Taylor Morrison Home - Earnings Call - Q2 2021
July 29, 2021
Transcript
Operator (participant)
Good morning and welcome to Taylor Morrison's second quarter 2021 earnings conference call. Currently, all participants are on a listen-only mode. Later we'll conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to introduce Mackenzie Aron, Vice President of Investor Relations. Please go ahead.
Mackenzie Aron (VP of Investor Relations)
Thank you and good morning. I am joined today by Sheryl Palmer, Chairman and Chief Executive Officer, and Dave Cone, Executive Vice President and Chief Financial Officer. Sheryl will provide an overview of our performance and strategic priorities, while Dave will share the highlights of our financial results, after which we will be happy to take your questions. In the interest of time, we ask that you please limit yourself to one question and one follow-up. 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 earnings release, which is available on the Investor Relations portion of our website at www.taylormorrison.com. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.
These risks and uncertainties include, but are not limited to, those factors identified in the release and in our filings with the SEC, and we do not undertake any obligation to update our forward-looking statements. In addition, we will refer to certain non-GAAP financial measures on the call, which are reconciled to GAAP figures in the release. Now, let me turn the call over to Sheryl.
Sheryl Palmer (Chairman and CEO)
Thank you, Mackenzie, and good morning, everyone. We appreciate you joining us today, and I sincerely hope each of you are doing well. I will start today's call with a brief overview of our second quarter results and then spend some time discussing our strategic focus on driving long-term sustainable improvement in our earnings potential into 2022, as well as our view on the market. During the quarter, we delivered 3,268 homes at an average sales price of $503,000, driving a 12% year-over-year increase in our home closings revenue to $1.6 billion. While a few of our second quarter closings were slightly delayed by weather and supply chain interruptions in some of our markets, we remain committed to our prior full-year guidance of 14,500-15,000 closed homes.
Our home closings gross margin improved 370 basis points year-over-year to 19.1%, exceeding our prior guidance and setting the stage for further improvement in the quarters ahead. From a demand perspective, the market remained favorable, particularly in April and May, with some normalization in June. This drove strong pricing power across our market and a 23% year-over-year increase in our monthly absorption pace to 3.4 net sales per community. Each of our consumer groups experienced year-over-year growth in sales paces, led by outperformance among active adult buyers, who are notably re-engaged in the market and responding well to the recent national expansion of our premier lifestyle brand, Esplanade.
However, we intentionally limited our sales releases and delayed the release of Spec Homes until later in the construction cycle to maximize our Gross Margin and navigate the tight supply-side governors on housing as we build through our record Backlog of over 10,200 sold homes. In anticipation of elongating Cycle Times and constrained labor and material availability, we intentionally accelerated our construction cadence and successfully increased our monthly production pace by 140% year-over-year and 17% sequentially to a record 4.8 starts per community during the quarter. This left us with all the starts in the ground necessary for our full-year closings target, and we are proactively working to stay ahead of further supply challenges through the remainder of the year, and lastly, we continue to make progress towards further streamlining of our operations, leveraging our leading market position and expanding our land financing tools.
To the latter point, I'm pleased that we recently finalized new land financing vehicles that will enable us to cost-effectively increase our option land position to at least 40% within the next 18 months. These arrangements improve the capital efficiency of our land portfolio and reduce risk while enhancing our returns without any meaningful change to our long-term gross margin opportunity. This focus on capital efficiency is one pillar of our strategic playbook, which also includes operational excellence and customer experience. By focusing on these three strategic pillars, we are committed to taking full advantage of our competitive strengths after gaining the scale, product portfolio, and team capable of generating attractive long-term returns for our shareholders. These efforts are gaining traction and will drive notable gains in our operating metrics beginning in the second half of the year.
This is consistent with our original timeline following the acquisition of William Lyon Homes last year, as we have now established our new consolidated cost structure and paved the way for further operational leverage in the quarters ahead. With six homebuilder acquisitions completed in the past seven years, we have a proven track record of acquiring underperforming companies and driving significant improvement in their financial performance by applying our strategic playbook. As we have shared in the past, it takes approximately 18 months before the benefits of a sizable acquisition can be recognized in our financial results.
To give you a sense of the magnitude in looking at the markets impacted by our acquisition of AV Homes in late 2018, we have improved gross margins by over 500 basis points to an average level that is more than 100 basis points stronger than the overall company since early last year when our new starts and operational improvements began to take effect. On a similar note, we have also seen notable improvements in cycle times and returns in each of those markets, driven by the simplification in scale achieved after our integration efforts. Because of similar progress with our William Lyon acquisition as we approach the critical 18-month mark since that deal's closing, we now expect to deliver a full-year home closings gross margin in the high 19%-20% range this year.
This strength is expected to continue in 2022, and based on the composition of our sold homes and backlog and confidence in the operational enhancements and synergies of our combined business, we expect to generate a home closings gross margin of approximately 22% next year. Combined with our focus on optimizing our balance sheet and cash flows, this margin improvement is expected to drive a return on equity in the high teens range this year, followed by further improvement to an ROE over 20% in 2022, both of which would mark new company highs. This would represent improvement from ROEs of 10% in 2019 and 8% in 2020, as we have quickly and meaningfully pulled through the benefits of our acquisitions and strategic initiatives that have transformed our ability to compete effectively and generate long-term value.
We believe this positive momentum warrants significant multiple expansion from our current stock valuation, which in our view does not appropriately account for our attractive and improving earnings and returns. Accordingly, we more than doubled our share repurchase to $107 million during the quarter to buy back 3.8 million shares outstanding and expect to continue to utilize share buybacks to opportunistically return excess capital to our shareholders and further enhance our returns. Now I'd like to spend some time discussing the operational enhancements underway that support this outlook. After multiple large acquisitions that propelled us into a top five homebuilder last year, we have a renewed opportunity to double down on our core focus of operational excellence, especially within our newer markets, to fully capture the benefits of scalable, production-oriented homebuilding across our entire portfolio by streamlining and simplifying our business.
To that end, our teams are working closely to optimize our floor plan and option offerings from the combined business and pursue cost rationalization and value engineering opportunities. To further accelerate these goals, we recently hired a national senior leader focused on product design that brings over 35 years of residential construction and engineering experience to enhance our product portfolio for improved construction efficiency and consumer appeal. By identifying the most efficient and profitable plans and SKUs, we can drive lower costs, faster cycle times, and streamline our trade partner schedules. In addition, our purchasing team is working closely with our operators and supply partners to maximize our buying power and secure product availability and find solutions in today's supply-constrained market. They also continue to push ahead on evaluating our material contracts, supporting SKU rationalization, and improving our purchasing processes to reduce our construction costs.
