Jason Lenderman - VP, IR and Treasury Sheryl Palmer - President and CEO Dave Cone - VP and CFO.

Alan Ratner - Zelman & Associates Stephen East - Evercore/ISI Michael Rehaut - JP Morgan Jack Micenko - SIG Nishu Sood - Deutsche Bank Will Randow - Citigroup Alex Barron - Housing Research Center.

Good morning and welcome to Taylor Morrison’s Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, 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. And I would now like to introduce Mr.

Jason Lenderman, Vice President, Investor Relations and Treasury..

Thank you, operator and welcome everyone to Taylor Morrison’s second quarter 2015 earnings conference call. With me today are Sheryl Palmer, President and Chief Executive Officer; and Dave Cone, Vice President and Chief Financial Officer. Sheryl will begin the call with an overview of our business performance and our strategic priorities.

Dave will take you through a financial review of the second quarter as well as our guidance for 2015. Then, Sheryl will conclude with the outlook for the business after which we will be happy to take your questions.

Before I turn the call over to Sheryl, let me remind you that today’s call including the question-and-answer session, includes forward-looking statements that are subject to the Safe Harbor statement for forward-looking information that you will find in today’s news release.

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 Securities and Exchange Commission and we do not undertake any obligation to update our forward-looking statements. Lastly, I’d like to note that we have recently made changes to our Investor Relations website.

Please visit www.taylormorrison.com and select Investor Relations to see the enhancements that we made, which we hope you find beneficial. Now, let me turn the call over to Sheryl Palmer..

Thank you, Jason and good morning everyone. We appreciate you joining us today and we’re pleased to share our good news. With the first half of the year wrapped up, I am pleased with our continued performance and progress in market share as indications of healthy housing demand remain intact.

We are excited to discuss our results for the quarter, but before we get into those details, let me touch upon our most recent proof points in our strategy to grow the business and continue to increase our share of the new US home market. As we announced on July 21, we acquired very attractive assets within the prime business units of Orleans Homes.

These assets and the talented teams that manage them are located in Charlotte, Raleigh and Chicago. All told the acquisition will provide approximately 2,100 lots that are either owned or controlled with nearly 80% of those lots in North Carolina and the remainder in Chicago.

This acquisition continues the expansion of our geographic footprint, while targeting specific areas in the country where we believe the housing recovery is on an enviable trajectory. Our conviction in these markets include some critical data points centered on home ownership rates, affordability and employment to permit activity.

Specifically the home ownership rate in all three markets is either equal to or greater than the US average. The affordability ratio has a significantly positive deviation to the US average in all three markets endorsing the early days of recovery and the employment to permit ratio is roughly 1.5 times greater than the US average in Chicago alone.

The customer segment has a healthy range from the first-time buyer to the first move-up buyer as well as some focus in the 55 plus market. The average selling price for these communities have typically ranged from the mid-to-high 300.

At closing of the transaction, there is a total of 24 active communities in the three markets and a number of new communities planned for later this year and 2016.

We are delighted about our geographic expansion and have carefully structured our organization to ensure that the resources are in place to effectively handle the integration of both JEH and Orleans into Taylor Morrison.

Similar to JEH, this acquisition filtered up through existing relationships between the companies and was not part of the formal process. That provided a healthy backdrop for negotiation and focused the teams on finding the best outcome for all parties.

Culturally speaking, this would be a natural addition to Taylor Morrison, a fact that became more apparent with each passing day during our due diligence. The local teams are strong, have high integrity, great connections in their communities and will add value immediately.

Moving forward, we will begin a branding transition and similar to Atlanta, we will be sensitive choosing the right path in each community in which to make a cutover. Ultimately, however, the end goal is to rebrand the majority of the Orleans assets as Taylor Morrison.

Having gone more than 2.5 years since the acquisition of Darling Homes, it’s important to note that this transaction is coming on the heels of the JEH acquisition. In fact, they were a mere 80 days apart.

This supports our communicated strategy of being open to the right opportunities at the right time regardless of when those opportunities present themselves.

We believe strongly in this notion, which means our organization continues to be nimble to change, but also comforted in knowing we will not force a transaction that will lead to ill-conceived expansion. With expansion as a strategic priority, last year we assembled teams to lead M&A as well as a critical integration process.

This gives me the confidence in our ability to effectively and efficiently integrate our newly acquired division. Even in light of our recent M&A activity, we will continue to evaluate growth opportunities and pursue those and we believe generate favorable long-term returns for our shareholders.

Dave will get into more details regarding the expected impact of these new market on our guidance for both the third quarter and the full year. This dovetails into our commitment to our four pillar strategy and how it, above all else, guides our decisions in how we operate. First, we remain focused on managing core locations.

The most recent acquisition increases our presence in a number of top performing US market. Our footprint now includes eight out of the top 10 markets based on year-to-date permits. Second, we continue to build distinctive communities using input from our customers while complementing our knowledge through expansion with both JEH and Orleans.

