Taylor Morrison(TMHC) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents Taylor Morrison's unaudited condensed consolidated financial statements and detailed notes for Q3 2022 and FY2021 Item 1. Financial Statements Provides Taylor Morrison's unaudited condensed consolidated financial statements, including balance sheets, operations, equity, and cash flows Condensed Consolidated Balance Sheets Details the company's financial position, including assets, liabilities, and stockholders' equity at key reporting dates Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | Assets | | | | Total cash, cash equivalents, and restricted cash | $329,822 | $836,340 | | Total real estate inventory | $5,959,077 | $5,499,521 | | Total assets | $8,593,626 | $8,727,777 | | Liabilities | | | | Total liabilities | $4,190,160 | $4,756,795 | | Stockholders' Equity | | | | Total stockholders' equity | $4,403,466 | $3,970,982 | | Total liabilities and stockholders' equity | $8,593,626 | $8,727,777 | - Total cash, cash equivalents, and restricted cash decreased significantly from $836.3 million at December 31, 2021, to $329.8 million at September 30, 2022[11] - Total real estate inventory increased from $5.5 billion at December 31, 2021, to $5.96 billion at September 30, 2022[11] - Total liabilities decreased from $4.76 billion at December 31, 2021, to $4.19 billion at September 30, 2022[11] - Total stockholders' equity increased from $3.97 billion at December 31, 2021, to $4.40 billion at September 30, 2022[11] Condensed Consolidated Statements of Operations Presents the company's revenues, gross margin, and net income for the three and nine months ended September 30, 2022 and 2021 Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total revenue | $2,034,644 | $1,858,751 | $5,732,791 | $4,995,843 | | Gross margin | $557,940 | $392,450 | $1,492,548 | $995,594 | | Income before income taxes | $399,649 | $225,565 | $1,024,146 | $520,530 | | Net income available to Taylor Morrison Home Corporation | $309,779 | $168,134 | $777,469 | $390,302 | | Basic EPS | $2.75 | $1.35 | $6.63 | $3.07 | | Diluted EPS | $2.72 | $1.34 | $6.56 | $3.02 | - Total revenue increased by 9.5% for the three months ended September 30, 2022, and by 14.7% for the nine months ended September 30, 2022, compared to the same periods in the prior year[13] - Gross margin increased by 42.2% for the three months ended September 30, 2022, and by 49.9% for the nine months ended September 30, 2022, compared to the same periods in the prior year[13] - Net income available to Taylor Morrison Home Corporation increased by 84.2% for the three months ended September 30, 2022, and by 99.2% for the nine months ended September 30, 2022, compared to the same periods in the prior year[13] Condensed Consolidated Statements of Stockholders' Equity Outlines changes in stockholders' equity, including net income and stock repurchases, for specified periods Changes in Stockholders' Equity (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Balance – Beginning of Period | $4,193,895 | $3,668,849 | $3,970,982 | $3,593,750 | | Net income | $309,231 | $172,467 | $780,846 | $399,665 | | Repurchase of common stock | $(104,999) | $(91,659) | $(335,412) | $(236,831) | | Balance – End of Period | $4,403,466 | $3,745,896 | $4,403,466 | $3,745,896 | - The company repurchased $105.0 million of common stock during the three months ended September 30, 2022, and $335.4 million during the nine months ended September 30, 2022[14][16] Condensed Consolidated Statements of Cash Flows Summarizes cash flows from operating, investing, and financing activities for the nine months ended September 30, 2022 and 2021 Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by/(used in) operating activities | $459,987 | $(103,545) | | Net cash used in investing activities | $(18,807) | $(43,304) | | Net cash used in financing activities | $(947,698) | $(12,275) | | Net decrease in cash and cash equivalents and restricted cash | $(506,518) | $(159,124) | | Cash, cash equivalents, and restricted cash — End of period | $329,822 | $374,985 | - Net cash provided by operating activities significantly increased to $460.0 million for the nine months ended September 30, 2022, compared to cash used of $103.5 million in the prior year, primarily due to increased net income and decreased mortgage loans held for sale[154] - Net cash used in financing activities increased substantially to $947.7 million for the nine months ended September 30, 2022, from $12.3 million in the prior year, mainly due to repayments on senior notes, revolving credit facilities, mortgage warehouse facilities, and common stock repurchases[156] Notes to the Unaudited Condensed Consolidated Financial Statements Provides detailed explanations of significant accounting policies and financial statement line items 1. Business Description Describes Taylor Morrison's residential homebuilding, community development, and financial services operations - Taylor Morrison Home Corporation operates a residential homebuilding business and develops lifestyle communities across 10 states, offering single and multi-family homes for various buyer segments (entry-level, move-up, resort lifestyle)[21] - The company also engages in 'Build-to-Rent' homebuilding, multi-use property development under 'Urban Form,' and provides financial services through its mortgage, title, and insurance subsidiaries[21] - Business is organized into four reportable