UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________________________________________________
FORM 10-Q
_______________________________________________________________
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended June 30, 2024
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to
Commission File Number: 001-35873
_______________________________________________________________
(Exact name of registrant as specified in its Charter)
_______________________________________________________________
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||
| (Address of principal executive offices) | (Zip Code) | ||||
(480 ) 840-8100
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
_______________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| x | Accelerated filer | o | |||||||||
| Non-accelerated filer | o | Smaller reporting company | |||||||||
| Emerging growth company | |||||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding as of July 24, 2024 | |||||||
| Common stock, $0.00001 par value | ||||||||
TAYLOR MORRISON HOME CORPORATION
TABLE OF CONTENTS
TAYLOR MORRISON HOME CORPORATION 10-Q
1
ITEM 1. FINANCIAL STATEMENTS
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, unaudited)
| June 30, 2024 | December 31, 2023 | ||||||||||
| Assets | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash | |||||||||||
Total cash | |||||||||||
| Real estate inventory: | |||||||||||
| Owned inventory | |||||||||||
| Consolidated real estate not owned | |||||||||||
| Total real estate inventory | |||||||||||
| Land deposits | |||||||||||
| Mortgage loans held for sale | |||||||||||
| Lease right of use assets | |||||||||||
| Prepaid expenses and other assets, net | |||||||||||
| Other receivables, net | |||||||||||
| Investments in unconsolidated entities | |||||||||||
| Deferred tax assets, net | |||||||||||
| Property and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses and other liabilities | |||||||||||
| Lease liabilities | |||||||||||
| Customer deposits | |||||||||||
| Estimated development liabilities | |||||||||||
| Senior notes, net | |||||||||||
| Loans payable and other borrowings | |||||||||||
| Revolving credit facility borrowings | |||||||||||
| Mortgage warehouse borrowings | |||||||||||
| Liabilities attributable to consolidated real estate not owned | |||||||||||
| Total liabilities | $ | $ | |||||||||
| COMMITMENTS AND CONTINGENCIES (Note 13) | |||||||||||
| Stockholders’ equity | |||||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
TAYLOR MORRISON HOME CORPORATION 10-Q
2
ITEM 1. FINANCIAL STATEMENTS
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts, unaudited)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Home closings revenue, net | $ | $ | $ | $ | |||||||||||||||||||
| Land closings revenue | |||||||||||||||||||||||
| Financial services revenue | |||||||||||||||||||||||
| Amenity and other revenue | |||||||||||||||||||||||
| Total revenue | |||||||||||||||||||||||
| Cost of home closings | |||||||||||||||||||||||
| Cost of land closings | |||||||||||||||||||||||
| Financial services expenses | |||||||||||||||||||||||
| Amenity and other expenses | |||||||||||||||||||||||
| Total cost of revenue | |||||||||||||||||||||||
| Gross margin | |||||||||||||||||||||||
| Sales, commissions and other marketing costs | |||||||||||||||||||||||
| General and administrative expenses | |||||||||||||||||||||||
| Net income from unconsolidated entities | ( | ( | ( | ( | |||||||||||||||||||
| Interest expense/(income), net | ( | ( | |||||||||||||||||||||
| Other expense, net | |||||||||||||||||||||||
| Income before income taxes | |||||||||||||||||||||||
| Income tax provision | |||||||||||||||||||||||
| Net income before allocation to non-controlling interests | |||||||||||||||||||||||
| Net income attributable to non-controlling interests | ( | ( | ( | ( | |||||||||||||||||||
| Net income | $ | $ | $ | $ | |||||||||||||||||||
Earnings per common share: | |||||||||||||||||||||||
| Basic | $ | $ | $ | $ | |||||||||||||||||||
| Diluted | $ | $ | $ | $ | |||||||||||||||||||
| Weighted average number of shares of common stock: | |||||||||||||||||||||||
| Basic | |||||||||||||||||||||||
| Diluted | |||||||||||||||||||||||
See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements
TAYLOR MORRISON HOME CORPORATION 10-Q
3
ITEM 1. FINANCIAL STATEMENTS
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share data, unaudited)
For the three months ended June 30, 2024
| Common Stock | Additional Paid-in Capital | Treasury Stock | Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Amount | Shares | Amount | Retained Earnings | Accumulated Other Comprehensive Income | Non- Controlling Interests | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balance — March 31, 2024 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of restricted stock units, net(1) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock(2) | ( | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests of consolidated joint ventures | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance – June 30, 2024 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
(1) Dollar amount includes $1.5 million of stock options exercised netted with the value of shares withheld for taxes on the issuance of restricted stock units.
(2) Dollar amount includes $50.0 million of Accelerated Share Repurchases and an incremental amount related to the 1% excise tax on share repurchases.
For the three months ended June 30, 2023
| Common Stock | Additional Paid-in Capital | Treasury Stock | Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Amount | Shares | Amount | Retained Earnings | Accumulated Other Comprehensive Income | Non- Controlling Interests | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balance - March 31, 2023 | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of restricted stock units, net(1) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance – June 30, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
(1) Dollar amount includes $8.9 million of stock options exercised netted with the value of shares withheld for taxes on the issuance of restricted stock units.
TAYLOR MORRISON HOME CORPORATION 10-Q
4
ITEM 1. FINANCIAL STATEMENTS
For the six months ended June 30, 2024
| Common Stock | Additional Paid-in Capital | Treasury Stock | Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Amount | Shares | Amount | Retained Earnings | Accumulated Other Comprehensive Income | Non- Controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balance – December 31, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of restricted stock units, net(1) | — | ( | — | — | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock(2) | ( | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Distributions to non-controlling interests of consolidated joint ventures | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance – June 30, 2024 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
(2) Dollar amount includes $100.0 million of Accelerated Share Repurchases and an incremental amount related to the 1% excise tax on share repurchases.
For the six months ended June 30, 2023
| Common Stock | Additional Paid-in Capital | Treasury Stock | Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Amount | Shares | Amount | Retained Earnings | Accumulated Other Comprehensive Income | Non- controlling Interest | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||||||
| Balance – December 31, 2022 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of restricted stock units, net(1) | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||||
Repurchase of common stock | ( | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Stock compensation expense | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Changes in non-controlling interests of consolidated joint ventures | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Balance – June 30, 2023 | $ | $ | $ | ( | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||||
(1) Dollar amount includes $22.4 million of stock options exercised netted with the value of shares withheld for taxes on the issuance of restricted stock units.
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
TAYLOR MORRISON HOME CORPORATION 10-Q
5
ITEM 1. FINANCIAL STATEMENTS
TAYLOR MORRISON HOME CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
| Six Months Ended June 30, | |||||||||||
| 2024 | 2023 | ||||||||||
| Cash Flows from Operating Activities | |||||||||||
| Net income before allocation to non-controlling interests | $ | $ | |||||||||
Adjustments to reconcile net income to net cash (used in)/provided by operating activities: | |||||||||||
| Net income from unconsolidated entities | ( | ( | |||||||||
| Stock compensation expense | |||||||||||
| Distributions of earnings from unconsolidated entities | |||||||||||
| Depreciation and amortization | |||||||||||
| Operating lease expense | |||||||||||
| Debt issuance costs amortization | |||||||||||
| Inventory impairments | |||||||||||
| Land held for sale write-down | |||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Real estate inventory and land deposits | ( | ||||||||||
| Mortgage loans held for sale, prepaid expenses and other assets | ( | ||||||||||
| Customer deposits | ( | ||||||||||
| Accounts payable, accrued expenses and other liabilities | ( | ||||||||||
| Income taxes payable | |||||||||||
Net cash (used in)/provided by operating activities | $ | ( | $ | ||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Purchase of property and equipment | ( | ( | |||||||||
| Distributions of capital from unconsolidated entities | |||||||||||
| Investments of capital into unconsolidated entities | ( | ( | |||||||||
| Net cash used in investing activities | $ | ( | $ | ( | |||||||
| Cash Flows from Financing Activities | |||||||||||
| Increase in loans payable and other borrowings | |||||||||||
| Repayments on loans payable and other borrowings | ( | ( | |||||||||
| Borrowings on mortgage warehouse facilities | |||||||||||
| Repayments on mortgage warehouse facilities | ( | ( | |||||||||
Changes in stock option exercises and issuance of restricted stock units, net | ( | ||||||||||
| Payment of principal portion of finance lease | ( | ( | |||||||||
| Repurchase of common stock, net | ( | ( | |||||||||
Cash and distributions to non-controlling interests of consolidated joint ventures | ( | ||||||||||
| Net cash used in financing activities | $ | ( | $ | ( | |||||||
| Net Decrease/Increase in Cash and Cash Equivalents and Restricted Cash | $ | ( | $ | ||||||||
| Cash, Cash Equivalents, and Restricted Cash — Beginning of period | |||||||||||
| Cash, Cash Equivalents, and Restricted Cash — End of period | $ | $ | |||||||||
| Supplemental Cash Flow Information | |||||||||||
| Income tax (paid)/refund, net | $ | ( | $ | ( | |||||||
| Supplemental Non-Cash Investing and Financing Activities: | |||||||||||
| Change in loans payable issued to sellers in connection with land purchase contracts | $ | $ | |||||||||
| Change in inventory not owned | $ | $ | ( | ||||||||
Accrual of excise tax on share repurchases | $ | ( | $ | ||||||||
See accompanying Notes to Unaudited Condensed Consolidated Financial Statements
TAYLOR MORRISON HOME CORPORATION 10-Q
6
ITEM 1. FINANCIAL STATEMENTS
TAYLOR MORRISON HOME CORPORATION
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation — The accompanying unaudited Condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 (the “Annual Report”). In the opinion of management, the accompanying unaudited Condensed consolidated financial statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full fiscal year.
Joint Ventures — We consolidate certain joint ventures in accordance with Accounting Standards Codification (“ASC”) Topic 810, Consolidation. The income from the percentage of the joint venture not owned by us is presented as “Net income attributable to non-controlling interests” on the unaudited Condensed consolidated statement of operations. The equity from the percentage of the joint ventures not owned by us is presented as “Non-controlling interests” on the unaudited Condensed consolidated statement of stockholders’ equity. The balance of non-controlling interests will fluctuate from period to period as a result of activities within the respective joint ventures which may include the allocation of income or losses and distributions or contributions associated with the partners within the joint venture.
Use of Estimates — The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the unaudited Condensed consolidated financial statements and accompanying notes. Significant estimates include real estate development costs to complete, valuation of real estate, valuation of goodwill, valuation of estimated development liabilities, valuation of equity awards, valuation allowance on deferred tax assets, and reserves for warranty and self-insured risks. Actual results could differ from those estimates.
Real Estate Inventory — Inventory consists of raw land, land under development, homes under construction, completed homes, and model homes, all of which are stated at cost. In addition to direct carrying costs, we also capitalize interest, real estate taxes, and related development costs that benefit the entire community, such as field construction supervision and related direct overhead. Home vertical construction costs are accumulated and charged to Cost of home closings at the time of home closing using the specific identification method. Land acquisition, development, interest, and real estate taxes are allocated generally using the relative sales value method. Generally, all overhead costs relating to purchasing, vertical construction, and construction utilities are considered overhead costs and allocated on a per unit basis. These costs are capitalized to inventory from the point development begins to the point construction is completed. Changes in estimated costs to be incurred in a community are generally allocated to the remaining lots on a prospective basis.
The life cycle of a typical community generally ranges from to five years , commencing with the acquisition of unentitled or entitled land, continuing through the land development phase and concluding with the sale, construction and delivery of homes. Actual community duration will vary based on the size of the community, the sales absorption rate and whether we purchased the property as raw land or as finished lots.
TAYLOR MORRISON HOME CORPORATION 10-Q
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ITEM 1. FINANCIAL STATEMENTS
We capitalize qualifying interest costs to inventory during the development and construction periods. Capitalized interest is charged to Cost of home closings when the related inventory is charged to Cost of home closings.