Third, as expected, we maintain a culture of cost efficiency and plan to do so in light of our recent acquisition and finally, we balance our pricing strategy with market dynamics as evidenced by our stronger than anticipated pace of 2.6 sales per month per community for the second quarter.

This provides a good backdrop for me to share what amounted to a solid second quarter performance. Looking at our results, I am pleased to report that we have met or exceeded each area of our second quarter guidance. Let me share some stats. In the second quarter, we increased community count by 21% year-over-year to an average of 245 communities.

Net sales orders totaled 1,877 in the quarter, up just over 22% year-over-year. And as I mentioned, sales per outlet came in at 2.6 per month. Similar to last year, we would expect the first half of the year to be a bit higher on absorption with results moderating in the back half.

We manage this rate to an expected range between 2.2 and 2.5 throughout the year, which is consistent with our underwriting and supports our balance pace and pricing strategy. Cancellations came in at 11% for the second quarter, which is significantly lower than the 13% cancellation rate we experienced during the same quarter last year.

So far in the current quarter, July sales were up just over 10% year-over-year. As we have discussed in prior quarters, conditions continued to vary across geographies, although most markets have shown continued positive trajectory in homebuyer demand.

From a macroeconomic perspective, we are definitely encouraged by factors such as higher wages and employment, increased household formation, cash acquired normalization and favorable monthly payment comparisons to renters.

In total, these indicators signal the recovery that is on the road to sustainability, which brings me to another topic we are excited to cover this morning. Our enhanced focus on consumer segment research.

Over the last couple of years, we have consistently communicated our findings from the research performed on specific age demographics such as millennial, baby boomers, 65 and better and so on, and more data continues to present itself on the impact of those that are marrying later in life, having kids later in life and more so, the increasing diversity of the consumer population.

In other words, we are seeing the consumer landscape continue to evolve and we expect these changes to continue to grow more significant for both the industry and Taylor Morrison.

Consider this, the Harvard Joint Center for Housing Studies recently reported that households headed by minorities will increase by approximately 14% by 2025 and half of those will be in the age 25 to 34.

We will continue to listen to our existing buyers and our customers to make sure we can deliver what they need when they are ready to buy a new home. Many of the buyers we are seeing in our communities are entrepreneurs and professionals.

The professionals are often first generation American, somewhat particular lifestyle and product expectation that we aim to suit. It is evident that diversity is our future at Taylor Morrison and we are embracing it.

We want to seek to understand how changing socioeconomics will impact home science, community design and the way in which we interact with our customers today and in the future. Consumer diversity is not new as greater consumer segmentation is an area we just want to ignore.

We are choosing to look at consumer segmentation with a view to the need of 2015 and beyond. The more we can educate ourselves and the more we know about our customers, the better we can serve them, which means better results on behalf of our shareholders. Now, I will turn the call over to Dave for the financial review..

Thanks, Sheryl, and hello everyone. As a reminder, all reported financial information should be compared to our prior year’s US operations only, which will provide the best apples-to-apples comparison following the Monarch show that happened earlier this year.

For the second quarter, adjusted net income was $39.8 million, which equated to $0.33 in adjusted earnings per share, exclusive of a $33 million charge for the early extinguishment of debt. On a year-over-year basis, home closings revenue grew 17%. This increase was largely driven by units with a small uptick in ASP.

Closings were 1,480 for the quarter, up 15% from the prior year quarter. Adjusted home closings gross margin, excluding capitalized interest was 21.9% for the quarter representing sequential improvement of 70 basis points over the first quarter.

The improvement is mainly mix driven as well as being impacted by weather-related challenges that we have experienced this year, which shifted from higher margin closings for the second quarter. Moving to mortgage services, we generated $9.8 million of revenue during the quarter, representing a 20% increase over the prior year.

Gross profit was $3.7 million, while our capture rate in the first half of the year increased and is expected to show improvement with a strong backlog capture in the mid-80% range. Taylor Morrison home branding continues to add value to our profitability while serving the financial needs of our customer.

Our SG&A line, as a percentage of home closings revenue came in at 10.4%, which includes transaction related expenses for the JH and the Orleans acquisitions. Our team continues to take great pride in finding ways to control cost throughout the portfolio which shows up across our P&L and is not isolated just at the SG&A line.

However, you will see some modest impacts to SG&A as we work through integration of our new divisions.

JV income came in at $1.2 million for the quarter and while they have opportunity, I would like to mention our recent announcement of another joint venture tied to a project named Pacifica San Juan, which is in Southern California near San Juan Capistrano.

This project will ultimately yield more than 300 homes with attractive price points and our first closings are expected to happen in late 2016. Similar to our Marblehead joint venture, we have approximately 20% ownership in the project.

This represents another way in which are growing the business, acquiring arguably some of the best assets available to the market through opportunistic projects that might not otherwise fit into capital strategy without a partner’s investment.

Moving further down the income statement and items in note is a $33 million charge for the early extinguishment of debt related to the refinancing of our 2020 notes, which, as you recall, happened in April.

The refinancing enabled us to reduce our rate from 7.75% to 5.875%, move the maturity out from 2020 to 2023 and pay the notional principal down from $485 million to %350 million leaving some of the proceeds from the Monarch sale.