segments: East, Central, West (homebuilding), and Financial Services[21] 2. Summary of Significant Accounting Policies Outlines the key accounting principles and estimates used in preparing the financial statements - Financial statements are prepared in accordance with GAAP for interim information, requiring estimates for real estate development costs, valuations (real estate, goodwill, equity awards), deferred tax assets, and reserves[22][24] - Goodwill is assessed for impairment annually or more frequently if indicators are present; no impairment test was performed in Q3 2022 as indicators were absent[25] - Real estate inventory (raw land, land under development, homes, models) is stated at cost, capitalizing interest, taxes, and development costs; recoverability is assessed on a community-level basis[26][29][30] - Revenue from home and land closings is recognized upon transfer of ownership, while amenity and other revenue includes club dues and multi-use property sales. Financial services revenue includes loan origination fees and gains/losses from mortgage sales and hedging[39][40][41][42] 3. Earnings Per Share Details the calculation of basic and diluted earnings per share for the reported periods Earnings Per Common Share (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income available to TMHC | $309,779 | $168,134 | $777,469 | $390,302 | | Basic EPS | $2.75 | $1.35 | $6.63 | $3.07 | | Diluted EPS | $2.72 | $1.34 | $6.56 | $3.02 | | Weighted average shares – basic | 112,701 | 124,378 | 117,242 | 127,217 | | Weighted average shares – diluted | 113,780 | 125,770 | 118,438 | 129,043 | - Basic EPS increased by 103.7% for the three months and 115.9% for the nine months ended September 30, 2022, compared to the prior year, driven by higher net income and a lower weighted average number of shares[13][44] 4. Real Estate Inventory and Land Deposits Provides a breakdown of real estate inventory, including owned lots and land deposits Real Estate Inventory (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | Real estate developed and under development | $3,787,988 | $3,895,681 | | Real estate held for development or held for sale | $44,177 | $70,305 | | Operating communities | $1,881,718 | $1,309,551 | | Capitalized interest | $190,461 | $168,670 | | Total owned inventory | $5,904,344 | $5,444,207 | | Consolidated real estate not owned | $54,733 | $55,314 | | Total real estate inventory | $5,959,077 | $5,499,521 | Homebuilding Owned Lots and Development (in thousands) | Lot Status | Sep 30, 2022 (Owned Lots) | Sep 30, 2022 (Book Value) | Dec 31, 2021 (Owned Lots) | Dec 31, 2021 (Book Value) | | :----------------------------------- | :------------------------ | :------------------------ | :------------------------ | :------------------------ | | Undeveloped | 15,238 | $517,929 | 17,671 | $636,385 | | Under development | 11,345 | $1,051,698 | 11,446 | $964,353 | | Finished | 19,874 | $2,257,495 | 18,896 | $2,266,309 | | Total homebuilding owned lots | 46,457 | $3,827,122 | 48,013 | $3,867,047 | - Total owned inventory increased by 8.4% from December 31, 2021, to September 30, 2022, primarily driven by an increase in operating communities[45] - The company's controlled lots, including land option purchase contracts, land banking arrangements, and other controlled lots, increased from 28,762 lots with a purchase price of $2.6 billion at December 31, 2021, to 33,695 lots with a purchase price of $2.7 billion at September 30, 2022[48] 5. Investments in Consolidated and Unconsolidated Entities Summarizes financial information and the company's share in consolidated and unconsolidated entities Summarized Financial Information of Unconsolidated Entities (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | Total assets | $850,657 | $533,677 | | Total liabilities | $169,347 | $184,087 | | TMHC's share in owners' equity | $306,081 | $171,406 | | Revenues (9 months) | $150,062 | $101,458 | | TMHC's share in (loss)/income (9 months) | $(2,986) | $9,269 | | Distributions to TMHC (9 months) | $100,835 | $23,287 | - TMHC's share in the loss of unconsolidated entities was $1.2 million for the three months and $3.0 million for the nine months ended September 30, 2022, a shift from income in the prior year periods, partly due to new investments yet to yield returns[53][145] - In Q3 2022, the company recognized a gain of $0.8 million and $14.5 million for the three and nine months, respectively, from land transfers at fair value as part of initial investments in unconsolidated joint ventures[51] 6. Accrued Expenses and Other Liabilities Details the composition of accrued expenses and other liabilities at period-end Accrued Expenses and Other Liabilities (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | Real estate development costs to complete | $42,384 | $49,833 | | Compensation and employee benefits | $113,877 | $166,272 | | Self-insurance and warranty reserves | $139,991 | $141,839 | | Interest payable | $35,112 | $48,551 | | Property and sales taxes payable | $31,648 | $29,384 | | Other accruals | $93,620 | $89,330 | | Total accrued expenses and other liabilities | $456,632 | $525,209 | - Total accrued expenses and other liabilities decreased by 13.0% from $525.2 million at December 31, 2021, to $456.6 million at September 30, 2022, primarily due to lower compensation and employee benefits and interest payable[57] 7. Debt Presents the company's debt structure, including senior