TAYLOR MORRISON HOME CORPORATION For purposes of this "Management's Discussion and Analysis of Financial Condition and Results of Operations," the terms "the Company," "we," "us," or "our" refer toTaylor Morrison Home Corporation ("TMHC") and its subsidiaries. The Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements included elsewhere in this quarterly report.
Forward-Looking Statements
This quarterly report includes certain forward-looking statements within the meaning of the federal securities laws regarding, among other things, our or management's intentions, plans, beliefs, expectations or predictions of future events, which are considered forward-looking statements. You should not place undue reliance on those statements because they are subject to numerous uncertainties and factors relating to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. Forward-looking statements include information concerning our possible or assumed future results of operations, including descriptions of our business and operations strategy. These statements often include words such as "may," "will," "should," "believe," "expect," "anticipate," "intend," "plan," "estimate," "can," "could," "might," "project" or similar expressions. These statements are based upon assumptions that we have made in light of our experience in the industry, as well as our perceptions of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. As you read this quarterly report, you should understand that these statements are not guarantees of performance or results. They involve known and unknown risks, uncertainties and assumptions, including those described under the heading "Risk Factors" in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2021 ("Annual Report") and in our subsequent filings with theU.S. Securities and Exchange Commission (the "SEC"). Although we believe that these forward-looking statements are based upon reasonable assumptions and currently available information, you should be aware that many factors, including those described under the heading "Risk Factors" in the Annual Report and in our subsequent filings with theSEC , could affect our actual financial results or results of operations and could cause actual results to differ materially from those in the forward-looking statements. Our forward-looking statements made herein are made only as of the date of this quarterly report. We expressly disclaim any intent, obligation or undertaking to update or revise any forward-looking statements made herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statements are based, except as required by applicable law. Business Overview Our principal business is residential homebuilding and the development of lifestyle communities with operations geographically focused inArizona ,California ,Colorado ,Florida ,Georgia ,Nevada , North andSouth Carolina ,Oregon ,Texas , andWashington . We serve a wide array of consumer groups from coast to coast, including entry-level, move-up, and 55-plus active lifestyle (formerly referred to as active adult) buyers, building single and multi-family attached and detached homes. Our homebuilding company operates under our Taylor Morrison, Darling Homes Collection by Taylor Morrison, and Esplanade brand names. We have an exclusive partnership withChristopher Todd Communities , a growingPhoenix -based developer of innovative, luxury rental communities to operate a "Build-to-Rent" homebuilding business. We serve as a land acquirer, developer, and homebuilder whileChristopher Todd Communities provides community design and property management consultation. We also operateUrban Form Development, LLC ("Urban Form"), which primarily develops and constructs multi-use properties consisting of commercial space, retail, and multi-family units. We have operations which provide financial services to customers through our wholly owned mortgage subsidiary, Taylor Morrison Home Funding, INC ("TMHF"), title services through our wholly owned title services subsidiary,Inspired Title Services, LLC ("Inspired Title"), and homeowner's insurance policies through our insurance agency,Taylor Morrison Insurance Services, LLC ("TMIS"). Our business as ofJune 30, 2022 is organized into multiple homebuilding operating components, and a financial services component, all of which are managed as four reportable segments: East, Central, West and Financial Services, as follows: EastAtlanta ,Charlotte ,Jacksonville ,Naples ,
Tampa CentralAustin ,Dallas ,Denver , andHouston WestBay Area ,Las Vegas ,Phoenix ,Portland ,
California Financial Services Taylor Morrison Home Funding, Inspired Title Services, and TaylorMorrison Insurance Services Community development includes the acquisition and development of land, which may include obtaining significant planning and entitlement approvals and completing construction of off-site and on-site utilities and infrastructure. We generally operate 24 -------------------------------------------------------------------------------- Table of Contents as community developers, but in some communities we operate solely as merchant builders, in which case we acquire fully entitled and developed lots. We remain disciplined in our underwriting to acquire land where we see opportunities to drive profitable growth over the full cycle, with the land acquisitions we are approving today largely expected to impact deliveries in the next 24 to 48 months. In our homebuilding operations, we either directly, or indirectly through our subcontractors, purchase the significant materials necessary to construct a home such as drywall, cement, steel, lumber, insulation and the other building materials. While these materials are generally widely available from a variety of sources, from time to time we experience material shortages on a localized basis which can substantially increase the price for such materials and our construction process can be slowed.