Excluding the charge related to the debt refinancing, our earnings before income taxes totaled $63.3 million or 9% of total revenue. Income taxes totaled $9.9 million for the quarter representing an effective rate of 33.2%. GAAP net income was $19.1 million and EPS was $0.15.

During the quarter, we spent $262 million in land purchases and development and we continue to be on track to spend our expected $1 billion for the year in our legacy Taylor Morrison and Darling divisions. Our total land bank at the end of the second quarter consisted of approximately 42,000 lots owned and controlled, excluding joint ventures.

The percentage of lots of owned was approximately 75% with the remainder under control. On average, our land bank had seven years of supply at quarter end based on a trailing 12 month of US closings. Our land bank position is a fuel that has allowed us to build a healthy backlog and one that gives us comfort in our guidance.

At quarter end we had 3,456 units in our backlog, which equated to $1.6 billion. This is right across our portfolio in varying degrees that all of our markets are poised to deliver on our expectations for 2015. We ended the quarter with more than $145 million of cash with a net debt to capital ratio of 41.6%.

We did have outstanding borrowings of $105 million under our $500 million unsecured revolving credit facility at quarter end. As mentioned in our last earnings call, this was an expected use of the facility and it will be a temporary bridge to fund short term cash needs for Q3.

The purchase price of the Orleans assets was approximately $166 million and we have used the combination of cash on hand as well as our revolver to fund the acquisition.

We anticipate continued use of our revolver throughout 2015 and estimate a minimal year-end balance due to the acquisition of JH and Orleans, as well as our desire to immediately invest in both businesses.

We continue to be focused on generating positive cash flow from operations and we are still trying to do so from our Taylor Morrison and Darling brands. The cash proceeds from Monarch approximated $490 million. As we communicated at the beginning of the year, our strategy was to deploy this cash to drive long term shareholder return.

To-date we have deployed over 80% of the cash through the two acquisitions and the debt refinancing. We will continue to use the cash for land investments in our new divisions as well as continued organic growth.

As discussed each quarter, we believe our investment strategy and prioritization is and continues to be a critical component in driving short term performance while securing the long-term health of the overall business.

As we look to the back half of 2015, purchase accounting from both JH and Orleans will have an impact in our overall home closings margin. We expect our incentive strategy to remain relatively unchanged on an annual basis which should result in incentives generally flat, but slightly down in most markets.

Our pricing strategy is based on our belief in the long term quality of our land positions. We will continue to use incentives as a sales tool to drive urgency, but have not needed to use incentives to drive our overall sales goals given the healthy demand we continue to see.

For SG&A, we anticipate some modest year-over-year increase as we work through the integration of JH and Orleans. We remain committed to running an efficient business and expect to return to driving year-over-year leverage after we work through a portion of the integration. Now let’s turn to our guidance which includes the impacts of JH and Orleans.

For the full year 2015, we expect to have an average community count between 260 and 270 leading to a maintained monthly absorption pace between 2.2 and 2.3. We anticipate US closings to be between 6,600 and 6,800 with an adjusted home closings margin just under 22% inclusive of our new operations and purchase accounting impacts.

SG&A as a percentage of homebuilding revenue is expected to be under 10%. JV income is expected to be between $2 million and $4 million and we anticipate an effective tax rate between 32% and 35%. For the third quarter, we anticipate community count to be 265 to 275.

Closings are planned to be between 1,685 and 1,785 with an adjusted home closings margin around 21%. Thanks, and I will now turn the call back over to Sheryl..

Let me wrap up my comments with a quick update on mortgage. The lending landscape continues to evolve as lenders settle into the many new layers of the regulator y and compliance structure put in place under Dodd-Frank as well as their own acceptance of risk as they land into today’s high stake environment.

Operational preparation and testing for quality control, compliance, audit and legal review for the RESPA/TILA integration rules have been a major area of focus at Taylor Morrison Home’s funding for the last several quarters and we are prepared to meet the TRID requirements by the CFPB’s new effective date of October 3 of this year.

As Dave mentioned, at Taylor Morrison, we appreciate the importance of the mortgage process and use TMHF as a sales tool.

We believe that as a result of our early introduction to the mortgage part of the buying process and professional mortgage guidance, our customers are pre-qualified, prepared and aligned to the best finance options before entering into a purchase agreement with us.

TMHF’s low denial rate under 3% year-to-date provides Taylor Morrison certainty of the transaction and our divisions are able to coordinate construction and mortgage in preparation for a timely organized closing. The importance of mortgage and construction coordination is going to be vital in the upcoming TRID world.

Finally, I want to express how very proud I am of our term and their continued willingness to roll up their sleeves and do the hard work.

As I visit our divisions and work with people in our corporate office, there is a palpable sense of excitement about the direction of our company, another great quarter of results and four new market entries this year. Great job, team, and thank you for all your dedicated focus.

Looking ahead to the rest of 2015, we will continue to execute on our four-pillar strategy while integrating the team from our latest market acquisitions. Only half way through the year I think it’s safe to say this has already been a pivotal year for Taylor Morrison.

