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Good morning. And welcome to Taylor Morrison's First Quarter 2025 Earnings Conference Call. Currently, all participants are in listen-only mode. Later, we will conduct the question-and-answer session and instructions will be given at the time. As a reminder, this call is being recorded. I'd now like to introduce 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. 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 Web site 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 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, everyone. Joining me is Curt VanHyfte, our Chief Financial Officer; and Erik Heuser, our Chief Corporate Operations Officer. To begin, I would like to recognize our team's exceptional performance during the first three months of the year. Among the highlights, we delivered 3,048 homes at an average price of $600,000 producing $1.8 billion of home closings revenue, up 12% year-over-year with an adjusted home closings gross margin of 24.8%, up 80 basis points year-over-year. Combined with 70 basis points of SG&A leverage, our adjusted earnings per diluted share increased 25% while our book value per share grew 16% to approximately $58. Once again, each of our operational metrics met or exceeded our prior guidance. These strong top and bottom line results reflect the benefits of our diversified consumer and product strategy. Especially in volatile market environments, this diversification is a valuable differentiator that we believe contributes to volume and margin resiliency. From a sales perspective, the slow start in January gave way to stabilization in February and modest growth in March, following the downward pattern, albeit with slightly less velocity than we would have otherwise anticipated during the early spring selling season. In total, our monthly absorption rate increased to 3.3 per community from 2.6 in the fourth quarter, but was down from the near record of 3.7 we achieved a year ago. As I noted on our last earnings call, we experienced exceptional sales trends in the first quarter of 2024, driven by a decline in interest rates that helped unleash the demand. Alternatively, this first quarter, interest rates moved higher alongside macroeconomic and political uncertainty related to tariffs and immigration. More recently, the significant volatility in the spot market and additional policy related changes have impacted buyer's sense of urgency causing some shoppers to move to the sidelines as we have seen before during periods of uncertainty. Despite these headwinds, it's worth highlighting that our first quarter's pace was still solidly ahead of our pre-COVID historic average of 2.6 from 2013 to 2019, reflecting our strategic shift into higher pacing larger communities that is helping support our long term ROE target. It's also worth highlighting that our sales success was in part due to strong year-over-year improvement and convergence of online home reservations, another driver of improved efficiency gains. Appreciating the macro backdrop, our first quarter performance highlights several key drivers of our success that I believe are unique to Taylor Morrison. First, even in the face of rising incentives across our industry, our diversified portfolio is relatively insulated to broader net pricing pressure due to the strength of our buyer and appeal of our quality locations and desirable communities and product offerings. By consumer group, our first quarter orders consisted of 32% entry level, 47% move up and 21% resort lifestyle. On a year-over-year basis, our resort lifestyle segment was the only to post growth with a 3% increase in net orders aided by strength in Florida while our move up sales were down just 2% and entry level sales declined steeply, down 21%. Secondly, our emphasis on personalized finance incentives, including proprietary forward commitment structures allows us to be tactical in our use of such tools to help our consumers with their home purchase. 42% of our first quarter closings use a forward commitment, just over half of which were first time homebuyers. By using these and other incentive programs effectively, incentives on new orders increased only 20 basis points sequentially during the quarter. As we have discussed in detail, we believe our diverse consumer segmentation is critically important given varying demand sensitivity and financial profiles among different buyer groups that contribute to healthier more resilient growth opportunities and pricing over time. To that point, we have been closely monitoring our proprietary shopper survey data for any insights into the consumer mindset of late. This information is always an important input into our marketing and incentive offers as we look to best address consumer needs. Unsurprisingly, home prices and interest rates have been the most common theme cited by shoppers in their home buying decision. However, parsing the data by generations reveals important differences. These responses are more common for Gen