We assess the recoverability of our inventory in accordance with the provisions of ASC Topic 360, Property, Plant, and Equipment. We review our real estate inventory for indicators of impairment on a community-level basis during each reporting period. If indicators of impairment are present for a community, an undiscounted cash flow analysis is generally prepared in order to determine if the carrying value of the assets in that community exceeds the estimated undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, the assets are potentially impaired, requiring a fair value analysis. Our determination of fair value is primarily based on a discounted cash flow model which includes projections and estimates relating to sales prices, construction costs, sales pace, and other factors. However, fair value can be determined through other methods, such as appraisals, contractual purchase offers, and other third party opinions of value. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. For the three and six months ended June 30, 2024, we recorded $2.3 no
In certain cases, we may elect to cease development and/or marketing of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow for market conditions to improve. We refer to such communities as long-term strategic assets. The decision may be based on financial and/or operational metrics as determined by us. For those communities that have been temporarily closed or development has been discontinued, we do not allocate interest or other costs to the community's inventory until activity resumes. Such costs are expensed as incurred. In addition, if we decide to cease development, we will evaluate the project for impairment and then cease future development and marketing activity until such a time when we believe that market conditions have improved and economic performance can be maximized. Our assessment of the carrying value of our long-term strategic assets typically includes estimates of future performance, including the timing of when development will recommence, the type of product to be offered, and the margin to be realized. In the future, some of these inactive communities may be re-opened while others may be sold. As of June 30, 2024 and December 31, 2023, we had no long-term strategic assets.
Land held for sale — In some locations where we act as a developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or government use, which we typically sell to commercial developers or municipalities, as applicable. We also sell residential lots or land parcels to manage our land and lot supply on larger tracts of land. Land is considered held for sale once it meets all criteria in accordance with ASC 360 Property, Plant and Equipment. Land held for sale is recorded at the lower of cost or fair value less costs to sell. In determining the value of land held for sale, we consider recent offers received, prices for land in recent comparable sales transactions, and other factors. For the three and six months ended June 30, 2024, we recorded $6.8 no
Land banking arrangements — We have land purchase agreements with various land sellers. As a method of acquiring land in staged takedowns, while limiting risk and minimizing the immediate use of funds from our available cash or other financing sources, we transfer our right under certain specific performance agreements to entities owned by third parties (“land banking arrangements”). These entities use equity contributions from their owners and/or incur debt to finance the acquisition and development of the land. We incur interest expense on these arrangements. Interest is based on remaining lots to be purchased and is capitalized for the percentage of lots in each project actively under development, with the remainder expensed and included in Interest expense/(income), net on the Condensed consolidated statements of operations. The entities grant us an option to acquire lots in staged takedowns. In consideration for this option, we make a non-significant and non-refundable cash deposit. We are not legally obligated to purchase the lots, but would forfeit any existing deposits and could be subject to financial and other penalties if the lots were not purchased. We do not have an ownership interest in these entities or title to their assets and do not guarantee their liabilities. As such, these entities are not consolidated. These land banking arrangements help us manage the financial and market risk associated with land holdings which are not included in the unaudited Condensed consolidated balance sheets.
Asset Acquisition
TAYLOR MORRISON HOME CORPORATION 10-Q
8
ITEM 1. FINANCIAL STATEMENTS
Investments in Consolidated and Unconsolidated Entities
Consolidated Entities — In the ordinary course of business, we enter into land purchase contracts, lot option contracts and land banking arrangements in order to procure land or lots for the construction of homes. Such contracts enable us to control significant lot positions with a minimal initial capital investment and substantially reduce the risk associated with land ownership and development. In accordance with ASC Topic 810, Consolidation, when we enter into agreements to acquire land or lots and pay a non-refundable deposit, we evaluate if a Variable Interest Entity (“VIE”) should be created if we are deemed to have provided subordinated financial support that will absorb some or all of an entity’s expected losses if they occur. If we are the primary beneficiary of the VIE, we consolidate the VIE and reflect such assets and liabilities as Consolidated real estate not owned and Liabilities attributable to consolidated real estate not owned, respectively, in the unaudited Condensed consolidated balance sheets.
Unconsolidated Joint Ventures — We use the equity method of accounting for entities which we exercise significant influence but do not have a controlling interest over the operating and financial policies of the investee. For unconsolidated entities in which we function as the managing member, we have evaluated the rights held by our joint venture partners and determined that the partners have substantive participating rights that preclude the presumption of control. Our share of net earnings or losses is included in Net income from unconsolidated entities on the unaudited Condensed consolidated statements of operations when earned and distributions are credited against our Investments in unconsolidated entities on the unaudited Condensed consolidated balance sheets when received.
Treasury Stock — We account for treasury stock, including the shares repurchased as part of our Accelerated Share Repurchase ("ASR") programs, in accordance with ASC Topic 505-30, Equity—Treasury Stock. Repurchased shares are reflected as a reduction in stockholders' equity. Refer to Note 10 - Stockholders' Equity for additional discussion regarding the ASR.
Revenue Recognition — Revenue is recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”). The standard's core principle requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services.
Home and land closings revenue
Under Topic 606, the following steps are applied to determine home closings revenue and land closings revenue recognition: (1) identify the contract(s) with our customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the performance obligation(s) are satisfied. Our home sales transactions, have one contract, with one performance obligation, with each customer to build and deliver the home purchased (or develop and deliver land). Based on the application of the five steps, the following summarizes the timing and manner of home and land closings revenue:
•Revenue from closings of residential real estate is recognized when the buyer has made the required minimum down payment, obtained necessary financing, the risks and rewards of ownership are transferred to the buyer, and we have no continuing involvement with the property, which is generally upon the close of escrow. Revenue is reported net of any discounts and incentives.
•Revenue from land sales is recognized when a significant down payment is received, title passes and collectability of the receivable, if any, is reasonably assured, and we have no continuing involvement with the property, which is generally upon the close of escrow.
Amenity and other revenue
We own and operate certain amenities such as golf courses, clubhouses, and fitness centers, pursuant to which we provide club members with access to the facilities in exchange for the payment of club dues. We collect club dues and other fees from club members, which are invoiced on a monthly basis. Revenue from our golf club operations is also included in
TAYLOR MORRISON HOME CORPORATION 10-Q
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ITEM 1. FINANCIAL STATEMENTS
amenity and other revenue. Amenity and other revenue also includes revenue from the sale of assets from our Urban Form operations and Build-to-Rent operations.
Financial services revenue
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 requires all public entities to report segment information in accordance with Topic 280. The guidance will be effective for the annual reporting period ending December 31, 2024 but entities may early adopt. We are currently evaluating the effect of adopting the new guidance on our consolidated financial statements and related disclosures.
3. EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income available to TMHC by the weighted average number of shares of Common Stock (as defined in Note 10) outstanding during the period. Diluted earnings per share gives effect to the potential dilution that could occur if all outstanding dilutive equity awards to issue shares of Common Stock were exercised or settled.
The following is a summary of the components of basic and diluted earnings per share (in thousands, except per share amounts):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted average shares – basic | |||||||||||||||||||||||
| Restricted stock units | |||||||||||||||||||||||
| Stock Options | |||||||||||||||||||||||
| Weighted average shares – diluted | |||||||||||||||||||||||
| Earnings per common share – basic: | |||||||||||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||||||||||
| Earnings per common share – diluted: | |||||||||||||||||||||||
Net income | $ | $ | $ | $ | |||||||||||||||||||
The above calculations of weighted average shares exclude 138,103 and 150,859 of anti-dilutive stock options and unvested performance and non-performance restricted stock units ("RSUs") for the three and six months ended June 30, 2024, respectively, and 347,052 and 267,531 of anti-dilutive stock options and RSUs for the three and six months ended June 30, 2023, respectively.
In addition, 192,105 and 367,084 shares relating to our ASR (refer to Note 10 - Stockholders' Equity) were also anti-dilutive and excluded from the above for the three and six months ended June 30, 2024, respectively. There were no
TAYLOR MORRISON HOME CORPORATION 10-Q
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ITEM 1. FINANCIAL STATEMENTS
4. REAL ESTATE INVENTORY
Inventory consists of the following:
| As of | |||||||||||
| (Dollars in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Real estate developed and under development | $ | $ | |||||||||
Real estate held for development or held for sale (1) | |||||||||||
| Total land inventory | |||||||||||
Operating communities (2) | |||||||||||
| Capitalized interest | |||||||||||
| Total owned inventory | |||||||||||
| Consolidated real estate not owned | |||||||||||
| Total real estate inventory | $ | $ | |||||||||
(1) Real estate held for development or held for sale includes properties which are not in active production.
(2) Operating communities consist of all vertical construction costs relating to homes in progress and completed homes.
We have land option purchase contracts, land banking arrangements and other controlled lot agreements. We do not have title to the properties, and the property owner and its creditors generally only have recourse against us in the form of retaining any non-refundable deposits. We are also not legally obligated to purchase the balance of the lots. Deposits related to these lots are capitalized when paid and classified as Land deposits until the associated property is purchased.
A summary of owned and controlled lots is as follows:
| As of | |||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||
| Owned lots: | |||||||||||
| Undeveloped | |||||||||||
| Under development | |||||||||||
| Finished | |||||||||||
| Total owned lots | |||||||||||
| Controlled lots: | |||||||||||
| Land option purchase contracts | |||||||||||
| Land banking arrangements | |||||||||||
Other controlled lots(1) | |||||||||||
| Total controlled lots | |||||||||||
| Total owned and controlled lots | |||||||||||
| Homes in inventory | |||||||||||
(1) Other controlled lots include single transaction take-downs and lots from our portion of unconsolidated JVs.
Lots which represent homes in progress and completed homes have been excluded from total owned lots. Controlled lots represent lots in which we have a contractual right to acquire real property, generally through an option contract, land banking arrangement, or a land deposit paid to a seller. Homes in inventory include any lots which have commenced vertical construction.
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ITEM 1. FINANCIAL STATEMENTS
Capitalized Interest — Interest capitalized, incurred and amortized is as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Interest capitalized - beginning of period | $ | $ | $ | $ | |||||||||||||||||||
Interest incurred and capitalized(1) | |||||||||||||||||||||||
| Interest amortized to cost of home closings | ( | ( | ( | ( | |||||||||||||||||||
| Interest capitalized - end of period | $ | $ | $ | $ | |||||||||||||||||||
5. INVESTMENTS IN CONSOLIDATED AND UNCONSOLIDATED ENTITIES
Unconsolidated Entities
Summarized, unaudited condensed combined financial information of unconsolidated entities that are accounted for by the equity method are as follows (in thousands):
| As of | |||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||
| Assets: | |||||||||||
| Real estate inventory | $ | $ | |||||||||
| Other assets | |||||||||||
| Total assets | $ | $ | |||||||||
| Liabilities and owners’ equity: | |||||||||||
| Debt | $ | $ | |||||||||
| Other liabilities | |||||||||||
| Total liabilities | $ | $ | |||||||||
| Owners’ equity: | |||||||||||
| TMHC | $ | $ | |||||||||
| Others | |||||||||||
| Total owners’ equity | $ | $ | |||||||||
| Total liabilities and owners’ equity | $ | $ | |||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Revenues | $ | $ | $ | $ | |||||||||||||||||||
| Costs and expenses | ( | ( | ( | ( | |||||||||||||||||||
| Net income from unconsolidated entities | $ | $ | $ | $ | |||||||||||||||||||
| TMHC’s share in net income of unconsolidated entities | $ | $ | $ | $ | |||||||||||||||||||
| Distributions to TMHC from unconsolidated entities | $ | $ | $ | $ | |||||||||||||||||||
Consolidated Entities
As of June 30, 2024, assets of the consolidated joint ventures totaled $261.7 million, of which $33.1 million was cash and cash equivalents, $67.4 million was owned real estate inventory, and $120.0 million was property and equipment, net (primarily related to Urban Form). The majority of the property and equipment, net balance is held for investment as of June 30, 2024. As of December 31, 2023, the assets of the consolidated joint ventures totaled $265.2 million, of which $29.8 million was cash and cash equivalents, $70.2 million was owned real estate inventory, and $121.3 million was property and equipment, net. The liabilities of the consolidated joint ventures totaled $83.5 million and $133.8 million as of June 30, 2024
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ITEM 1. FINANCIAL STATEMENTS
6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consist of the following (in thousands):
As of | |||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||
| Real estate development costs to complete | $ | $ | |||||||||
| Compensation and employee benefits | |||||||||||
| Self-insurance and warranty reserves | |||||||||||
| Interest payable | |||||||||||
Property and sales taxes payable | |||||||||||
| Other accruals | |||||||||||
| Total accrued expenses and other liabilities | $ | $ | |||||||||
Self-Insurance and Warranty Reserves – We accrue for the expected costs associated with our limited warranty, deductibles and self-insured exposure under our various insurance policies within Beneva Indemnity Company (“Beneva”), a wholly owned subsidiary. A summary of the changes in reserves are as follows (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Reserve - beginning of period | $ | $ | $ | $ | |||||||||||||||||||
| Additions to reserves | |||||||||||||||||||||||
| Cost of claims incurred | ( | ( | ( | ( | |||||||||||||||||||
| Changes in estimates to pre-existing reserves | |||||||||||||||||||||||
| Reserve - end of period | $ | $ | $ | $ | |||||||||||||||||||
Due to the degree of judgment required in making these estimates and the inherent uncertainty in potential outcomes, it is reasonably possible that actual costs could differ from those reserved and such differences could be material, resulting in a change in future estimated reserves.
