Taylor Morrison(TMHC) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements, management's discussion and analysis, market risk disclosures, and internal controls ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, and specific financial line items Condensed Consolidated Balance Sheets This table provides a snapshot of the company's assets, liabilities, and equity at specific points in time, highlighting key changes | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------------------ | :------------------------------- | :----------- | | Total assets | $8,517,975 | $8,727,777 | -$209,802 | | Total liabilities | $4,423,177 | $4,756,795 | -$333,618 | | Total stockholders' equity | $4,094,798 | $3,970,982 | +$123,816 | | Cash and cash equivalents | $569,249 | $832,821 | -$263,572 | | Total real estate inventory | $5,743,127 | $5,499,521 | +$243,606 | | Mortgage loans held for sale | $229,651 | $467,534 | -$237,883 | | Mortgage warehouse borrowings | $200,662 | $413,887 | -$213,225 | Condensed Consolidated Statements of Operations This table details the company's revenues, expenses, and net income over specific periods, showing profitability trends | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :--------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Total revenue | $1,703,124 | $1,417,812 | +$285,312 | | Home closings revenue, net | $1,644,409 | $1,363,429 | +$280,980 | | Gross margin | $393,128 | $274,441 | +$118,687 | | Income before income taxes | $232,900 | $131,741 | +$101,159 | | Net income available to Taylor Morrison Home Corporation | $176,703 | $98,021 | +$78,682 | | Basic EPS | $1.46 | $0.76 | +$0.70 | | Diluted EPS | $1.44 | $0.75 | +$0.69 | Condensed Consolidated Statements of Comprehensive Income This table presents the total comprehensive income, encompassing net income and other comprehensive income items | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :------------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Comprehensive Income available to Taylor Morrison Home Corporation | $176,703 | $98,021 | +$78,682 | Condensed Consolidated Statement of Stockholders' Equity This table outlines changes in the company's equity, including net income and share repurchase activities | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------------------ | :------------------------------- | :----------- | | Total Stockholders' Equity | $4,094,798 | $3,970,982 | +$123,816 | | Net income | $176,703 | $98,021 | +$78,682 | | Repurchase of common stock | $(58,029) | $(38,418) | -$19,611 | Condensed Consolidated Statements of Cash Flows This table summarizes the cash inflows and outflows from operating, investing, and financing activities, showing liquidity changes | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :------------------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Net cash provided by/(used in) operating activities | $57,461 | $(144,308) | +$201,769 | | Net cash used in investing activities | $(7,441) | $(13,475) | +$6,034 | | Net cash (used in)/provided by financing activities | $(315,533) | $17,150 | -$332,683 | | Net decrease in cash and cash equivalents and restricted cash | $(265,513) | $(140,633) | -$124,880 | | Cash, cash equivalents, and restricted cash — End of period | $570,827 | $393,476 | +$177,351 | Notes to the Unaudited Condensed Consolidated Financial Statements This section provides detailed explanations of the company's business, significant accounting policies, and specific financial statement line items 1. BUSINESS This note describes the company's core operations as a residential homebuilder and developer, including its diverse market segments and financial services - Taylor Morrison Home Corporation operates a residential homebuilding business and develops lifestyle communities across 11 states: Arizona, California, Colorado, Florida, Georgia, Nevada, North and South Carolina, Oregon, Texas, and Washington[20] - The company serves diverse consumer groups including entry-level, move-up, and 55-plus active lifestyle buyers, building single and multi-family homes under brands like Taylor Morrison, Darling Homes Collection, and Esplanade[20] - Beyond homebuilding, the company has an exclusive partnership for 'Build-to-Rent' homebuilding with Christopher Todd Communities, operates 'Urban Form' for multi-use properties, and provides financial services through its subsidiaries (mortgage, title, and insurance)[20] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and methods used in preparing the financial statements, including consolidation, inventory valuation, and revenue recognition - The financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions, consolidating certain joint ventures where the company is the primary beneficiary[21][22][34] - Goodwill is assessed for impairment annually; no impairment test was performed in Q1 2022 as no indicators were present. Real estate inventory is stated at cost, including capitalized interest and development costs, with no impairment charges recorded for Q1 2022 or Q1 2021[24][25][29] - Revenue from home and land closings is recognized upon closing, transfer of title, and risks/rewards, while financial services revenue is recognized when related real estate transactions