Thanks, Sheryl, and good morning. Beginning with our land portfolio, our owned and controlled lot inventory was 86,266 homebuilding lots at quarter end. Based on trailing 12 month closings, this represented 6.5 years of supply, of which only 2.7 years was owned. Of these total lots, 59% were controlled via options and off balance sheet structures, up from 53% a year ago to a new company high as we continue making progress toward our goal of controlling at least 65% of lots. The importance of being able to self develop our communities in capital efficient ways can not be understated and our recent survey has suggested that over 80% of our shoppers value the community and amenity offerings at least as much as the actual home, reinforcing our strength as a community developer. As Sheryl noted, we now expect our homebuilding land investment this year to be around $2.4 billion, down from our prior expectation of approximately $2.6 billion, driven by prudence along with the reduction in the anticipated full year closings. Of course, our ultimate cash investment will be dependent on market opportunities as we maintain our disciplined underwriting guardrail. As a reminder, all previously approved transactions as well as future phases of development are re-reviewed by our investment committee for final alignment or any necessary adjustments before closing. From a community count perspective, we forecast an ending outlet count of around 345 in the second quarter and at least 355 by the end of the year. As we have discussed previously, our average underwritten outlet size and sales pace expectation have evolved over time. In recent years, both metrics have increased, allowing us to efficiently expand our business on a smaller community count, all else is equal. As I have shared in recent quarters, we are carefully tracking rising inventory of both resale and new home supply, which has been more pronounced in Florida and Texas. We continue to find that the majority of the supply would not be considered directly competitive to our new home communities. For example, specific to new home inventory in Texas, we have found that the sub-markets in which we operate have an average month of supply that is 19% below that of our other sub-markets within the respective MSA, again highlighting the benefits of our forward focus. To reinforce that our emphasis on quality locations resonates with our consumers, we recently surveyed our shoppers whether they consider their Taylor Morrison community of interest forward, which the overwhelming majority of respondents affirmed. Somewhat related, over half of the shoppers also confirmed that they were aware of the home insurance benefits associated with new construction, including superior availability and cost implications. Taken together, both of these factors helped partially insulate us from some of the headwinds currently facing our industry. We will continue to leverage our internal muscle of being able to decipher market data and to deeply engage with our shoppers and buyers in understanding their concerns, needs and wants as the cycle evolves. With that, I will turn the call to Curt.

Thanks, Erik. And good morning, everyone. For the first quarter, reported net income was $213 million or $2.07 per diluted share. After excluding an impairment charge, our adjusted net income was $225 million or $2.18 per diluted share. This was up 25% from adjusted earnings per share of $1.75 in the first quarter of 2024, driven by higher revenue due to increased closing volume, a higher adjusted home closings gross margin, healthy SG&A leverage and a lower diluted share count. Our closings volume increased 12% year-over-year to 3,048 homes. The average closing price of these deliveries was roughly flat from a year ago at $600,000. This produced home closings revenue of $1.8 billion, up 12%. From a production standpoint, we reduced our starts pace by 6% to 3.3 per community from 3.5 a year ago, equating to total starts of 3,382 in the first quarter. This moderation is consistent with our strategy of aligning new starts with sales and carefully managing our inventory to achieve targeted levels. At quarter end, we had 8,032 homes under production, of which 3,482 were specs, including 840 finished homes or 2.4 per community. During the quarter, our cycle times continued to improve and were down approximately 25 days from the first quarter of 2024 and more than 120 days since the peak we experienced in the first quarter of 2023. The ongoing improvement in cycle times allows us to start and close a higher number of homes during the year, improving our ability to flex our growth potential as market conditions evolve. As Sheryl noted, we now expect to deliver between 13,000 to 13,500 homes this year, down from our prior guidance of 13,500 to 14,000 homes. This includes approximately 3,200 homes in the second quarter. Given the higher anticipated spec penetration in the coming months as we sell through finished inventory, we expect the average closing price to moderate sequentially to approximately $585,000 in the second quarter. However, for the full year, we continue to anticipate the average closing price to be in the range of $590,000 to $600,000. Our home closing gross margin was 24% on a reported basis and 24.8% adjusted for a $15 million impairment charge. This compared to an adjusted home closings gross margin of 24.9% in the prior quarter and 24% a year ago. As we look into the second quarter, we anticipate our home closings gross margin to moderate to approximately 23%. This is reflective of a higher mix of spec homes, which generate lower margins than to-be-built homes in part due to higher competitive pressures. We're also expecting incentives to trend higher as they did throughout the first quarter as market dynamics evolve. Recognizing there are more uncertainties than is typical as we look out to the remainder of the year, we currently expect our home closings gross margin to be around 23% this year, the low end of our prior guidance range. This assumes land cost inflation of approximately 7%, low single digit stick and brick cost inflation and a continuation of challenged market conditions. Taking a step back, we are pleased that this year's home closings gross margin outlook remains within our long term target of the low to mid 20% range despite the significant macro headwinds and competitive pressures at play. We continue to believe that our diversified consumer segmentation and mix of spec and to-be-built homes enhances our long term margin resiliency. Now to sales. We generated 3,374 net orders, which was down 8% from last year's exceptionally strong first quarter. Our monthly absorption pace was 3.3 per community, down from 3.7 a year ago while our ending outlet count was up 4% to 344 communities. Cancellations equaled 11% of gross orders. This was consistent with long term norms as we continue to benefit from our diligent prequalification requirements and average backlog customer deposits of approximately $48,000 per home. SG&A as a percentage of home closings revenue was 9.7%, down 70 basis points from a year ago. For the year, we continue to expect our SG&A ratio to improve to the mid-9% range from 9.9% in 2024. Financial services revenue was $51 million with a gross margin of 44.7% as compared to $47 million and 46.5% in the first quarter of 2024. Our financial services team maintained a strong capture rate of 89%, up from 87% a year ago. During the quarter, buyers financed by Taylor Morrison Home Funding had an average credit score of 751, down payment of 22% and household income of $187,000. Turning now to our balance sheet. We ended the quarter with liquidity of approximately $1.3 billion. This included $378 million of unrestricted cash and $934 million of available capacity on our revolving credit facility, which was undrawn outside normal course letters of credit. Our net homebuilding debt to capitalization ratio was within targeted ranges at 20.5% at quarter end and our next senior note maturity is not until 2027. During the quarter, we repurchased 2.2 million shares of our common stock outstanding for $135 million. At quarter end, our remaining repurchase authorization was $775 million. Having repurchased a total of approximately $1.9 billion of our shares outstanding since 2015, we expect to continue utilizing our healthy cash generation to repurchase our shares with programmatic and opportunistic strategies. For 2025, we are now targeting total share repurchases to be around the high end of our prior guide range at approximately $350 million. Inclusive of this target, we now expect our diluted shares outstanding to average approximately $101 million for the full year, including $102 million in the second quarter. Now I will turn the call back over to Sheryl.