We are well positioned in the US home market and have tremendous confidence in our future. Thanks, and we will now open the call to questions. Operator, please provide instructions to our callers..

Thank you. [Operator Instructions] And we have our first question from Alan Ratner with Zelman & Associates..

Good morning, guys. Congrats on a great quarter and the Orleans acquisition.

Sheryl, I was - it’s interesting you didn’t really spend a lot of time talking about Texas and I know a lot of your competitors have seen a lot of headwinds throughout the state from the weather, on deliveries, on orders and community openings and just looking at the numbers, it doesn’t seem like you guys skipped a beat there.

So would love to hear how you are managing through all those headwinds in Texas. It seems like you are able to effectively get the homes closed that you were planning and it doesn’t look you are really impacting or expecting much impact in the back half of the year.

But just curious what you are seeing on the labor side there, give then constraints and development and anything on demand as well..

You bet, Alan. You are right, we didn’t spend a lot of time in the prepared comments, because it feels like we’ve been doing that each quarter just like it felt like we did that in a fairly non-event in Phoenix all of last year. The Texas business continues really strong.

What I would tell you, if you’ve got a little bit different story in each of the markets, I think that as we look at the overall business, Texas has probably moved from what I would have described as a smoking hot market to a very good solid strong market. When I look at the quarter, let’s start with Houston.

Our sales were generally flat year-over-year, but when I look at my compares from the prior year, we had some four, five year record months last year in the same quarter.

So with a remarkably strong base line, I am quite pleased, I look at some of the grand openings we had in Q2 last year, I look at the progress throughout the year and the business continues to be very strong. Closings were up, margin was up, discounts were down, backlog units were up, value was up.

So all in all, I would say, it was a very good quarter in Houston. If I try to dig a little bit deeper into the segmentation of the Houston market and some of the comments and chatter that I think we’ve seen across the markets, because the market has clearly shown, for some, some pause.

I think the first time buyer, the entry level continues to be very strong. I think the first time move-up has probably moderated a bit. And the luxury buyer still feels very, very strong. I think our strategy with core locations continues to pay dividends for us like it is in Phoenix. And we are going to stay kind of core with that.

If I look at the other markets, Dallas, still business is very strong. Permits are still roughly half of the peak. We are seeing great job growth, favorable business climate. Job growth remains very, very strong with six consecutive quarters more than 100,000.

Weather impact, I will come back to weather for our three markets, because as much as I hate to talk about weather it’s not something we can really ignore. Austin business continues, I think we’ve had very, very healthy price appreciation in Austin.

And I think and Dave will talk a little bit more about the trade base because we are definitely struggling. I think all markets are struggling equally and this isn’t just a Texas phenomenon, but just an overall industry phenomenon. But before I turn it over to Dave, just a bit about weather. Dallas and Houston were very hard hit.

I think the stats in Dallas include something like the first five months of rain, we saw almost five times the amount of rain we saw in the prior year. I think in May in Dallas, we had rain something like 24 out of 31 days. So, we are working very hard to get back on track.

We were able to hold some stuff in from Q3 but it absolutely impacted our starts and it’s going to be a push to the finish line but we are still staying optimistic that we’re going to get there.

Do you want spend a couple of minutes on just the labor in general, Dave?.

Yeah, you bet. Good morning, Alan. As Sheryl said, labor continues to be a challenge for us in pretty much all of our markets.

It various by a degree market-by-market, but I think as we factor in the weather delays, that’s probably going to intensify the labor issues as industry is probably poised to deliver a large number of closings in the fourth quarter just with the weather delays that we’ve had.

So, we kind of expect that to impact labor prices as we move through the rest of the year. Maybe, just another example, the impacts of labor, if you look at a place like Dallas, we lost 80 days of concrete pores.

So, you can imagine that impact with everyone kind of trying to get starts into the ground for the rest of the year, not just us, but all the builders.

And this is on top of our divisions doing some really great work trying to better even flow the deliveries across the quarters, but unfortunately, tough weather in places like Texas and also Colorado, it’s making it very tough for us..

Which is actually impacting our third quarter closings more than it did our second from the starts..

And there is a bit of that built into our margin guidance as well as for us what we think labor prices might do in the back half of the year..

So, long exhaustive answer for you in Texas, Alan..

Got it. And those are really helpful and comprehensive. I guess just follow-up, I guess it’s related. With those labor constraints, are there markets where you look at your backlog today and it’s gotten pretty far extended where you’re actually limiting your sales case or lot releases.

I know you kind of maintain the absorption guidance but just curious though are there actually cases where you’re having to turn back sales? I guess you’re concerned about the backlog getting extended..

I think to Dave’s point, I think we definitely saw a little bit of that. I don’t know that we turned back sales, Alan, but I would tell you that we pushed us out of the year. So, for example, in Colorado, where I think we had based on sales and backlog, we could have assumed more closings for the year and I think realistically that’s not the case.