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ITEM 1. FINANCIAL STATEMENTS
7. DEBT
Total debt consists of the following (in thousands):
| As of | |||||||||||||||||||||||||||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||||||||
| Principal | Unamortized Debt Issuance (Costs)/ Premium | Carrying Value | Principal | Unamortized Debt Issuance (Costs)/ Premium | Carrying Value | ||||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||||||||
| Senior Notes subtotal | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Loans payable and other borrowings | |||||||||||||||||||||||||||||||||||
$ | |||||||||||||||||||||||||||||||||||
$ | |||||||||||||||||||||||||||||||||||
| Mortgage warehouse borrowings | |||||||||||||||||||||||||||||||||||
| Total debt | $ | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||||||||||||
(1) Unamortized debt issuance costs are included in the Prepaid expenses and other assets, net on the Condensed consolidated balance sheets.
(2) The $1 Billion Revolving Credit Facility Agreement together with the $100 Million Revolving Credit Facility Agreement, the “Revolving Credit Facilities”.
Debt Instruments
Excluding the debt instruments discussed below, the terms governing all other debt instruments listed in the table above have not substantially changed from the year ended December 31, 2023. For information regarding such instruments, refer to Note 8 - Debt to the Consolidated Financial Statements in our Annual Report. As of June 30, 2024, we were in compliance with all of the covenants in the debt instruments listed in the table above.
$1 Billion Revolving Credit Facility
Our $1 Billion Revolving Credit Facility has a maturity date of March 11, 2027. We had no 1 Billion Revolving Credit Facility as of June 30, 2024 and December 31, 2023.
As of June 30, 2024 and December 31, 2023, we had $2.4 million and $2.9 million, respectively, of unamortized debt issuance costs relating to our $1 Billion Revolving Credit Facility, which are included in Prepaid expenses and other assets, net, on the unaudited Condensed consolidated balance sheets. As of June 30, 2024 and December 31, 2023, we had $57.0 million and $61.2 million, respectively, of utilized letters of credit, resulting in $943.0 million and $938.8 million, respectively, of availability under the $1 Billion Revolving Credit Facility. Subsequent to quarter-end, we borrowed $100 million under our $1 Billion Revolving Credit Facility.
As of June 30, 2024, we were in compliance with all of the covenants under the $1 Billion Revolving Credit Facility.
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ITEM 1. FINANCIAL STATEMENTS
Mortgage Warehouse Borrowings
The following is a summary of our mortgage warehouse borrowings (in thousands):
| As of June 30, 2024 | ||||||||||||||||||||||||||||||||
| Facility | Amount Drawn | Facility Amount | Interest Rate(2) | Expiration Date | Collateral (1) | |||||||||||||||||||||||||||
| Warehouse A | $ | $ | Term SOFR + | on Demand | Mortgage Loans | |||||||||||||||||||||||||||
| Warehouse C | Term SOFR + | on Demand | Mortgage Loans | |||||||||||||||||||||||||||||
| Warehouse D | Daily SOFR + | September 4, 2024 | Mortgage Loans | |||||||||||||||||||||||||||||
| Warehouse E | Term SOFR + | on Demand | Mortgage Loans | |||||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||||||||
| As of December 31, 2023 | ||||||||||||||||||||||||||||||||
| Facility | Amount Drawn | Facility Amount | Interest Rate(2) | Expiration Date | Collateral (1) | |||||||||||||||||||||||||||
| Warehouse A | $ | $ | Term SOFR + | on Demand | Mortgage Loans | |||||||||||||||||||||||||||
| Warehouse C | Term SOFR + | on Demand | Mortgage Loans | |||||||||||||||||||||||||||||
| Warehouse D | Daily SOFR + | September 4, 2024 | Mortgage Loans | |||||||||||||||||||||||||||||
| Warehouse E | Term SOFR + | on Demand | Mortgage Loans | |||||||||||||||||||||||||||||
| Total | $ | $ | ||||||||||||||||||||||||||||||
(1) The mortgage warehouse borrowings outstanding as of June 30, 2024 and December 31, 2023 were collateralized by $313.0 million and $193.3 million, respectively, of mortgage loans held for sale.
(2) Secured Overnight Financing Rate ("SOFR")
Loans Payable and Other Borrowings
Loans payable and other borrowings as of June 30, 2024 and December 31, 2023 consist of project-level debt due to various land sellers and financial institutions for specific communities. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot closings or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0 % to 10 % and 0 % to 9 % at June 30, 2024 and December 31, 2023, respectively. We impute interest for loans with no stated interest rates.
8. FAIR VALUE DISCLOSURES
ASC Topic 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:
Level 1 — Fair value is based on quoted prices for identical assets or liabilities in active markets.
Level 2 — Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable.
Level 3 — Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.
The fair value of our mortgage loans held for sale is derived from negotiated rates with partner lending institutions. Derivative assets and liabilities include interest rate lock commitments (“IRLCs”) and mortgage backed securities (“MBS”). The fair value of IRLCs is based on the value of the underlying mortgage loans, quoted MBS prices and the probability that the mortgage loan will fund within the terms of the IRLCs. We estimate the fair value of the forward sales commitments based on quoted MBS prices. The fair value of our mortgage warehouse borrowings, loans payable and other borrowings, and the borrowings under our Revolving Credit Facilities approximate carrying value due to their short term nature and variable interest rate terms. The fair value of our senior notes is derived from quoted market prices by independent dealers in markets that are not active. There were no changes to or transfers between the levels of the fair value hierarchy for any of our financial instruments as of June 30, 2024, when compared to December 31, 2023.
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ITEM 1. FINANCIAL STATEMENTS
The carrying value and fair value of our financial instruments are as follows:
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||||||||
| (Dollars in thousands) | Level in Fair Value Hierarchy | Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||||||||||||||
| Description: | |||||||||||||||||||||||||||||
| Mortgage loans held for sale | 2 | $ | $ | $ | $ | ||||||||||||||||||||||||
| IRLCs | 3 | ( | ( | ||||||||||||||||||||||||||
| MBSs | 2 | ( | ( | ||||||||||||||||||||||||||
| Mortgage warehouse borrowings | 2 | ||||||||||||||||||||||||||||
| Loans payable and other borrowings | 2 | ||||||||||||||||||||||||||||
| 2 | |||||||||||||||||||||||||||||
| 2 | |||||||||||||||||||||||||||||
| 2 | |||||||||||||||||||||||||||||
| 2 | |||||||||||||||||||||||||||||
Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate that their carrying value is not recoverable. The following table presents the fair value for our inventories measured at fair value on a nonrecurring basis:
| (Dollars in thousands) | Level in Fair Value Hierarchy | As of June 30, 2024 | As of September 30, 2023(1) | ||||||||||||||
| Description: | |||||||||||||||||
Real estate inventory | 3 | $ | $ | ||||||||||||||
(1) As of December 31, 2023 there was no additional impairment; therefore, the fair value information presented is as of September 30, 2023.
9. INCOME TAXES
The effective tax rate for the three and six months ended June 30, 2024 was 25.2 % and 24.2 %, respectively, compared to 25.6 % and 24.5 % for the same periods in 2023. For the three months ended June 30, 2024, the effective tax rate differed from the U.S. federal statutory income tax rate primarily due to state income taxes, non-deductible executive compensation, and energy credits related to homebuilding activities.
There were no
10. STOCKHOLDERS’ EQUITY
Capital Stock
The Company’s authorized capital stock consists of 400,000,000 shares of common stock, par value $0.00001 per share (the “Common Stock”), and 50,000,000 shares of preferred stock, par value $0.00001 per share.
Stock Repurchase Program
On December 15, 2023 the Board of Directors authorized a renewal of the Company's then-existing stock repurchase program which permits the repurchase up to $500 million of the Company’s common stock through December 31, 2025. Repurchases under the program may occur from time to time through open market purchases, privately negotiated transactions or other transactions.
Using the availability under our stock repurchase program, we entered into two ASR agreements with the same financial institution during the six months ended June 30, 2024. We paid $50.0 million for each agreement and received an initial delivery of 80 % of common stock shares in accordance with the ASR agreements. The remaining 20 % of settlements are expected to occur no later than the third quarter of 2024, at which time, the volume-weighted average price calculations over the term of the ASR agreements will be used to determine the final number of shares to be delivered. We accounted for the ASRs as common stock repurchases and forward contracts indexed to our own common stock. We determined that the equity classification criteria was met for the forward contracts; therefore, they were not accounted for as derivative instruments.
TAYLOR MORRISON HOME CORPORATION 10-Q
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ITEM 1. FINANCIAL STATEMENTS
The following table summarizes share repurchase activity for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Number of Shares) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| March 5, 2024 ASR Agreement | |||||||||||||||||||||||
| June 7, 2024 ASR Agreement | |||||||||||||||||||||||
| Number of shares repurchased with ASR | |||||||||||||||||||||||
Other share repurchases(1) | |||||||||||||||||||||||
Total share repurchases - end of period | |||||||||||||||||||||||
(1) Amount represents shares repurchased under our existing share repurchase program which are not part of ASRs.
The following table summarizes the spend on share repurchases for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Amount available for repurchase — beginning of period | $ | $ | $ | $ | |||||||||||||||||||
Amount repurchased(1) | ( | ( | ( | ||||||||||||||||||||
| Amount available for repurchase — end of period | $ | $ | $ | $ | |||||||||||||||||||
(1) 2024 includes the amount paid for our ASR programs.
11. STOCK BASED COMPENSATION
Equity-Based Compensation
In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (the “Plan”). The Plan was most recently amended and restated in May 2022. The Plan provides for the grant of stock options, RSUs, performance-based restricted stock units (“PRSUs”), and other equity-based awards deliverable in shares of our Common Stock. As of June 30, 2024, we had an aggregate of 4,860,483 shares of Common Stock available for future grants under the Plan.
