Taylor Morrison(TMHC) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Taylor Morrison Home Corporation, detailing financial performance and position impacted by the William Lyon Homes acquisition and COVID-19 as of June 30, 2020 Condensed Consolidated Balance Sheets The balance sheet as of June 30, 2020, reflects a significant increase in total assets to $8.3 billion and total liabilities to $4.9 billion, primarily due to the William Lyon Homes acquisition Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $674,685 | $326,437 | | Total real estate inventory | $5,771,661 | $3,986,544 | | Goodwill | $637,440 | $149,428 | | Total Assets | $8,322,334 | $5,245,686 | | Liabilities | | | | Senior notes, net | $2,760,718 | $1,635,008 | | Revolving credit facility borrowings | $485,000 | $— | | Total Liabilities | $4,897,594 | $2,699,974 | | Total Stockholders' Equity | $3,424,740 | $2,545,712 | Condensed Consolidated Statements of Operations For Q2 2020, total revenue increased to $1.53 billion, but net income decreased to $65.7 million due to William Lyon Homes acquisition expenses and lower gross margins, with similar trends for the six-month period Key Operating Results (in thousands, except per share data) | Metric | Q2 2020 | Q2 2019 | YTD 2020 | YTD 2019 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,526,685 | $1,265,426 | $2,872,384 | $2,190,518 | | Gross Margin | $244,178 | $233,774 | $441,934 | $405,814 | | Transaction Expenses | $18,712 | $1,750 | $105,086 | $5,879 | | Net Income Available to TMHC | $65,674 | $81,851 | $34,242 | $132,982 | | Diluted EPS | $0.50 | $0.76 | $0.27 | $1.21 | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2020, net cash provided by operating activities significantly improved to $323.2 million, while investing activities used $278.8 million primarily for the William Lyon Homes acquisition, resulting in a net cash increase of $348.3 million Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $323,204 | $145,674 | | Net cash used in investing activities | ($278,788) | ($1,440) | | Net cash provided by/(used in) financing activities | $303,915 | ($277,866) | | Net Increase/(Decrease) in Cash | $348,331 | ($133,632) | | Cash, Cash Equivalents, and Restricted Cash - End of period | $676,903 | $198,227 | Notes to the Unaudited Condensed Consolidated Financial Statements These notes detail the company's accounting policies, the significant impact of the William Lyon Homes acquisition, debt structure, segment reporting, and subsequent debt refinancing events - The company operates as a residential homebuilder and developer of lifestyle communities across 11 states, serving various consumer groups under the Taylor Morrison, Darling Homes, and William Lyon Signature brands[26] - On February 6, 2020, the company completed the acquisition of William Lyon Homes (WLH), a major homebuilder in the Western U.S[27] - The COVID-19 outbreak was declared a global pandemic on March 11, 2020, impacting business operations, though all operations are currently functioning subject to restrictions[28] - Subsequent to the quarter end, on July 22, 2020, the company issued $500.0 million in new Senior Notes and used the proceeds to redeem parts of its 2023 and 2025 notes[29] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, emphasizing the impacts of the COVID-19 pandemic and the William Lyon Homes acquisition, which significantly increased community count and sales but also led to substantial transaction expenses and purchase accounting adjustments - The acquisition of William Lyon Homes on February 6, 2020, and the COVID-19 pandemic are the primary factors affecting the comparability of results[166] - Despite an initial slowdown in March, the company saw a recovery in net sales orders in May and June, with June being the best sales month in company history[167] - The company incurred $105.1 million in transaction expenses for the first six months of 2020 related to the William Lyon Homes acquisition, and an unfavorable purchase accounting adjustment of $60.5 million to Cost of home closings[172] - The company had over $900 million in available liquidity as of June 30, 2020, through cash on hand and its revolving credit facility[169] Results of Operations The company's Q2 and H1 2020 operational results were heavily influenced by the William Lyon Homes acquisition, leading to increased sales orders and home closings but a decline in home closings gross margin due to purchase accounting adjustments and higher cancellation rates Q2 2020 Operational Highlights vs. Q2 2019 | Metric | Q2 2020 | Q2 2019 | Change | | :--- | :--- | :--- | :--- | | Average Active Selling Communities | 411 | 357 | +15.1% | | Net Sales Orders | 3,453 | 2,810 | +22.9% | | Home Closings | 3,212 | 2,594 | +23.8% | | Home Closings Gross Margin % | 15.4% | 18.0% | -260 bps | | Adjusted Home Closings Gross Margin % | 17.6% | 18.0% | -40 bps | - The increase in the total company cancellation rate to 18.6% in Q2 2020 from 12.0% in Q2 2019 is attributed to the impact of COVID-19 and decreased consumer confidence[207] - Sales order backlog increased 34.7% in units