Texas, to Dave’s point, when I look at our backlog, 2015, the balance of the year is all about deliveries. I think over the last couple of quarters, I’ve talked about what good shape we were in Texas and what we needed to get from a sales standpoint. That’s still remains the case.

I don’t think we’ve shut half sales, we’ve just been very, very prudent in our release strategy..

Got it. Thanks. Good luck..

Thank you, Alan..

Thank you. Our next question is from Stephen East with Evercore/ISI..

Thank you. Good morning, Sheryl and Dave. If I could ask you, you talked some about where you were going with your cash utilization that you’re not taking acquisitions off the table even though you’ve made a couple.

Would you first talk about - you talked about a lot what drove your decision to buy as far as from a macro level but does the product match up with what you’re trying to do? Are you going down the price spectrum and why Chicago at this point? And then, as you look forward, are the regions you still haven’t gone into that are attractive to you?.

You bet, Stephen. Let me see if I can hit each of those, will probably kind of tag this from a kind of the strategy and cash. The acquisition is very consistent with our strategy. We think the markets have the appropriate right fundamentals. This expands our footprint in just three large new MSAs as you know.

It provides I believe very helpful diversification as certain markets ebb and flow as we’ve seen over the last couple of years. Not only are they great markets but I think the teams there have done a very good job on being in the right submarkets and core locations and you know how strong we believe in that.

When I look at the scale in the markets, Stephen, it isn’t where we like it across the board, but clearly there is a platform for us to build on. You asked about consumer focus, we like the consumer focus. Lot of alignment to our core business.

Some expansions for Taylor Morrison on the first time more affordable plate but generally there is similar move up focused like us. We believe that scale will drive - continue to drive some overhead efficiencies as Dave mentioned.

And this one really begins to pivot the organization structure as we prepare for future growth and we think it will be immediately accretive to the organization. I’d be remiss if I didn’t mention the quality of the team of folks that they have assembled. They have doubled their business over the last couple of years.

I think they used the downturn very, very well to put together a great portfolio of assets on great terms. So, we’re very excited about all three markets. Very specific to Chicago, if I were to spend just a second on what the Chicago strategy is. They’re very focused on large lot product positions in the suburbs of Chicago.

When we look at the fundamentals of Chicago, we are very, very excited. We think the fundamentals are positive. There is excellent affordability, there is a good healthy supply demand balance and we’re seeing the right trajectory on employment growth. New home closings this year up 14%.

I think the challenge in Chicago is similar to other markets where it’s really been about constructing affordable products to compete with the existing and rental markets. I think when we look at Chicago, we see slow and steady growth for quite some time. We think the outlook remains very favorable in the long run.

You look at a market like Chicago, given the population and the overall size of the market, we believe there is meaningful upside from current production levels and from a pricing standpoint. I don’t think it’s likely Chicago would get back to its peak levels. Let’s call it 35,000 plus in 2005 or ‘06.

So, we have a lot of runway to get what might be a normalized level even if it’s under 20,000.

So, we feel good about all three markets as we look forward on as I said in my prepared comments, it’s going to be about the right market dynamics as we’ve experienced in those markets without us getting too specific and it has to be accretive for the business.

You want to talk about the cash, Dave?.

Yeah. From the cash perspective, we touched on it a bit earlier, obviously we have the $490 million from March that we wanted to deploy and it goes back to our overall capital allocation strategy where we look to reinvest in the business, look at M&A opportunity, and then our debt leverage and then finally returning excess cash to shareholders.

And I think as we look forward as well, taking into consider those first three priorities and the strength of our balance sheet, we have the ability to invest and as Sheryl said, it’s really going to come down to getting in the markets that align with us and finding the right opportunity..

Okay. That was a great answer, I appreciate that. And just sort of following on, if you look at your land spend, what are you all seeing out there today is a land market generally pretty rational and you’ve done some big JVs in California.

You talked about specifically in San Juan, wondering about Marblehead and are JVs, ongoing JVs a big part of the strategy in California for you as you look forward?.

Yeah. Once again, we’ll probably tag team this one, Stephen. Let me go and reverse order when you talk about JVs and you specifically asked about Marblehead, which is now what we call C-Summit. We are just actually have come to market. We have an interest list over 3,000 people.

We began writing contracts last week and have already written a pretty good handful strong interest, particularly at the very high end with the premium deluxe. We won’t release many of those until the models are completed. They’re under construction and they won’t open to the fall.

So, the JV strategy with both Marblehead and Pac Point as Dave mentioned really does allow us to control some of the best quality land and not extend our balance sheet. So, we like the strategy.

We will obviously do it with a lot of care and I don’t know that will ever be the largest piece of our business but I think strategically you’ll continue to see that. I think the second part of your question was on the land market in general. And I don’t know that I would describe the land market any differently than I have in the past.

It continues to be very competitive in many markets. I think in some markets, we’re seeing things like terms come back into play. We’re starting to see a little bit of that in Houston. The majority of what we’re working on now is really for ‘17 and we’re in pretty good shape. As you know, we have about a seven year kind of supply.