notes and revolving credit facilities Total Debt (in thousands) | Category | Sep 30, 2022 (Principal) | Sep 30, 2022 (Carrying Value) | Dec 31, 2021 (Principal) | Dec 31, 2021 (Carrying Value) | | :----------------------------------- | :------------------------- | :-------------------------- | :------------------------- | :-------------------------- | | Senior Notes subtotal | $2,185,040 | $2,173,798 | $2,450,000 | $2,452,322 | | Loans payable and other borrowings | $409,791 | $409,791 | $404,386 | $404,386 | | Revolving credit facility borrowings | $0 | $0 | $31,529 | $31,529 | | Mortgage warehouse borrowings | $146,335 | $146,335 | $413,887 | $413,887 | | Total debt | $2,741,166 | $2,729,924 | $3,299,802 | $3,302,124 | - Total debt decreased by 17.3% from $3.3 billion at December 31, 2021, to $2.73 billion at September 30, 2022, primarily due to repayments on senior notes and mortgage warehouse borrowings[58] - The company repurchased $265.0 million of its 6.625% Senior Notes due 2027 through a cash tender offer, resulting in a net gain on extinguishment of debt of $13.5 million for the nine months ended September 30, 2022[62][147] - The $1 Billion Revolving Credit Facility commitments increased from $800.0 million to $1.0 billion on September 9, 2022, with $938.8 million available as of September 30, 2022[66][68] - Mortgage warehouse borrowings decreased significantly from $413.9 million at December 31, 2021, to $146.3 million at September 30, 2022, and transitioned from LIBOR to SOFR and BSBY as reference rates[73] 8. Fair Value Disclosures Explains the fair value measurement of financial instruments using a three-level hierarchy - The fair value of financial instruments is categorized into a three-level hierarchy based on observability of inputs: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[75][76] - Mortgage loans held for sale, mortgage warehouse borrowings, and loans payable approximate carrying value due to their short-term and variable interest rate nature[78] - The fair value of Senior Notes is derived from quoted market prices in inactive markets, while derivative assets and liabilities (IRLCs, MBSs) are valued based on underlying mortgage loans and quoted MBS prices[77][78] 9. Income Taxes Discusses the effective tax rate and factors influencing income tax provision Effective Tax Rate | Period | 2022 | 2021 | | :----------------------------------- | :--- | :--- | | Three Months Ended September 30 | 22.6% | 23.5% | | Nine Months Ended September 30 | 23.8% | 23.2% | - The effective tax rate for the three and nine months ended September 30, 2022, was 22.6% and 23.8%, respectively, differing from the U.S. federal statutory rate primarily due to state income taxes, non-deductible executive compensation, and stock-based compensation benefits[80] 10. Stockholders' Equity Details changes in stockholders' equity, including stock repurchase programs - The Board of Directors authorized a new stock repurchase program on May 31, 2022, permitting the repurchase of up to $500.0 million of common stock until December 31, 2023, replacing a prior $250.0 million program[83] Share Repurchase Activity (in thousands) | Period | Amount Repurchased (3 Months) | Amount Repurchased (9 Months) | | :----------------------------------- | :-------------------------- | :-------------------------- | | September 30, 2022 | $(104,999) | $(335,412) | | September 30, 2021 | $(91,659) | $(236,831) | - The company repurchased 4.2 million shares for $105.0 million during the three months ended September 30, 2022, and 12.9 million shares for $335.4 million during the nine months ended September 30, 2022[85] 11. Stock Based Compensation Reports stock-based compensation expense and unrecognized award values Stock-Based Compensation Expense (in thousands) | Category | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Restricted stock units | $4,215 | $3,746 | $14,133 | $12,108 | | Stock options | $1,118 | $1,047 | $3,341 | $3,020 | | Total stock compensation | $5,333 | $4,793 | $17,474 | $15,128 | - Total stock compensation expense increased by 11.3% for the three months and 15.5% for the nine months ended September 30, 2022, compared to the prior year[87] - As of September 30, 2022, the aggregate unrecognized value of all outstanding stock-based compensation awards was approximately $32.3 million[87] 12. Reporting Segments Provides financial performance data for the company's homebuilding and financial services segments - The company operates in three homebuilding segments (East, Central, West) and a Financial Services segment, with Build-to-Rent and Urban Form operations included in the Corporate segment[88][89] Total Revenue by Segment (in thousands) | Segment | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | East | $649,058 | $571,879 | $1,810,041 | $1,606,603 | | Central | $522,846 | $401,948 | $1,351,093 | $1,110,399 | | West | $831,409 | $846,082 | $2,433,893 | $2,158,251 | | Financial Services | $27,749 | $38,046 | $98,419 | $119,503 | | Corporate and Unallocated | $3,582 | $796 | $39,345 | $1,087 | | Total | $2,034,644 | $1,858,751 | $5,732,791 | $4,995,843 | Gross Margin by Segment (in thousands) | Segment | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | East | $176,015 | $129,234 | $476,241 | $336,542 | | Central | $141,076 | $78,292 | $332,440 | $212,076 | | West | $231,100 | $173,062 | $635,318 | $404,093 | | Financial Services | $7,354 | $11,844 | $32,327 | $43,367 | | Corporate