As of
Factors Affecting Comparability of Results
For the three and six months endedJune 30, 2022 , we recognized a$13.7 million gain on land transfers relating to our unconsolidated joint ventures which is included in Other (income)/expense, net on the Condensed Consolidated Statements of Operations. In addition, for the three and six months endedJune 30, 2022 , we recognized a$13.5 million net gain on extinguishment of debt relating to our partial redemption of the 6.625% Senior Notes due 2027 which is included in Gain on extinguishment of debt, net on our Condensed Consolidated Statements of Operations. We did not incur such costs for the three or six months endedJune 30, 2021 .
Second Quarter 2022 Highlights (all comparisons are of the current quarter to the prior year quarter, unless otherwise indicated):
•Home closings revenue increased 15 percent to$1.9 billion . •Home closings gross margin improved 750 basis points to 26.6 percent. •SG&A as a percentage of home closings revenue improved 140 basis points to 8.8 percent. •Homebuilding lot supply increased eight percent to approximately 82,000 owned and controlled homesites. •Controlled lots as a percentage of total lot supply increased approximately 600 basis points to 41 percent. •Repurchased 6.8 million shares outstanding for$172 million . •Return on equity improved 1,090 basis points to 23.1 percent. 25
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Results of Operations
The following table sets forth our results of operations for the periods
presented:
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) 2022 2021 2022 2021
Statements of Operations Data:
Home closings revenue, net $ 1,883,020 $ 1,644,380 $ 3,527,429 $ 3,007,809
Land closings revenue 36,816 32,057 52,426 36,946
Financial services revenue 35,471 37,392 70,670 81,457
Amenity and other revenue 39,716 5,451 47,622 10,880
Total revenue 1,995,023 1,719,280 3,698,147 3,137,092
Cost of home closings 1,381,610 1,331,041 2,646,584 2,441,283
Cost of land closings 24,204 28,138 38,568 32,165
Financial services expenses 21,483 25,935 45,697 49,934
Amenity and other expenses 26,246 5,463 32,690 10,566
Gross margin 541,480 328,703 934,608 603,144
Sales, commissions and other marketing costs 96,135 97,560 185,258 183,512
General and administrative expenses 69,407 69,997 137,549 131,550
Net loss/(income) from unconsolidated entities 3,637 (2,126) 1,806 (7,787)
Interest expense/(income), net 5,189 3 9,441 (116)
Other (income)/expense, net (11,014) 45 (10,472) 1,020
Gain on extinguishment of debt, net (13,471) - (13,471) -
Income before income taxes 391,597 163,224 624,497 294,965
Income tax provision 98,443 38,469 152,882 67,767
Net income before allocation to non-controlling
interests 293,154 124,755 471,615 227,198
Net income attributable to non-controlling interests - joint ventures
(2,167) (608) (3,925) (5,030)
Net income available to Taylor Morrison Home
Corporation $ 290,987 $ 124,147 $ 467,690 $ 222,168
Home closings gross margin 26.6 % 19.1 % 25.0 % 18.8 %
Sales, commissions and other marketing costs as a
percentage of home closings revenue, net 5.1 % 5.9 % 5.3 % 6.1 %
General and administrative expenses as a percentage
of home closings revenue, net 3.7 % 4.3 % 3.9 % 4.4 %
Non-GAAP Measures
In addition to the results reported in accordance with accounting principles
generally accepted in the United States ("GAAP"), we have provided information
in this quarterly report relating to: (i) adjusted net income and adjusted
earnings per common share, (ii) adjusted income before income taxes and related
margin, (iii) EBITDA and adjusted EBITDA and (iv) net homebuilding debt to
capitalization ratio.
Adjusted net income, adjusted earnings per common share and adjusted income
before income taxes and related margin are non-GAAP financial measures that
reflect the net income/(loss) available to the Company excluding the impact of
gains on land transfers and extinguishment of debt, net, and in the case of
adjusted net income and adjusted earnings per common share, the tax impact due
to such items. EBITDA and Adjusted EBITDA are non-GAAP financial measures that
measure performance by adjusting net income before allocation to non-controlling
interests to exclude interest expense/(income), net, amortization of capitalized
interest, income taxes, depreciation and amortization (EBITDA), non-cash
compensation expense, if any, gains on land transfers and extinguishment of
debt, net. Net homebuilding debt to capitalization ratio is a non-GAAP financial
measure we calculate by dividing (i) total debt, less unamortized debt issuance
premiums, net, and mortgage warehouse borrowings, net of unrestricted cash and
cash equivalents, by (ii) total capitalization (the sum of net homebuilding debt
and total stockholders' equity).