The following table provides the outstanding balance of RSUs, PRSUs, and stock options as of June 30, 2024:
| RSUs and PRSUs | Stock Options | ||||||||||||||||||||||
Number of Units | Weighted Average Grant Date Fair Value | Number of Options | Weighted Average Exercise Price Per Share | ||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | |||||||||||||||||||||
The following table provides information regarding the amount and components of stock-based compensation expense, all of which is included in General and administrative expenses in the unaudited Condensed consolidated statements of operations (in thousands):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
Restricted stock units (1) | $ | $ | $ | $ | |||||||||||||||||||
| Stock options | |||||||||||||||||||||||
| Total stock compensation expense | $ | $ | $ | $ | |||||||||||||||||||
(1) Includes compensation expense related to time-based RSUs and PRSUs.
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ITEM 1. FINANCIAL STATEMENTS
12. OPERATING AND REPORTING SEGMENTS
We have multiple homebuilding operating components which are engaged in the business of acquiring and developing land, constructing homes, marketing and selling homes, and providing warranty and customer service. We aggregate our homebuilding operating components into three reporting segments, East, Central, and West, based on similar long-term economic characteristics. The activity from our Build-to-Rent and Urban Form operations are included in our Corporate segment. We also have a Financial Services reporting segment.
Our reporting segments are as follows:
| East | Atlanta, Charlotte, Jacksonville, Naples, Orlando, Raleigh, Sarasota, and Tampa | ||||
| Central | Austin, Dallas, Denver, Houston, and Indianapolis | ||||
| West | Bay Area, Las Vegas, Phoenix, Portland, Sacramento, Seattle, and Southern California | ||||
| Financial Services | Taylor Morrison Home Funding, Inspired Title Services, and Taylor Morrison Insurance Services | ||||
Operating results for each segment may not be indicative of the results for such segment had it been an independent, stand-alone entity. Segment information is as follows (in thousands):
| Three Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||
| East | Central | West | Financial Services | Corporate and Unallocated(1) | Total | ||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Gross margin | |||||||||||||||||||||||||||||||||||
Selling(2), general and administrative expenses | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Net (loss)/income from unconsolidated entities | ( | ( | |||||||||||||||||||||||||||||||||
Interest and other (expense)/income, net(3) | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Income/(loss) before income taxes | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
(1) Includes the activity from our Build-To-Rent and Urban Form operations.
(2) Includes sales, commissions, and other marketing costs.
(3) Interest and other (expense)/income, net includes pre-acquisition write-offs on terminated projects.
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| East | Central | West | Financial Services | Corporate and Unallocated(1) | Total | ||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Gross margin | |||||||||||||||||||||||||||||||||||
Selling(2), general and administrative expenses | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Net income/(loss) from unconsolidated entities | ( | ||||||||||||||||||||||||||||||||||
Interest and other (expense)/income, net(3) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Income/(loss) before income taxes | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
(1) Includes the activity from our Build-To-Rent and Urban Form operations.
(2) Includes sales, commissions, and other marketing costs.
(3) Interest and other (expense)/income, net includes pre-acquisition write-offs on terminated projects.
TAYLOR MORRISON HOME CORPORATION 10-Q
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ITEM 1. FINANCIAL STATEMENTS
| Six Months Ended June 30, 2024 | |||||||||||||||||||||||||||||||||||
| East | Central | West | Financial Services | Corporate and Unallocated(1) | Total | ||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Gross margin | |||||||||||||||||||||||||||||||||||
Selling(2), general and administrative expenses | ( | ( | ( | ( | ( | ||||||||||||||||||||||||||||||
| Net (loss)/income from unconsolidated entities | ( | ( | |||||||||||||||||||||||||||||||||
Interest and other (expense)/income, net(3) | ( | ( | ( | ( | |||||||||||||||||||||||||||||||
| Income/(loss) before income taxes | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
(1) Includes the activity from our Build-To-Rent and Urban Form operations.
(2) Includes sales, commissions, and other marketing costs.
(3) Interest and other (expense)/income, net includes pre-acquisition write-offs on terminated projects.
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||
| East | Central | West | Financial Services | Corporate and Unallocated(1) | Total | ||||||||||||||||||||||||||||||
| Total revenue | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Gross margin | |||||||||||||||||||||||||||||||||||
Selling(2), general and administrative expenses | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||
| Net income/(loss) from unconsolidated entities | ( | ( | |||||||||||||||||||||||||||||||||
Interest and other (expense)/income, net(3) | ( | ( | |||||||||||||||||||||||||||||||||
| Income/(loss) before income taxes | $ | $ | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||
(1) Includes the activity from our Build-To-Rent and Urban Form operations.
(2) Includes sales, commissions, and other marketing costs.
(3) Interest and other (expense)/income, net includes pre-acquisition write-offs on terminated projects.
| As of June 30, 2024 | |||||||||||||||||||||||||||||||||||
| East | Central | West | Financial Services | Corporate and Unallocated(1) | Total | ||||||||||||||||||||||||||||||
| Real estate inventory and land deposits | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Investments in unconsolidated entities | |||||||||||||||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(1) Includes the assets from our Build-To-Rent and Urban Form operations.
| As of December 31, 2023 | |||||||||||||||||||||||||||||||||||
| East | Central | West | Financial Services | Corporate and Unallocated(1) | Total | ||||||||||||||||||||||||||||||
| Real estate inventory and land deposits | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Investments in unconsolidated entities | |||||||||||||||||||||||||||||||||||
| Other assets | |||||||||||||||||||||||||||||||||||
| Total assets | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
(1) Includes the assets from our Build-To-Rent and Urban Form operations.
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ITEM 1. FINANCIAL STATEMENTS
13. COMMITMENTS AND CONTINGENCIES
Letters of Credit and Surety Bonds — We are committed, under various letters of credit and surety bonds, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit and surety bonds under these arrangements totaled $1.4 billion and $1.3 billion as of June 30, 2024 and December 31, 2023, respectively. Although significant development and construction activities have been completed related to these site improvements, the bonds are generally not released until all development and construction activities are completed. We do not believe that it is probable that any outstanding bonds as of June 30, 2024 will be drawn upon.
Purchase Commitments —We are subject to the usual obligations associated with entering into contracts (including land option contracts and land banking arrangements) for the purchase, development, and sale of real estate in the routine conduct of our business. We have a number of land purchase option contracts and land banking agreements, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the property owner and its creditors generally have no recourse. Our obligations with respect to such contracts are generally limited to the forfeiture of the related non-refundable cash deposits. The aggregate purchase price for land under these contracts was $1.5 billion at June 30, 2024 and December 31, 2023.
Legal Proceedings — We are involved in various litigation and legal claims in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations.
We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss can be reasonably estimated. At June 30, 2024 and December 31, 2023, our legal accruals were $35.3 million and $26.2 million, respectively. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. Predicting the ultimate resolution of the pending matters, the related timing, or the eventual loss associated with these matters is inherently difficult. Accordingly, the liability arising from the ultimate resolution of any matter may exceed the estimate reflected in the accrued liabilities relating to such matter. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows.
On April 26, 2017, a class action complaint was filed in the Circuit Court of the Tenth Judicial Circuit in and for Polk County, Florida by Norman Gundel, William Mann, and Brenda Taylor against Avatar Properties, Inc. (an acquired AV Homes entity) ("Avatar"), generally alleging that our collection of club membership fees in connection with the use of one of our amenities in our East homebuilding segment violates various laws relating to homeowner associations and other Florida-specific laws (the "Solivita litigation"). The class action complaint sought an injunction to prohibit future collection of club membership fees. On November 2, 2021, the court determined that the club membership fees were improper and that plaintiffs were entitled to $35.0 million in fee reimbursements. We appealed the court’s ruling to the Sixth District Court of Appeal on November 29, 2021, and the plaintiffs agreed to continue to pay club membership fees pending the outcome of the appeal. On June 23, 2023 the District Court affirmed the trial court judgment in a split decision, with three separate opinions. Recognizing the potential “far-reaching effects on homeowners associations throughout the State,” the District Court certified a question of great public importance to the Florida Supreme Court, and we filed a notice to invoke the discretionary review of the Florida Supreme Court. On November 2, 2023, the Florida Supreme Court declined to exercise jurisdiction.
Following the Florida Supreme Court’s decision, we paid $64.7 million to the plaintiffs during the quarter ended December 31, 2023, which included the amount of the trial court’s judgment, club membership fees received during the pendency of our appeal, pre-judgment interest and post-judgment interest. We have recorded an accrual for our estimated liability with respect to the plaintiff’s legal fees and costs for this matter, which is reflected in our legal accruals as of June 30, 2024 and is not material to our condensed consolidated financial statements. Plaintiffs have also asserted claims for additional pre-judgment interest, for which we believe we have substantial defenses. A hearing on the plaintiff's claims for additional pre-judgment interest was held on July 2, 2024, and the plaintiff's claims remain under the court's consideration. Additional hearings on the plaintiff's claims for legal fees have been scheduled for later in the third quarter of 2024.
After reviewing our amenity arrangements in our Florida communities to determine whether such arrangements might subject the Company to liability in light of the outcome of the Solivita litigation described above, we identified one additional community with similar claims. On August 13, 2020, Slade Chelbian, a resident of our Bellalago community in Kissimmee, Florida, filed a purported class action suit against Avatar, AV Homes, Inc. and Taylor Morrison Home Corporation in the Circuit Court of the Ninth Circuit in and for Osceola County, Florida, generally alleging that Avatar cannot earn profits from community members for use of club amenities where membership in the club is mandatory for all residents and failure to pay club membership fees could result in the foreclosure of their homes by Avatar. On February 25, 2022, the court stayed the action pending the resolution of the Solivita litigation. Following the resolution of the Solivita appeal, the court held a case management conference wherein the court scheduled a class certification hearing for the fourth quarter of 2024, but no
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ITEM 1. FINANCIAL STATEMENTS
class has been certified to date. While the ultimate outcome and the costs associated with litigation are inherently uncertain and difficult to predict, we have recorded an accrual for our estimated liability for this matter, which is reflected in our legal accruals as of June 30, 2024.
14. MORTGAGE HEDGING ACTIVITIES
The following summarizes derivative instrument assets/(liabilities) as of the periods presented:
| As of | |||||||||||||||||||||||
| June 30, 2024 | December 31, 2023 | ||||||||||||||||||||||
| (Dollars in thousands) | Fair Value | Notional Amount (1) | Fair Value | Notional Amount (1) | |||||||||||||||||||
| IRLCs | $ | ( | $ | $ | $ | ||||||||||||||||||
| MBSs | ( | ||||||||||||||||||||||
| Total | $ | ( | $ | ( | |||||||||||||||||||
(1) The notional amounts in the table above include mandatory and best effort mortgages, that have been locked and approved.
Total commitments to originate loans approximated $306.9 million and $242.6 million as of June 30, 2024 and December 31, 2023, respectively. This amount represents the commitments to originate loans that have been locked and approved by underwriting. The notional amounts in the table above includes mandatory and best effort loans that have been locked and approved by underwriting.
TAYLOR MORRISON HOME CORPORATION 10-Q
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For purposes of this “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the terms “the Company,” “we,” “us,” or “our” refer to Taylor Morrison Home Corporation (“TMHC”) and its subsidiaries. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited Condensed consolidated financial statements included elsewhere in this quarterly report.
Forward-Looking Statements
This quarterly report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business and operations strategy. These statements often include words such as “may,” “will,” “should,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “can,” “could,” “might,” “project” or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this quarterly report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading “Risk Factors” in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (“Annual Report”) and in our subsequent filings with the U.S. Securities and Exchange Commission (the “SEC”). Although we believe that these forward-looking statements are based upon reasonable assumptions and currently available information, you should be aware that many factors, including those described under the heading “Risk Factors” in the Annual Report and in our subsequent filings with the SEC, could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements.