and Unallocated | $2,395 | $18 | $16,222 | $(484) | | Total | $557,940 | $392,450 | $1,492,548 | $995,594 | 13. Commitments and Contingencies Outlines outstanding letters of credit, land option contracts, and legal accruals - Outstanding letters of credit and surety bonds totaled $1.2 billion as of September 30, 2022, with no probable draws expected[92] - Aggregate purchase price for land under option contracts and land banking agreements was $1.5 billion at September 30, 2022, up from $1.3 billion at December 31, 2021[93] - Legal accruals were $20.5 million at September 30, 2022, down from $21.7 million at December 31, 2021. The company believes it will win an appeal regarding a $35.0 million club membership fee reimbursement, expecting zero liability[96][97] 14. Mortgage Hedging Activities Describes the company's use of derivative instruments for mortgage rate risk management Derivative Instrument Assets (Liabilities) (in thousands) | Instrument | Sep 30, 2022 (Fair Value) | Sep 30, 2022 (Notional Amount) | Dec 31, 2021 (Fair Value) | Dec 31, 2021 (Notional Amount) | | :----------------------------------- | :-------------------------- | :----------------------------- | :-------------------------- | :----------------------------- | | IRLCs | $(12,792) | $651,953 | $2,110 | $158,299 | | MBSs | $23,832 | $596,000 | $(449) | $407,000 | | Total | $11,040 | | $1,661 | | - The company uses Interest Rate Lock Commitments (IRLCs) and Mortgage Backed Securities (MBSs) as derivative instruments for rate risk management, with fair values recognized in Financial Services revenue/expenses[99] - Total commitments to originate loans increased significantly from $173.7 million at December 31, 2021, to $716.6 million at September 30, 2022[101] 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 condition and operational results for the three and nine months ended September 30, 2022, compared to the prior year. It highlights the impact of macroeconomic conditions, including rising mortgage rates and inflation, on sales, cancellations, and profitability, while also discussing liquidity, capital resources, and off-balance sheet arrangements Forward-Looking Statements Cautions readers about inherent uncertainties and risks associated with future-oriented statements in the report - The report contains forward-looking statements regarding future events, intentions, plans, beliefs, expectations, or predictions, which are subject to numerous uncertainties and factors beyond the company's control[105] - Readers are cautioned not to place undue reliance on these statements, as actual results may differ materially due to risks outlined in the Annual Report on Form 10-K and subsequent SEC filings[105] Business Overview Provides an overview of Taylor Morrison's homebuilding, community development, and financial services operations - Taylor Morrison's core business is residential homebuilding and lifestyle community development across 10 states, serving entry-level, move-up, and resort lifestyle buyers[107] - The company also operates 'Build-to-Rent' and 'Urban Form' multi-use property development, alongside financial services (mortgage, title, insurance)[107] - Land acquisition strategy focuses on profitable growth over a full cycle, with current approvals expected to impact deliveries in 24-48 months[108] Factors Affecting Comparability of Results Highlights specific gains on land transfers and debt extinguishment impacting period-over-period comparability - The company recognized a $0.8 million and $14.5 million gain on land transfers for the three and nine months ended September 30, 2022, respectively, which was not present in the prior year[111] - A net gain of $71 thousand and $13.5 million on extinguishment of debt was recognized for the three and nine months ended September 30, 2022, respectively, due to partial redemption of senior notes, which also did not occur in the prior year[111] Third Quarter 2022 Highlights Summarizes key operational and financial achievements for the third quarter of 2022 - Home closings revenue increased 12% to $2.0 billion[112] - Home closings gross margin improved 630 basis points to 27.5%[112] - SG&A as a percentage of home closings revenue improved 210 basis points to 7.4%[112] - Homebuilding lot supply increased 3% to approximately 80,000 owned and controlled homesites[112] - Controlled lots as a percentage of total lot supply increased approximately 600 basis points to 42%[112] - Repurchased 4.2 million shares outstanding for $105 million[112] - Return on equity improved 1,300 basis points to 25.8%[112] Results of Operations Analyzes the company's financial performance, including revenue, gross margin, and net income Non-GAAP Measures Explains the use and reconciliation of non-GAAP financial metrics for performance evaluation - The company uses non-GAAP financial measures such as adjusted net income, adjusted EPS, adjusted income before income taxes, EBITDA, adjusted EBITDA, and net homebuilding debt to capitalization ratio to evaluate performance and set compensation targets[114][115][116] - These non-GAAP measures exclude impacts like gains on land transfers and debt extinguishment, and are considered useful for investors to assess ongoing operations and benchmark performance[115][118] Adjusted Net Income and Adjusted Earnings Per Common Share Presents adjusted net income and EPS, excluding specific non-recurring items Adjusted Net Income and EPS (in