During the quarter, we also completed the rollout of our standardized design packages known as Canvas to all our divisions and achieved our goal of implementing them as the template for all spec homes as well as many of our model homes going forward. These Canvas palettes are curated by interior designers using features with the highest take rates, margins, and product availability to offer our customers a compelling value and easier design experience. In addition, these packages improve supply chain visibility, increase expected home closings gross margins, and reduce anticipated construction timelines. Early pilot markets results indicate more than a two-week cycle time advantage compared to our non-Canvas homes, even in today's unique market.
Given the many benefits, this package approach to design options is a notable shift away from our traditional design center model that we envisioned becoming the norm for a significant portion of our sales, including to-be-built homes, especially within the first-time and first-move-up consumer groups. This evolution in our option strategy is just one way in which we are harnessing our scale to create a more efficient, predictable, and profitable business. Amid today's favorable market conditions, we are also leveraging our strategic sales tools to maximize our top-line growth, as evidenced by the 32% year-over-year increase in our average order price to $597,000. This strong growth was also partly a function of favorable mix driven by our 50-plus lifestyle buyers and our strategic emphasis on lot premiums, which have more than doubled on sold homes in our 2022 backlog.
To balance pace and price, we have raised base pricing in nearly all our communities, limited sales releases, and selectively employed competitive bidding processes that drove these higher lot premiums. Looking forward, while we continue to see pricing opportunity across our markets, we are cognizant of the impact of higher prices on buyer sentiment and affordability and expect market dynamics, including the pace of price inflation, to return to more sustainable levels in the coming months. With this in mind, we have been thoughtful in our pricing strategies to protect the long-term value of our communities and maintain affordability by using our strategic selling processes tailored to each neighborhood's price point and life cycle.
As you have heard me share before, one way in which we gauge our consumers' financial ability to withstand higher pricing or interest rates is by monitoring the spread between the actual interest rate of our buyers financed by Taylor Morrison Home Funding and the maximum rate they could have qualified with, all else being equal. This spread was roughly stable sequentially at approximately 700 basis points for conventional buyers and 500 basis points for FHA buyers. Average LTVs, debt-to-income ratios, and credit scores were also stable at very healthy levels on a sequential and year-over-year basis for our borrowers. Other metrics we monitor for buyer affordability also remain healthy. For example, the square footage of sold homes increased sequentially in the second quarter and is poised to increase further in the back half of the year based on our backlog.
In other words, our buyers are choosing to spend more to buy bigger homes that meet their needs, another strong sign of financial health and confidence, and lastly, while much attention has been given to the impact of out-of-state buyers on local affordability, we expect favorable migration and demographic trends to continue to support healthy demand and pricing in markets such as Austin and Southwest Florida, which have long been attractive destinations for their employment and lifestyle opportunities. In fact, in recent months, we have seen further acceleration in the share of out-of-state shoppers and buyers from California in our Texas and Nevada markets, as well as Northeast consumers in the Southeast and Florida. In these markets, the share of these out-of-state buyers is back or above pre-COVID levels and not showing any signs of reversing. Now let me turn the call over to Dave for his financial review.
Dave Cone (EVP and CFO)
Thanks, Sheryl, and good morning, everyone. Before diving into this quarter's financial performance, I want to take a moment to address the recent announcement about my upcoming retirement. After nearly a decade at Taylor Morrison, which has included our IPO, six homebuilder acquisitions, the exit of our Canadian operations, and so much more, not the least of which has been the lasting relationships and friendships I have been fortunate to develop with our team members, partners, colleagues in the industry, and investors. I'm at a position to step back from my professional career, to spend more time with my family, and on philanthropic interests. While I will greatly miss the people and culture at Taylor Morrison, which are second to none, I am confident I will be leaving the company well-positioned for future success, and I'm committed to ensuring a seamless transition to my successor.
The search process is well underway as we seek the strongest candidate to help lead the company in its next chapter. Until then, I will be here working closely with Sheryl and our teams as we head into the second half of the year, which I believe will deliver the strong financial results we have been striving toward. Now let me turn to the details of our second quarter results. We generated net income of $124 million, or $0.95 per diluted share. Compared to the second quarter of 2020, this was up 90% on a GAAP basis and 19% on an adjusted basis after excluding the impacts of our acquisition of William Lyon Homes in the prior year period. For the quarter, net sales orders totaled $3,422, which was roughly flat year-over-year, while our monthly absorption pace increased 23% year-over-year to 3.4 net sales orders per community.
As Sheryl described, we managed activity to maximize our margin opportunity by limiting the release of spec homes later in the construction cycle and built through our record backlog. At quarter end, this backlog was 10,228 homes, representing a sales value of $5.7 billion, up 78% year-over-year. Our cancellation rate was 5.2%, an all-time company low that reflects the strength of our backlog and consumer quality. Our average community count of 332 was consistent with our prior guidance. Looking ahead, this metric is now expected to be approximately 330-335 in the third quarter, as well as for the full year. As we look out further, we anticipate double-digit growth in our ending community count to the high 300 range in 2022, followed by a sharp inflection higher in 2023 based on our pipeline of new community openings and development timelines.
In addition, we continue to expect to open nearly 150 new communities this year. These new communities are spread across our portfolio and consumer groups led by Denver and Phoenix, Austin, Sarasota, and Naples, which are among our highest margin contributors. Turning to closings in the second quarter, we delivered 3,268 homes. With a strong acceleration in our start pace to 4.8 homes per community and our construction and purchasing teams' close coordination with our trade partners and suppliers, we remain committed to delivering between 14,500-15,000 closed homes this year, an 18% year-over-year increase at the midpoint. This guidance includes 3,300-3,500 homes in the third quarter. Our home closings gross margin improved 370 basis points year-over-year to 19.1%, exceeding our prior guidance.
Building on this positive momentum, we anticipate our home closings gross margin to improve to about 20% in the third quarter and the low 21% range in the fourth quarter. This would drive our full-year gross margin to the high 19%-20% range, which is ahead of our prior expectation in the low 19% range due to strong pricing trends and faster-than-anticipated traction of our operational initiatives. As Sheryl discussed, in 2022, we expect to drive further margin improvement to approximately 22%. This would represent gains of at least 200 basis points from our 2021 anticipated gross margin and approximately 540 basis points from 2020 due to benefits of our recent acquisitions. Our SG&A as a percentage of home closings revenue was 10.2%.