Thank you, Curt. As we look ahead, there are more macro related uncertainties facing the business than I can recall at almost any point in my career outside of the early days of the COVID pandemic. Consumer confidence is the most critical factor in long term as it will be key in determining our sales and pricing holds up for the remainder of the spring selling season. I expect we will continue to see many home shoppers taking a wait and see approach to their purchasing decisions until there is greater clarity on the economic outlook. Thankfully, I also believe with confidence that Taylor Morrison has never been in at stronger place organizationally and financially to weather any potential market volatility. We have a strong balance sheet with well over $1 billion in liquidity, a flexible operating model that is able to quickly flex and pivot given our expertise in both specs and to-be-built production and a stronger than average customer base that is well positioned to move forward with their homebuying plans as they regain confidence. And as always, I want to end by thanking our team members across the country, especially in this unique market environment you distinguish yourselves with your tenacity, dedication and service to our own home buyers. Thank you for all you do. Now let's open the call to your questions. Operator, please provide our participants with instructions.

[Operator Instructions] Our first question comes from Paul Przybylski from Wolfe Research.

I guess to start off, Sheryl, can you walk us across the various Texas and Florida markets and provide any color on any positive or negative demand changes you've seen over the past three to four months?

When I think about Florida, and I'm sure we'll spend some time and I'll probably ask Erik to chime in on the resale market, because I think we have some good data. But as you saw, our sales were up year-over-year and Florida was actually one of our strongest year-over-year feat. I would tell you, Orlando continues to be strong first time market -- first time buyer market for us. They had very good year-over-year growth despite the market headwinds. It is one of our lowest ASPs in the company. We had some good community openings. I think sales were up, community count was up, closings were a bit flat. But that was probably at the cost of a little bit of margin given the first time penetration. When I look across the rest of the state, [Naples] also had some strong community count throw and good sales growth, one of the strong -- continues to be one of the strongest markets in the company along with Sarasota. I would tell you the Esplanade brand, as we talked about on the last quarter call, we have a lot of new openings that are coming to market with our resort lifestyle. We have a lot of new amenities opening. And we saw good traffic with that consumer. Having said that, certainly not at the highs that we would have historically expected. If I were to move to Texas, let me start with Austin. Despite the market turbulence we've seen there probably now, Paul, going on two years, I think the team did a tremendous job, really found some traction. Our PAM rate is down year-over-year, which I consider to be a really good signal of how the market is responding. We closed down, I would say, tough competitive communities at year end. Our discounts were generally flat there. There's this market mystique around Austin. So I have high confidence that the market is coming back and we're starting to see some good traction. Dallas, holding on to high margins. It's really a whole new business. It's almost target compare Dallas to the prior years. We have outsized growth there this year and in the coming years but really that business doubling in size, excited given the size and strength of the Dallas market to see us really show up there in a differentiated way. And then I'd wrap up Texas with Houston, another great story. We've talked a lot about the repositioning of that market to help develop ASP down, so it's a new consumer set, I mean almost $100,000. Pace is up but discounts down. So all in all, holding their own. But Erik, maybe some resell color would be helpful.