Our forward-looking statements made herein are made only as of the date of this quarterly report. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based, except as required by applicable law.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Overview
Our principal business is residential homebuilding and the development of lifestyle communities with operations across 12 states, including Indiana, our most recent footprint expansion. We provide an assortment of homes across a wide range of price points to appeal to an array of consumer groups. We design, build and sell single and multi-family detached and attached homes in traditionally high growth markets for entry level, move-up, and resort-lifestyle buyers. We operate under various brand names including Taylor Morrison, Darling Homes Collection by Taylor Morrison, and Esplanade. We also have a “Build-to-Rent” homebuilding business which operates under the Yardly brand name. In addition, we develop and construct multi-use properties consisting of commercial space, retail, and multi-family properties under the Urban Form brand name. We also have operations which provide financial services to customers through our wholly owned mortgage subsidiary, TMHF, title services through our wholly owned title services subsidiary, Inspired Title, and homeowner’s insurance policies through our wholly owned insurance agency, TMIS. Our business is organized into multiple homebuilding operating components, and a financial services component, all of which are managed as four reportable segments: East, Central, West and Financial Services, as follows:
| East | Atlanta, Charlotte, Jacksonville, Naples, Orlando, Raleigh, Sarasota, and Tampa | ||||
| Central | Austin, Dallas, Denver, Houston, and Indianapolis | ||||
| West | Bay Area, Las Vegas, Phoenix, Portland, Sacramento, Seattle, and Southern California | ||||
| Financial Services | Taylor Morrison Home Funding, Inspired Title Services, and Taylor Morrison Insurance Services | ||||
As of June 30, 2024, we employed approximately 3,000 full-time equivalent persons. Of these, approximately 2,600 were engaged in corporate and homebuilding operations, and the remaining approximately 400 were engaged in financial services.
Second Quarter 2024 Highlights (all comparisons are of the current quarter to the prior year quarter, unless otherwise indicated):
•Net sales orders increased 3% to 3,111, driven by a monthly absorption pace of 3.0 per community
•Home closings revenue of $1.9 billion, driven by 3,200 home closings at an average price of $600,000
•Home closings gross margin of 23.8% on a reported basis and 23.9% on an adjusted basis
•80,677 homebuilding lots owned and controlled, representing 6.7 years of total supply, of which 2.9 years was owned
•Repurchased 1.7 million common shares for $105 million
•Homebuilding debt to capitalization of 25.4% on a gross basis and 22.8% net of $247 million of unrestricted cash
•Total liquidity of $1.3 billion
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth our results of operations for the periods presented:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||
| Statements of Operations Data: | |||||||||||||||||||||||
| Home closings revenue, net | $ | 1,920,127 | $ | 1,996,747 | $ | 3,556,382 | $ | 3,609,342 | |||||||||||||||
| Land closings revenue | 13,234 | 12,628 | 20,459 | 17,148 | |||||||||||||||||||
| Financial services revenue | 48,916 | 41,914 | 95,875 | 77,063 | |||||||||||||||||||
| Amenity and other revenue | 8,776 | 9,275 | 18,089 | 18,868 | |||||||||||||||||||
| Total revenue | 1,991,053 | 2,060,564 | 3,690,805 | 3,722,421 | |||||||||||||||||||
| Cost of home closings | 1,462,706 | 1,514,237 | 2,705,915 | 2,741,750 | |||||||||||||||||||
| Cost of land closings | 18,703 | 12,703 | 23,905 | 17,048 | |||||||||||||||||||
| Financial services expenses | 28,106 | 25,342 | 53,249 | 47,490 | |||||||||||||||||||
| Amenity and other expenses | 9,250 | 8,597 | 18,603 | 16,882 | |||||||||||||||||||
| Total cost of revenue | 1,518,765 | 1,560,879 | 2,801,672 | 2,823,170 | |||||||||||||||||||
| Gross margin | 472,288 | 499,685 | 889,133 | 899,251 | |||||||||||||||||||
| Sales, commissions and other marketing costs | 113,956 | 113,034 | 216,556 | 205,794 | |||||||||||||||||||
| General and administrative expenses | 82,779 | 70,649 | 150,343 | 136,910 | |||||||||||||||||||
| Net income from unconsolidated entities | (2,628) | (3,186) | (5,379) | (5,115) | |||||||||||||||||||
| Interest expense/(income), net | 4,087 | (5,120) | 4,044 | (6,231) | |||||||||||||||||||
| Other expense, net | 6,877 | 8,549 | 7,472 | 3,715 | |||||||||||||||||||
| Income before income taxes | 267,217 | 315,759 | 516,097 | 564,178 | |||||||||||||||||||
| Income tax provision | 67,303 | 80,854 | 125,022 | 138,045 | |||||||||||||||||||
| Net income before allocation to non-controlling interests | 199,914 | 234,905 | 391,075 | 426,133 | |||||||||||||||||||
| Net income attributable to non-controlling interests | (454) | (303) | (1,345) | (480) | |||||||||||||||||||
| Net income | $ | 199,460 | $ | 234,602 | $ | 389,730 | $ | 425,653 | |||||||||||||||
| Home closings gross margin | 23.8 | % | 24.2 | % | 23.9 | % | 24.0 | % | |||||||||||||||
Sales, commissions and other marketing costs as a percentage of home closings revenue, net | 5.9 | % | 5.7 | % | 6.1 | % | 5.7 | % | |||||||||||||||
General and administrative expenses as a percentage of home closings revenue, net | 4.3 | % | 3.5 | % | 4.2 | % | 3.8 | % | |||||||||||||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Non-GAAP Measures
In addition to the results reported in accordance with GAAP, we generally provide our investors with supplemental information relating to: (i) adjusted net income and adjusted earnings per common share, (ii) adjusted income before income taxes and related margin, (iii) adjusted home closings gross margin; (iv) EBITDA and adjusted EBITDA and (v) net homebuilding debt to capitalization ratio.
Adjusted net income, adjusted earnings per common share and adjusted income before income taxes and related margin are non-GAAP financial measures that reflect net income/(loss), excluding to the extent applicable in a given period, the impact of inventory or land impairment charges, impairment of investment in unconsolidated entities, pre-acquisition abandonment charges, gain/loss on land transfers to joint ventures, extinguishment of debt, net, and legal reserves or settlements the Company deems not to be in the ordinary course of business and in the case of adjusted net income and adjusted earnings per common share, the tax impact due to such items. Adjusted home closings gross margin is a non-GAAP financial measure calculated as GAAP home closings gross margin (which is inclusive of capitalized interest), excluding inventory impairment charges.
EBITDA and Adjusted EBITDA are non-GAAP financial measures that measure performance by adjusting net income before allocation to non-controlling interests to exclude, interest expense/(income), net, amortization of capitalized interest, income taxes, depreciation and amortization (EBITDA), and non-cash compensation expense, if any, inventory or land impairment charges, impairment of investments in unconsolidated entities, pre-acquisition abandonment charges, gain/loss on land transfers to joint ventures, extinguishment of debt, net, and legal reserves or settlements that the Company deems not to be in the ordinary course of business, in each case, as applicable in a given period.
Net homebuilding debt to capitalization ratio is a non-GAAP financial measure we calculate by dividing (i) total debt, plus unamortized debt issuance cost/(premium), net, and less mortgage warehouse borrowings, net of unrestricted cash and cash equivalents (“net homebuilding debt”), by (ii) total capitalization (the sum of net homebuilding debt and total stockholders’ equity).
Management uses these non-GAAP financial measures to evaluate our performance on a consolidated basis, as well as the performance of our regions, and to set targets for performance-based compensation. We also use the ratio of net homebuilding debt to total capitalization as an indicator of overall leverage and to evaluate our performance against other companies in the homebuilding industry. In the future, we may include additional adjustments in the above-described non-GAAP financial measures to the extent we deem them appropriate and useful to management and investors.
We believe adjusted net income, adjusted earnings per common share and adjusted income before income taxes and related margin as well as EBITDA and adjusted EBITDA are useful for investors in order to allow them to evaluate our operations without the effects of various items we do not believe are characteristic of our ongoing operations or performance and also because such metrics assist both investors and management in analyzing and benchmarking the performance and value of our business. Adjusted EBITDA also provides an indicator of general economic performance that is not affected by fluctuations in interest rates or effective tax rates, levels of depreciation or amortization, or unusual items. Because we use the ratio of net homebuilding debt to total capitalization to evaluate our performance against other companies in the homebuilding industry, we believe this measure is also relevant and useful to investors for that reason. We believe that adjusted home closings gross margin is useful to investors because it allows investors to evaluate the performance of our homebuilding operations without the varying effects of items or transactions we do not believe are characteristic of our ongoing operations or performance.
These non-GAAP financial measures should be considered in addition to, rather than as a substitute for, the comparable U.S. GAAP financial measures of our operating performance or liquidity. Although other companies in the homebuilding industry may report similar information, their definitions may differ. We urge investors to understand the methods used by other companies to calculate similarly-titled non-GAAP financial measures before comparing their measures to ours.
A reconciliation of (i) adjusted net income and adjusted earnings per common share, (ii) adjusted income before income taxes and related margin, (iii) adjusted home closings gross margin, (iv) EBITDA and adjusted EBITDA, and (v) net homebuilding debt to capitalization ratio to the comparable GAAP measures is presented below.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Adjusted Net Income and Adjusted Earnings Per Common Share
| Three Months Ended June 30, | |||||||||||
| (Dollars in thousands, except per share data) | 2024 | 2023 | |||||||||
| Net income | $ | 199,460 | $ | 234,602 | |||||||
Legal reserves or settlements(1) | 6,290 | — | |||||||||
Inventory impairments(2) | 2,325 | — | |||||||||
Fair value adjustment for land held for sale(3) | 6,782 | — | |||||||||
| Tax impact due to above non-GAAP reconciling items | (3,878) | — | |||||||||
| Adjusted net income | $ | 210,979 | $ | 234,602 | |||||||
| Basic weighted average number of shares | 105,500 | 109,210 | |||||||||
| Adjusted earnings per common share - Basic | $ | 2.00 | $ | 2.15 | |||||||
| Diluted weighted average number of shares | 107,249 | 110,856 | |||||||||
| Adjusted earnings per common share - Diluted | $ | 1.97 | $ | 2.12 | |||||||
Adjusted Income Before Income Taxes and Related Margin
| Three Months Ended June 30, | |||||||||||
| (Dollars in thousands) | 2024 | 2023 | |||||||||
| Income before income taxes | $ | 267,217 | $ | 315,759 | |||||||
Legal reserves or settlements(1) | 6,290 | — | |||||||||
Inventory impairments(2) | 2,325 | — | |||||||||
Fair value adjustment for land held for sale(3) | 6,782 | — | |||||||||
| Adjusted income before income taxes | $ | 282,614 | $ | 315,759 | |||||||
| Total revenue | $ | 1,991,053 | $ | 2,060,564 | |||||||
| Income before income taxes margin | 13.4 | % | 15.3 | % | |||||||
| Adjusted income before income taxes margin | 14.2 | % | 15.3 | % | |||||||
Adjusted Home Closings Gross Margin
| Three Months Ended June 30, | |||||||||||
| (Dollars in thousands) | 2024 | 2023 | |||||||||
| Home closings revenue, net | $ | 1,920,127 | $ | 1,996,747 | |||||||
| Cost of home closings | 1,462,706 | 1,514,237 | |||||||||
| Home closings gross margin | $ | 457,421 | $ | 482,510 | |||||||
Inventory impairments(2) | 2,325 | — | |||||||||
| Adjusted home closings gross margin | $ | 459,746 | $ | 482,510 | |||||||
| Home closings gross margin as a percentage of home closings revenue, net | 23.8 | % | 24.2 | % | |||||||
| Adjusted home closings gross margin as a percentage of home closings revenue, net | 23.9 | % | 24.2 | % | |||||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EBITDA and Adjusted EBITDA Reconciliation
| Three Months Ended June 30, | |||||||||||
| (Dollars in thousands) | 2024 | 2023 | |||||||||
| Net income before allocation to non-controlling interests | $ | 199,914 | $ | 234,905 | |||||||
| Interest expense/(income), net | 4,087 | (5,120) | |||||||||
| Amortization of capitalized interest | 28,303 | 37,352 | |||||||||
| Income tax provision | 67,303 | 80,854 | |||||||||
| Depreciation and amortization | 3,450 | 1,540 | |||||||||
| EBITDA | $ | 303,057 | $ | 349,531 | |||||||
| Non-cash compensation expense | 6,072 | 5,271 | |||||||||
Legal reserves or settlements(1) | 6,290 | — | |||||||||
Inventory impairments(2) | 2,325 | — | |||||||||
Fair value adjustment for land held for sale(3) | 6,782 | — | |||||||||
| Adjusted EBITDA | $ | 324,526 | $ | 354,802 | |||||||
| Total revenue | $ | 1,991,053 | $ | 2,060,564 | |||||||
| Net income before allocation to non-controlling interests as a percentage of total revenue | 10.0 | % | 11.4 | % | |||||||
| EBITDA as a percentage of total revenue | 15.2 | % | 17.0 | % | |||||||
| Adjusted EBITDA as a percentage of total revenue | 16.3 | % | 17.2 | % | |||||||
(1) Included in Other expense, net on the unaudited Condensed consolidated statements of operations.