thousands, except per share data) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net income available to TMHC | $309,779 | $168,134 | | Gain on land transfers | $(808) | $0 | | Gain on extinguishment of debt, net | $(71) | $0 | | Tax impact due to above non-GAAP reconciling items | $205 | $0 | | Adjusted net income | $309,105 | $168,134 | | Adjusted earnings per common share - Basic | $2.74 | $1.35 | | Adjusted earnings per common share - Diluted | $2.72 | $1.34 | - Adjusted net income for the three months ended September 30, 2022, was $309.1 million, an 83.8% increase from $168.1 million in the prior year, after adjusting for gains on land transfers and debt extinguishment[121] Adjusted Income Before Income Taxes and Related Margin Details adjusted income before income taxes and its corresponding margin Adjusted Income Before Income Taxes and Margin (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Income before income taxes | $399,649 | $225,565 | | Gain on land transfers | $(808) | $0 | | Gain on extinguishment of debt, net | $(71) | $0 | | Adjusted income before income taxes | $398,770 | $225,565 | | Adjusted income before income taxes margin | 19.6% | 12.1% | - Adjusted income before income taxes for the three months ended September 30, 2022, was $398.8 million, an increase of 76.8% from $225.6 million in the prior year, with the margin improving to 19.6% from 12.1%[124] EBITDA and Adjusted EBITDA Reconciliation Reconciles net income to EBITDA and Adjusted EBITDA, providing key profitability metrics EBITDA and Adjusted EBITDA (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | | Net income before allocation to non-controlling interests | $309,231 | $172,467 | | EBITDA | $439,289 | $266,390 | | Adjusted EBITDA | $443,743 | $271,183 | | Adjusted EBITDA as a percentage of total revenue | 21.8% | 14.6% | - Adjusted EBITDA for the three months ended September 30, 2022, was $443.7 million, a 63.6% increase from $271.2 million in the prior year, with the margin improving to 21.8% of total revenue from 14.6%[126] Net Homebuilding Debt to Capitalization Ratio Reconciliation Reconciles and presents the net homebuilding debt to capitalization ratio, indicating leverage Net Homebuilding Debt to Capitalization Ratio (in thousands) | Metric | Sep 30, 2022 | Jun 30, 2022 | Sep 30, 2021 | | :----------------------------------- | :----------- | :----------- | :----------- | | Total debt | $2,729,924 | $2,950,744 | $3,221,569 | | Net homebuilding debt | $2,265,587 | $2,404,740 | $2,610,144 | | Total equity | $4,403,466 | $4,193,895 | $3,745,896 | | Total capitalization | $6,669,053 | $6,598,635 | $6,356,040 | | Net homebuilding debt to capitalization ratio | 34.0% | 36.4% | 41.1% | - The net homebuilding debt to capitalization ratio improved to 34.0% at September 30, 2022, from 41.1% at September 30, 2021, indicating reduced leverage[128] Operational and Financial Performance Comparison Compares operational and financial results for the three and nine months ended September 30, 2022 and 2021 - Rising mortgage interest rates and inflationary pressures led to increased buyer apprehension and higher cancellation rates in Q3 2022[129] - The company shifted to selling spec homes in several markets to manage supply chain delays and labor shortages, which extended build cycle times[129] Ending Active Selling Communities Reports the number of active selling communities by segment at period-end Ending Active Selling Communities | Segment | Sep 30, 2022 | Jun 30, 2022 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | East | 118 | 117 | 0.9% | | Central | 105 | 104 | 1.0% | | West | 103 | 102 | 1.0% | | Total | 326 | 323 | 0.9% | - The total number of active selling communities remained relatively stable, increasing slightly by 0.9% from 323 at June 30, 2022, to 326 at September 30, 2022[130] Net Sales Orders Details net sales orders, sales value, and average selling price for homes Net Sales Orders and Value (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (%) | | :----------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net Sales Orders | 2,069 | 3,372 | (38.6)% | | Sales Value | $1,279,997 | $2,160,889 | (40.8)% | | Average Selling Price | $619 | $641 | (3.4)% | Net Sales Orders and Value (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :----------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Net Sales Orders | 7,677 | 11,286 | (32.0)% | | Sales Value | $5,149,790 | $6,676,825 | (22.9)% | | Average Selling Price | $671 | $592 | 13.3% | - Net sales orders decreased by 38.6% for the three months and 32.0% for the nine months ended September 30, 2022, primarily due to changing economic conditions and rising mortgage rates[132] - Average selling price for net sales orders decreased by 3.4% in Q3 2022 due to pricing incentives, but increased by 13.3% for the nine-month period due to prior sales price appreciation[132] Sales Order Cancellations Presents the cancellation rates for sales orders by segment Cancellation Rate | Segment | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | East | 9.2% | 5.6% | 7.3% | 5.5% | | Central | 22.5% | 7.5% | 12.8% | 6.7% | | West | 20.2% | 7.4% | 12.7% | 6.4% | | Total Company | 15.6% | 6.7% | 10.6% | 6.1% | - The total company cancellation rate increased significantly to 15.6% for the three months and 10.6% for the nine months ended September 30, 2022, driven by higher mortgage interest rates and buyer apprehension[133] Sales