are completed[40] 3. EARNINGS PER SHARE This note details the calculation of basic and diluted earnings per share, reflecting the company's profitability on a per-share basis | Metric | Three Months Ended March 31, 2022 (in thousands, except EPS) | Three Months Ended March 31, 2021 (in thousands, except EPS) | Change (YoY, except EPS) | | :--------------------------------- | :------------------------------------------------- | :------------------------------------------------- | :----------------------- | | Net income available to TMHC | $176,703 | $98,021 | +$78,682 | | Weighted average shares – basic | 121,186 | 128,883 | -7,697 | | Weighted average shares – diluted | 122,657 | 131,246 | -8,589 | | Basic EPS | $1.46 | $0.76 | +$0.70 | | Diluted EPS | $1.44 | $0.75 | +$0.69 | 4. REAL ESTATE INVENTORY AND LAND DEPOSITS This note provides details on the company's real estate holdings, including owned inventory, capitalized interest, and controlled land lots | Metric | March 31, 2022 (in thousands, except lots) | December 31, 2021 (in thousands, except lots) | Change (YoY, except lots) | | :----------------------------------- | :----------------------------------------- | :------------------------------------------ | :------------------------ | | Total owned inventory | $5,699,709 | $5,444,207 | +$255,502 | | Total real estate inventory | $5,743,127 | $5,499,521 | +$243,606 | | Capitalized interest | $177,969 | $168,670 | +$9,299 | | Total homebuilding owned lots | 47,169 | 48,013 | -844 | | Total controlled lots | 29,714 | 28,762 | +952 | | Controlled lots purchase price | $2,762,098 | $2,595,258 | +$166,840 | | Land deposits (non-refundable) | $238,409 | $213,780 | +$24,629 | - Interest incurred and capitalized for the three months ended March 31, 2022, was $39.7 million, up from $37.7 million in 2021[46] 5. INVESTMENTS IN CONSOLIDATED AND UNCONSOLIDATED ENTITIES This note details the company's investments in joint ventures, distinguishing between consolidated and unconsolidated entities and their financial impact Unconsolidated Entities (Equity Method) Financial Information | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (YoY) | | :--------------------------------------- | :------------------------------ | :------------------------------- | :----------- | | Total assets | $552,894 | $533,677 | +$19,217 | | Total liabilities | $199,708 | $184,087 | +$15,621 | | TMHC's share in income of unconsolidated entities (3 months) | $1,831 | $5,661 | -$3,830 | | Distributions to TMHC from unconsolidated entities (3 months) | $2,058 | $10,613 | -$8,555 | - Consolidated joint ventures (VIEs) had total assets of $260.0 million and liabilities of $141.2 million as of March 31, 2022, down from $291.8 million and $165.1 million, respectively, at December 31, 2021[51] 6. ACCRUED EXPENSES AND OTHER LIABILITIES This note provides a breakdown of various accrued expenses and other liabilities, including compensation, interest, and warranty reserves | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (YoY) | | :------------------------------------ | :------------------------------ | :------------------------------- | :----------- | | Total accrued expenses and other liabilities | $416,881 | $525,209 | -$108,328 | | Compensation and employee benefits | $78,849 | $166,272 | -$87,423 | | Interest payable | $39,241 | $48,551 | -$9,310 | | Self-insurance and warranty reserves | $140,970 | $141,839 | -$869 | - Self-insurance and warranty reserves saw $8.9 million in additions and $12.5 million in claims incurred for Q1 2022[52] 7. DEBT This note details the company's debt structure, including senior notes, loans, and revolving credit facilities, and their respective changes | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (YoY) | | :-------------------------------- | :------------------------------ | :------------------------------- | :----------- | | Total debt | $3,048,373 | $3,302,124 | -$253,751 | | Senior Notes subtotal | $2,452,311 | $2,452,322 | -$11 | | Loans payable and other borrowings | $395,400 | $404,386 | -$8,986 | | Revolving credit facility borrowings | $0 | $31,529 | -$31,529 | | Mortgage warehouse borrowings | $200,662 | $413,887 | -$213,225 | - The $800 million Revolving Credit Facility's maturity date was extended to March 11, 2027, with reduced pricing for lower capitalization ratios. No outstanding borrowings were reported under this facility as of March 31, 2022[71][72] - The $100 million Revolving Credit Facility (for Build-to-Rent operations) had no outstanding borrowings as of March 31, 2022, down from $31.5 million at December 31, 2021. The company was in compliance with all debt covenants[77][80] 8. FAIR VALUE DISCLOSURES This note explains the fair value hierarchy for financial instruments and their categorization into Level 1, 2, or 3 based on input observability - The company categorizes financial instruments into a three-level fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[84][85] - Mortgage loans held for sale, MBSs, mortgage warehouse borrowings, loans payable, and Senior Notes are primarily Level 2, while Interest Rate Lock Commitments (IRLCs) are Level 3. Equity Security Investment is Level 1[86][87] - There were no changes to or transfers between the