(2) Included in Cost of home closings on the unaudited Condensed consolidated statements of operations.
(3) Included in Cost of land closings on the unaudited Condensed consolidated statements of operations.
Net Homebuilding Debt to Capitalization Ratio Reconciliation
| As of | |||||||||||||||||
| (Dollars in thousands) | June 30, 2024 | March 31, 2024 | June 30, 2023 | ||||||||||||||
| Total debt | $ | 2,150,021 | $ | 2,093,499 | $ | 2,393,571 | |||||||||||
| Plus: unamortized debt issuance cost, net | 7,496 | 7,935 | 9,613 | ||||||||||||||
| Less: mortgage warehouse borrowings | (276,205) | (183,174) | (249,898) | ||||||||||||||
| Total homebuilding debt | $ | 1,881,312 | $ | 1,918,260 | $ | 2,153,286 | |||||||||||
Total stockholders' equity | 5,526,542 | 5,426,168 | 5,095,313 | ||||||||||||||
| Total capitalization | $ | 7,407,854 | $ | 7,344,428 | $ | 7,248,599 | |||||||||||
| Total homebuilding debt to capitalization ratio | 25.4 | % | 26.1 | % | 29.7 | % | |||||||||||
| Total homebuilding debt | 1,881,312 | 1,918,260 | 2,153,286 | ||||||||||||||
| Less: cash and cash equivalents | (246,845) | (554,287) | (1,227,264) | ||||||||||||||
| Net homebuilding debt | $ | 1,634,467 | $ | 1,363,973 | $ | 926,022 | |||||||||||
Total stockholders' equity | $ | 5,526,542 | $ | 5,426,168 | $ | 5,095,313 | |||||||||||
| Total capitalization | $ | 7,161,009 | $ | 6,790,141 | $ | 6,021,335 | |||||||||||
| Net homebuilding debt to capitalization ratio | 22.8 | % | 20.1 | % | 15.4 | % | |||||||||||
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three and six months ended June 30, 2024 compared to three and six months ended June 30, 2023
Ending Active Selling Communities
| As of June 30, | Change | ||||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| East | 122 | 103 | 18.4 | % | |||||||||||||
| Central | 106 | 103 | 2.9 | % | |||||||||||||
| West | 119 | 121 | (1.7 | %) | |||||||||||||
| Total | 347 | 327 | 6.1 | % | |||||||||||||
The total ending active selling communities increased by 6.1% at June 30, 2024 when compared to June 30, 2023, primarily driven by our East segment which had multiple master plan community openings. The increase of community openings were partially offset by community close-outs.
Net Sales Orders
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Sales Orders (1) | Sales Value (1) | Average Selling Price | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | Change | 2024 | 2023 | Change | 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||||||||||
| East | 1,160 | 1,047 | 10.8 | % | $ | 616,846 | $ | 582,944 | 5.8 | % | $ | 532 | $ | 557 | (4.5) | % | |||||||||||||||||||||||||||||||||||||
| Central | 815 | 808 | 0.9 | % | 485,036 | 489,142 | (0.8 | %) | 595 | 605 | (1.7) | % | |||||||||||||||||||||||||||||||||||||||||
| West | 1,136 | 1,168 | (2.7 | %) | 767,925 | 782,046 | (1.8 | %) | 676 | 670 | 0.9 | % | |||||||||||||||||||||||||||||||||||||||||
| Total | 3,111 | 3,023 | 2.9 | % | $ | 1,869,807 | $ | 1,854,132 | 0.8 | % | $ | 601 | $ | 613 | (2.0 | %) | |||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Sales Orders (1) | Sales Value (1) | Average Selling Price | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | Change | 2024 | 2023 | Change | 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||||||||||
| East | 2,455 | 2,126 | 15.5 | % | $ | 1,393,707 | $ | 1,227,463 | 13.5 | % | $ | 568 | $ | 577 | (1.6) | % | |||||||||||||||||||||||||||||||||||||
| Central | 1,719 | 1,482 | 16.0 | % | 963,455 | 873,972 | 10.2 | % | 560 | 590 | (5.1) | % | |||||||||||||||||||||||||||||||||||||||||
| West | 2,623 | 2,269 | 15.6 | % | 1,752,408 | 1,538,390 | 13.9 | % | 668 | 678 | (1.5 | %) | |||||||||||||||||||||||||||||||||||||||||
| Total | 6,797 | 5,877 | 15.7 | % | $ | 4,109,570 | $ | 3,639,825 | 12.9 | % | $ | 605 | $ | 619 | (2.3 | %) | |||||||||||||||||||||||||||||||||||||
(1) Net sales orders and sales value represent the number and dollar value, respectively, of new sales contracts executed with customers, net of cancellations.
Net sales orders increased 2.9% for the three months ended June 30, 2024, compared to the same period in the prior year, primarily due to our East region as a result of new community openings. The decrease in the West is primarily driven by traditional seasonality with lower sales in the second quarter as well as community close-outs. Net sales orders increased 15.7% for the six months ended June 30, 2024, compared to the same period in the prior year due to strong sales in the first quarter of 2024 as a result of fewer cancellations and improved buyer confidence. Average selling prices decreased for both the three and six months ended June 30, 2024, compared to the same periods in the prior year as a result of a decrease in option and lot premium revenues in certain markets as well as product mix.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales Order Cancellations
Cancellation Rate(1) | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| East | 9.5 | % | 7.3 | % | 7.6 | % | 8.5 | % | |||||||||||||||
| Central | 9.1 | % | 15.8 | % | 8.9 | % | 17.1 | % | |||||||||||||||
| West | 9.5 | % | 11.3 | % | 8.1 | % | 13.6 | % | |||||||||||||||
| Total Company | 9.4 | % | 11.2 | % | 8.1 | % | 12.8 | % | |||||||||||||||
(1) Cancellation rate represents the number of canceled sales orders divided by gross sales orders.
The total company cancellation rate decreased for the three and six months ended June 30, 2024, compared to the same periods in the prior year. We believe the decrease in cancellations is due to improved buyer confidence as a result of stabilizing macro economic factors such as mortgage interest rates and inflation.
Sales Order Backlog
| As of June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Sold Homes in Backlog (1) | Sales Value | Average Selling Price | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | Change | 2024 | 2023 | Change | 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||||||||||
| East | 2,356 | 2,477 | (4.9) | % | $ | 1,641,116 | $ | 1,626,635 | 0.9 | % | $ | 697 | $ | 657 | 6.1 | % | |||||||||||||||||||||||||||||||||||||
| Central | 1,423 | 1,532 | (7.1) | % | 875,064 | 1,009,441 | (13.3) | % | 615 | 659 | (6.7) | % | |||||||||||||||||||||||||||||||||||||||||
| West | 2,477 | 2,156 | 14.9 | % | 1,681,639 | 1,458,395 | 15.3 | % | 679 | 676 | 0.4 | % | |||||||||||||||||||||||||||||||||||||||||
| Total | 6,256 | 6,165 | 1.5 | % | $ | 4,197,819 | $ | 4,094,471 | 2.5 | % | 671 | 664 | 1.1 | % | |||||||||||||||||||||||||||||||||||||||
(1) Sales order backlog represents homes under contract for which revenue has not yet been recognized at the end of the period (including homes sold but not
yet started). Some of the contracts in our sales order backlog are subject to contingencies including mortgage loan approval and buyers selling their existing
homes, which can result in cancellations.
Total sold homes in backlog and total sales value increased by 1.5% and 2.5% at June 30, 2024 compared to June 30, 2023, respectively. The increase in backlog units in the West is due to an improvement in the cancellation rate coupled with strong sales in the first half of the year in certain master planned communities and other recent community openings. The decrease in backlog units in the Central region is due to the closeout of certain high-selling communities and improved cycle times. The decrease in units in the East is primarily due to the prior year backlog including homes relating to the opportunistic bulk sale transactions to real estate investors.
Home Closings Revenue
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Homes Closed | Home Closings Revenue, Net | Average Selling Price | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | Change | 2024 | 2023 | Change | 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||||||||||
| East | 1,237 | 1,228 | 0.7 | % | $ | 691,129 | C | $ | 732,279 | (5.6) | % | $ | 559 | $ | 596 | (6.2 | %) | ||||||||||||||||||||||||||||||||||||
| Central | 864 | 936 | (7.7) | % | 480,522 | 612,630 | (21.6) | % | 556 | 655 | (15.1) | % | |||||||||||||||||||||||||||||||||||||||||
| West | 1,099 | 961 | 14.4 | % | 748,476 | 651,838 | 14.8 | % | 681 | 678 | 0.4 | % | |||||||||||||||||||||||||||||||||||||||||
| Total | 3,200 | 3,125 | 2.4 | % | $ | 1,920,127 | $ | 1,996,747 | (3.8) | % | 600 | 639 | (6.1) | % | |||||||||||||||||||||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Homes Closed | Home Closings Revenue, Net | Average Selling Price | |||||||||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | Change | 2024 | 2023 | Change | 2024 | 2023 | Change | ||||||||||||||||||||||||||||||||||||||||||||
| East | 2,170 | 2,232 | (2.8 | %) | $ | 1,232,859 | C | $ | 1,333,890 | (7.6 | %) | $ | 568 | $ | 598 | (5.0 | %) | ||||||||||||||||||||||||||||||||||||
| Central | 1,696 | 1,667 | 1.7 | % | 952,554 | 1,076,025 | (11.5 | %) | 562 | 645 | (12.9 | %) | |||||||||||||||||||||||||||||||||||||||||
| West | 2,065 | 1,767 | 16.9 | % | 1,370,969 | 1,199,427 | 14.3 | % | 664 | 679 | (2.2) | % | |||||||||||||||||||||||||||||||||||||||||
| Total | 5,931 | 5,666 | 4.7 | % | $ | 3,556,382 | $ | 3,609,342 | (1.5) | % | 600 | 637 | (5.8) | % | |||||||||||||||||||||||||||||||||||||||
The number of homes closed increased by 2.4% and 4.7% for the three and six months ended June 30, 2024, compared to the same periods in the prior year, respectively. The increases are primarily driven by the West region as a result of improved build cycle times and several master plan communities that began closing homes during the current year periods. The changes in the East and Central regions are a result of partially offsetting factors relating to the timing of community
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
openings and closings as well as improved build cycle times. In addition, the prior year consisted of closings with longer than usual build cycle times as a result of supply and labor constraints during 2022 which delayed closings until the first half 2023. Average selling price decreased as a result of home closings mix and a decrease in option revenue and lot premium revenue in certain markets for the three and six months ended June 30, 2024, compared to the same periods in the prior year. The increase in units was offset by the decrease in average selling price which resulted in decreased home closings revenue, net for the three and six months ended June 30, 2024, compared to the same periods in the prior year.