For the full year, we continue to expect our SG&A to decline to the mid-9% range, driven by cost leverage from the anticipated increase in our total revenue and overhead synergies from our enhanced scale. Turning now to our land portfolio, we invested approximately $451 million in land acquisition and development in the second quarter and continue to expect our total land investment to be approximately $2 billion for this year. Our land underwriting process remains disciplined to acquire land with attractive risk-adjusted returns that are accretive to our overall portfolio, where we see opportunities to drive profitable growth over a full housing cycle. Because we are well-subscribed in the near term, the land acquisitions we are approving today are largely expected to impact deliveries in 2023 and beyond.
In the second quarter, we added approximately 3,000 lots on a net sequential basis to our total supply of lots owned and controlled of 76,000 home sites. This represented six years of total supply, of which 3.9 years was owned. Approximately 35% of our lots were controlled via options and other arrangements, up from 28% in the second quarter of 2020, even before the benefit of our recently finalized new land financing vehicles that Sheryl described earlier. Equipped with these new land ventures, we expect to achieve an increase in our controlled share to at least 40% next year. These new land financing vehicles include more programmatic land banking for short-dated holdings and a land venture for long-dated parcels. These tools offer another layer of sophistication to our existing asset-light land strategies, such as joint ventures, seller financing, and project financing.
We will lead the execution of these new vehicles and work closely with our local operating teams to identify land opportunities where such financing provides the optimal risk-adjusted cost of capital. Turning now to our balance sheet, we ended the quarter with $1.1 billion of total liquidity, including $366 million of unrestricted cash and $755 million of available capacity on our $800 million revolving credit facility, which is undrawn outside of the normal course letters of credit. Additionally, at quarter end, our total spec inventory equaled 4.7 homes per community, nearly all of which were under construction. This was up from approximately three homes per community at the end of the first quarter. Going forward, we intend to balance our mix of to-be-built and spec homes as we deploy both strategies depending on local market conditions and the price point of our diverse portfolio of communities.
Our net debt-to-capital ratio equaled 40.5%. Based on our outlook for strong cash flow generation, we continue to expect our net debt-to-capital ratio to reach the low 30% range by year-end, followed by further deleveraging in 2022. Lastly, as previously announced, in the second quarter, our board of directors authorized an increase in our share repurchase authorization to $250 million through the end of 2022. During the quarter, the $107 million spent brought our cumulative share repurchases since 2015 to nearly $795 million, or 33% of shares outstanding, at an attractive average price of $20.50. At quarter end, we had approximately $192 million remaining on our current repurchase authorization and expect to continue to be opportunistic given our compelling stock valuation.
With a strong operating cash flow outlook and excess of $600 million annually, we are well-positioned to continue to invest in our business for profitable growth, further deleverage our balance sheet, and return excess capital to our shareholders via share repurchases. Now I'll turn the call back over to Sheryl.
Sheryl Palmer (Chairman and CEO)
Thank you, Dave. I will wrap up by saying that we continue to expect 2021 to mark an important inflection point in a multi-year journey to realize the operational and financial advantages of our significant growth. As I look ahead to the second half of the year, I'm energized by our team's strong focus on achieving our operational priorities and delivering a record year of home closings to our buyers.
Our disciplined focus on managing sales paces, controlling costs, and ramping production is expected to drive strong improvement in our home closings and gross margins in the coming quarters and into 2022. To summarize our outlook, in the next six months, we expect to realize a significant pivot in our financial results, highlighted by our expectation for our home closings gross margin of approximately 22% in 2022. This performance is expected to drive new record high returns on equity in the high teens% range in 2021, followed by further accretion to over 20% in 2022, all while deleveraging our balance sheet with our strong cash flow. We firmly expect these results to set the stage for meaningful multiple expansion from our stock's current discounted levels.
As we have described, this strong improvement is a function of the sustainable realization of operational synergies from our multiple acquisitions and our focus on maximizing profitability through strategic selling and cost management strategies as we successfully execute our business plan. In addition to our company-specific opportunity, the housing market is supported by a long-running mismatch between limited new construction supply and growing household formations and evolving consumer needs. We believe the size and breadth of our portfolio, serving first-time buyers through luxury lifestyle consumers, is well-positioned to meet this demand in the coming years. Lastly, I want to thank all our team members and trade partners for their commitment to serving our organization and customers during today's unique market conditions. It is their effort and collaboration that will allow us to achieve our goals, and I am endlessly thankful for their dedication.
Now I'd like to open the call for your questions. Operator, please provide our participants with instructions.
Operator (participant)
To ask a question, please press star then one. If your question has been answered and you'd like to remove yourself from the queue, press the pound key. Our first question comes from Carl Reichardt with BTIG. Your line is open.
Carl Reichardt (Managing Director & Partner)
Hi, good morning, everybody. Sheryl, thanks for all the detail, and Dave, I hope you enjoy your retirement. Congratulations.
Dave Cone (EVP and CFO)
Thanks, Carl.
Carl Reichardt (Managing Director & Partner)
You're welcome. So the 22% gross margin guide, Sheryl, for next year, obviously your guidance right now, your backlog is sort of like 1,000-1,500 units of your backlog would flow into next year. So as I can understand, you know what your land costs are going to be, you know what your costs are going to be. What are you assuming on average selling price in terms of trend?
Are you basically saying prices kind of flat today, similar communities open next year, and we can get to this 22%, or is there an assumption of price growth next year that's embedded in that margin guide?
Sheryl Palmer (Chairman and CEO)
Thanks for the question, Carl. No, there would be no assumed price appreciation in our forward guidance. The market will determine price. And I would tell you, Carl, that as we look to the next few months, I would expect that we'll still see some pockets of opportunity to continue to move prices, probably not as aggressively as you've seen over the last six, eight months, but I think you'll see some movement at more modest levels. But there's absolutely no appreciation assumed in the forward guide. It's really a function of all the things that we talked about in our prepared remarks.
Dave Cone (EVP and CFO)
And the same could be said, Carl, from a cost perspective. We're kind of looking at things, everything being equal right now. Obviously, if there's movement on price up, that helps. If it's cost down, that helps. That's what's embedded in our backlog right now because it's what we're seeing from a price and cost perspective today.
Carl Reichardt (Managing Director & Partner)
Okay. Thank you for that. And then on average order price for this quarter, which was near $600,000, I think, Sheryl, you mentioned there was a product mix shift towards active adult to some degree. Could you expand on that? I'm also assuming that because the orders in the central region fell, that Texas is less of a contributor, which also sort of raised the average order price. So maybe just a little more detail on that. Thanks.