But I don’t know that I would say there is anything just in time. A lot of our land spend today is being spent on the development side of the business bringing to market some of the land that we’ve acquired over the last couple of years.

But it continues to be - I think will continue to be the area that you lose sleep on to make sure we can good land in front of the business but I would tell you the teams are executing on it in a tremendous way..

All right. Thank you and congratulations on the quarter..

Thank you, Stephen..

Thank you. Our next question is from Mike Dahl with Credit Suisse..

Hi, this is actually Matt on for Mike. Thanks for taking the questions. I believe you mentioned July sales up 10% and I understand you highlighted some closings in 3Q were being impacted from weather in Texas.

So, I’m just wondering if you could elaborate a little on that deceleration in closings in July and then just noting you’re still showing some solid community count growth..

Yeah, so let me make sure I wrap both those up for you Matt. On the sales side, yeah we articulated a 10%, just over 10% actually sales year-over-year and candidly most of that is a result of some remarkable comps as I mentioned earlier that we had in Houston last year.

And so Houston, the Texas business was generally down to flat because of the quarter we had last year.

The closing side is really a couple of things, we pulled closings into Q2, we came in a little stronger than expected and as we mentioned we looked at our start over the first four or five months of the year and the impacts we had that’s absolutely going to have some impact on Q3 and pushing some stuff into Q4..

Thanks that’s helpful. And then just I guess still focusing on the Houston market.

Would you be able to elaborate on the actual pace of orders throughout the quarter and then into July?.

Yeah, what I would tell you is that if I look at Houston specifically, our pace was stronger on a per outlet level than the Company average.

Having said that, as I hate to be redundant but compared to last year, we opened and we’re going to continue to see I think it’s important to note, we’re going to continue to see those headwinds because we opened for example our active adult committee last summer, a Bonterra and you probably remember me talking about that.

So we have some remarkable comps in 2014. But when I look at it compared to underwriting, when I look at it compared to three, four, five year trends, the business continued strong..

Okay, got it thank you very much..

Thank you..

Thank you. Our next question comes from Michael Rehaut with JP Morgan..

Thanks good morning everyone.

First question I had was on the guidance and I apologize if you hit this earlier, I jumped on just a little bit ago but when you talk about the reduced, I guess updated guidance around gross margins and SG&A, I believe Dave, earlier you were talking about maybe a little bit of incremental labor pressures on the gross margin side or some cost pressure that drove the change in the gross margin outlook for the year, just want to make sure if there wasn’t anything else in terms of purchase accounting or any other types of items that was affecting that line item.

And similarly on the SG&A side, I think just under 10% now versus mid-9s before, if any of that had to do with the acquisitions or any other changes and might we see and if those impacts were deemed more than temporary side..

Sure Michael, yeah let’s start with the margin, it’s a great question because there is a lot of moving pieces around the margin as we get to the back half of the year that’s creating some noise to the rate.

So, just bear with me I’ll list out some of the highlights of it but obviously starting with the two acquisitions which includes the four markets and arguably they run a slightly different business model focused on returns in those markets, then we have the impacts of purchase accounting and as we look at the margin kind of excluding purchase accounting in these new markets, they’re going to run a little bit right now below our Company average.

So it will take us some time to help drive some efficiency very similar to what we did with the Darling acquisition.

And then, if you look at the second quarter, we had Atlanta for two of the three months, and if you look at the third quarter, we’re going to have Atlanta for all three months and about two and half months for Charlotte, Raleigh and Chicago.

So we’re going to have the drag there from the acquisitions on purchase accounting that’s going to peak really in the back half of this year.

If we look at kind of our legacy business on the Taylor Morrison and Darling side, we did overperform in the second quarter which included some closings getting pushed from Q1 and then as we mentioned earlier some pull forward from high margin communities originally planned for the third quarter and markets that were less impacted by weather.

A part of this was our teams just doing a great job progressing the back-end of the houses in the second quarter allowing us to pull some of these higher margin closings in from Q3.

And then, I think one of the big factors that obviously for us achieving the guidance is really going to the mix, hopefully we don’t have anything else weighing on us from a weather perspective as we move through the rest of the year..

And I think the only thing I’d add to that Dave is, Michael, I think as we sit here today given the weather issues that everyone seems to be talking about, what we don’t know is the pressures we have ahead and we’re not assuming that we’re going to see significant changes but we’re not in a very different position than any other builder and that is a lot of delayed starts and so you’re going to have a little bit a backlog as people are trying to get to your deliveries.

We’re already seeing on the labor side some real pressures where people are coming and taking folks off job sites because we still just an industry in many markets with the increased permits we’re seeing year-over-over just don’t have the infrastructure to take these peaks that the industry is giving us right now..

All right and then just maybe filling out the set of questions I guess I asked, if it’s’ possible to just give a better sense of what you expect purchase accounting to be let’s say per quarter in the last couple of quarters as well as my question around SG&A in terms of the factors impacting the change there and if those factors are more temporary?.

Yeah, so on the purchase accounting Michael, we’re looking at probably a 20 to 30 basis point drag for both the acquisitions in the third quarter. And the fourth quarter will have something likely similar to that in the third quarter but if you look at it weighted for the year it’s probably about 20 basis point drag.