Land Closings Revenue
| Three Months Ended June 30, | |||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | Change | ||||||||||||||
| East | $ | 92 | $ | 2,051 | $ | (1,959) | |||||||||||
| Central | 12,884 | 10,577 | 2,307 | ||||||||||||||
| West | 258 | — | 258 | ||||||||||||||
| Total | $ | 13,234 | $ | 12,628 | $ | 606 | |||||||||||
| Six Months Ended June 30, | |||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | Change | ||||||||||||||
| East | $ | 859 | C | $ | 4,954 | $ | (4,095) | ||||||||||
| Central | 19,342 | 12,194 | 7,148 | ||||||||||||||
| West | 258 | — | 258 | ||||||||||||||
| Total | $ | 20,459 | $ | 17,148 | $ | 3,311 | |||||||||||
We generally purchase land and lots with the intent to build and sell homes. However, in some locations where we act as a developer, we occasionally purchase land that includes commercially zoned parcels or areas designated for school or government use, which we typically sell to commercial developers or municipalities, as applicable. We also sell residential lots or land parcels to manage our land and lot supply on larger tracts of land. Land and lot sales occur at various intervals and varying degrees of profitability. Therefore, the revenue and gross margin from land closings will fluctuate from period to period, depending upon market opportunities and our land management strategy. Land closings revenue for the three and six months ended June 30, 2024 was mainly due to lot sales in our Texas markets within the Central region. The prior year included lots sales in certain Florida markets within our East region.
| Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| East | Central | West | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||
| Home closings revenue, net | $ | 691,129 | $ | 732,279 | $ | 480,522 | $ | 612,630 | $ | 748,476 | $ | 651,838 | $ | 1,920,127 | $ | 1,996,747 | |||||||||||||||||||||||||||||||
| Cost of home closings | 511,399 | 528,792 | 358,878 | 452,799 | 592,429 | 532,646 | 1,462,706 | 1,514,237 | |||||||||||||||||||||||||||||||||||||||
| Home closings gross margin | $ | 179,730 | $ | 203,487 | $ | 121,644 | $ | 159,831 | $ | 156,047 | $ | 119,192 | $ | 457,421 | $ | 482,510 | |||||||||||||||||||||||||||||||
| Home closings gross margin % | 26.0 | % | 27.8 | % | 25.3 | % | 26.1 | % | 20.8 | % | 18.3 | % | 23.8 | % | 24.2 | % | |||||||||||||||||||||||||||||||
| Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
| East | Central | West | Consolidated | ||||||||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | 2024 | 2023 | |||||||||||||||||||||||||||||||||||||||
| Home closings revenue, net | $ | 1,232,859 | $ | 1,333,890 | $ | 952,554 | $ | 1,076,025 | $ | 1,370,969 | $ | 1,199,427 | $ | 3,556,382 | $ | 3,609,342 | |||||||||||||||||||||||||||||||
| Cost of home closings | 906,727 | 965,237 | 708,038 | 805,028 | 1,091,150 | 971,485 | 2,705,915 | 2,741,750 | |||||||||||||||||||||||||||||||||||||||
| Home closings gross margin | $ | 326,132 | $ | 368,653 | $ | 244,516 | $ | 270,997 | $ | 279,819 | $ | 227,942 | $ | 850,467 | $ | 867,592 | |||||||||||||||||||||||||||||||
| Home closings gross margin % | 26.5 | % | 27.6 | % | 25.7 | % | 25.2 | % | 20.4 | % | 19.0 | % | 23.9 | % | 24.0 | % | |||||||||||||||||||||||||||||||
Consolidated home closings gross margin decreased 40 basis points to 23.8% from 24.2% for the three months ended June 30, 2024 and 10 basis points for the six months ended June 30, 2024 compared to the same periods in the prior year. The decreases in the East and Central region are primarily a result of closing product mix, a decrease in lot premium and option revenue, as well as an increase in finance incentives at the time of closing. In addition, one community in the East
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
region was impaired which negatively impacted the margin for the current quarter by 30 basis points. The increase in the West region is due to closing product mix and a decrease in incentives and discounts. The changes for the six months ended June 30, 2024 are primarily driven by the same factors, however the Central region experienced higher gross margins in the first quarter of the current year which contributed to the 50 basis point increase for the six months ended June 30, 2024.
Financial Services
The following is a summary for the periods presented of our financial services income before income taxes as well as supplemental data:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||||||||||||
| Mortgage services revenue | $ | 37,867 | $ | 30,945 | 22.4 | % | $ | 75,139 | $ | 56,548 | 32.9 | % | |||||||||||||||||||||||
| Title services and other revenues | 11,049 | 10,969 | 0.7 | % | 20,736 | 20,515 | 1.1 | % | |||||||||||||||||||||||||||
| Total financial services revenue | 48,916 | 41,914 | 16.7 | % | 95,875 | 77,063 | 24.4 | % | |||||||||||||||||||||||||||
| Financial services net income from unconsolidated entities | 3,001 | 3,259 | (7.9 | %) | 5,898 | 5,534 | 6.6 | % | |||||||||||||||||||||||||||
| Total revenue | 51,917 | 45,173 | 14.9 | % | 101,773 | 82,597 | 23.2 | % | |||||||||||||||||||||||||||
| Financial services expenses | 28,106 | 25,342 | 10.9 | % | 53,249 | 47,490 | 12.1 | % | |||||||||||||||||||||||||||
| Financial services income before income taxes | $ | 23,811 | $ | 19,831 | 20.1 | % | $ | 48,524 | $ | 35,107 | 38.2 | % | |||||||||||||||||||||||
| Total originations: | |||||||||||||||||||||||||||||||||||
| Number of Loans | 2,210 | 2,018 | 9.5 | % | 4,106 | 3,549 | 15.7 | % | |||||||||||||||||||||||||||
| Principal | $ | 1,007,753 | $ | 968,590 | 4.0 | % | $ | 1,884,325 | $ | 1,686,869 | 11.7 | % | |||||||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Supplemental data: | |||||||||||||||||||||||
| Average FICO score | 751 | 753 | 751 | 754 | |||||||||||||||||||
| Funded origination breakdown: | |||||||||||||||||||||||
| Government (FHA,VA,USDA) | 23.4 | % | 20.0 | % | 22.7 | % | 18.0 | % | |||||||||||||||
| Other agency | 74.0 | % | 75.0 | % | 74.6 | % | 77.0 | % | |||||||||||||||
| Total agency | 97.4 | % | 95.0 | % | 97.3 | % | 95.0 | % | |||||||||||||||
| Non-agency | 2.6 | % | 5.0 | % | 2.7 | % | 5.0 | % | |||||||||||||||
| Total funded originations | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||||||||
Total financial services revenue increased by 16.7% and 24.4% for the three and six months ended June 30, 2024 compared to the same periods in the prior year. These increases are a result of increased mortgage originations and the revenue earned on the sale of loans.
Sales, Commissions and Other Marketing Costs
Sales, commissions and other marketing costs, as a percentage of home closings revenue, net, increased to 5.9% from 5.7% and to 6.1% from 5.7% for the three and six months ended June 30, 2024 compared to the same periods in the prior year. The increases are primarily a result of our slight decrease in home closing revenue, net for the three and six months ended June 30, 2024 compared to the same periods in the prior year. We continue to incur external commissions costs and advertising costs in an effort to maintain sales traffic.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and Administrative Expenses
General and administrative expenses as a percentage of home closings revenue, net, increased to 4.3% from 3.5% and to 4.2% from 3.8% for the three and six months ended June 30, 2024 compared to the same periods in the prior year. The increase was primarily due to an increase in payroll related expenses, along with a slight decrease in home closings revenue.
Net Income from Unconsolidated Entities
Net income from unconsolidated entities was $2.6 million and $5.4 million for the three and six months ended June 30, 2024, respectively, and $3.2 million and $5.1 million for the three and six months ended June 30, 2023, respectively. The changes in net income from unconsolidated entities is primarily a result of income from our joint ventures related to our financial services segment, which for the three months ended June 30, 2024 was 7.9% lower than the comparable 2023 period. For the six months ended June 30, 2024, income from joint ventures related to financial services segment was 6.6% higher due to an increase in originations and an increase in the average revenue earned on the sale of the loans.
Interest Expense/(Income), Net
Interest expense, net was $4.1 million and $4.0 million for the three and six months ended June 30, 2024, respectively, while interest income, net was $5.1 million and $6.2 million for the three and six months ended June 30, 2023, respectively. The increase in interest expense, net was primarily due to a decrease in interest income earned on our outstanding cash balance as well as increase in the amount of non-capitalizable interest expense relating to land banking arrangements.
Other Expense, Net
Other expense, net was $6.9 million and $7.5 million for the three and six months ended June 30, 2024, respectively, and $8.5 million and $3.7 million for the three and six months ended June 30, 2023, respectively. The other expense, net in the current period was primarily related to legal costs. The other expense, net in the prior year period is primarily related to an increase in self-insurance reserves.
Income Tax Provision
The effective tax rate for the three and six months ended June 30, 2024 was 25.2% and 24.2%, respectively, compared to 25.6% and 24.5% for the same periods in 2023. For the three months ended June 30, 2024, the effective tax rate differed from the U.S. federal statutory income tax rate primarily due to state income taxes, non-deductible executive compensation, and energy credits related to homebuilding activities.
Our income tax rate for the second quarter of 2024 was lower than the same period last year, primarily due to a reduction of income related to non-controlling interest, non-deductible executive compensation, and excess tax benefits from share-based compensation.
Net Income
Net income and diluted earnings per share for the three months ended June 30, 2024 was $199.5 million and $1.86, respectively. Net income and diluted earnings per share for the three months ended June 30, 2023 was $234.6 million and $2.12, respectively. The decreases in net income and diluted earnings per share from the prior year were primarily attributable to lower gross margin, combined with higher general and administrative expenses.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Liquidity
We finance our operations through the following:
•Cash generated from operations; •Borrowings under our Revolving Credit Facilities; •Our various series of senior notes; | •Mortgage warehouse facilities; •Project-level real estate financing (including non-recourse loans, land banking, and joint ventures); and •Performance, payment and completion surety bonds, and letters of credit. | ||||
Cash flows for each of our communities depend on the status of the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash expenditures for land acquisitions, on and off-site development, construction of model homes, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of earnings.
Substantially all of our cash currently on deposit with major financial institutions exceeds insured limits. We limit exposure relating to our short-term financial instruments by diversifying these financial instruments among various counterparties, which consist of major financial institutions. Generally, deposits may be redeemed on demand and are maintained with financial institutions with reputable credit.
The table below summarizes our total cash and liquidity as of the dates indicated (in thousands):
| As of | |||||||||||
| (Dollars in thousands) | June 30, 2024 | December 31, 2023 | |||||||||
| Total cash, excluding restricted cash | $ | 246,845 | $ | 798,568 | |||||||
$1 Billion Revolving Credit Facility availability(1) | 1,000,000 | 1,000,000 | |||||||||
| $100 Million Revolving Credit Facility availability | 100,000 | 100,000 | |||||||||
| Letters of credit outstanding | (57,042) | (61,181) | |||||||||
| Revolving Credit Facilities availability | 1,042,958 | 1,038,819 | |||||||||
| Total liquidity | $ | 1,289,803 | $ | 1,837,387 | |||||||
(1)Subsequent to quarter-end, we borrowed $100 million under our $1 Billion Revolving Credit Facility.