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Management uses these non-GAAP financial measures to evaluate our performance on
a consolidated basis, as well as the performance of our regions, and to set
targets for performance-based compensation. We also use the ratio of net
homebuilding debt to total capitalization as an indicator of overall leverage
and to evaluate our performance against other companies in the homebuilding
industry. In the future, we may include additional adjustments in the
above-described non-GAAP financial measures to the extent we deem them
appropriate and useful to management and investors.
We believe that adjusted net income, adjusted earnings per common share,
adjusted income before income taxes and related margin, as well as EBITDA and
adjusted EBITDA, are useful for investors in order to allow them to evaluate our
operations without the effects of various items we do not believe are
characteristic of our ongoing operations or performance and also because such
metrics assist both investors and management in analyzing and benchmarking the
performance and value of our business. Adjusted EBITDA also provides an
indicator of general economic performance that is not affected by fluctuations
in interest rates or effective tax rates, levels of depreciation or
amortization, or unusual items. Because we use the ratio of net homebuilding
debt to total capitalization to evaluate our performance against other companies
in the homebuilding industry, we believe this measure is also relevant and
useful to investors for that reason.
These non-GAAP financial measures should be considered in addition to, rather
than as a substitute for, the comparable U.S. GAAP financial measures of our
operating performance or liquidity. Although other companies in the homebuilding
industry may report similar information, their definitions may differ. We urge
investors to understand the methods used by other companies to calculate
similarly-titled non-GAAP financial measures before comparing their measures to
ours.
Adjusted Net Income and Adjusted Earnings Per Share
Three Months Ended June 30,
(Dollars in thousands, except per share data) 2022 2021
Net income available to TMHC $
290,987
Gain on land transfers (13,700) - Gain on extinguishment of debt, net (13,471) - Tax impact due to above non-GAAP reconciling items 6,749 - Adjusted net income$ 270,565 $ 124,147 Basic weighted average shares 117,932 128,440 Adjusted earnings per common share - Basic $
2.29
Diluted weighted average shares 118,931 130,259 Adjusted earnings per common share - Diluted $
2.27
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Adjusted Income Before Income Taxes and Related Margin
Three Months Ended
(Dollars in thousands) 2022 2021
Income before income taxes $ 391,597 $ 163,224
Gain on land transfers (13,700) -
Gain on extinguishment of debt, net (13,471) -
Adjusted income before income taxes $ 364,426 $ 163,224
Total revenues $ 1,995,023 $ 1,719,280
Income before income taxes margin 19.6 % 9.5 %
Adjusted income before income taxes margin 18.3 % 9.5 %
EBITDA and Adjusted EBITDA Reconciliation
Three Months Ended June 30,
(Dollars in thousands) 2022 2021
Net income before allocation to non-controlling interests $ 293,154 $ 124,755
Interest expense, net 5,189 3
Amortization of capitalized interest 33,420 34,070
Income tax provision 98,443 38,469
Depreciation and amortization 1,442 2,193
EBITDA $ 431,648 $ 199,490
Non-cash compensation expense 5,278 4,654
Gain on land transfers (13,700) -
Gain on extinguishment of debt, net (13,471) -
Adjusted EBITDA $ 409,755 $ 204,144
Total revenues $
1,995,023
14.7 % 7.3 %
EBITDA as a percentage of total revenues 21.6 % 11.6 %
Adjusted EBITDA as a percentage of total revenues 20.5 % 11.9 %
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Net Homebuilding Debt to Capitalization Ratio Reconciliation
As of As of
(Dollars in thousands) June 30, 2022 March 31, 2022
Total debt $ 2,950,744 $ 3,048,373
Less unamortized debt issuance (cost)/premiums, net (11,891) 2,311
Less mortgage warehouse borrowings 179,555 200,662
Total homebuilding debt $ 2,783,080 $ 2,845,400
Less cash and cash equivalents 378,340 569,249
Net homebuilding debt $ 2,404,740 $ 2,276,151
Total equity 4,193,895 4,094,798
Total capitalization $ 6,598,635 $ 6,370,949
Net homebuilding debt to capitalization ratio 36.4 % 35.7 %
Three and six months ended