levels of the fair value hierarchy for any financial instruments as of March 31, 2022, compared to December 31, 2021[86] 9. INCOME TAXES This note details the company's effective tax rate and the factors contributing to its deviation from the U.S. federal statutory rate | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (YoY) | | :---------------- | :-------------------------------- | :-------------------------------- | :----------- | | Effective tax rate | 23.4% | 22.2% | +1.2% | - The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, non-deductible executive compensation, excess tax benefits related to stock-based compensation, and special deductions/credits[88] - No unrecognized tax benefits were reported at March 31, 2022, or December 31, 2021[89] 10. STOCKHOLDERS' EQUITY This note outlines changes in stockholders' equity, including details on share repurchase programs and amounts available for future repurchases | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :--------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Amount available for repurchase — end of period | $172,384 | $48,413 | +$123,971 | | Amount repurchased | $(58,029) | $(38,418) | -$19,611 | - The company repurchased 1,948,187 shares under its share repurchase program during the three months ended March 31, 2022[91] - A $250.0 million renewal of the stock repurchase program was authorized on December 13, 2021, expiring on June 30, 2024[168] 11. STOCK BASED COMPENSATION This note details the stock-based compensation expense recognized, including restricted stock units and stock options, and the unrecognized value of awards | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change (YoY) | | :--------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----------- | | Total stock compensation expense | $6,863 | $5,682 | +$1,181 | | Restricted stock units expense | $5,780 | $4,748 | +$1,032 | | Stock options expense | $1,083 | $934 | +$149 | - The aggregate unrecognized value of all outstanding stock-based compensation awards was approximately $43.2 million at March 31, 2022[92] 12. REPORTING SEGMENTS This note provides a breakdown of the company's financial performance by its homebuilding and financial services segments across different geographic regions - The company aggregates its homebuilding operations into three reporting segments: East (Atlanta, Charlotte, Jacksonville, Naples, Orlando, Raleigh, Sarasota, Tampa), Central (Austin, Dallas, Denver, Houston), and West (Bay Area, Las Vegas, Phoenix, Portland, Sacramento, Seattle, Southern California), plus a Financial Services segment[93][94] Segment Revenue (Q1 2022 vs Q1 2021, in thousands) | Segment | 2022 Revenue | 2021 Revenue | Change | | :------ | :----------- | :----------- | :----- | | East | $525,121 | $453,362 | +$71,759 | | Central | $370,735 | $322,612 | +$48,123 | | West | $770,210 | $597,730 | +$172,480 | | Financial Services | $35,199 | $44,065 | -$8,866 | | Corporate and Unallocated | $1,859 | $43 | +$1,816 | | Total | $1,703,124 | $1,417,812 | +$285,312 | Segment Income Before Taxes (Q1 2022 vs Q1 2021, in thousands) | Segment | 2022 Income | 2021 Income | Change | | :------ | :---------- | :---------- | :----- | | East | $84,933 | $46,511 | +$38,422 | | Central | $42,793 | $36,183 | +$6,610 | | West | $135,734 | $64,768 | +$70,966 | | Financial Services | $13,043 | $23,809 | -$10,766 | | Corporate and Unallocated | $(43,603) | $(39,530) | -$4,073 | | Total | $232,900 | $131,741 | +$101,159 | 13. COMMITMENTS AND CONTINGENCIES This note outlines the company's various financial commitments, including letters of credit, land option contracts, and legal proceedings - The company has $1.2 billion in outstanding letters of credit and surety bonds and $1.5 billion in aggregate purchase price for land option contracts and land banking agreements as of March 31, 2022[96][97] - Legal accruals for various claims totaled $23.1 million as of March 31, 2022. A class action lawsuit regarding club membership fees resulted in a $35.0 million judgment against the company, which is currently under appeal, with the company believing it will win[99][100][102] - Lease obligations amounted to $94.4 million as of March 31, 2022, with lease expense of approximately $6.9 million for the three months ended March 31, 2022[103] 14. MORTGAGE HEDGING ACTIVITIES This note describes the company's use of derivative instruments like IRLCs and MBSs to manage interest rate risk in mortgage loan origination - The company utilizes Interest Rate Lock Commitments (IRLCs) and Mortgage Backed Securities (MBSs) as derivative instruments to manage interest rate risk in its residential mortgage loan origination activities[104] Derivative Instrument Assets (Fair Value, in thousands) | Instrument | March 31, 2022 | December 31, 2021 | | :--------- | :------------- | :---------------- | | IRLCs | $420 | $2,110 | | MBSs | $5,080 | $(449) | | Total | $5,500 | $1,661 | - Total commitments to originate loans approximated $417.7 million as of March 31, 2022[105] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial performance, condition, and future outlook for the three months ended March 31, 2022, compared to the prior year. It highlights strong housing demand, effective pricing