We believe we have adequate capital resources from cash generated from operations and sufficient access to external financing sources under our Revolving Credit Facilities to conduct our operations for the next twelve months. Beyond the next twelve months, our primary demand for funds will be for payments of our long-term debt as it becomes due, land purchases, lot development, home and amenity construction, long-term capital investments, investments in our joint ventures, payments of ongoing operating expenses, and repurchases of our common stock. We believe we will generate sufficient cash from our operations to meet the demands for such payments, however we may also access the capital markets to obtain additional liquidity through debt and equity offerings or refinance debt to secure capital for such long-term demands. As part of our operations, we may also from time to time purchase our outstanding debt or common stock through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt and/or purchases of common stock, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Cash Flow Activities
Operating Cash Flow Activities
Our net cash used in operating activities was $364.1 million for the six months ended June 30, 2024, compared to net cash provided by operating activities of $607.1 million for the six months ended June 30, 2023. The change in cash used in operating activities is primarily due to an increase spend in real estate inventory and land deposits as well as an increase in our mortgage loans held for sale.
Investing Cash Flow Activities
Net cash used in investing activities was $57.3 million for the six months ended June 30, 2024, compared to $44.8 million for the six months ended June 30, 2023. The increase in cash used in investing activities was primarily due to an increase in investments of capital into unconsolidated entities.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing Cash Flow Activities
Net cash used in financing activities was $137.0 million for the six months ended June 30, 2024, compared to $60.9 million for the six months ended June 30, 2023. The increase in cash used in financing activities was primarily due to higher repurchases of common stock, including our accelerated share repurchase program, during the six months ended June 30, 2024 compared to the same period in the prior year.
Debt Instruments
For information regarding our debt instruments, including the terms governing our senior notes and our Revolving Credit Facilities, see Note 7 - Debt to the unaudited Condensed consolidated financial statements included in this quarterly report.
Off-Balance Sheet Arrangements as of June 30, 2024
Investments in Land Development and Homebuilding Joint Ventures or Unconsolidated Entities
We participate in strategic land development and homebuilding joint ventures with related and unrelated third parties. Our participation with these entities, in some instances, enables us to acquire land to which we could not otherwise obtain access, or could not obtain access on terms that are as favorable. Our partners in these joint ventures historically have been land owners/developers, other homebuilders, and financial or strategic partners. Joint ventures with land owners/developers have given us access to sites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large or expensive land parcels. Joint ventures with financial partners have allowed us to combine our homebuilding expertise with access to our partners’ capital.
In certain of our unconsolidated joint ventures, the joint ventures enter into loan agreements, whereby we or one of our subsidiaries will provide the joint venture lenders with customary guarantees, including completion, indemnity and environmental guarantees subject to usual non-recourse terms.
For the six months ended June 30, 2024 and 2023, total cash investments of capital into unconsolidated joint ventures were $45.0 million and $24.1 million, respectively.
Land Option Contracts and Land Banking Agreements
We are subject to the usual obligations associated with entering into contracts (including land option contracts and land banking arrangements) for the purchase, development, and sale of real estate in our routine business. We have a number of land purchase option contracts and land banking agreements, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the creditors of the property owner generally have no recourse to the Company. Our obligations with respect to such contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options. The aggregate purchase price for land under these contracts was $1.5 billion at June 30, 2024 and December 31, 2023.
Seasonality
Our business is seasonal. We have historically experienced, and in the future expect to continue to experience, variability in our results on a quarterly basis. We generally have more homes under construction, close more homes and have greater revenues and operating income in the third and fourth quarters of the year. Therefore, although new home contracts are obtained throughout the year, a higher portion of our home closings occur during the third and fourth calendar quarters. Our revenue therefore may fluctuate significantly on a quarterly basis, and we must maintain sufficient liquidity to meet short-term operating requirements. Factors expected to contribute to these fluctuations include:
•the timing of the introduction and start of construction of new projects; •the timing of sales; •the timing of closings of homes, lots and parcels; •the timing of receipt of regulatory approvals for development and construction; •the condition of the real estate market and general economic conditions in the areas in which we operate; | •mix of homes closed; •construction timetables; •the cost and availability of materials and labor; and •weather conditions in the markets in which we build. | ||||
As a result of seasonal activity, our quarterly results of operations and financial position are not necessarily representative of the results we expect for the full year.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Inflation
We and the homebuilding industry in general may be adversely affected during periods of high inflation, primarily because of higher land, financing, labor and construction material costs. In addition, higher mortgage interest rates can significantly affect the affordability of mortgage financing to prospective homebuyers. We attempt to pass through to our buyers increases in our costs through increased sales prices. However, during periods of soft housing market conditions, we may not be able to offset our cost increases with higher selling prices.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates during the six months ended June 30, 2024 compared to those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
Our operations are interest rate sensitive. We monitor our exposure to changes in interest rates and incur both fixed rate and variable rate debt. At June 30, 2024, approximately 87% of our debt was fixed rate and 13% was variable rate. None of our market sensitive instruments were entered into for trading purposes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument but may affect our future earnings and cash flows, and may also impact our variable rate borrowing costs, which principally relate to any borrowings under our Revolving Credit Facilities and to borrowings by TMHF under its various mortgage warehouse facilities. As of June 30, 2024, we had no outstanding borrowings under our Revolving Credit Facilities. We had approximately $1.0 billion of additional availability for borrowings under the Revolving Credit Facilities including $143.0 million of additional availability for letters of credit under our $1 Billion Revolving Credit Facility as of June 30, 2024 (giving effect to $57.0 million of letters of credit outstanding as of such date).
Our mortgage warehouse facilities agreements as well as our Revolving Credit Facilities use SOFR as the basis for determining interest rates. Given the limited history of this rate and potential volatility as compared to other benchmark or market rates, the future performance of this rate cannot be predicted based on historical performance. The consequences of using SOFR could include an increase in the cost of our variable rate indebtedness.
We are required to offer to purchase all of our outstanding senior unsecured notes, as described in Note 8 - Debt to the Consolidated Financial Statements in our Annual Report, at 101% of their aggregate principal amount plus accrued and unpaid interest upon the occurrence of specified change of control events. Other than in those circumstances, we do not have an obligation to prepay fixed rate debt prior to maturity and, as a result, we would not expect interest rate risk and changes in fair value to have a significant impact on our cash flows related to our fixed rate debt until such time as we are required to refinance, repurchase or repay such debt.
The following table sets forth principal payments by scheduled maturity and effective weighted average interest rates and estimated fair value of our debt obligations as of June 30, 2024. The interest rate for our variable rate debt represents the interest rate on our mortgage warehouse facilities. Because the mortgage warehouse facilities are secured by certain mortgage loans held for sale which are typically sold within approximately 20 - 30 days, its outstanding balance is included as a variable rate maturity in the most current period presented.
| Expected Maturity Date | |||||||||||||||||||||||||||||||||||||||||||||||
| (In millions, except percentage data) | 2024 | 2025 | 2026 | 2027 | 2028 | Thereafter | Total | Fair Value | |||||||||||||||||||||||||||||||||||||||
| Fixed Rate Debt | $ | 119.6 | $ | 134.7 | $ | 99.1 | $ | 562.6 | $ | 461.0 | $ | 504.3 | $ | 1,881.3 | $1,852.9 | ||||||||||||||||||||||||||||||||
Weighted average interest rate(1) | 3.1 | % | 3.1 | % | 3.1 | % | 5.4 | % | 5.5 | % | 5.6 | % | 5.1 | % | |||||||||||||||||||||||||||||||||
Variable Rate Debt(2) | $ | 276.2 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 276.2 | $276.2 | ||||||||||||||||||||||||||||||||
| Weighted average interest rate | 6.9 | % | — | % | — | % | — | % | — | % | — | % | 6.9 | % | |||||||||||||||||||||||||||||||||
(1) Represents the coupon rate of interest on the full principal amount of the debt.
(2) Based upon the amount of variable rate debt outstanding at June 30, 2024, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $2.8 million per year.
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ITEM 4. CONTROLS AND PROCEDURES
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer, principal financial officer and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, as of June 30, 2024 our principal executive officer, principal financial officer and principal accounting officer concluded that our disclosure controls and procedures were effective in alerting them in a timely manner to material information required to be disclosed in our periodic and other reports filed with the SEC.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II — OTHER INFORMATION
PART II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information required with respect to this item can be found in Note 13 - Commitments and Contingencies under “Legal Proceedings” in the Notes to the unaudited Condensed consolidated financial statements included in this quarterly report and is incorporated by reference herein.
ITEM 1A. RISK FACTORS
There have been no material changes to the risk factors set forth in Part I, Item 1A of our Annual Report. These risk factors may materially affect our business, financial condition or results of operations. You should carefully consider the risk factors set forth in our Annual Report and the other information set forth elsewhere in this quarterly report. You should be aware that these risk factors and other information may not describe every risk facing our Company.
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PART II — OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On December 15, 2023, we announced that our Board of Directors had authorized the repurchase of up to $500.0 million of the Company's Common Stock through December 31, 2025. As of June 30, 2024, we had approximately $298.1 million of available capacity remaining under the repurchase program. Repurchases of the Company's Common Stock under the program will occur from time to time, if at all, in open market purchases, privately negotiated transactions or other transactions. The stock repurchase program is subject to prevailing market conditions and other considerations, including our liquidity, the terms of our debt instruments, legal requirements, planned land investment and development spending, acquisition and other investment opportunities and ongoing capital requirements. The program does not require the Company to repurchase any specific number of shares of Common Stock, and the program may be suspended, extended, modified or discontinued at any time. The table below sets forth information regarding repurchases by the Company of it's Common Stock during the three months ended June 30, 2024.
| Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands) | ||||||||||||||||||||||
| April 1 to April 30, 2024 | 341,594 | 55.25 | 341,594 | $ | 383,968 | |||||||||||||||||||||
| May 1 to May 31, 2024 | 178,835 | 56.71 | 178,835 | 373,826 | ||||||||||||||||||||||
June 1 to June 30, 2024(1) | 1,183,374 | 55.55 | 1,183,374 | 298,095 | ||||||||||||||||||||||
| Total | 1,703,803 | 55.61 | 1,703,803 | $ | 298,095 | |||||||||||||||||||||
(1) In June 2024, the Company entered into an ASR program (the “ASR Agreement”) in which the Company paid a third-party financial institution $50 million and received an initial delivery of approximately 720,461 shares of Common Stock, representing 80% of the transaction value based on the Company's closing share price on June 7, 2024. The total number of shares that the Company will ultimately repurchase under the ASR Agreement will be determined based on the volume-weighted average price of the Common Stock during the term of the ASR Agreement, less a discount and subject to adjustments pursuant to the terms and conditions of the ASR Agreement. Final settlement of the ASR Agreement is expected to occur no later than the third quarter of 2024.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
During the three months ended June 30, 2024 none of the Company’s directors or officers (as defined in Rule 16a-1(f) of the Securities Exchange Act of 1934) adopted terminated
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ITEM 6. EXHIBITS
ITEM 6. EXHIBITS
Exhibit No. | Description | ||||
| 3.1 | |||||
| 3.2 | |||||
| 31.1* | |||||
| 31.2* | |||||
| 32.1** | |||||
| 32.2** | |||||
| 101.INS* | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | ||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document With Embedded Linkbase Documents | ||||
| 104 | Cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, formatted in inline XBRL (and contained in Exhibit 101). | ||||
*Filed herewith
**Furnished herewith
The agreements, if any, filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements themselves, and you should not rely on them other than for that purpose. In particular, any representations and warranties made by us in these agreements were made solely within the specific context of the relevant agreement and may not describe the actual state of affairs as of the date they were made or at any other time.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| TAYLOR MORRISON HOME CORPORATION | ||||||||
| Registrant | ||||||||
| DATE: | July 24, 2024 | |||||||
| /s/ Sheryl D. Palmer | ||||||||
| Sheryl D. Palmer | ||||||||
Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer) | ||||||||
| /s/ Curt VanHyfte | ||||||||
| Curt VanHyfte | ||||||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) | ||||||||
| /s/ Joseph Terracciano | ||||||||
| Joseph Terracciano | ||||||||
Chief Accounting Officer (Principal Accounting Officer) | ||||||||
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