The results for the three and six months endedJune 30, 2022 and 2021 were impacted by various macro economic conditions. Since the second half of 2020, demand for housing has increased nationwide, and remained strong through the first quarter of 2022. We believe the recent increases in interest rates during 2022 have caused buyer apprehension, affordability concerns, and an increase in cancellations. Through the first half of 2022, we continue to experience market-wide supply chain disruptions, trade labor shortages, and high costs related to materials due to inflationary impacts. The overall strong demand for housing has allowed us to utilize pricing strategies that mitigated increases in costs. The average sales price for net sales orders, backlog, and homes closed during the three and six months endedJune 30, 2022 all increased compared to the same periods in the prior year. However, these supply chain delays and labor shortages have extended our build cycle times. To combat this, several markets have shifted to a strategy of selling more spec homes, which allows the homes to be further along the cycle time before releasing them to be sold. Operational information related to each period is presented below:
Ending Active Selling Communities
As of As of
June 30, 2022 March 31, 2022 Change
East 117 121 (3.3) %
Central 104 106 (1.9)
West 102 97 5.2
Total 323 324 (0.3) %
Net Sales Orders
Three Months Ended June 30,
Net Sales Orders (1) Sales Value (1) Average Selling Price
(Dollars in thousands) 2022 2021 Change 2022 2021 Change 2022 2021 Change
East 1,121 1,302 (13.9) % $ 730,495 $ 713,398 2.4 % $ 652 $ 548 19.0 %
Central 642 850 (24.5) 443,146 500,976 (11.5) 690 589 17.1
West 791 1,270 (37.7) 610,932 828,731 (26.3) 772 653 18.2
Total 2,554 3,422 (25.4) % $ 1,784,573 $ 2,043,105 (12.7) % $ 699 $ 597 17.1 %
(1) Net sales orders and sales value represent the number and dollar value, respectively, of new sales contracts executed with customers, net of cancellations.
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Six Months Ended June 30,
Net Sales Orders (1) Sales Value (1) Average Selling Price(Dollars in thousands) 2022 2021 Change 2022 2021 Change 2022 2021 Change East 2,148 3,079 (30.2) %$ 1,336,705 $ 1,591,982 (16.0) %$ 622 $ 517 20.3 % Central 1,529 1,922 (20.4) 1,026,426 1,084,457 (5.4) 671 564 19.0 West 1,931 2,913 (33.7) 1,506,663 1,839,497 (18.1) 780 631 23.6 Total 5,608 7,914 (29.1) %$ 3,869,794 $ 4,515,936 (14.3) %$ 690 $ 571 20.8 % Net sales orders and sales value decreased by 25.4% and 12.7%, respectively, for the three months endedJune 30, 2022 , and 29.1% and 14.3%, respectively, for the six months endedJune 30, 2022 , compared to the same periods in the prior year. We believe the decreases were primarily the result of the change in economic conditions and home buyer apprehensions due to rising mortgage interest rates and inflationary pressures. The decrease in sales was partially offset by an increase of average selling prices. Sales price appreciation increased average selling prices by 17.1% and 20.8% for the three and six months endedJune 30, 2022 , compared to the same periods in the prior year. Sales Order Cancellations Cancellation Rate(1) Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 East 7.8 % 4.5 % 6.4 % 5.4 % Central 13.2 % 5.9 % 9.5 % 6.2 % West 12.9 % 5.6 % 9.8 % 6.0 %Total Company 10.8 % 5.2 % 8.5 % 5.8 %
(1) Cancellation rate represents the number of canceled sales orders divided by gross sales orders.
The total company cancellation rate increased for the three and six months endedJune 30, 2022 compared to the same periods in the prior year. This increase in cancellations is due to recent increases in mortgage interest rates and extended build cycle times. The Freddie Mac average 30 year fixed mortgage rate has increased 260 basis points in 2022 to 5.70% as ofJune 30, 2022 . Sales Order Backlog As of June 30, Sold Homes in Backlog (1) Sales Value Average Selling Price
(Dollars in thousands) 2022 2021 Change 2022 2021 Change 2022 2021 Change East 3,333 3,617 (7.9) %$ 2,119,850 $ 1,903,206 11.4 %$ 636 $ 526 20.9 % Central 2,874 2,838 1.3 1,948,678 1,581,686 23.2 678 557 21.7 West 2,715 3,773 (28.0) 2,030,972 2,250,680 (9.8) 748 597 25.3 Total 8,922 10,228 (12.8) %$ 6,099,500 $ 5,735,572 6.3 %$ 684 $ 561 21.9 % (1) Sales order backlog represents homes under contract for which revenue has not yet been recognized at the end of the period (including homes sold but not yet started). Some of the contracts in our sales order backlog are subject to contingencies including mortgage loan approval and buyers selling their existing homes, which can result in cancellations. Total sold homes in backlog decreased by 12.8% and total sales value increased by 6.3% atJune 30, 2022 , compared toJune 30, 2021 . The decrease in sold homes in backlog is primarily the result of a decrease in net sales as well as an increase in cancellations. Despite a lower number of sold homes in backlog, the total sales value increased as a result of sales price appreciation increasing the average selling price by 21.9%. In addition, we strategically metered sales releases to better manage supply chain and labor constraints in the earlier part of 2022. Furthermore, our strategy of spec home sales shifted, allowing homes to be further along in the build cycle before releasing them to be sold.