strategies, and challenges such as supply chain disruptions and labor shortages, while detailing operational results and liquidity management Forward-Looking Statements This section cautions readers that the report contains forward-looking statements subject to uncertainties and disclaims any obligation to update them - This report contains forward-looking statements that are subject to numerous uncertainties and factors relating to the company's operations and business environment, many of which are beyond its control[108] - Readers should not place undue reliance on these statements, as actual results could differ materially due to various risks, including those described in the Annual Report[108] - The company expressly disclaims any obligation to update or revise any forward-looking statements, except as required by applicable law[109] Business Overview This section describes Taylor Morrison's core business as a residential homebuilder and developer, its diverse market segments, and its financial services operations - Taylor Morrison is a residential homebuilder and developer of lifestyle communities operating in 11 states, serving entry-level, move-up, and 55-plus active lifestyle buyers[110] - The company's operations include homebuilding under Taylor Morrison, Darling Homes Collection, and Esplanade brands, a 'Build-to-Rent' partnership with Christopher Todd Communities, Urban Form Development for multi-use properties, and financial services (mortgage, title, insurance)[110] - As of March 31, 2022, the company employed approximately 3,062 full-time equivalent persons, with 2,568 in homebuilding and corporate operations and 494 in financial services[113] First Quarter 2022 Highlights This section summarizes key financial and operational achievements for Q1 2022, including revenue growth, margin improvements, and strategic initiatives - Home closings revenue increased 21% to $1.6 billion, and home closings gross margin improved 450 basis points to 23.1%[114] - SG&A as a percentage of home closings revenue improved 120 basis points to 9.6%[114] - Backlog decreased 7% to 9,400 homes, but the average sales price increased 24% to $659,000. Homebuilding lot supply increased 5% to approximately 77,000 total lots, with controlled lots rising 700 basis points to 39% of total supply[114] - The company repurchased 1.9 million shares for $58 million, and return on equity improved 860 basis points to 19.1%[114] Results of Operations This section analyzes the company's operational performance, including revenue, gross margin, and net income, highlighting factors influencing these results | Metric | Three Months Ended March 31, 2022 (in thousands, except percentages) | Three Months Ended March 31, 2021 (in thousands, except percentages) | Change (YoY, except percentages) | | :--------------------------------------- | :--------------------------------------------------------- | :--------------------------------------------------------- | :------------------------------- | | Total revenue | $1,703,124 | $1,417,812 | +$285,312 | | Home closings revenue, net | $1,644,409 | $1,363,429 | +$280,980 | | Gross margin | $393,128 | $274,441 | +$118,687 | | Income before income taxes | $232,900 | $131,741 | +$101,159 | | Net income available to Taylor Morrison Home Corporation | $176,703 | $98,021 | +$78,682 | | Home closings gross margin % | 23.1% | 18.6% | +4.5% | | Sales, commissions and other marketing costs as % of home closings revenue, net | 5.4% | 6.3% | -0.9% | | General and administrative expenses as % of home closings revenue, net | 4.2% | 4.5% | -0.3% | - Strong housing demand allowed for pricing strategies that partially mitigated increased costs, despite market-wide supply chain disruptions, trade labor shortages, and inflationary impacts[125] - The company strategically metered sales releases and shifted to selling more spec homes to manage supply chain and labor constraints and maximize profits[125] Non-GAAP Measures This section presents non-GAAP financial metrics like EBITDA, Adjusted EBITDA, and net homebuilding debt to capitalization ratio, used for performance evaluation and industry benchmarking - The company uses non-GAAP financial measures, including EBITDA, Adjusted EBITDA, and net homebuilding debt to capitalization ratio, to evaluate performance, set compensation targets, and benchmark against industry peers[116][118] EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended March 31, 2022 (in thousands, except percentages) | Three Months Ended March 31, 2021 (in thousands, except percentages) | Change (YoY, except percentages) | | :--------------------------------------- | :--------------------------------------------------------- | :--------------------------------------------------------- | :------------------------------- | | Net income before allocation to non-controlling interests | $178,461 | $102,443 | +$76,018 | | EBITDA | $269,512 | $160,857 | +$108,655 | | Adjusted EBITDA | $276,375 | $166,539 | +$109,836 | | Adjusted EBITDA as a percentage of total revenues | 16.2% | 11.7% | +4.5% | Net Homebuilding Debt to Capitalization Ratio Reconciliation (in thousands) | Metric | March 31, 2022 (in thousands, except percentages) | December 31, 2021 (in thousands, except