Sheryl Palmer (Chairman and CEO)
Fair question, Carl. I think it's a bit of both.
You do have some mix shift, obviously, with the spec order volume. But when you look at our active adult, our 55-plus lifestyle buyer, and you see the strength that we've seen, if you look at the mix in the quarter, I think the sales were something like 25%. So that would be up a few hundred basis points, Carl. And generally, what we see with this buyer is higher lot premiums. I think I mentioned that in my prepared remarks. The options are generally two times what we would see in the company average. And as I look at it in the backlog next year, within our lifestyle communities, their premiums are two times what their lot premiums are two times what we've seen this year or historically. We have an active adult president operating team that's working with all of our markets.
The buyers' acceptance that we've seen in the Esplanades is really taking hold, and we're really seeing great value creation. So excited about this consumer set and as it continues to grow as a portion of our portfolio.
Carl Reichardt (Managing Director & Partner)
That's super helpful. Thanks, Sheryl. Thanks, Dave.
Sheryl Palmer (Chairman and CEO)
Thank you.
Operator (participant)
Our next question comes from Matthew Bouley with Barclays. Your line is open.
Ashley Kim (Equity Research Associate)
Hi, this is Ashley Kim on for Matt today. My first question is just on the 22% gross margin guide for next year, just on lumber specifically, is that embedding a lumber tailwind, or would lower lumber just be all outside of that?
Dave Cone (EVP and CFO)
Repeat the last part.
Ashley Kim (Equity Research Associate)
It is embedding a lumber.
Dave Cone (EVP and CFO)
Oh, no. No, no, no. No, no, no.
Ashley Kim (Equity Research Associate)
Some moderation.
Dave Cone (EVP and CFO)
Yeah. Right now, we still have costs that are flowing in, call it 50% above where it's trading in the market today.
I think we're going to see lumber peak Q3, Q4. It will hopefully start to come down in 2022, but we're not embedding that in there yet.
Sheryl Palmer (Chairman and CEO)
Yeah. Actually, to Dave's point, we're certainly not expecting the peak that we've seen, but it's kind of early to be 100% where the prices go or the cost goes next year. What we're really trying to do is lean in and give visibility of what we're showing in our backlog, certainly through the first quarter, and the opportunity that we see beyond that.
Dave Cone (EVP and CFO)
But 22% is something that we feel we can deliver despite some market movements. Obviously, we'll see. You got six more months to get to call it the Q4 call to firm it up, and we can give you a little bit more information at that point.
Ashley Kim (Equity Research Associate)
Okay. That's helpful.
Then can you comment on what else you're seeing that's giving a read on buyer demand, just given that the restriction in sales pace obviously not telling the whole picture?
Sheryl Palmer (Chairman and CEO)
I'm so sorry, Ashley. I missed part of the question. Can we give a read on what?
Ashley Kim (Equity Research Associate)
Just what you're seeing in buyer demand, just given that the restriction in sales pace isn't telling the whole picture.
Sheryl Palmer (Chairman and CEO)
Yeah, absolutely. Ashley, we're managing our sales programs probably in 75%-80% of our communities. Demand is still very strong by any historical standards. I would actually call early in the year somewhat frenzied and today a very healthy market with tremendous momentum, but it is very difficult to paint with a broad brush across the U.S. You need to look at the geographies and the consumer groups as we plan our sales strategy community by community.
We saw paces up with all consumer groups for the quarter, despite the number of dynamics that we've seen in the marketplace. We've seen a little seasonality. I wouldn't say it's typical. Demand is stronger than generally what you would see in the summer months, but obviously we're seeing tremendous summer travel given everyone has felt somewhat caged up. I would tell you that consumer is a bit fatigued after levels of lotteries that have been in the market, the buyers absorbing some of the price appreciation. But looking forward, and certainly as we've entered into July, we continue to see very strong momentum. You might say you might not have a lottery, you might not have 50 people, you might have 20 people, but still tremendous demand.
I would describe today as a healthier place and a more sustainable environment for the consumer, for the company, certainly for our trades to be able to deliver a good customer experience.
Ashley Kim (Equity Research Associate)
Thank you both. I'll leave it there.
Sheryl Palmer (Chairman and CEO)
Thank you.
Operator (participant)
Our next question comes from Truman Patterson with Wolfe Research. Your line is open.
Paul Szczepanski (Managing Director and Head of Credit Risk Review)
Thanks. This is Paul Szczepanski. I was wondering, on your gross margin improvement, can you slice that a little bit further and maybe break out how much is coming from the William Lyon synergies, how much is coming from current pricing dynamics, and then how much is coming from the shift or more efficient construction processes, i.e., Canvas?
Dave Cone (EVP and CFO)
So are you talking about the quarter margin or the guidance?
Paul Szczepanski (Managing Director and Head of Credit Risk Review)
Actually, both if you could.
Dave Cone (EVP and CFO)
Okay.
I'd say for Q2, that's really more around pricing power of the spec homes that we were able to sell and close during the quarter, and then obviously, there definitely was a component of that where some of the William Lyon synergies were starting to take hold, Paul. The vast majority of that, though, is really going to we see a little bit more in Q3, and we were able to take our guidance up for the year just because we were seeing that coming in a little bit maybe faster than we thought initially, but it's really going to be more so in Q4 as kind of that true inflection point for us around the synergies truly taking hold, plus the various actions that we've taken that we talked about in the prepared remarks.
That's the synergies from William Lyon being at that improved cost structure, looking at floor plan rationalization and value engineering, which was especially focused on the William Lyon plans. That allowed us to reduce costs without impacting the home's aesthetics, expanding our standard design package. That helps to reduce cycle time, which is big, while also expanding our buying power on a concentrated set of SKUs. Floor plan simplification puts more emphasis on narrowing our offering to the high-profit homes. I also mentioned in the prepared remarks just our mix and new community openings. They're more weighted to markets that deliver some of our highest margins. That's setting us up well for Q4, but definitely we start seeing that full benefit when we get into 2022.
Sheryl Palmer (Chairman and CEO)
Maybe I would just add to that, Dave.
To your point, Paul, Canvas, we expect that to be more of a contributor as we look forward. These are early days. We've rolled out across the country, as we said in our prepared remarks. When we look at the margin trajectory in our early pilot markets and just what we're seeing, we like it. Without overstating the obvious, part of the pickup you're seeing, Paul, is we came into the year with a tremendous backlog. Unfortunately, that backlog took a great deal of pressure on lumber as we saw peak numbers early in the year. Being able to lap that and move into some of the spec inventory as well as the price movement from our newest sales, that also gives us a great deal of confidence as we look forward.