From an SG&A perspective, for the most part that was impacted by the transaction expenses that we incurred for both JH and Orleans during the second quarter. Overall, I’d say we’re pleased with where we are from an SG&A perspective.

But as we move past the sale of Monarch, we still have the same corporate expenses without the benefit of those closings. So, we are feeling that a bit but with the recent acquisitions, that’s going to help us close the gap around levering the SG&A line.

So we did take our guidance up a little bit to just under 10% but as we move through the integration, we feel we’re going to be back to levering SG&A year-over-year probably staring in ‘16..

And I would say that the other piece of that strategy in addition, we will leverage year-over-year but I think everyone appreciates that we’ve been running a very lean SG&A as a Company for a number of years.

And as we look at these acquisitions, and our expansion into these markets, we want to make sure that we’re properly investing into the business and our systems, and so we’ve given ourselves a little room there as well..

Great, thanks so much guys..

Thank you..

And our next question comes from Jack Micenko with SIG..

Hi, good morning.

Dave, I’m wondering if there was a positive margin impact to the adjusted margin given the debt paydown and refinancing or how we should be thinking about capitalized interest with that pay down this quarter going forward?.

Yeah Jack there was a benefit, if you look at the spread between the GAAP number and the adjusted, it did come down about 20 basis points relative to Q1. So on a GAAP basis, we are seeing that improvement and we’re going to see that continue to tick down both in the third and fourth quarter.

For the year, we’re probably going to run somewhere in the call it mid-to-high 2% range for the rest of the year. And as we continue to move away from the refi date, we’ll eventually get to the point where we realizing the interest savings which on an annualized basis amounts to about $17 million..

Okay, great. And then, Sheryl on past calls, I think you’ve talked about be growing out, you’re going to be active adult maybe it’s restricted but maybe targeted and didn’t really touch too much on this quarter and I think maybe because of the acquisitions at the other end of the buyer spectrum.

But where are you on that business in terms of mix, where do you think that comes, what do you think that looks like a year from now relative to the newer communities coming into the business?.

That business, you’re right Jack, I tried to pick a little bit of a different segment each quarter to talk about and so I took a little different spin but that business certainly there is a nothing that’s changed there, in fact, we continued to be as bullish about the [indiscernible] 55+ businesses ever before.

If I look at it from just an overall mix standpoint in the quarter and in the year-to-date, both the sales and closing continues to be in somewhere between that 13% and 15% and that is, and that doesn’t matter if I’m talking with sales or closings but that’s only on our very dedicated age targeted communities, if I look at that as a percentage of our overall mix, it’s significantly higher than that because we see a lot of those folks in our first and second times move up.

But that business continues very strong, many of the things that we’ve talked about in the past with respect to the lifestyle play and the buyers are not being as price sensitive and the money they’re prepared to spend on options and premiums continues to be a focal point for the organization..

Okay, thank you..

You bet..

And our next question comes from Nishu Sood with Deutsche Bank..

Thanks I wanted to ask Sheryl about community count. You folks have had terrific community count growth the past few years, above 20% I think each of the last three years. Certainly I think the only builder, the only large builder that can - that's seen that sort of growth.

So in the last year or two, I think it may have been, well, I think in one of the years, it may have been more organic driven. This year, it's going to end up being more acquisition driven.

I know you're probably not giving specific numbers, but as you look forward to ‘16, would the nature of the community count growth be similar to this year and kind of a little bit of baseline organic growth supplemented by any opportunistic acquisitions or do you look at your recent acquisitions and see a lot of scope for organic growth from within those entities you acquired?.

Yes. I think I have some issue on all counts to be honest. And I appreciate your comments. Our growth for the last two, three years, I think the first year was over 50% and then we came down to a mere 35% or something percent and this year continues to be very strong.

And as you said, I think historically, it was much more organic and the benefit of all the good acquisition we did back in 2009 through 12. This year, it’s folks.

Certainly, we are seeing - you’re starting to see the benefit of everything you just talked about, it’s the organic growth we've had in certain markets, it's the growth of the Darling acquisition two years ago and it's the add-on of these new markets that are coming out in our new guidance. As I look forward, I would expect all of that to continue.

I'm going to call it healthy responsible growth. I'm going to tell you we have some businesses where we actually don't expect to grow community count based on where those markets fit in the overall cycle and our ability to continue to deliver on the commitments of our strategy.

I think other businesses and certainly the new businesses in all of our markets, we think we will grow those platforms. Some of them within their own existing kind of consumer profile and some of those in expanded consumer groups.

So we’re not giving 2016 guidance yet, and I would say that as you look forward, we’ll continue to see good responsible growth and then take advantage of opportunistic acquisitions, which would really be more of a piling on effect..

Got it. That makes sense. And you mentioned as well the consumer segmentation, taking to account the changing nature of your customer base.

Are there any initial insights you can give based on that and specifically I think it would be interesting to hear how that might change what you’re offering your strategy, whether it would be just product or location or product type or just features, any early insights from that would be great?.