Just to round out a couple of thoughts. As we've shared over time, as we think about positioning relative to resales, we've kind of done that study to really understand diving into Florida and Texas specifically in terms of how many homes would be truly competitive in the consumer side and that's been floating kind of 17% to 20%, which we find attractive and competitive. Relative to Texas, as I shared in the prepared comments, the core locations of our portfolio is really helping us out as we think about being -- having lower exposure to inventory levels on a new homes level. And then maybe bouncing back to Florida briefly, I was going to say just taking a look at recent updates on monthly resell inventory, the months of supply has gone down from January, February to March. So that's encouraging. We're continuing to watch it. But the average months of supply for our markets in Florida has a five handle on it. So that is still okay. It's elevated in the most recent quarters and so we'll continue to watch it.

And next question, any thoughts on M&A in the current environment, what are you seeing with regard to deal flow? And we've all seen what's happened to the public builder valuations. Or are you seeing the private builders and what they're asking becoming more rational? And as a follow-on, just how is the Indianapolis integration come on?

On the M&A front, interestingly enough, I would say the amount of packages have probably picked up. And it makes sense, if you think about just some of the market challenges, I think you're seeing some smaller private, I think it's about time. Are we seeing kind of some rational differences between the bid ask? I think getting better, probably not exactly where it needs to be. So we'll continue to look at packages. And as we've always said, we have a very high bar on expectations. But yes, I think it's been interesting to see some of the package activity pick up.

I think valuation wise maybe expectations calibrated to kind of fourth quarter of last year, but maybe not necessarily completely recalibrated.

Not quite there yet. I think those are going to be the deal kind of negotiations to see if any of those start to make sense, but we'll see. As far as Indy, integration is done for the most part, I think we're still, from a system standpoint, there's probably just some of the last plans that are making its way to the system. Honestly, really excited about what we're seeing there. I think I know that we had our best sales quarter in the first quarter. I'd say that was well in line with our expectations. And as we've talked about before, Paul, we're really looking forward to growing that business in more core market, ASPs under $400,000 this year. It's just a really important new position for the company.

Our next question comes from Michael Rehaut of JPMorgan.

First, I'd love to get, if possible, a little bit of better sense of cadence of order trends through the first quarter and April, specifically in terms of sales pace. And also to the extent that there has been some volatility obviously in the marketplace, what your approach has been to incentives and discounts and perhaps how those have trended as well throughout the first four months of the year.

As far as sales cadence, I'll be honest, a little surprised how consistent the first quarter was. We saw a 10% increase in February over January. We saw in March another 13% over February. I think in the last call we articulated that we came out the gate in January a little slower. When I look at that compared to last year, which was a stellar first quarter for us, last year, February was down and March was flat. So all in all, very, very pleased with the first quarter sales results. As far as what we look like in April, we expected April to probably be the sales peak month of the year. Obviously, we're not done yet. I'm not sure that will be the case. It's actually day by day, week by week. I look at the April results again, we definitely saw the impact of the Liberation Day announcement in the first week, that's what I think they have put some folks on the sidelines. We've seen pick up each week since then. Too early to say how we'll finish the month. I think it's probably closer to first quarter averages. But right now, like you said, we're looking at sales, we're looking at incentives. We're looking at our offering not on a weekly or monthly but probably on a daily basis, because the consumers are responding to daily news with everything that's going on in the macro marketplace.

I guess the second question is kind of focusing a little bit on the back half of the year. I guess the guidance points to roughly a 22.5% gross margin. And I think prior comments you pointed to a few different drivers of that, land inflation, maybe a little bit of construction cost inflation, maybe a little bit higher incentives. If I heard that right, I was wondering if you'd -- kind of coming off of 3Q -- 2Q gross margin guidance of 23% even, I would assume it's a little bit of each. I was wondering if there was also any estimated impact from Paris as far as you can really -- as far as you can tell or estimate so far? And what are kind of the bigger -- if you had to kind of rank order the drivers of back half guidance versus 2Q, what might those be?

There's a lot there. So let me just kind of start. I think, yes, from a margin guide for the rest of the year, in our prepared comments, we talked a lot about higher spec penetration to a certain extent in some of the quarters, especially as we're looking at Q2. We also have, as we've stated, even back in the prior call from Q1 that we've got lot cost inflation over the course of the year that we're dealing with as well. So when we look at kind of the rest of the year, I think a lot of our quarters are going to be hovering around that 23% level given the course based on the fact of how many to be built we can still sell and close for the year whether it's late Q3 or even throughout Q4 and then the mix of specs as it balances against that. So again, we're going to hover around that 23% probably for the rest of the year. As for tariffs, lots of discussion, a lot of noise in the media relative to it. And as we're kind of looking at that and its impact on the year, we've kind of again guided to some low single digit house cost inflation for the year. And so we're starting to see some increases mainly from kind of the metals and aluminum tariff and the 10% kind of blanket tariff. But for the most part, it's all impacting today kind of the metal side or the aluminum side, which is HVAC, which is fire box -- fireplace boxes, post tension cable, so along the lines of a lot of the metals that are in our products. So we are seeing that. But again, that will come through until Q4 because their recent kind of increases that will be going into some of our upcoming starts.