Dave Cone (EVP and CFO)
Yeah.
As Sheryl said, we're leaning in a little bit more on 2022 earlier than we normally would. I don't want to get too much further out there, but a lot of the things that we're putting in place now that will impact next year, we actually think the accretion will carry beyond 2022 and into 2023, all things being equal. Then when you couple that with kind of that inflection around the community count growth that we expect to see at the end of 2022, it bodes well for gross margin dollars,
Sheryl Palmer (Chairman and CEO)
2022, and really strong in 2023. Good point.
Paul Szczepanski (Managing Director and Head of Credit Risk Review)
Okay. I guess the second question, your SG&A ticked up a little bit in the quarter. What was the driver of that? And along those lines, with the strong demand out there, we know a lot of builders are actually cutting external broker commissions.
Are you doing that? Are you cutting external or internal sales commissions? And if so, what would be the timing and magnitude of impact we could think of?
Dave Cone (EVP and CFO)
We'll probably turn to you in this one a little bit. From an SG&A, I mean, we were down sequentially, up a little bit year-over-year. Remembering Q2 of last year, we leaned pretty heavily on the William Lyon spec, so I would argue we pushed a little bit more closings through. When I look at this Q2, we were able to meet our guidance on closings, but albeit at the lower end of the range. So I think if we were a little bit more there in the middle, that obviously would have helped. So a lot of it is just around timing, Paul. If you go back to our full year guidance, we haven't come off of that.
We're still in that mid-9% range, so it really is just timing. You're going to see some stronger leverage, obviously, in Q3 and Q4, just given the overall level of closings coming through,
Sheryl Palmer (Chairman and CEO)
and then I'll pick up, Dave, on the broker piece. Paul, we have made some adjustments in the markets across the U.S., and it's everything from adjusted on the actual fee to we've gone to a national program of just paying commissions on the base price. Once again, we came into the year with a very strong backlog. You've seen very little of that traction actually hit because that was all done early this year, and so it really would have only impacted a small percentage of our spec closings.
The other thing that deserves an honorable mention, Paul, would be our virtual environment as those closings start to come through the system, and we've had hundreds of closings that are completely virtually or completely virtual, excuse me. And they generally carry a lower broker participation, so you've got a lower participation and a lower fee that we get to look forward to.
Paul Szczepanski (Managing Director and Head of Credit Risk Review)
And we are seeing leverage on the selling line. It's really the G&A and the timing of expenses and then relative to the top line, which is impacting the T leverage. Thank you. Appreciate it.
Sheryl Palmer (Chairman and CEO)
Thank you.
Dave Cone (EVP and CFO)
Thanks, Paul.
Operator (participant)
Our next question comes from Jay McCanless with Wedbush. Your line is open.
Jay McCanless (SVP of Equity Research)
Hey, good morning, everyone. So on the fiscal 2022 guide, just to be clear, the price cost benefit that's expected is coming from the land side.
If I'm hearing you correctly, it's going to be less, I'm assuming, lots that were acquired in the William Lyon deal and probably more legacy Taylor Morrison land.
Dave Cone (EVP and CFO)
You're talking about the margin guidance?
Sheryl Palmer (Chairman and CEO)
Yeah.
Dave Cone (EVP and CFO)
No, this is the actions that we're taking. Yeah, for 2022. This is the actions that we're taking on operational enhancements. That's going to be the bulk of the driver. All the things that I just kind of went through, they're all designed to either help enhance price, but just as much, probably even more so, is on the cost side, sharpening our costs to get them reflective of our overall size and scale. The land component of it, I mean, it varies based on mix, but all things being equal, that gets a little bit more expensive every year. So on a typical year, you're setting that off with price and hopefully better efficiency.
Sheryl Palmer (Chairman and CEO)
Yeah. And if you think about the residual, obviously, there's actually been some pickup in the residual as prices have moved up on the existing. But I completely concur with Dave that I would say generally same same, a modest pickup or modest savings, but that won't be the driver.
Jay McCanless (SVP of Equity Research)
Okay. All right. Thank you for that clarification. The second question I had, just any update on Christopher Todd and your single-family for-rent efforts?
Sheryl Palmer (Chairman and CEO)
Absolutely. Jay, we've announced seven markets already and have in the process of planning two new markets. We're actually recruiting a land leader in Houston right now, and we'll be expanding our Florida operations as well. Each market's in a slightly different place. Phoenix is the most advanced with projects at multiple stages, Jay, from design to development to under construction, and leases are expected to start by year-end. And it's interesting.
Phoenix has been somewhat of the melting pot of both BTR and SFR strategies, but there's been very little traction in our Christopher Todd model outside of Arizona. So we're pretty excited about the operations that will be active in certainly at least seven markets by the end of the year. Right now, we have approximately 25-30 deals at some stage from accepted LOI through owned land. Recognizing these deals are a little bit more complex and they take some time to entitle for our use. You won't really see an impact on the financials until we begin to sell assets, likely late next year. So as we think about 2022 guidance, we'll get much more specific with you as we optimize, explore the best way to optimize the price. In 2021, Dave, I don't even think the rental income would be so modest.
I don't think you'll see anything.
Dave Cone (EVP and CFO)
Yeah. And that's going to go in our amenity and other revenue line. As Sheryl said, it'll be minimal. You won't really notice much of an impact this year, but as we move through the next couple of years, it becomes more meaningful.
Sheryl Palmer (Chairman and CEO)
Yeah. I actually think you'll be pre-leasing this year, Jay, and then you'll really start to see the income next year.
Jay McCanless (SVP of Equity Research)
Okay. Sounds great. Thanks for taking my questions.
Sheryl Palmer (Chairman and CEO)
Thank you.
Operator (participant)
Our next question comes from Alex Rygiel with B. Riley. Your line is open.
Alex Rygiel (Senior Managing Director and Associate Director of Research)
Thank you. Quick question to follow up there on that last one as it relates to build-to-rent. How much capital have you invested into that business to date, and how should we think about sort of capital allocation into that business on an annual basis going forward?
Dave Cone (EVP and CFO)
The gross number, Alex, is probably $130 million, of which we've done some financing around that just to help from a return perspective, call it 60% of that number. Going forward, it'll be a few hundred million, but that's built in our overall land and development budgets. And still, even with that, we're going to throw off operating cash flow of $600 million or more each year.
Sheryl Palmer (Chairman and CEO)
And once again, each of these projects will be individually project financed.
