Taylor Morrison(TMHC) - 2024 Q2 - Quarterly Report

Part I FINANCIAL INFORMATION Item 1. Financial Statements The financial statements detail the company's financial position and performance, showing changes in assets, liabilities, revenue, net income, and cash flows Condensed Consolidated Balance Sheets This section presents the company's financial position, highlighting changes in assets, liabilities, and equity, including real estate inventory and cash Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $246,845 | $798,568 | | Total real estate inventory | $6,286,476 | $5,545,446 | | Total assets | $9,099,069 | $8,672,087 | | Liabilities | | | | Senior notes, net | $1,469,574 | $1,468,695 | | Total liabilities | $3,572,527 | $3,339,801 | | Total stockholders' equity | $5,526,542 | $5,332,286 | - Total assets increased by approximately $427 million from December 31, 2023, to June 30, 2024, primarily driven by a $741 million increase in total real estate inventory[10] - Cash and cash equivalents decreased significantly to $246.8 million from $798.6 million at the end of 2023, reflecting investments in inventory and share repurchases[10] Condensed Consolidated Statements of Operations This section details the company's revenue, gross margin, income before taxes, net income, and diluted EPS for the reported periods Key Performance Indicators (Q2 2024 vs Q2 2023, in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $1,991,053 | $2,060,564 | -3.4% | | Gross Margin | $472,288 | $499,685 | -5.5% | | Income Before Income Taxes | $267,217 | $315,759 | -15.4% | | Net Income | $199,460 | $234,602 | -15.0% | | Diluted EPS | $1.86 | $2.12 | -12.3% | Key Performance Indicators (Six Months Ended June 30, 2024 vs 2023, in thousands, except per share data) | Metric | YTD 2024 | YTD 2023 | Change | | :--- | :--- | :--- | :--- | | Total Revenue | $3,690,805 | $3,722,421 | -0.8% | | Gross Margin | $889,133 | $899,251 | -1.1% | | Income Before Income Taxes | $516,097 | $564,178 | -8.5% | | Net Income | $389,730 | $425,653 | -8.4% | | Diluted EPS | $3.61 | $3.85 | -6.2% | Condensed Consolidated Statements of Stockholders' Equity This section outlines changes in stockholders' equity, including net income and the impact of common stock repurchases - For the six months ended June 30, 2024, the company repurchased 3,195,288 shares of common stock for $198.5 million[16] - Total stockholders' equity increased from $5.33 billion at December 31, 2023, to $5.53 billion at June 30, 2024, driven by net income of $391.1 million, partially offset by share repurchases[10][16] Condensed Consolidated Statements of Cash Flows This section summarizes cash flows from operating, investing, and financing activities, highlighting the shift in operating cash flow Summary of Cash Flows (Six Months Ended June 30, in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash (used in)/provided by operating activities | $(364,059) | $607,111 | | Net cash used in investing activities | $(57,308) | $(44,829) | | Net cash used in financing activities | $(136,959) | $(60,888) | | Net Decrease/Increase in Cash | $(558,326) | $501,394 | - The significant shift in operating cash flow from a $607.1 million inflow in 2023 to a $364.1 million outflow in 2024 was primarily due to a $688.4 million investment in real estate inventory and land deposits[20] - Financing activities used $137.0 million in cash, largely driven by $196.4 million in common stock repurchases[20] Notes to the Unaudited Condensed Consolidated Financial Statements This section provides detailed notes to the financial statements, covering business operations, inventory adjustments, share repurchase programs, and litigation - The company operates a residential homebuilding and land development business across Arizona, California, Colorado, Florida, Georgia, Nevada, North and South Carolina, Oregon, Texas, and Washington. It expanded into Indianapolis in Q2 2024 by acquiring Pyatt Builders[22] - In Q2 2024, the company recorded a $2.3 million inventory impairment in its East segment and a $6.8 million fair value adjustment for land held for sale in its West segment[30][32] - The company renewed its stock repurchase program, authorizing up to $500 million through December 31, 2025. During the first six months of 2024, it entered into two Accelerated Share Repurchase (ASR) agreements for $50 million each[77][78] - The company is involved in litigation, notably the 'Solivita litigation' in Florida regarding club membership fees. Following an unfavorable ruling, the company paid $64.7 million to plaintiffs in Q4 2023 and has accrued for estimated legal fees. A similar class action suit for the Bellalago community is also pending[94][95][96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights sales order trends, home closings performance, gross margin, liquidity, and capital allocation activities Business Overview and Highlights This section provides an overview of the company's residential homebuilding business and key operational and financial highlights for the quarter - The company's principal business is residential homebuilding and developing lifestyle communities across 12 states, including a recent expansion into Indiana[107] Q2 2024 Key Highlights: * Net sales orders increased 3% to 3,111 * Home closings revenue was $1.9 billion on 