Order Backlog Reports the number of sold homes and their sales value in the backlog Sales Order Backlog (in thousands) | Metric | Sep 30, 2022 | Sep 30, 2021 | Change (%) | | :----------------------------------- | :----------- | :----------- | :--------- | | Sold Homes in Backlog | 7,941 | 10,273 | (22.7)% | | Sales Value | $5,395,721 | $6,123,966 | (11.9)% | | Average Selling Price | $679 | $596 | 13.9% | - Total sold homes in backlog decreased by 22.7% and total sales value decreased by 11.9% at September 30, 2022, compared to the prior year, primarily due to lower net sales and increased cancellations[134] - Despite the decrease in volume, the average selling price of homes in backlog increased by 13.9% due to sales price appreciation over recent quarters[134] Home Closings Revenue Details home closings revenue, number of homes closed, and average selling price Home Closings Revenue (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (%) | | :----------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Homes Closed | 3,050 | 3,327 | (8.3)% | | Home Closings Revenue, Net | $1,983,775 | $1,772,495 | 11.9% | | Average Selling Price | $650 | $533 | 22.0% | Home Closings Revenue (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :----------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Homes Closed | 8,850 | 9,416 | (6.0)% | | Home Closings Revenue, Net | $5,511,204 | $4,780,304 | 15.3% | | Average Selling Price | $623 | $508 | 22.6% | - Home closings revenue, net, increased by 11.9% for the three months and 15.3% for the nine months ended September 30, 2022, despite a decrease in the number of homes closed, driven by a significant increase in average selling prices (22.0% and 22.6% respectively)[135] Land Closings Revenue Presents land closings revenue by segment for the reported periods Land Closings Revenue (in thousands) | Segment | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :------- | | East | $5,732 | $11,987 | $(6,255) | | Central | $599 | $3,186 | $(2,587) | | West | $7,894 | $27,055 | $(19,161) | | Total | $14,225 | $42,228 | $(28,003) | Land Closings Revenue (in thousands) | Segment | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :------- | | East | $36,482 | $27,643 | $8,839 | | Central | $3,265 | $8,718 | $(5,453) | | West | $26,904 | $42,813 | $(15,909) | | Total | $66,651 | $79,174 | $(12,523) | - Land closings revenue decreased by 66.3% for the three months and 15.8% for the nine months ended September 30, 2022, reflecting fluctuations based on market opportunities and land management strategy[136] Amenity and Other Revenue Reports amenity and other revenue, including contributions from corporate operations Amenity and Other Revenue (in thousands) | Segment | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :------- | | Corporate | $3,582 | $796 | $2,786 | | Total | $8,895 | $5,982 | $2,913 | Amenity and Other Revenue (in thousands) | Segment | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :----------------------------------- | :-------------------------- | :-------------------------- | :------- | | Corporate | $39,345 | $1,087 | $38,258 | | Total | $56,517 | $16,862 | $39,655 | - Amenity and other revenue increased by 48.7% for the three months and 235.9% for the nine months ended September 30, 2022, primarily driven by the sale of an asset related to Urban Form operations in the Corporate segment[138] Home Closings Gross Margin Details home closings gross margin and its percentage for the reported periods Home Closings Gross Margin (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (bps) | | :----------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Home closings gross margin | $545,611 | $375,176 | | | Home closings gross margin % | 27.5% | 21.2% | 630 bps | Home Closings Gross Margin (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (bps) | | :----------------------------------- | :-------------------------- | :-------------------------- | :----------- | | Home closings gross margin | $1,426,456 | $941,702 | | | Home closings gross margin % | 25.9% | 19.7% | 620 bps | - Home closings gross margin percentage increased by 630 basis points to 27.5% for the three months and 620 basis points to 25.9% for the nine months ended September 30, 2022, reflecting pricing power, operational enhancements, and acquisition synergies[141] Financial Services Summarizes financial services revenue, income, and loan origination metrics Financial Services Income Before Income Taxes (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (%) | | :----------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Total financial services revenue | $27,749 | $38,046 | (27.1)% | | Financial services income before income taxes | $7,900 | $13,198 | (40.1)% | | Number of Loans Originated | 1,551 | 2,254 | (31.2)% | | Principal Originated | $701,323 | $900,404 | (22.1)% | Financial Services Income Before Income Taxes (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (%) | | :----------------------------------- | :-------------------------- | :-------------------------- | :--------- | | Total financial services revenue | $98,419 | $119,503 | (17.6)% | | Financial services income before income taxes | $37,126 | $50,592 | (26.6)% | | Number of Loans Originated | 4,728 | 6,718 | (29.6)% | | Principal Originated | $2,108,122 | $2,621,103 | (19.6)% | - Total financial services revenue decreased by 27.1% for the three months and 17.6% for the nine months