Dave Cone (EVP and CFO)
Yeah.
Alex Rygiel (Senior Managing Director and Associate Director of Research)
Of course. And then coming back to your guidance, clearly your guidance suggested an incredibly strong fourth quarter for closings. Can you discuss sort of your confidence level on that and the visibility on this and where there are risks and where there are opportunities for that?
Dave Cone (EVP and CFO)
Yeah, you bet. You get to our implied guidance. It's between 5,100 and 5,400 closings.
We're still early in the construction cycle for many of the fourth quarter deliveries. Our team, they know what's ahead. It's a big fourth quarter. We know what is ahead. We're working with our teams daily on it, and we're discussing the obstacles and opportunities around the construction cycle every day to help deliver here in the second half. Our priority, though, is always going to be delivering a complete home. Some of the biggest challenges, and I don't think it's anything new that you haven't already heard, is really around the material shortages that are out there. Some of the biggest pain points right now are windows. We've seen lead times almost double there. Other things, just to name a couple more, roof trusses and brick, that continues to be a challenge. Things come up every day around shortages.
We work to kind of knock it out by the end of the day, only to wake up the next day and see yet another challenge, but it's the reality for us right now. And so far, we've been able to overcome many of those, and we're going to continue to push to the end of the year.
Sheryl Palmer (Chairman and CEO)
Yeah. The only thing I'd add is if you look at the past years, we would actually start houses probably well into August to deliver in the year. We have everything in the ground, but Dave's spot on. The supply constraints are real. Our teams are managing them every day, so with what we know today, we have a very big fourth quarter. We need conditions not to worsen. Hopefully, there's no impacts from this COVID variant dropping crews because that would create some more timing issues.
But as we sit here today, we plan to get there.
Dave Cone (EVP and CFO)
Yeah. And we're ordering materials a lot sooner than we typically would. And we're also stockpiling some materials where it makes sense as well.
Sheryl Palmer (Chairman and CEO)
Yeah. It'll be a record quarter for the company.
Operator (participant)
Our next question comes from Alan Ratner with Zelman & Associates. Your line is open.
Alan Ratner (Managing Director)
Hey, guys. Good morning. Thanks for taking my question. Good morning, Alan. So I'd love to drill in a little bit on the uptick in starts. Really impressive getting to almost five starts per community in the quarter per month.
I'm guessing that's not something you would tell us is kind of a new target run rate or is necessarily sustainable, but I'm curious if the current market conditions and strength has kind of caused you to kind of rethink that steady run rate in terms of starts per community or sales per community like you've talked about in the past. And given that success in the growth and starts, are you starting to pull back on some of those limitations on sales that you've been kind of putting in place over the vast majority of your communities?
Dave Cone (EVP and CFO)
Yeah. I'll jump in on the starts. Maybe Sheryl will hit the sales side. So, Alan, we continue to align our starts with the order pace. Our Q2 starts, they were probably a bit inflated.
We had significant weather challenges in Q1, not to mention we had a large backlog from last year end that we had to get started. So that was a little bit of a catch-up, coupled with the strong pace that we saw Q1 and mostly Q2. In Q2, as Sheryl just mentioned, it's a big quarter for us to get everything into the ground to help us deliver for the year. And that's what took us to that cadence of about 4.8 starts per community. This should normalize probably somewhere in the high three range for starts per community. I would argue this is probably a healthier start pace for us, especially given the supply chain challenges that are out there right now.
Sheryl Palmer (Chairman and CEO)
Yeah. So I wouldn't take it, Alan, as a read on the market that we're slowing it down.
We're just going to try to get to a normal sustainable pace, which to Dave's point, probably high three. Q2 is unique on a lot of different levels. As far as the sales front looking forward, we'll continue to deploy different strategies by community, Alan. I would expect some communities will go back to more traditional releases. Some will continue to still be managed. We are still holding specs in some communities until they get further into the construction cycle. Having said that, there's others that we're releasing at start. It's really important to understand the existing market conditions and the strategies of the other builders and potentially get ahead of any sort of glut of inventory that's being held back today. A lot of folks have mentioned not wanting to keep a customer in backlog any longer than you have to. So that certainly plays into it.
So there's a number of things the teams are managing, but the momentum and the strength continues to be quite good.
Alan Ratner (Managing Director)
Got it. I appreciate that color, guys. Second question that I was hoping, I know this is tough, but I was hoping you can maybe provide a little bit of clarity just on where we should think about your price point going. Order price that you mentioned, Sheryl, was maybe impacted a little bit by mix in the quarter, but it's almost 100,000 above your delivery price right now, and I know that's been kind of moving around here. So where do you see, as you look at your community count and some of the growth coming through the pike, where do you see that average price going over the next year, year and a half? Assuming price appreciation kind of normalizes as you anticipate.
Sheryl Palmer (Chairman and CEO)
Yeah. As we mentioned, I certainly think you're going to see price up next year over 2021. My instinct is, given the mix of the communities in 2023, you'll see it settle back a bit just as I look at the new communities that are coming online. So I think 2022 probably provides the peak, Alan. I mentioned, I think, a couple of times that what we're seeing in lot premiums, any of the competitive environment that we've been, we've really steered the buyers to lot premiums versus base price because I think we've all been to a place where you don't want to see any movement backwards on base price. So that's feeding some of the price appreciation, certainly a great deal of what you saw in the selling price in Q2. As that levels out, I would expect that overall pricing, once again, we're taking price in some communities.
We're just not taking it at the level that we took it earlier in the year.
Dave Cone (EVP and CFO)
Yeah. And our overall ASP from an order perspective, I mean, it's largely rate, not a lot of mix. I think you get into 2022, we might see mix play a little bit more of a factor as well.
Sheryl Palmer (Chairman and CEO)
Yeah.
Alan Ratner (Managing Director)
Great. Appreciate that, guys. Thanks a lot.
Sheryl Palmer (Chairman and CEO)
Sorry, Alan. I'm going to mention one other thing that I think does play into price. As we look at the consumer's behavior today and we look at our backlog, square footages are still going up. They're spending more in the design center. So it's not just on lot premiums. They're buying a bigger house on a home site that meets their needs, which I think says a lot about their ability to qualify and what's important to them.
When we look at our spec inventory that we're putting to market, we're actually reducing square footage a little bit to try to continue to serve that more affordable consumer. So that's why I think you'll get this kind of blurring of our mix in overall price, and I think you'll see it settle back a bit.
Alan Ratner (Managing Director)
Makes sense. Thanks a lot.