percentages) | Change (YoY, except percentages) | | :--------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------- | | Net homebuilding debt | $2,276,151 | $2,053,094 | +$223,057 | | Total equity | $4,094,798 | $3,970,982 | +$123,816 | | Total capitalization | $6,370,949 | $6,024,076 | +$346,873 | | Net homebuilding debt to capitalization ratio | 35.7% | 34.1% | +1.6% | Three months ended March 31, 2022 Compared to Three months ended March 31, 2021 This section provides a detailed comparative analysis of the company's financial and operational performance for the first quarter of 2022 versus 2021 Ending Active Selling Communities This table shows the number of active selling communities by region, indicating changes in the company's market presence | Region | March 31, 2022 | December 31, 2021 | Change (%) | | :------- | :------------- | :---------------- | :--------- | | East | 121 | 123 | (1.6)% | | Central | 106 | 102 | 3.9% | | West | 97 | 105 | (7.6)% | | Total | 324 | 330 | (1.8)% | Net Sales Orders This section analyzes changes in net sales orders, sales value, and average selling price, reflecting market demand and pricing strategies | Metric | Three Months Ended March 31, 2022 (in thousands, except orders and price) | Three Months Ended March 31, 2021 (in thousands, except orders and price) | Change (%) | | :-------------------- | :-------------------------------------------------------- | :-------------------------------------------------------- | :--------- | | Net Sales Orders | 3,054 | 4,492 | (32.0)% | | Sales Value (in thousands) | $2,085,219 | $2,472,833 | (15.7)% | | Average Selling Price | $683 | $550 | 24.2% | - Decreases in net sales orders and sales value were primarily due to fewer active selling communities, increasing interest rates, and inflationary impacts, partially offset by a 24.2% increase in average selling prices[127] - The company strategically metered sales releases and shifted to spec home sales to manage supply chain and labor constraints[127] Sales Order Cancellations This section examines the sales order cancellation rate and the factors contributing to its changes, such as build times and interest rates | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (YoY) | | :---------------- | :-------------------------------- | :-------------------------------- | :----------- | | Total Company Cancellation Rate | 6.4% | 6.0% | +0.4% | - The increase in cancellation rate was attributed to extended build cycle times and recent increases in interest rates[129] Sales Order Backlog This section details the company's sales order backlog, including the number of homes and total sales value, and the impact of average selling prices | Metric | March 31, 2022 (in thousands, except homes and price) | March 31, 2021 (in thousands, except homes and price) | Change (%) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :--------- | | Sold Homes in Backlog | 9,400 | 10,074 | (6.7)% | | Sales Value (in thousands) | $6,197,946 | $5,336,848 | 16.1% | | Average Selling Price | $659 | $530 | 24.3% | - The decrease in sold homes in backlog was due to fewer active selling communities, increasing interest rates, and inflationary impacts, while the total sales value increased due to a 24.3% rise in average selling prices[130] Home Closings Revenue This section analyzes the revenue generated from home closings, highlighting the impact of average selling prices despite a slight decrease in units closed | Metric | Three Months Ended March 31, 2022 (in thousands, except homes and price) | Three Months Ended March 31, 2021 (in thousands, except homes and price) | Change (%) | | :-------------------------------- | :-------------------------------------------------------- | :-------------------------------------------------------- | :--------- | | Homes Closed | 2,768 | 2,821 | (1.9)% | | Home Closings Revenue, Net (in thousands) | $1,644,409 | $1,363,429 | 20.6% | | Average Selling Price | $594 | $483 | 23.0% | - The 20.6% increase in home closings revenue was primarily driven by a 23.0% higher average sales price, despite a slight decrease in the number of homes closed[131] Land Closings Revenue This section details revenue from land closings, noting fluctuations based on market opportunities and land management strategies, particularly in the East region | Region | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change | | :------- | :----------------------------------------------- | :----------------------------------------------- | :----- | | East | $13,440 | $2,454 | +$10,986 | | Central | $2,160 | $2,435 | -$275 | | West | $10 | $0 | +$10 | | Total | $15,610 | $4,889 | +$10,721 | - Land closings revenue fluctuates based on market opportunities and land management strategy. The increase in the East region was due to the sale of commercial assets and residential lots in Florida[132][133] Amenity and Other Revenue This section covers revenue from club dues, amenity fees, and Urban Form operations, which develops multi-use properties | Region | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change | | :-------- | :----------------------------------------------- | :----------------------------------------------- | :----- | | East | $5,683 | $5,023 | +$660 | | Corporate | $1,859 | $43 | +$1,816 | | Total | $7,906 | $5,429 | +$2,477 | - Revenue includes club dues and fees from amenities (golf courses, club houses, fitness centers) and activity from Urban Form operations, which develops multi-use properties[134] Home Closings Gross Margin This section analyzes the consolidated and regional home closings gross margin, highlighting factors like operational enhancements, acquisition synergies, and pricing power | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (YoY) | | :------------------------ | :-------------------------------- | :-------------------------------- | :----------- | | Home closings gross margin % | 24.5% (East) / 19.9% (Central) / 23.6% (West) / 23.1% (Consolidated) | 18.8% (East) / 20.2% (Central) / 17.5% (West) / 18.6% (Consolidated) | +4.5% (Consolidated) | - The consolidated home closings gross margin increased 450 basis points to 23.1%, reflecting operational enhancements, acquisition synergies, and pricing power that exceeded inflationary cost pressure[135] - Strategic metering of sales and an emphasis on spec homes helped maximize profits and protect margins amidst extended build cycle times due to supply chain issues and labor shortages[135] Financial Services This section details the financial performance of the company's financial services segment, including revenue, income, and loan origination volumes | Metric | Three Months Ended March 31, 2022 (in thousands, except loans) | Three Months Ended March 31, 2021 (in thousands, except loans) | Change (%) | | :--------------------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | :--------- | | Total financial services revenue | $35,199 | $44,065 | (20.1)% | | Financial services income before income taxes | $13,043 | $23,735 | (45.0)% | | Number of Loans Originated | 1,582 | 2,128 | (25.7)% | | Principal Originated (in thousands) | $688,665 | $809,746 | (15.0)% | - The decrease in total financial services revenue and income was a result of lower home closings during the period[137] Sales, Commissions and Other Marketing Costs This section analyzes the company's sales, commissions, and marketing costs as a percentage of home closings revenue, highlighting efficiency improvements - Sales, commissions, and other marketing costs as a percentage of home closings revenue, net, decreased to 5.4% for Q1 2022 from 6.3% in Q1 2021[138] - This decrease was primarily driven by leverage from an increase in home closings revenue and sustained efficiency in sales and marketing functions[138] General and Administrative Expenses This section examines general and administrative expenses as a percentage of home closings revenue, noting improvements due to increased revenue - General and administrative expenses as a percentage of home closings revenue, net, decreased to 4.2% for Q1 2022 from 4.5% in Q1 2021[139] - The decrease was primarily due to the increase in home closings revenue while general and administrative expenses remained relatively consistent[139] Equity in Income of Unconsolidated Entities This section reports the company's share of income from unconsolidated entities, noting a decrease due to lower income from financial services joint ventures | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change | | :--------------------------------------- | :----------------------------------------------- | :----------------------------------------------- | :----- | | Equity in income of unconsolidated entities | $1,831 | $5,661 | -$3,830 | - The decrease was due to lower income from financial services joint ventures and those nearing close-out[140] Other Expense, Net This table presents the net other expenses incurred by the company for the reporting periods | Metric | Three Months Ended March 31, 2022 (in thousands) | Three Months Ended March 31, 2021 (in thousands) | Change | | :---------------- | :----------------------------------------------- | :----------------------------------------------- | :----- | | Other expense, net | $542 | $975 | -$433 | Income Tax Provision This section details the company's income tax provision and effective tax rate, explaining the factors influencing tax rate differences | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change (YoY) | | :---------------- | :-------------------------------- | :-------------------------------- | :----------- | | Effective tax rate | 23.4% | 22.2% | +1.2% | - The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, non-deductible executive compensation, excess tax benefits related to stock-based compensation, and special deductions/credits[142] Net Income This section reports the company's net income and diluted earnings per share, attributing increases to higher homebuilding revenues and gross margin | Metric | Three Months Ended March 31, 2022 (in thousands, except EPS) | Three Months Ended March 31, 2021 (in thousands, except EPS) | Change (in thousands, except EPS) | | :--------------------------------------- | :------------------------------------------------------- | :------------------------------------------------------- | :-------------------------------- | | Net income | $176,703 | $98,021 | +$78,682 | | Diluted earnings per share | $1.44 | $0.75 | +$0.69 | - The increases in net income and diluted earnings