And well covered in our guide…

We're also [Multiple Speakers] again, the guide that we have out there from a low single digits perspective. The lumber kind of tariff noise, that's on pause. If that comes to fruition, we see that mainly as a 2026 kind of event for us as we kind of look beyond.

And we say that about the balance of the tariffs, too, right, Curt? I mean, we're not prepared to articulate what kind of impact we might see in '26 time. It's good news that '25, to Curt's point, is going to be relatively modest. Until we see how these negotiations with different parts of the world really go, I think it's a little early. So we can talk about that hopefully next quarter. And then the only other comment I would throw on, on top of Curt's comments on the margin profile. Like I said, interest rates really are the name of the game on what is impacting our incentive line. We see a direct correlation as incentive -- as rates go up, it costs us a little bit more for this commitment. If rates moderate, we'll see if we end up with a cut or two. And that has a direct impact on the cost of once again, these forward commitments and rates go down.

[Operator Instructions] Our next question comes from Alan Ratner of

First question on the pricing environment. I know your guide assume a tick up in incentives just to clear through some of that spec inventory. I'm just curious if you think the elasticity is still as high today as it was a year or two ago in terms of -- are the incremental incentives having the same impact on pulling buyers off the fence or are there certain situations where maybe base price adjustments are more in the cards in order to get that buyer to the finish line?

It's a really interesting question, Alan and I think it's almost hard to answer that on a broad base. I would tell you in certain communities, talking to our sales teams now as we get prepared for this call and our cash calls, we hear a little bit of that. I would tell you there are certain communities where the consumer doesn't believe they're going to hold the mortgage for long or it's about price. We have wonderful tools, as you know, in our tool box. We recognize the impact on the monthly mortgage payment by using finance incentives. So generally, we will always lean in there. Our TMHF team is tremendous about really personalizing to the individual customers' needs. I would tell you the price adjustment would be the very last thing we would look at. In some communities, we've seen flexed dollars were supposed a little bit more discerning than what's important to them or that I would tell you, priority one would be using mortgage incentives. When I think about overall price elasticity, once again, very dependent on customer, obviously with our move-up, our active adult that, as Erik mentioned in the prepared remarks. The impact of community and home site -- I think it was a different remark, okay, what is as important as the home site. And so then we do have some levers to pull with the value of that home site. We actually even had one or two communities across the portfolio in the quarter where we saw a little bidding action on the home site. So once again, it'd be really dangerous to make broad comments or across the portfolio because of the diversity we see in our customer set.

Second question, on the land spend guidance reduction and just kind of thinking through the 20,000 closings target by '28. How should we think about the multiyear impact of spending less on land this year? Does that kind of push the envelope on '26 land spend in order to achieve that? Are you assuming maybe some loosening in the land market, either in terms of pricing or just kind of more ability to auction or bank land at better terms that will get you to the 20,000? Because I imagine it's not a zero sum game if you're spending less on land or tying up less land that probably does have some type of impact on the multiyear growth trajectory.

So I would start with we're well subscribed, right? So as you think about 2026, less than a 2% whole in the business plan in terms of the land we need. And if you go out to '27, it's above 12%. So those are very normal numbers. If we're sitting here next year and it kind of really slowed at this time then it's a pretty relevant topic. But certainly not concerned today, as we said, at 6.5 years of supply and still finding ways to elevate that percent control. Those tools are available. So I would say when you think about the access to financing tools as well as kind of balancing a little bit of the patience I just mentioned with some opportunism, what's really interesting as you think about the deals that have come from our investment committee to date this year, 66% of the lots have come through with take down routing structures and 27% have been finished. And those are not normal numbers for us, to be honest with you. I think the percent takedowns have really gravitated in prior years more around 25%. And the percent of finished lots available was more like 15%. And so we are finding some -- I wouldn't say on truly distressed deals but there's ways to negotiate deals that have beneficial structures to us as we think about feeding out here. So we're kind of balancing that patience and opportunism.

Our next question comes from Matthew Bouley of Barclays.

You have Elizabeth Langan on for Matt today. I wanted to kind of continue that conversation around land. Would you offer any thoughts on like what you're actually seeing in the market today in terms of deals that you're looking at right now? And are you seeing changes for what developers are offering given the uncertainty or is it kind of -- you're not seeing too many changes at the time?