Sheryl Palmer (Chairman and CEO)
Thank you.
Operator (participant)
Our next question comes from Mike Dahl with RBC Capital Markets. Your line is open.
Chris Kalata (Assistant VP)
Hi. This is actually Chris Kalata. I'm filling in for Mike. Thanks for taking my questions. I just want to go back to the selling pace outlook for the back half of the year. When can we see absorptions kind of return back to your more normal two- to three-month level? Clearly, at 3.4 per month, we saw a size step down from Q1.
So I mean, based on what you're seeing in July, do you think this is going to continue into the next quarter, or do you see more of a structural improvement in your selling pace?
Sheryl Palmer (Chairman and CEO)
I think if I look at July, let me start there. If we look at July, certainly the month's not done yet, but I expect that July will be relatively consistent with Q2. When we look at our historical paces of low to mid-twos, I don't think we'll go back to the two to three, but I do think that something more in the low to mid-threes becomes more realistic long-term. So I think in the back half, you'll see kind of that normalization, mostly because of the managed pieces we're talking about, but I think you'll also get some seasonality in there.
Dave Cone (EVP and CFO)
And if you look at 2020, a bit of an anomaly year with the pandemic and where it was slow, then it picked up. If you compare back to 2019, you also have to remember we're a different company with the acquisitions, especially more affordable, higher paces, more West Coast geared in some aspects as well, which typically have a higher pace. So I think you're also seeing just the structural shift of the business.
Chris Kalata (Assistant VP)
Understood. That makes sense. And for my follow-up, I was wondering if you guys are seeing or if you have a way of tracking whether there could be any kind of overestimation in the current breadth of demand out there. I mean, for example, you gave the example of seeing 20 bids in the lottery system instead of the 50 prior.
Is that a dynamic at all of buyers kind of hedging their odds and placing bids across multiple communities? Is that something that you're hearing or seeing out there or contemplating at all in your outlook?
Sheryl Palmer (Chairman and CEO)
As I mentioned, we're managing the sales programs in 75%-80% of our communities, and the demand's quite strong by any standards. But it has normalized from the frenzy pace that we saw, I would say, in the first quarter and moving into the second quarter. I actually think we're in a much better place to provide a better experience for our customers. It's been very difficult for the consumer in today's environment. They have been participating in multiple lotteries. There's actually, I would tell you, early in the year, a decent amount of fear about being able to secure a home. So I like where the business is going.
I like the fact that we're managing our pace to match our construction cycle. We can provide a better experience to the consumer. There is still a tremendous amount of demand because I think what continues to feed this is we are undersupplied as a country. I mean, millions of units. So I think we've got some runway ahead.
Chris Kalata (Assistant VP)
Got it. Appreciate the color.
Sheryl Palmer (Chairman and CEO)
Thank you.
Operator (participant)
Our next question comes from Deepa Raghavan with Wells Fargo. Your line is open.
Deepa Raghavan (Senior Equity Analyst)
Hi. Good morning, everyone. Thanks for taking my question. Sheryl, I'm going to tag on that demand question I got asked. Would you say it's the traffic that is now slower, not the demand, and that demand is still as strong and not necessarily faded versus early in the year?
Or would you say there have been some marginal impacts for whatever reason, as in maybe there's buyer fatigue, there's lack of availability of affordable houses, etc.? So how do we think about this slowdown in the number of bids, etc., that you get, but then the backdrop is still pretty strong? So is it more like a traffic versus demand dynamic, or is there something more happening?
Sheryl Palmer (Chairman and CEO)
Yeah. As I said, Deepa, I do think it remains very strong. We just have to understand what we're holding ourselves up against. And if we consider the frenzied environment, we know that's not a sustainable environment. Traffic per community is actually up. I think year-over- year, somewhere around 10%. Our conversion rates are up. When I look at our web traffic for our divisions, really all indicators are strong. Our web traffic is up.
And now, when our web conversions are up tremendously, which really surprises me considering that all communities are open and they weren't a year ago. So I think you have all the things we talked about. I think you do have a little bit of fatigue. I think you do have a little bit of seasonality. And so we see two weeks where people pull back, then they're right back at it. So I think this is just a good, strong normalization. When you think about affordability, we've actually seen sequential strength in our buyers.
The way I've tried to look at it, Deepa, is if I take a $400,000 house a year ago, and that's up 20%, just using the generic numbers that have been posted, the buyer's overall payment is modestly higher today because it's a buyer that's able to put more down, and their overall credit profile is stronger. Their ratios are better. Their incomes are up, so their overall monthly expense is relatively unchanged, so they're able to absorb the price movement. In fact, when I look at our backlog, they really are absorbing these increases, and today's buyer has even a greater spread between the qualifying income—that would be the income we use to qualify them—and their total household income from what they had a year ago, and then, as I said, they're buying bigger houses, putting more money into it, so I think the buyer's in pretty good shape.
The FHA buyer might be slightly different. We haven't seen the same lift in income. The ratios might be a little tighter, but they still are in a better place than they were a year ago with 500 basis points of room. So I think I would caution us not to point to one thing because I think we have a very strong, high-demand market, but obviously, you're going to see movement from month to month and quarter to quarter, and I think using last year's kind of peak paces, I think about our June last year, I think was our peak the company's ever seen as 4.7. If we try to qualify that as a normal, I think we'll disappoint ourselves.
Deepa Raghavan (Senior Equity Analyst)
All right. Got it. That's helpful. My follow-up is on gross margin. You raised that 2021 guide on gross margins towards the 20%, upper end 19.5%, etc.
Does that already incorporate some of the cost action benefits that actually play much stronger into 2022, or is that raise, the current raise, more just from pricing actions this year, etc.?
Dave Cone (EVP and CFO)
Hey, Deepa. It's both. I mean, on the cost side and the enhancements that we're making, yes, it's in there. I would describe it as kind of early innings as it's coming through in Q3 and Q4. Relative to our expectations, it's coming in a little bit faster, a little bit more meaningful than we thought. So that's the great news of it. But also, pricing is playing a factor. The prices have been staying ahead of cost to date, which is also a very favorable thing.
Deepa Raghavan (Senior Equity Analyst)
Okay. That's helpful.
But would you say that 22% that you're giving for next year is the full run rate of all your cost actions, or what is the run rate of all of that?
Dave Cone (EVP and CFO)
Well, like I said, we're six months out, Deepa, from finishing this year. We'll give you more color over the next couple of quarters as we kind of firm things up. But we will be at a run rate around the synergies sometime in Q4 on an annualized basis, really more taking hold in Q1. But we think that there's additional enhancements that we're going to be able to make in 2022 that will also benefit 2023. But like I said, give us some time. We'll firm that up.