per share were primarily attributable to higher homebuilding revenues and gross margin dollars[143] Liquidity and Capital Resources This section discusses the company's financial flexibility, including cash, credit facilities, and long-term funding demands, to support ongoing operations and growth Liquidity This section details the company's available cash and credit facility capacity, affirming sufficient resources for operations and debt refinancing | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change | | :-------------------------------- | :------------------------------ | :------------------------------- | :----- | | Total cash, excluding restricted cash | $569,249 | $832,821 | -$263,572 | | Revolving credit facilities availability | $847,062 | $809,733 | +$37,329 | | Total liquidity | $1,416,311 | $1,642,554 | -$226,243 | - The company believes it has adequate capital resources from operations and sufficient access to external financing (Revolving Credit Facilities) to conduct operations for the next twelve months, including refinancing its 5.875% Senior Notes due 2023[145] - Primary long-term demands for funds include debt payments, land purchases, lot development, home and amenity construction, long-term capital investments, joint venture investments, and common stock repurchases[145] Cash Flow Activities This section analyzes the company's cash flows from operating, investing, and financing activities, highlighting significant changes and their drivers - Net cash provided by operating activities was $57.5 million for Q1 2022, a significant improvement from $144.3 million used in Q1 2021, driven by a decrease in the cash flow effect from real estate inventory and land deposits, increased net income, and decreased mortgage loans held for sale[146] - Net cash used in investing activities decreased to $7.4 million for Q1 2022 from $13.5 million in Q1 2021, primarily due to decreased investments in unconsolidated entities and fewer property and equipment purchases[147] - Net cash used in financing activities was $315.5 million for Q1 2022, compared to $17.2 million provided in Q1 2021, mainly due to repayment of the $100 million Revolving Credit Facility, reduced mortgage warehouse borrowings, and common stock repurchases[148] Debt Instruments This section refers to Note 7 for detailed information on the company's debt instruments, including Senior Notes and Revolving Credit Facilities - Detailed information regarding debt instruments, including Senior Notes and Revolving Credit Facilities, is provided in Note 7 to the Unaudited Condensed Consolidated Financial Statements[149] Off-Balance Sheet Arrangements as of March 31, 2022 This section describes the company's off-balance sheet commitments, including joint ventures and land option contracts, and their associated financial obligations - The company participates in strategic land development and homebuilding joint ventures (unconsolidated entities) to acquire land and manage risk, contributing $2.1 million in cash to these ventures in Q1 2022[150][151] - Land option contracts and land banking agreements had an aggregate purchase price of $1.5 billion as of March 31, 2022, with obligations generally limited to the forfeiture of non-refundable cash deposits[152] Seasonality This section explains the seasonal nature of the company's business, with higher activity and financial results typically concentrated in the latter half of the year - The business is seasonal, with more homes under construction, closings, revenues, and operating income typically occurring in the third and fourth quarters of the year[154] - Quarterly results of operations and financial position are not necessarily representative of the results expected for the full year[155] Inflation This section discusses the adverse impact of high inflation on the company's costs and affordability, and its strategies to mitigate these effects - The company is adversely affected by high inflation due to increased land, financing, labor, and construction material costs, as well as higher mortgage interest rates impacting affordability[156] - Efforts are made to pass cost increases to customers through higher sales prices, but this may be challenging during soft housing market conditions[156] Critical Accounting Policies and Estimates This section confirms that there have been no significant changes to the company's critical accounting policies and estimates during the quarter - There have been no significant changes to the company's critical accounting policies and estimates during the three months ended March 31, 2022, compared to those disclosed in the Annual Report[157] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company is exposed to interest rate risk, with a majority of its debt being fixed rate. While fixed-rate debt changes affect fair value, variable-rate debt changes can impact future earnings and cash flows. The company monitors this exposure and has significant availability under its revolving credit facilities - The company's operations are interest rate sensitive, with approximately 93% of its debt being fixed rate and 7% variable rate as of March 31, 2022[159] - Changes in interest rates generally affect the fair value of fixed-rate debt but