and 31.5% in value at June 30, 2020, compared to the prior year, primarily due to the WLH acquisition which contributed approximately 1,400 backlog units[210] Non-GAAP Measures The company provides non-GAAP measures, including adjusted net income of $103.8 million and an adjusted home closings gross margin of 17.6% for Q2 2020, to offer a clearer view of performance excluding acquisition-related impacts Q2 2020 Non-GAAP Reconciliation Highlights (in thousands) | Metric | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Net Income Available to TMHC (GAAP) | $65,674 | $81,851 | | William Lyon Homes purchase accounting adjustments | $32,138 | $— | | Transaction expenses | $18,712 | $1,750 | | Adjusted Net Income | $103,815 | $84,787 | Adjusted Home Closings Gross Margin (Q2 2020) | Metric | Amount (in thousands) | % of Revenue | | :--- | :--- | :--- | | Home Closings Gross Margin (GAAP) | $226,770 | 15.4% | | WLH purchase accounting adjustments | $32,138 | 2.2% | | Adjusted Home Closings Gross Margin | $258,908 | 17.6% | - The net homebuilding debt to capitalization ratio was 46.0% as of June 30, 2020[198] Liquidity and Capital Resources The company ended Q2 2020 with total liquidity of $910.8 million, including $674.7 million in cash, and subsequently issued $500 million in new Senior Notes to redeem higher-cost debt Total Liquidity (in thousands) | Component | June 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Cash, excluding restricted cash | $674,685 | $326,437 | | Revolving credit facility availability | $236,096 | $522,281 | | Total liquidity | $910,781 | $848,718 | - As a precautionary measure during the COVID-19 pandemic, the company borrowed $485.0 million on its Revolving Credit Facility in Q1 2020[240] - In July 2020, the company issued $500.0 million of 5.125% Senior Notes due 2030 and used proceeds plus cash on hand to redeem portions of its 6.00% 2023 Notes and 5.875% 2025 Notes[241][244] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to interest rate risk, with approximately 83% of its debt being fixed-rate, and a hypothetical 1% increase in rates would raise annual interest expense by approximately $6.3 million on variable-rate debt - As of June 30, 2020, approximately 83% of the company's debt was fixed-rate and 17% was variable-rate[260] - A 1% increase in interest rates would increase annual interest incurred by approximately $6.3 million, based on the variable-rate debt outstanding at June 30, 2020[263] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2020, excluding the newly acquired William Lyon Homes, which is currently undergoing integration - The company's disclosure controls and procedures were deemed effective as of June 30, 2020[265] - Management excluded the internal control over financial reporting for the newly acquired William Lyon Homes from its assessment, as permitted, and is in the process of integrating its internal controls[265][267] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings in the normal course of business, with legal accruals totaling $25.9 million as of June 30, 2020, which management does not expect to materially impact financial position - The company is involved in various legal proceedings in the normal course of business[268] - Legal accruals were $25.9 million as of June 30, 2020, compared to $12.7 million as of December 31, 2019[149] Item 1A. Risk Factors This section updates the company's risk factors, primarily focusing on the significant and uncertain adverse impacts of the COVID-19 pandemic on global economies, consumer confidence, and the housing market - The primary updated risk factor relates to the unknown scale, scope, and duration of the COVID-19 pandemic and its potential material adverse impact on the business[270] - COVID-19 may heighten existing risks, including decreased consumer confidence, unfavorable economic conditions, higher cancellation rates, and disruptions to the supply chain and financial services[272][276] - Despite market volatility, the company assessed its goodwill for impairment as of June 30, 2020, and concluded there were no indicators of impairment[274] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company renewed its stock repurchase program for up to $100 million until December 31, 2020, with no shares repurchased in Q2 2020 but 5,436,479 shares repurchased for the six months ended June 30, 2020 - The company renewed its stock repurchase program for up to $100 million, effective until December 31, 2020[276] - No shares were repurchased in the three months ended June 30, 2020[277] - For the six months ended June 30, 2020, the company repurchased 5,436,479 shares of Common Stock[124] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - None[278] Item 4. Mine Safety Disclosures No mine safety disclosures were reported - None[279] Item 5. Other Information No other information was reported - None[280] Item 6. Exhibits This section lists the exhibits filed with the quarterly report, including merger agreements and officer certifications - Lists exhibits filed with the Form 10-Q, including merger agreements and officer certifications[282]