Taylor Morrison(TMHC) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents Taylor Morrison Home Corporation's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, with detailed notes on accounting policies Condensed Consolidated Balance Sheets The balance sheet as of September 30, 2019, shows total assets of $5.34 billion, a slight increase from $5.26 billion at year-end 2018, driven by real estate inventory growth, with liabilities stable and equity increasing to $2.49 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total Assets | $5,339,860 | $5,264,441 | | Total cash, cash equivalents, and restricted cash | $223,796 | $331,859 | | Total real estate inventory | $4,253,674 | $3,980,565 | | Total Liabilities | $2,853,882 | $2,845,706 | | Senior notes, net | $1,634,176 | $1,653,746 | | Total Stockholders' Equity | $2,485,978 | $2,418,735 | Condensed Consolidated Statements of Operations Q3 2019 total revenue increased to $1.11 billion from $1.04 billion, driven by home closings, but net income decreased to $67.0 million from $93.6 million due to debt extinguishment loss and higher tax provision, resulting in diluted EPS of $0.63 Q3 2019 vs Q3 2018 Performance (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | | :--- | :--- | :--- | | Total Revenue | $1,105,105 | $1,036,379 | | Gross Margin | $211,074 | $198,999 | | Income Before Income Taxes | $90,421 | $100,865 | | Net Income Available to TMHC | $67,012 | $93,568 | | Diluted EPS | $0.63 | $0.83 | Nine Months Ended 2019 vs 2018 Performance (in thousands, except per share data) | Metric | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | | Total Revenue | $3,295,623 | $2,769,540 | | Gross Margin | $616,888 | $520,812 | | Income Before Income Taxes | $268,512 | $239,388 | | Net Income Available to TMHC | $199,994 | $196,446 | | Diluted EPS | $1.84 | $1.73 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly improved to $153.4 million for the nine months ended September 30, 2019, while financing activities used $254.3 million, leading to a net cash decrease of $108.1 million and period-end cash of $223.8 million Cash Flow Summary (Nine Months Ended, in thousands) | Cash Flow Activity | Sep 30, 2019 | Sep 30, 2018 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $153,377 | $55,996 | | Net Cash from Investing Activities | ($7,147) | $4,270 | | Net Cash from Financing Activities | ($254,293) | ($252,396) | | Net Decrease in Cash | ($108,063) | ($192,130) | | Cash at End of Period | $223,796 | $383,373 | - The primary use of cash in financing activities for the nine months ended September 30, 2019, was the repurchase of common stock ($157.4 million) and net repayments on senior notes and mortgage warehouse borrowings[23] Notes to the Unaudited Condensed Consolidated Financial Statements These notes detail the company's accounting policies and financial statement components, covering business description, AV Homes acquisition, revenue recognition, real estate inventory, debt, stock-based compensation, and segment reporting across homebuilding and financial services - The company's business is organized into four reportable segments: East, Central, West, and Financial Services. The homebuilding segments operate under the Taylor Morrison and Darling Homes brand names[27] - The company finalized the purchase price allocation for the AV Homes acquisition during Q3 2019, with real estate inventory valued at $782.4 million and goodwill at $83.2 million[50][51] - During the nine months ended September 30, 2019, the company repurchased 8,389,348 shares of common stock, fully utilizing its $100 million stock repurchase authorization[107] - In 2019, the company redeemed its 5.25% Senior Notes due 2021 and 6.625% Senior Notes due 2022, issuing new 5.875% Senior Notes due 2027 and 5.75% Senior Notes due 2028. This resulted in a total loss on extinguishment of debt of $5.8 million for the nine-month period[67][69][78][82] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 and nine-month 2019 financial performance, highlighting increased sales orders and home closings driven by the AV Homes acquisition, but noting net income decline due to lower gross margins, debt extinguishment costs, and higher tax rates, alongside liquidity and debt management Results of Operations Q3 2019 total revenue grew 7% to $1.1 billion with an 8.6% increase in home closings and a 39.4% surge in net sales orders, though gross margin compressed to 18.5% and net income fell to $67.0 million due to debt extinguishment and higher taxes Q3 2019 Key Performance Indicators | Metric | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | Net Sales Orders (units) | 2,540 | 1,822 | 39.4% | | Home Closings (units) | 2,296 | 2,115 | 8.6% | | Total Revenue | $1.1 billion | $1.04 billion | 6.6% | | Home Closings Gross Margin % | 18.5% | 18.9% | (0.4) p.p. | | Net Income | $67.0 million | $93.6 million | (28.2)% | | Diluted EPS | $0.63 | $0.83 | (24.1)% | - The increase in net sales orders was primarily driven by additional active selling communities from the AV Homes acquisition, with the East region seeing a 63.5% increase in orders[146][147] - The total company sales order cancellation rate for Q3 2019 improved to 11.8% from 13.6% in Q3 2018, indicating stabilization in the mortgage rate environment[150][151] - The decrease in net income was largely attributable to a higher effective tax rate (25.9% vs 6.4% in Q3 2018) and a $3.6 million loss on extinguishment of debt[175][176] Liquidity and Capital Resources As of September 30, 2019, the company maintained a strong liquidity position of $739.4 million, with operating activities generating $153.4 million in cash, while financing activities included new senior note issuances, common stock repurchases, and subsequent repayment of the 364-Day Credit Agreement Liquidity Position (in thousands) | Component | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Cash (excluding Restricted) | $222,049 | $329,645 | | Revolving Credit Facility Availability | $517,388 | $537,685 | | Total Liquidity | $739,437 | $867,330 | - Net cash from operating activities improved to $153.4 million for the nine months ended Sep 30, 2019, compared to $56.0 million in the prior year period, mainly due to lower spending on real estate inventory[181] - The company actively managed its debt profile by redeeming the 2021 and 2022 Senior Notes and issuing new notes due in 2027 and 2028[187][188] - On October 1, 2019, the company repaid its $200.0 million 364-Day Credit Agreement using funds from its Revolving Credit Facility[131][139] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations, with 88% of debt fixed-rate, and a hypothetical 1% increase in rates on variable-rate debt would increase annual interest expense by approximately $2.6 million - As of September 30, 2019, 88% of the company's debt carried a fixed interest rate, while 12% was variable rate[224] - A 1% increase in interest rates would result in an estimated $2.6 million annual increase in interest expense based on the variable-rate debt balance at September 30, 2019[227] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2019, excluding AV Homes' internal controls, with no material changes to internal control over financial reporting during the quarter - The company's principal executive and financial officers concluded that disclosure controls and procedures were effective as of September 30, 2019[229] - The evaluation of internal controls excluded the recently acquired AV Homes, which represented 9.4% of consolidated total assets and 15.4% of consolidated homebuilding revenues for the quarter[229] - No material changes were made to the internal control over financial reporting during the third quarter of 2019[230] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal claims in the normal course of business, but management does not anticipate a material adverse impact on financial position, results of operations, or cash flows - The company is subject to various legal claims and regulatory matters in the ordinary course of business[232] - Management believes that the resolution of pending legal matters will not have a material adverse impact on the company's financial condition or results[232] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K, which investors should consider - No material changes to the risk factors disclosed in the Annual Report have occurred during the period[233] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including merger agreements, corporate governance documents, debt indentures, and CEO/CFO certifications - Key exhibits filed include the indenture for the 5.75% Senior Notes due 2028 and CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[239]