ended September 30, 2022, primarily due to lower home mortgage originations and fewer home closings[142] Sales, Commissions and Other Marketing Costs Analyzes sales, commissions, and marketing costs relative to home closings revenue - Sales, commissions, and other marketing costs as a percentage of home closings revenue, net, decreased to 4.8% (from 5.5%) for the three months and 5.1% (from 5.9%) for the nine months ended September 30, 2022, driven by leverage in controllable costs[143] General and Administrative Expenses Examines general and administrative expenses as a percentage of home closings revenue - General and administrative expenses as a percentage of home closings revenue, net, decreased to 2.6% (from 4.0%) for the three months and 3.4% (from 4.2%) for the nine months ended September 30, 2022, due to increased home closings revenue and lower G&A expenses[144] Net Loss/(Income) from Unconsolidated Entities Reports the company's share of net loss or income from unconsolidated entities - The company reported a net loss from unconsolidated entities of $1.2 million for the three months and $3.0 million for the nine months ended September 30, 2022, compared to net income in the prior year periods, attributed to new investments yet to yield returns[145] Other Expense/(Income), Net Details other expense or income, net, including pre-acquisition write-offs and land transfer gains - Other expense, net was $5.8 million for the three months ended September 30, 2022, primarily due to pre-acquisition cost write-offs[146] - Other income, net was $4.7 million for the nine months ended September 30, 2022, primarily due to $14.5 million in gains on land transferred at fair value to new joint ventures[146] Gain on Extinguishment of Debt, Net Reports the net gain recognized from the extinguishment of debt - A net gain on extinguishment of debt of $71 thousand for the three months and $13.5 million for the nine months ended September 30, 2022, resulted from the tender offer and purchase of 6.625% Senior Notes due 2027[147] Income Tax Provision Discusses the income tax provision and effective tax rate for the periods - The effective tax rate for the three and nine months ended September 30, 2022, was 22.6% and 23.8%, respectively, influenced by state income taxes, non-deductible executive compensation, and stock-based compensation benefits[148] Net Income Presents the company's net income and diluted EPS for the reported periods - Net income for the three months ended September 30, 2022, was $309.8 million ($2.72 diluted EPS), significantly up from $168.1 million ($1.34 diluted EPS) in the prior year, driven by higher home closing revenue and gross margin[149] Liquidity and Capital Resources Discusses the company's cash flow, financing, and overall capital management strategies - The company finances operations through cash from operations, Revolving Credit Facilities, Senior Notes, mortgage warehouse facilities, project-level real estate financing, and surety bonds/letters of credit[150] Total Cash and Liquidity (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :----------------------------------- | :----------- | :----------- | | Total cash, excluding restricted cash | $329,244 | $832,821 | | Revolving Credit Facilities availability | $1,038,758 | $809,733 | | Total liquidity | $1,368,002 | $1,642,554 | - Total liquidity decreased to $1.37 billion at September 30, 2022, from $1.64 billion at December 31, 2021, primarily due to a decrease in cash and cash equivalents[153] - The company expects adequate capital resources for the next twelve months, including the redemption of its 2023 Notes, and may access capital markets for long-term demands[153] Cash Flow Activities Summarizes cash flows from operating, investing, and financing activities - Net cash provided by operating activities was $460.0 million for the nine months ended September 30, 2022, a significant increase from $103.5 million cash used in the prior year, driven by higher net income and decreased mortgage loans held for sale[154] - Net cash used in investing activities decreased to $18.8 million for the nine months ended September 30, 2022, from $43.3 million in the prior year, due to increased capital distributions from unconsolidated entities[155] - Net cash used in financing activities increased to $947.7 million for the nine months ended September 30, 2022, from $12.3 million in the prior year, primarily due to debt repayments and common stock repurchases[156] Off-Balance Sheet Arrangements Details the company's off-balance sheet commitments, including joint ventures and land options - The company participates in strategic land development and homebuilding joint ventures, including a new $850 million equity commitment venture with Värde Partners for Build-to-Rent properties[158] - Total cash contributions to unconsolidated joint ventures were $91.8 million for the nine months ended September 30, 2022, up from $31.8 million in the prior year[159] - Aggregate purchase price for land under option contracts and land banking agreements, which are off-balance sheet, was $1.5 billion at September 30, 2022[160] Seasonality Explains the seasonal nature of the company's homebuilding business and its impact on results - The company's business is seasonal, with more homes under construction, closings, revenues, and operating income typically occurring in the third and fourth quarters[161] - Quarterly results can fluctuate