on every customer call with automated quality management applied consistently across all interactions, driving improved customer satisfaction and sales outcomes. These investments are translating directly into results with an increase to more than 11,000 online sales appointments generated in the first quarter. We are achieving all of this through technology and automation, not incremental spend, with more than half of these capabilities built in house by our own teams. As a result, our overall technology costs are declining even as these capabilities continue to scale. There are many more initiatives advancing through our Project Management office that I look forward to sharing as they go live in the months ahead. In closing, our ability to reaffirm Our full year 2026 guidance in the face of a more challenging macro environment speaks to the underlying strength of our business and the effectiveness of our diversified strategy. We are concentrating our resources where we have the greatest competitive advantage, managing costs and capital with discipline and positioning Taylor Morrison to establish an even stronger and more differentiated portfolio. I believe the actions we are taking today will separate us in the years ahead as we look to continue creating value for our customers, our communities and our shareholders. With that, let me turn the call to Eric.
Eric Huser (Chief Corporate Operations Officer)
Thanks Cheryl and good morning everyone. At quarter end we owned or controlled 75,626 home building lots of which 51% were controlled off balance sheet. While our controlled ratio has recently declined due to normal course take-downs and our active reevaluation of our deal pipeline against current market conditions, we still intend to manage toward our long term target of at least 65% control based on trailing 12 month home closings. We owned three years of lots out of a total of 6.2 years of a controlled supply which we believe is the right balance in today’s environment. As Cheryl laid out, our land investment strategy is focused on core, well located communities that serve our discerning customer base with approximately $2 billion of planned home building acquisition and development spend in 2026. In the first quarter we invested $503 million comprised of $279 million for lot acquisitions and $224 million for development. As we deploy this capital, we will remain prudent and balanced in our use of land financing tools. These include seller financing, joint ventures, traditional option agreements and land banking and we selectively deploy each as we seek to optimize cost, risk and return at the individual asset level. Our preference is seller financing when available as it tends to be the lowest cost. When it is not. We evaluate JV structures, traditional options or land banking. The result is a diversified and flexible pool of structures that allow us to cost effectively control lots off balance sheet or defer cash outflows to improve our returns and manage our portfolio risk. Given the increased investor focus on land banking, I wanted to share some perspective on this topic. As of quarter end, approximately 10,000 of our control lots were in a land bank, representing approximately 13% of our total lot supply and about 25% of our controlled lots. Our remaining control lots were spread between 33% in JVs, 26% in single take-downs and 16% in traditional lot options. To further put our selective use of land banking in Context, in the first quarter, only 6% of our lots approved by our investment committee were tagged to be financed via a land bank. We believe this balanced approach is a source of competitive advantage and one that is reflected in our relative gross margin performance with only about 25 to 30 basis points of capitalized interest in the first quarter attributable to land banking and seller financing related project financing Turning to another area of focus, our build to rent platform, Yardley develops purpose built single parcel horizontal apartment communities. We have been encouraged by our engagement with policymakers and their general recognition that Yardley’s model is fundamentally distinct from the scattered single family rental activity targeted by our recent legislative discussions and we continue to believe that we are well positioned as that policy dialogue evolves with flexibility around product and execution optionality Operationally, we closed on the sale of one JV-owned Yardley community for approximately $41 million during the quarter. We now have 16 projects actively leasing and an additional 13 projects currently under development supported by our land Bank. Roughly 90% of Yardley’s total units are controlled off balance sheet with a total investment of approximately $320 million at quarter end. While we await greater clarity on the regulatory front, we remain confident in the long term demand dynamics for this unique rental offering that provides affordable housing solutions for those seeking an alternative to traditional multifamily apartments, often before being ready to commit to homeownership. Now I will turn the call to Curtis.
Curtis
Thanks Eric and good morning everyone. I will begin with the details of our first quarter financial performance and then review our guidance Metrics for the first quarter. Reported net income was $99 million or $1.01 per diluted share. Adjusted net income was $109 million or $1.12 per diluted share after excluding inventory impairment charges of $8.2 million and pre acquisition abandonment charges of $5.6 million. This compares to reported net income of $213 million or $2.07 per diluted share and adjusted net income of $226 million or $2.19 per diluted share in the first quarter of 2025. Both closings volume and average selling price came in roughly in line with our guidance with 2,268 homes delivered at an average price of $578,000, generating home closings revenue of approximately $1.3 billion. This was down from $1.8 billion in the first quarter of 2025, driven primarily by lower closings volume. Our adjusted home closings gross margin of 20.6% came in stronger than our guidance of approximately 20%, driven by several factors including favorable costs as well as product and geographic mix during the quarter. On a reported basis, home closings gross margin was 20% inclusive of $8.2 million of inventory impairment charges. This compares to an adjusted gross margin of 24.8% and reported gross margin of 24% in the first quarter of 2025. As anticipated, the decline reflects a higher mix of spec home closings and elevated incentive levels. Looking ahead, we expect that our margin trajectory will be shaped by two offsetting dynamics. On one hand, the recent rise in mortgage rates and a more cautious demand environment are likely to sustain incentive pressure. On the other hand, the progress we are making in rebuilding our to be built sales mix is a tailwind. To be built homes carry higher gross margins than spec closings and as those sales convert to closings, we expect this mix improvement to be the primary driver of margin recovery. On balance, we continue to expect gradual margin improvement beginning in the second half of the year, with the pace and magnitude dependent on how the sales and interest rate backdrop evolve through the remainder of the selling season. This also assumes relatively stable construction costs and mid single digit lot cost inflation. SGA expense was $149 million in the first quarter, or 11.4% of home closings revenue compared to 9.7% in the first quarter of 2025. Due to the deleveraging impact of lower revenue. However, in dollar terms SGA expense was down $28 million or 16% year over year, driven primarily by lower commission expense and payroll costs. As we have effectively managed our overhead structure as closings ramp through the year, we expect the SGA ratio to improve toward our full year target in the mid-10% range now to sales. net orders in the first quarter totaled 2,914 homes, down 14% year over year at an average selling price of $603,000, up 2% versus the prior year. Our monthly absorption pace was 2.7 net orders per community, up from 2.4 in the fourth quarter of 2025 but below 3.3 in the first quarter of 2025. We ended the quarter with 356 active selling communities, up 4% both sequentially and year over year. Cancellation trends remained manageable with our cancellation rate at 10% of gross orders in the quarter, down from 12.5% in the prior quarter and from 11% a year ago. This was the lowest cancellation rate since the third quarter of 2024. Turning to starts, we started 2,371 homes in the first quarter, or approximately 2.2 homes per community per month. This compares to a monthly start space of 2.1 in the prior quarter and 3.3 a year ago, reflecting our management of spec production as we work through existing inventory going forward, we will continue to roughly align our start space with community level sales activity. With cycle times down more than one month year over year, we have greater flexibility to start and close homes including to be built orders within the year. We also made progress in working through our finished spec inventory during the quarter. Finished specs declined 30% sequentially to 863 homes while total specs declined 9% to 2,692 which is roughly in line with …
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