3,200 closings * Home closings gross margin was 23.8% * Repurchased 1.7 million common shares for $105 million * Total liquidity stood at $1.3 billion Results of Operations This section analyzes the company's operational performance, including net sales orders, home closings, revenue, gross margin, and cancellation rates Net Sales Orders (Q2 2024 vs Q2 2023) | Region | Q2 2024 Orders | Q2 2023 Orders | Change | | :--- | :--- | :--- | :--- | | East | 1,160 | 1,047 | 10.8% | | Central | 815 | 808 | 0.9% | | West | 1,136 | 1,168 | -2.7% | | Total | 3,111 | 3,023 | 2.9% | Home Closings and Revenue (Q2 2024 vs Q2 2023) | Metric | Q2 2024 | Q2 2023 | Change | | :--- | :--- | :--- | :--- | | Homes Closed | 3,200 | 3,125 | 2.4% | | Average Selling Price | $600,000 | $639,000 | -6.1% | | Home Closings Revenue | $1,920.1M | $1,996.7M | -3.8% | - Consolidated home closings gross margin decreased by 40 basis points to 23.8% in Q2 2024, primarily due to product mix, lower premium/option revenue, and increased financing incentives in the East and Central regions. An impairment in the East region also negatively impacted margin by 30 basis points[136][138] - The company-wide cancellation rate improved to 9.4% in Q2 2024 from 11.2% in Q2 2023, attributed to improved buyer confidence amid stabilizing macroeconomic factors[130] - Sales order backlog increased slightly to 6,256 homes with a value of $4.2 billion as of June 30, 2024, up from 6,165 homes valued at $4.1 billion a year prior[131] Liquidity and Capital Resources This section discusses the company's liquidity position, cash flow trends, and capital allocation strategies, including debt and share repurchases Liquidity Summary (in thousands) | Component | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total cash, excluding restricted cash | $246,845 | $798,568 | | Revolving Credit Facilities availability | $1,042,958 | $1,038,819 | | Total liquidity | $1,289,803 | $1,837,387 | - Net cash used in operating activities was $364.1 million for the first six months of 2024, a significant change from $607.1 million provided by operations in the same period of 2023, mainly due to increased spending on real estate inventory[152] - Net cash used in financing activities increased to $137.0 million in the first half of 2024 from $60.9 million in the prior year, driven by higher common stock repurchases[155] Off-Balance Sheet Arrangements This section describes the company's use of off-balance sheet arrangements, primarily land option contracts and land banking agreements - The company utilizes land option contracts and land banking agreements to control land with minimal initial capital. The aggregate purchase price for land under these off-balance sheet contracts was $1.5 billion as of June 30, 2024[159] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk disclosures focus on interest rate exposure, with a majority of debt at fixed rates and sensitivity analysis for variable rate debt - As of June 30, 2024, approximately 87% of the company's debt was fixed rate, mitigating exposure to earnings and cash flow volatility from interest rate changes on that portion of debt[166] - Variable rate debt, which constitutes 13% of total debt, is mainly related to mortgage warehouse facilities. A hypothetical 1% increase in interest rates would increase annual interest expense by approximately $2.8 million[166][170] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes to internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2024[172] - No material changes to the company's internal control over financial reporting occurred during the quarter ended June 30, 2024[173] Part II OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal claims in the normal course of business, including ongoing litigation related to club membership fees - Information regarding legal proceedings is incorporated by reference from Note 13 of the financial statements, which details ongoing litigation such as the Solivita and Bellalago cases in Florida[175][94][96] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - No material changes to the risk factors disclosed in the company's Annual Report have occurred[176] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased common stock during the quarter, including through an Accelerated Share Repurchase program, with remaining authorization for future repurchases Share Repurchase Activity (Q2 2024) | Period | Total Shares Purchased | Average Price Paid | Total Cost (approx.) | | :--- | :--- | :--- | :--- | | April 2024 | 341,594 | $55.25 | $18.9M | | May 2024 | 178,835 | $56.71 | $10.1M | | June 2024 | 1,183,374 | $55.55 | $65.7M | | Total Q2 | 1,703,803 | $55.61 | $94.7M | - In June 2024, the company initiated a $50 million Accelerated Share Repurchase (ASR) program, receiving an initial delivery of 720,461 shares[179] - As of June 30, 2024, approximately $298.1 million remained available for future repurchases under the board's authorization, which extends through December 31, 2025[178] Item 5. Other Information No directors or officers adopted, terminated, or modified Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted, terminated, or modified a Rule 10b5-1 trading plan during the three months ended June 30, 2024[182] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications and XBRL data files