Sheryl Palmer (Chairman and CEO)
Yeah. Deepa, we would not typically give this type of forward guidance.
But based on the stock price, we just believe there's a true misunderstanding of the trajectory of the business. I have an appreciation that we haven't provided a quarter without real acquisition or integration noise, one-time costs for nearly three years. But we've always said this is the pivot point at 18 months after an acquisition. And now that we're approaching that time period, it probably feels a little longer with how the pandemic distorted everything. But we believe it's just time to put that stake in the ground and give everyone better visibility. But we're really leaning in because it's pretty early. So as we get greater visibility in the coming quarters, we'll continue to update.
Deepa Raghavan (Senior Equity Analyst)
Thank you. That's very helpful.
Sheryl Palmer (Chairman and CEO)
Thank you.
Operator (participant)
Our next question comes from Tyler Batory with Janney Montgomery Scott. Your line is open.
Tyler Batory (Director of Equity Research)
Good morning. Thanks for taking my question. Just one multi-part question for me.
In terms of the new land financing vehicles, are the return profiles or the underwriting metrics or the hurdles different than what you were using before? And then perhaps more broadly on the land market generally, interested in what you're seeing on the price side of things. And then also, there are a number of builders that are really trying to ramp up their land position. There are some others that are a little bit longer in terms of their land position. How comfortable are you with where you are right now looking towards 2023? Would you expect a substantial step up in your spending into next year to really ramp the business in 2023 and beyond?
Dave Cone (EVP and CFO)
So I'll pick up on your land hurdle question relative to the financing, Tyler. So have our hurdles changed? No. We're still underwriting in the same way. Obviously, it's a unique demand.
Sheryl will talk a little bit about the land pricing here in a minute, but obviously, ASPs are different. Costs are different. We incorporate a lot of sensitivities to help us understand what is a good deal. The financing vehicles themselves, those are designed to actually enhance the overall return of a project, thus enhancing the overall return for the company. There is a little bit of a gross margin drag that comes with that. That's the trade-off to get the better return. But we've been talking a lot today around all the various operational enhancements that we're putting in place. We feel they're going to more than offset that drag there. So this is really a way to lighten the balance sheet, increase our option lots, and really enhance returns over the next many years.
Sheryl Palmer (Chairman and CEO)
Yeah. So there's two vehicles, as we mentioned.
One will kind of act like a land banking vehicle. And the rates that we've been able to put in place, honestly, are as competitive as anything we've ever seen before. The other one is more of a venture. It kind of acts like a JV, and that will be for our larger assets. Each deal will be underwritten individually by both parties. So kind of consider it a capital allocation tool for us, and that will be available when it makes sense. It will allow us to capitalize on additional growth opportunities while importantly mitigating risk at this point in the cycle. In the first 30 days of putting these vehicles in place, we expect to put something between $250-$260 million of L&D spend. I don't think this will be a monthly run rate for us, but we've actually been waiting to get to the first closing.
So, we're delighted to Dave's point on what this will do for kind of the long-term return trajectory of the business. As far as land pricing and the competition in the markets, I would tell you it's about as fierce as any time I recall. The sellers are seeing the price movement in housing today, and I think they have higher expectations on both costs, terms. I'm seeing some things out there that are we need to continue to retain our kind of underwriting standards. We're seeing things that are getting closed very quickly without maybe proper due diligence, maybe closing earlier in the entitlement. I would tell you that we're going to retain our cadence and approval regimens, not adding appreciation, but really hedging with sensitivities on cost and pace. So it's tight, but it's always tight.
And the teams are actually putting some very good deals on the books. So when I look at some of the stuff in the pipeline today, actually across the business, it's high quality.
Tyler Batory (Director of Equity Research)
Okay. Great. That's all for me. Thank you for the detail.
Sheryl Palmer (Chairman and CEO)
Bye.
Operator (participant)
Our next question comes from Alex Barron with Housing Research Center. Your line is open.
Alex Barron (President)
Yeah. Thank you very much. I think last quarter you discussed the increased amount of out-of-state buyers. I was curious if you guys have measured what it was this quarter versus last quarter.
Sheryl Palmer (Chairman and CEO)
You know, Alex, we have. And we have continued to see traction. I'm seeing if I can actually grab that schedule. We might have to get back to you with the real specifics.
But as I said in my prepared comments, we've really seen a strong surge of California buyers in both Texas, in Arizona, in Colorado, really strong in Nevada. And then we've seen a tremendous surge of kind of Northeast into our Florida business, maybe even the Carolinas. I mean, we're happy to get offline with you because we have a tremendous amount of detail both on our shoppers and buyers. And the trajectory of that out-of-state business is pretty meaningful.
Alex Barron (President)
Okay. Good to hear. The other thing I was curious about is, what do you feel is a greater concern or shortage at this point? The material side of things or labor to get the homes built?
Sheryl Palmer (Chairman and CEO)
Take that again.
Dave Cone (EVP and CFO)
Yeah. You can't have one without the other. That's on the market. Yeah. It depends on the market. It depends on where they are in the construction cycle.
I would say it this way, Alex. I think we're more accustomed to dealing with the labor shortage as an industry. I think the level of material shortage, that's new for us. That's something that we don't typically deal with, and it's been a change. But they do still go somewhat hand in hand.
Sheryl Palmer (Chairman and CEO)
I'd almost say it like this, Alex. Dave, I don't know if you agree. If we had the materials that were needed across the industry to meet the supply that's being brought to market, you'd probably have more of a labor shortage.
Dave Cone (EVP and CFO)
Right. Yeah. It's true. Yeah.
Sheryl Palmer (Chairman and CEO)
Because we just trade by trade, they're not able to meet the demand because of some of the shortfalls. And logistics, you've got this issue with commodities. You've got a tremendous issue with logistics.
And that's everything from containers at the ports that are creating some of the pain points to trucking and drivers. So there's a lot of things that are making the material side of it very difficult, and the labor is trying to keep up with what they're getting.
Alex Barron (President)
Okay. Thank you so much.
Sheryl Palmer (Chairman and CEO)
Thank you.
Operator (participant)
There are no further questions. Please proceed with any closing remarks.
Sheryl Palmer (Chairman and CEO)
Thank you very much for joining us for our Q2 call today. Have a great day and look forward to talking to you next quarter.
Operator (participant)
This does conclude the conference. You may now disconnect. Everyone, have a great day.