I would suggest what we've seen to date is the opportunity to negotiate terms, more favorable terms that really allow us all to kind of look at what's transacting today in the market and what we project over the coming months. And so like I said, not an extreme level of distress but a little bit lower demand or froth in the market, which is just enabling the ability to negotiate terms and make sure that we're insulating ourselves against anything that we don't foresee in the coming months. So really terms would be the short term answer.

And then touching on gross margins, I know that you kind of mentioned that you're expecting to kind of sit around 23% to the second half. Would you mind talking a little bit about what you're expecting from your spec to to-be-built mix? Are you kind of expecting the spec to kind of peak a little bit more in 2Q and then taper off, or any color you can color you can offer on that would be helpful?

I think we have said that I think in Q1, our spec closings were roughly 58%. And I think we also alluded to that our spec penetration would be higher in Q2 as well. So we're seeing just with our spec inventory that we have available and some of the pressures from a competitive perspective out there the need to lean in a little bit on some of the specs that we have out there. And so the penetration for Q2 continue to be probably in the upper 50s kind of 60% kind of range as we sit here today.

Our next question comes from Mike Dahl of RBC.

First question, I want to follow up on the gross margin cadence because the step down from the strong performance in 1Q to 2Q in particular is pretty meaningful. So this is a follow-up to a prior question, but just trying to pin down a little bit more on what the magnitude of the increase in incentives is that you've already seen over the course of the last couple of months versus in that 2Q and beyond guide. How much is anticipatory in terms of what you haven't yet seen but expect to have to do to close those homes?

As we kind of alluded to, the margin in Q2 is coming down relative to kind of where we've been in large part due to the increased penetration of our stocks. And what I would say and based on the market that what we're experiencing today, as Sheryl alluded to, we had to lean in a little bit more heavily on the incentive line to kind of help monetize or to help transact those homes. We were -- again, we haven't necessarily given the exact kind of discount, per se. But I would -- for Q2, that's the underlying assumption is that it's a higher penetration of additional specs, coupled with the fact that we have a couple of townhome communities that we have an increased penetration on the lower margin as well that are coming in there. The other thing that I would allude to relative to the second quarter is we did have some pull forward from some to-be-builts that we were anticipating closing in Q2 that eventually closed in Q1, which is part of that beat in Q1. And I would also say that from a sell to close perspective for Q1, we ended up the mix of that change from what we thought from our original guide where we closed and sold more higher margin spec units in Q1, which is a natural follow up now for Q2.

And then the second question, Sheryl, maybe just also following up on your April comments, and I want to make sure that we're clear. It sounded like your comments on April, not sure if it will be better than March and previously assumed it would be peak. But then you said something about maybe it's close to the averages for 1Q. Maybe just a little more clarification. Should we think about April as then being literally just if you sold a little over 3,000 homes in 1Q, April is lining up something around 1,000? And then seasonally, I think you'd normally still come down off that. So just how you're thinking about the seasonality dynamic?

We'll see how the month ends, Mike. But yes, you have it right. I said that given the volatility coming out of the beginning of the month and then you saw some interest rate volatility, there is a mix. It's been a choppy month. There's no denying it now. In the room with us today is our Division President from Atlanta, they just came off their best week for the year. So we have quite a bit of range across the business. But I would tell you that where we saw this kind of consistent rise through the quarter, week over week, month over month, April has been choppier, no real surprise given the headlines. And the further we get away from kind of a macro event, like week one, we see -- maybe see things pick up. I expect after last night, maybe there's a calming influence on the market and we'll finish strong. I just -- until the month is done, I don't know exactly how we're going to finish. But if I were to predict, I would say it'd be close to the average of Q1.

[Operator Instructions] Our next question comes from Carl Reichardt of BTIG.

Sheryl, you mentioned you hadn't seen this environment like this in your career, which is kind of funny. I wanted to try to pin down the sort of what you're seeing, the lack of urgency is and the buyers moving to the sidelines. Do you think this is more related to worries about job than income, more worried -- consumers more worried about costs, what goes out the door, living expenses or something more related to investments, savings, worry about the nest egg for the future? If you had to sort of pin down the concerns among those who are -- who have lost their urgency, where would you stick the pin?

So I'd say yes to all of your above. You know, Carl, it's interesting. I was actually quite encouraged when I was meeting with the teams last week kind of going through our pre-calls, encouraged on the feedback of traffic as there's folks kind of hanging around the hoop. Clearly, there's aspiration for home ownership across all of the consumer set. But as you look across each of the demographics, it is different. If you take those first timers, it's absolutely, can we afford it? It's essentially a payment against their expenses. And life, it's just gotten more expensive no matter what category you want to talk about. As we move on the food chain, we're just dealing with a little bit more sophisticated buyer. And they -- all the noise that's going on, if it's inflation, stagnation, are we going into a recession? I mean, what's happening to wage? It's just it's a lot. And so they're just trying to understand how it impacts them. The good news with the diversity of our product offerings, our communities, I think when they find the right house and lot, as Erik discussed in his prepared remarks, I think we get them there. So -- and by the way, I think when they get some level of stability, we're going to see a big ramp-up, because they're still showing up -- there's still lots of interest. But I just think it's just taking a lot -- just taking a little bit longer to actually sign the dotted line. But I would put all of your categories in the mix.