not earnings or cash flows, while for variable-rate debt, they may affect future earnings and cash flows[159] - As of March 31, 2022, the company had no outstanding borrowings under its $800 million or $100 million Revolving Credit Facilities, with $847.1 million of additional availability[159] Debt Obligations by Expected Maturity (in millions) | Debt Type | 2022 (in millions) | 2023 (in millions) | 2024 (in millions) | 2025 (in millions) | 2026 (in millions) | Thereafter (in millions) | Total (in millions) | Fair Value (in millions) | | :---------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------- | :----------------------- | :------------------ | :----------------------- | | Fixed Rate | $162.4 | $487.7 | $392.8 | $30.9 | $14.3 | $1,757.3 | $2,845.4 | $2,892.1 | | Variable Rate | $200.7 | $0 | $0 | $0 | $0 | $0 | $200.7 | $200.7 | ITEM 4. CONTROLS AND PROCEDURES The company's management, including the principal executive, financial, and accounting officers, evaluated the effectiveness of its disclosure controls and procedures, concluding they were effective as of March 31, 2022. No material changes in internal control over financial reporting occurred during the quarter - The company's disclosure controls and procedures were evaluated and concluded to be effective at the reasonable assurance level as of March 31, 2022[162] - There were no material changes in the company's internal control over financial reporting during the quarter ended March 31, 2022[163] PART II. OTHER INFORMATION This section provides additional disclosures not covered in the financial information, including legal proceedings, risk factors, equity sales, and exhibits ITEM 1. LEGAL PROCEEDINGS This section refers to Note 13 of the financial statements for detailed information regarding the company's legal proceedings and commitments - Information required for this item is found in Note 13 - Commitments and Contingencies under 'Legal Proceedings' in the Notes to the Consolidated Financial Statements[165] ITEM 1A. RISK FACTORS There have been no material changes to the risk factors previously outlined in the company's Annual Report. Readers are advised to carefully consider these existing risk factors, as they could significantly impact the company's business, financial condition, or results of operations - No material changes to the risk factors set forth in Part I, Item 1A of the Annual Report have occurred[166] - Readers should carefully consider the risk factors from the Annual Report and other information in this quarterly report, as they may materially affect the company's business, financial condition, or results of operations[166] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS During the first quarter of 2022, the company repurchased 1.9 million shares of its common stock for $58.0 million under its renewed $250.0 million stock repurchase program, which is active until June 2024 Share Repurchase Activity (Q1 2022) | Period | Total shares purchased | Average price paid per share | Approximate dollar value of shares that may yet be purchased (in thousands) | | :-------------------------- | :--------------------- | :--------------------------- | :------------------------------------------------------------------------ | | January 1 to January 31, 2022 | 157,166 | $34.44 | $225,000 | | February 1 to February 28, 2022 | 1,106,334 | $28.62 | $193,335 | | March 1 to March 31, 2022 | 684,687 | $30.60 | $172,384 | | Total | 1,948,187 | | | - On December 13, 2021, the Board of Directors authorized a $250.0 million renewal of the company's stock repurchase program, which expires on June 30, 2024[168] - The program does not require the repurchase of any specific number of shares and may be suspended, extended, modified, or discontinued at any time, subject to market conditions and other considerations[169] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The company reported no defaults upon senior securities for the period - No defaults upon senior securities were reported[170] ITEM 4. MINE SAFETY DISCLOSURES The company reported no mine safety disclosures for the period - No mine safety disclosures were reported[171] ITEM 5. OTHER INFORMATION The company reported no other information for the period - No other information was reported[172] ITEM 6. EXHIBITS This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, credit agreements, and certifications required by the Sarbanes-Oxley Act, along with XBRL-related documents - Exhibits include the Amended and Restated Certificate of Incorporation, Amended and Restated By-laws, and the Amended and Restated Credit Agreement[173] - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes–Oxley Act of 2002 are filed/furnished[173] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) are also included[173] SIGNATURES The report is officially signed by the company's principal executive officer, principal financial officer, and chief accounting officer, affirming its submission in accordance with the Securities Exchange Act of 1934 - The report is signed by Sheryl D. Palmer (Chairman of the Board of Directors and Chief Executive Officer), Louis Steffens (Executive Vice President and Chief Financial Officer), and Joseph Terracciano (Chief Accounting Officer)[176]