Home Closings Revenue
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Three Months Ended June 30,
Homes Closed Home Closings Revenue, Net Average Selling Price
(Dollars in thousands) 2022 2021 Change 2022 2021 Change 2022 2021 Change
East 1,097 1,245 (11.9) % $ 613,176 $ 563,326 8.8 % $ 559 $ 452 23.7 %
Central 778 791 (1.6) 457,006 382,743 19.4 587 484 21.3
West 1,157 1,232 (6.1) 812,838 698,311 16.4 703 567 24.0
Total 3,032 3,268 (7.2) % $ 1,883,020 $ 1,644,380 14.5 % $ 621 $ 503 23.5 %
Six Months Ended June 30,
Homes Closed Home Closings Revenue, Net Average Selling Price
(Dollars in thousands) 2022 2021 Change 2022 2021 Change 2022 2021 Change
East 2,034 2,297 (11.4) % $ 1,119,172 $ 1,009,211 10.9 % $ 550 $ 439 25.3 %
Central 1,442 1,482 (2.7) 825,582 702,920 17.5 573 474 20.9
West 2,324 2,310 0.6 1,582,675 1,295,678 22.2 681 561 21.4
Total 5,800 6,089 (4.7) % $ 3,527,429 $ 3,007,809 17.3 % $ 608 $ 494 23.1 %
The number of homes closed decreased by 7.2% and 4.7%, respectively, for the
three and six months ended June 30, 2022 , while home closings revenue, net
increased by 14.5% and 17.3%, respectively, for the three and six months ended
June 30, 2022 compared to the same periods in the prior year. The decrease in
the number of homes closed is primarily due to an increase in cancellations and
fewer spec sales in the current year periods compared to the prior year periods.
The increase in home closings revenue, net is a result of sales price
appreciation which caused average selling prices to increase by 23.5% and 23.1%
for the three and six months ended June 30, 2022 , respectively.
Land Closings Revenue
Three Months Ended June 30,
(Dollars in thousands) 2022 2021 Change
East $ 17,310 $ 13,203 $ 4,107
Central 506 3,096 (2,590)
West 19,000 15,758 3,242
Total $ 36,816 $ 32,057 $ 4,759
Six Months Ended June 30,
(Dollars in thousands) 2022 2021 Change
East $ 30,751 $ 15,656 $ 15,095
Central 2,665 5,532 (2,867)
West 19,010 15,758 3,252
Total $ 52,426 $ 36,946 $ 15,480
We generally purchase land and lots with the intent to build and sell homes.
However, in some locations where we act as a developer, we occasionally purchase
land that includes commercially zoned parcels or areas designated for school or
government use, which we typically sell to commercial developers or
municipalities, as applicable. We also sell residential lots or land parcels to
manage our land and lot supply on larger tracts of land. Land and lot sales
occur at various intervals and varying degrees of profitability. Therefore, the
revenue and gross margin from land closings will fluctuate from period to
period, depending upon market opportunities and our land management strategy.
The land closings revenue in the East for the six months ended June 30, 2022 was
due to the sale of certain commercial assets as well as the sale of residential
lots in our Florida market.
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Amenity and Other Revenue
Three Months Ended June 30,
(Dollars in thousands) 2022 2021 Change
East $ 5,376 $ 4,833 $ 543
Central - - -
West 436 370 66
Corporate 33,904 248 33,656
Total $ 39,716 $ 5,451 $ 34,265
Six Months Ended June 30,
(Dollars in thousands) 2022 2021 Change
East $ 11,060 $ 9,856 $ 1,204
Central - - -
West 799 733 66
Corporate 35,763 291 35,472
Total $ 47,622 $ 10,880 $ 36,742
Several of our communities operate amenities such as golf courses, club houses,
and fitness centers. We provide club members access to the amenity facilities
and other services in exchange for club dues and fees. Our Corporate region also
includes the activity relating to our Build-To-Rent and Urban Form operations.
The increase in amenity and other revenue in Corporate for the three months
ended June 30, 2022 is due to the sale of an asset relating to our Urban Form
operations.
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