And then you talked a bit before about Florida and Texas. I wanted to ask about the West where the orders were down, I think, 25%. I know stores were down 10. I know the comp was tough. I'm assuming there's more concentration of the entry level product in the West. But can you talk a little bit about why those trends were softer than the other two markets? Again, I'm assuming mix is part of it but maybe just give us some detail there.

I think, first of all, the year-over-year compares in the West are really, really tough. We had some really strong, strong months last year. If I look at Phoenix, Q1, except for Q1 last year, was actually the best quarter but slightly down year-over-year with a nice margin beat. So I think they did a really nice job of kind of managing the pace or price discussion. As we move to California, generally inventory has not been as large a concern but we have seen some inventory build up, and I think you just have a buyer there that's wanting to negotiate. Sales were still up year-over-year, some of that was community count growth. Sac, and that would be more the Bay. Sac, I would tell you, sales were slightly down, modest discounts, modest -- margin was up year-over-year. But the overall market in South was off depending on the month, somewhere between 10% and 15%. I think some of that was just those federal layoffs kind of looming in over head. Southern California, minimal resell competition. Traffic, not bad. But we have seen aggressive new home incentives in the market. Some hesitation, Carl, there with the cultural buyer. But then I look at Orange County still very, very strong. If I were to round out kind of our markets, just to be thorough, I would say Denver was a little bit more impacted by inventory. And I would put Denver and probably Portland as our two most rate sensitive markets. You can almost see it to the day. Having said that, I was really encouraged by the recent traction. In Denver, outlets or upsells were significant gap and we have good margins. Vegas, very steady. Excited about the Esplanade community coming to the marketplace, that will happen later this year. Discounts, flat. Very different business for us. ASP profile, very, very good compared to what we were doing last year. So the mix of communities is good. But if I look at the kind of the Las Vegas today, I think in this environment, it's tougher to get them financed. We talked a little bit about Indy, and I'd round it up with the Southeast. Charlotte were always strong community count growth, sales and closings up low PAM rates, discounts flat to slightly up. Charlotte enjoys one of our division's highest margins across the business, evolving land strategy, Atlanta, well, we really repositioned that business with strong community count growth and unit growth. So I expect that one to be one of our more consistent markets as I look at each quarter across the year. So hopefully, that helps.

Our next question comes from Jay McCanless from Wedbush.

Just one question for me. Sheryl, thank you for the color around sales pace thus far in April, but could you talk about cancellations? I know cancellations for 1Q were up a little versus last year, but be interested to see how they've trended so far in April.

It's hard to be completely accurate here, and I'll explain why. I mean, I would tell you that once again, around the Liberation Day with all of stuff happening, we did see a slight tick up in PAM but we always do at the beginning of a new quarter. So I don't want to -- and I say slight tick up in PAM. So I don't want to over-respond. I think it's going to level out like it's done throughout the balance of the quarter. But I think you always have the strong push to the finish at the end of every quarter and I think you kind of saw that here. And -- but if I were to tell you the absolute numbers today, they're favorable.

Our next question comes from Buck Horne from Raymond James.

Quick one for me. Have you guys seen any immigration enforcement actions recently that have either affected your communities directly or indirectly?

Yes, but not to our communities directly, Buck. I think the first one we heard about was in Alabama, the second one -- well, we don't build there. The second one we heard about was in Atlanta, I think there was a morning where there was probably a good half of dozen communities impacted, none of them have been ours. So to date, I can't talk about the what the future brings rigs. But today, Taylor Morrison hasn't had any impact in any of our communities.

And also just thinking through the next couple of weeks ahead, student loan debt collections are poised to resume here in May. And it kind of coincides with your push to clear out some of your finished specs, which I presume maybe more entry level weighted. How are you thinking through potential pressures on entry level consumers or have you thought about the student loan issue, potentially how that affects your incentive levels to clear out those finished specs?