Yeah. The reason I mentioned an issue is, as I said in my remarks, it's not like this is new, but it is continuing to be a growing part of our business base across all markets and may be slightly different [indiscernible] in each of the markets we do business in.

I think at the highest level, people have been talking about for some time the Asian buyers in Southern California and that continues to be a significant part of our buyer group there and even with the recent kind of backdrop in the stock market over there, I would tell you that that continues to be very solid at a very high price point.

We have some communities in Southern California where that buyer could account for 50% to 75%.

And when we think about it and think about it across all markets, it's a little bit different and some of it centers around product design to your point and that could be with floor plan design, multi-generational designs with optional guest suites, it definitely impacts our community design and parks and the kind of gathering spaces that folks want to see, it impacts the types of upgrades that we offer, it impacts the design of street layouts and the direction of home sites.

And certainly from a marketing standpoint, we want to make sure we really understand these buyers because it’s a very strong referral network and with families and co-workers and friends, school districts are quite important, so it plays very well into our strategy of core locations.

So once again, I mention it because it impacts at the front end from a design standpoint, all the way through the customer service part of the experience..

Our next question comes from Will Randow with Citigroup..

Congrats on the quarter and the recent acquisition. Just had two points of clarification from prior questions. In regards to just looking at the absorption rate, I'm guessing down 20% or so for July, hopefully you can clarify that.

How much of that is contributed by, call it, the new acquisition, trying to ease in to it if you will, as well as maybe by Houston?.

I think most broadly, I would tell you you've got a seasonal adjustment, Will, that as you move in to July, this isn't really anything different than we've seen in prior years. Having said that, since we did have such a strong quarter and July last year in our Texas business, we definitely saw some moderation there, but it’s not just Texas.

Once again, I think it’s important to note that seasonally, we see this across the board. If I look at Florida, we had a little bit of both. If I look at California, part of it is impacted by our Bay area count, because we have - we don't have the active communities in the Bay today and then offset by just remarkably strong performance in Arizona..

And I think you’re right, Will, also the new acquisition is going to play a factor, we had two weeks’ worth of business, similar to looking at an average community count, that's going to play a factor..

Okay, thanks for that. And then just one quick follow-up in terms of the increased closing guidance for the year.

I guess one is that entirely contributed by the Orleans acquisition, and two, are you guys going to adjust out purchase accounting in your adjusted gross margin, just for clarification?.

Well, from a closing perspective, obviously the acquisition played a large factor in that number. And then, from a - I mean we gave you the basis point drag earlier on the margins, I’m not sure if I fully understand your question..

What I was asking, are you planning on adjusting that out, given that you have two sizeable acquisitions recently or will purchase accounting stay - adjustments stay in your gross margin - adjusted gross margin?.

Yeah. We’ll break it out for you as we go forward, but it's all going to be in the margin..

Okay. So it will be….

We’ll break out what the drag is..

Okay. So - the drag is included in your 22% guidance for the year..

It is..

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

Thanks. Good morning, guys and great job.

I was hoping you could talk about the Orleans acquisition a little bit, I believe I read it was three of seven divisions, was that they didn’t want to sell the rest or you guys didn’t want to buy the rest?.

That was us selecting, working with the seller to buy the markets that we believed were going to be best suited for our portfolio. So yeah, there is still an ongoing Orleans operation that we do not acquire. We, like I said earlier, we acquired the markets that we believed in were most suited for Taylor Morrison..

Got it.

And, Sheryl, I was hoping you could talk about Phoenix, I think generally Phoenix has come back, I'm kind of wondering if you could segment, are you seeing it more across the board, is it more by price point and what is your strategy as far as pricings, are you raising prices or are you trying to keep the prices and just work on improving the sales pace as Phoenix gets better?.

Well, let me clarify, Alex. Phoenix never left. It was a good market for us all of last year, but I think it hasn’t turned. From an overall market standpoint, we certainly are seeing significant market growth from a permit activity, but our business continues to stay very strong in Phoenix.

But having said that, when I look at our business year-over-year, our pace has continued to do well and certainly they are stronger than last year. I think when I look at the market at the end of June, there was less than 2.5 months of supply in the existing home market from its rough 25% year-over-year.

As Dave touched on earlier, it is creating challenges with the trade base, and somewhat deviating from what an ideal construction schedule is and it’s a very sizeable business for us, but I have great confidence in that team there. Our strategy hasn’t changed. We remain focused on core locations first and second time move-up.

Interestingly enough, I think that served us so well last year and I think the communities that we acquired when others got a little bit more bearish are serving us even better this year, because we've had great sales this year with lots of new community openings and very strong demand.

I think the market overall to your question has probably been a little bit more focused on pace than price, maybe some reductions on incentives, but I don't think we've seen significant price appreciation yet there..

We have no further questions at this time. I will now turn the call over to Sheryl Palmer for her closing remarks..

Thank you, Vinessa and thank you, everyone for attending our call. Have a wonderful afternoon..

And thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating and you may now disconnect..