significantly due to factors like project timing, regulatory approvals, market conditions, construction timetables, costs, and weather[162] Inflation Discusses the adverse effects of inflation on costs and housing affordability - High inflation periods adversely affect the company due to increased land, financing, labor, and construction material costs, as well as higher mortgage interest rates impacting affordability[164] - The company attempts to offset cost increases through higher sales prices, but this may be challenging in soft housing market conditions[164] Critical Accounting Policies and Estimates Confirms no significant changes to critical accounting policies and estimates - There have been no significant changes to the company's critical accounting policies and estimates during the nine months ended September 30, 2022, compared to those disclosed in its Annual Report[165] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily focusing on interest rate risk. It outlines the composition of fixed versus variable rate debt, the transition from LIBOR to alternative reference rates (SOFR and BSBY), and the potential impact of interest rate changes on borrowing costs and debt fair values Interest Rate Risk Assesses the company's exposure to interest rate fluctuations on its debt portfolio - As of September 30, 2022, approximately 95% of the company's debt was fixed rate and 5% was variable rate[167] - Variable rate debt, primarily from mortgage warehouse facilities, is sensitive to interest rate changes, with a 1% increase potentially raising annual interest incurred by approximately $1.5 million[167][171] - The company's warehouse and Revolving Credit Facilities have transitioned from LIBOR to SOFR and BSBY as primary interest rate bases, with potential for increased borrowing costs due to the new rates' characteristics[168] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of September 30, 2022, and states that there have been no material changes in internal control over financial reporting during the quarter - The company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022[172] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[173] PART II. OTHER INFORMATION Provides additional required disclosures beyond the financial statements, including legal, risk, and equity matters Item 1. Legal Proceedings This section refers to Note 13 of the financial statements for details on legal proceedings, indicating that the company is involved in various litigation and claims in the normal course of business, with legal accruals of $20.5 million as of September 30, 2022 - Information on legal proceedings is incorporated by reference from Note 13 - Commitments and Contingencies[175] - Legal accruals were $20.5 million at September 30, 2022, and $21.7 million at December 31, 2021[96] Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K, and advises readers to consider those factors as they may materially affect the business - No material changes to the risk factors set forth in Part I, Item 1A of the Annual Report have occurred[176] - Readers should carefully consider the existing risk factors as they may materially affect the company's business, financial condition, or results of operations[176] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's common stock repurchase activity during the three months ended September 30, 2022, under its $500.0 million stock repurchase program authorized in May 2022 Common Stock Repurchase Activity (3 Months Ended Sep 30, 2022) | Period | Total Shares Purchased | Average Price Paid per Share | Approximate Dollar Value Remaining (thousands) | | :----------------------------------- | :--------------------- | :--------------------------- | :--------------------------------------------- | | July 1 to July 31, 2022 | — | $— | $425,000 | | August 1 to August 31, 2022 | 1,176,756 | $27.26 | $392,925 | | September 1 to September 30, 2022 | 3,036,500 | $24.02 | $320,001 | | Total | 4,213,256 | | | - The company repurchased 4,213,256 shares of common stock during the three months ended September 30, 2022, under its $500.0 million repurchase program[178] - The repurchase program, authorized on May 31, 2022, is subject to market conditions and other factors, and may be suspended or discontinued at any time[178][179] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities during the reported period - There were no defaults upon senior securities[180] Item 4. Mine Safety Disclosures This section indicates that there are no mine safety disclosures required for the company - There are no mine safety disclosures[181] Item 5. Other Information This section states that there is no other information to report under this item - There is no other information to report[182] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, employment agreements, credit facility amendments, certifications, and XBRL-related documents - Exhibits include corporate governance documents (Certificate of Incorporation, By-laws), employment agreements for executives, an amendment to the Amended and Restated Credit Agreement, and certifications (Sarbanes-Oxley Act Sections 302 and 906)[183] - XBRL (eXtensible Business Reporting Language) documents are also filed, including the instance document, taxonomy extension schema, calculation, definition, and label linkbase documents[183] SIGNATURES Contains the required signatures certifying the accuracy and completeness of the financial report