We're always tracking it. Obviously, this isn't the first time we've seen this noise in the system. We've never really had issues with student loan debt on any of our customers. Obviously, when we look at our first time buyers, they're just in a little bit different place than I would say through, for the most part, a true entry level when I look at the room that they have. But you might recall that over the years, we've talked a fair amount about the room that our customers have between what they’ve qualified for what they’ve done, what their rate is versus what they could qualify for. We have, over the years, seen a little bit of compression, obviously, as rates have moved past with our customers. But when I look across both our conventional, we're still over 400 basis points of room for our conventional buyers and just under 200 basis points of room with our FHA buyers. So that's a little tighter. So it would be naive to say that some of them might not recognize impact. But I would tell you, to date, we've really not seen it and I still think that the consumers kind of not stretching ourselves to the max. And so that's why we're still seeing some room even with the FHA buyer.

To throwback to our surveys, when we ask people if you're hesitating why might you be hesitating? And back to one of your first questions in terms of nonpermanent residents, only 1% of our shoppers said that that's something to contemplate, so not jumping off the page. I didn't see anybody say student debt specifically with concern or hesitation. And what else is fascinating is that in March when you look at consumer confidence, the Gen

Which is so interesting more than any other group, right, yes.

Our next question comes from Ken

I'm interested if you could comment on what you think your year end units in production and community counts is going to be like. Obviously, it's down a little bit now. You're clearing out some specs. So I'm just interested in how that cadence -- how you're thinking about that, the year end units under production…

As we sit here today, we're at 8,032 units. And with the continued cycle time kind of focus of our teams and clearing out some of our anticipated specs over the course of the year, we would expect that number to probably moderate down a little bit further. I don't really have an exact number, per se, for you. But I would say it's going to continue to moderate down further based on the cycle time reductions and our focus on making sure our balance sheet is in the right position relative to speculative inventory.

And I guess the path to whatever that number is, if it's not, right, a targeted number yet. I'm trying to think about your decisions around what you see in orders, given Sheryl's comments about a lack in clarity, high volatility, consistent with the stocks. But really how you're going to be measuring your -- right, your starts versus your orders as you're declining spec units? Because usually, you take up starts first orders in the second quarter but it seems there's a couple of different moving parts. You pretty much get a tie your starts to orders going forward, is that what you're thinking about?

Normally, what we kind of articulate pretty much every quarter is that we're going to align starts to our sales pace. Now we may lean in at certain times of the year relative to when we expect those deliveries to come off, so to speak, i. e., like in the spring selling season time period. But we will carefully kind of manage kind of starts relative to what we're seeing kind of sales kind of pace -- sales velocity perspective.

Our next question comes from Alex Barron of Housing Research Center.

My first question is around the topic of price cuts, just your general philosophy. Is it more in response to what other builders do, is it more in terms of finished spec that maybe haven't sold for so many days, is it mainly on specs and not on build to order? Like what is your general approach to price cuts?

It's hard to ignore what's happening in the market around you. But as we discussed, Alex, we'll always lean in with our mortgage incentives and that would be inclusive of the forward commitments for maybe finished inventory and with the proprietary program that we discussed in the past for to-be-built stuff that might not deliver for a few months. So we'll always start there. But once again, I think one of our differentiators is our ability to work with each customer and understand -- personalize, understand their needs. Obviously, when you start cutting prices, you're having an impact on your backlog and we look at ways to give equity to homeowners versus take it away. So we've talked about in the past that there's a real difference we would never consider -- can't imagine we would consider price cuts on our to-be-built because that's generally where you'll see our greatest margin and greatest strength. But there isn't quite a range of spec performance. And I would say that those are generally impacted by what we're seeing in the competitive spec. And the further out that you move in the marketplace that's more fringe, I would say, the more competitive pressure and the higher the incentive side.

And then on a brighter note, I really like the Esplanade and what you guys are doing and what you explained to us in the Investor Day. So can you talk about how many communities are currently open and what the outlook is for that over the next 12 months, let's say, and versus a year ago, just to kind of see the growth pattern there?

I mean, as we talked about at the Investor Day, when you look at the actual closings as we expect when we get out to 2028, we expect our actual closings to almost double. Now that won't be -- that's obviously based on the penetration and we'll see the whole business move. But specifically, we'll see the active adult double in total volumes. Honestly, when we look around the portfolio, we have a number of new communities that are coming to market this year, have just come to market. We have a lot of new amenities that are under construction. So we are equally excited, Alex. So I appreciate your enthusiasm. It's a key part of the overall business. And I think you'll continue to watch Esplanade open in all parts of the country.

In order of magnitude, what we shared is I believe up 35 or so, outlets open and about 80 some plus in the pipeline that are incubating. So that's the order of magnitude that Sheryl's referencing.

We currently have no further questions. So I'd like to hand back to Sheryl Palmer for any further remarks.

Well, thank you all for joining us on our Q1 call. We will look very forward to speaking to you at the end of the second quarter. Take care.