Management Discussion
Management Discussion
Table of Contents
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 to Taylor Morrison Home Corporation ("TMHC") and its subsidiaries. This Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our unaudited 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 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. and in our subsequent filings with the U.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 the SEC, 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.
TAYLOR MORRISON HOME CORPORATION 10-Q
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Business Overview
Our principal business is residential homebuilding and the development of lifestyle communities with operations across 12 states, including Indiana, our most recent footprint expansion. We provide an assortment of homes across a wide range of price points to appeal to an array of consumer groups. We design, build and sell single and multi-family detached and attached homes in traditionally high growth markets for entry level, move-up, and resort-lifestyle buyers. We operate under various brand names including Taylor Morrison, Darling Homes Collection by Taylor Morrison, and Esplanade. We also have a "Build-to-Rent" homebuilding business which operates under the Yardly brand name. In addition, we develop and construct multi-use properties consisting of commercial space, retail, and multi-family properties under the Urban Form brand name. We also have operations which provide financial services to customers through our wholly owned mortgage subsidiary, TMHF, title services through our wholly owned title services subsidiary, Inspired Title, and homeowner's insurance policies through our wholly owned insurance agency, TMIS. Our business 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, Orlando, Raleigh, Sarasota, and Tampa
CentralAustin, Dallas, Denver, Houston, and Indianapolis
WestBay Area, Las Vegas, Phoenix, Portland, Sacramento, Seattle, and Southern California
Financial ServicesTaylor Morrison Home Funding, Inspired Title Services, and Taylor Morrison Insurance Services
As of September 30, 2024, we employed approximately 3,000 full-time equivalent persons. Of these, approximately 2,600 were engaged in corporate and homebuilding operations, and the remaining approximately 400 were engaged in financial services.
Third Quarter 2024 Highlights (all comparisons are of the current quarter to the prior year quarter, unless otherwise indicated):
•Diluted EPS increased 54% to $2.37
•Net sales orders increased 9% to 2,830
•Home closings revenue of $2.0 billion, driven by 3,394 closings at an average price of $598,000
•Home closings gross margin of 24.8%, up from 23.1% a year ago
•83,579 homebuilding lots, of which a record 58% were controlled off balance sheet
•Share repurchases totaled $61 million during the quarter and $258 million year to date
•Total liquidity of $1.2 billion; no senior notes mature until 2027
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth our results of operations for the periods presented:
Three Months EndedSeptember 30,Nine Months EndedSeptember 30,
(Dollars in thousands)2024202320242023
Statements of Operations Data:
Home closings revenue, net$2,029,134 $1,611,883 $5,585,516 $5,221,225
Land closings revenue27,820 14,291 48,279 31,439
Financial services revenue49,654 40,045 145,529 117,108
Amenity and other revenue14,234 9,326 32,323 28,194
Total revenue2,120,842 1,675,545 5,811,647 5,397,966
Cost of home closings1,525,825 1,238,999 4,231,740 3,980,749
Cost of land closings27,010 13,572 50,915 30,620
Financial services expenses27,304 23,128 80,553 70,618
Amenity and other expenses9,634 8,128 28,237 25,010
Total cost of revenue1,589,773 1,283,827 4,391,445 4,106,997
Gross margin531,069 391,718 1,420,202 1,290,969
Sales, commissions and other marketing costs117,714 98,797 334,270 304,591
General and administrative expenses81,627 68,994 231,970 205,904
Net income from unconsolidated entities(707)(1,934)(6,086)(7,049)
Interest expense/(income), net3,379 (5,782)7,423 (12,013)
Other (income)/expense, net(3,635)2,968 3,837 6,683
Loss on extinguishment of debt, net - 269 - 269
Income before income taxes332,691 228,406 848,788 792,584
Income tax provision81,219 57,960 206,241 196,005
Net income before allocation to non-controlling interests251,472 170,446 642,547 596,579
Net (income)/loss attributable to non-controlling interests(346)245 (1,691)(235)
Net income$251,126 $170,691 $640,856 $596,344
Home closings gross margin24.8 %23.1 %24.2 %23.8 %
Sales, commissions and other marketing costs as a percentage of home closings revenue, net
5.8 %6.1 %6.0 %5.8 %
General and administrative expenses as a percentage of home closings revenue, net
4.0 %4.3 %4.2 %3.9 %
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Non-GAAP Measures
In addition to the results reported in accordance with GAAP, we generally provide our investors with supplemental information relating to: (i) adjusted net income and adjusted earnings per common share, (ii) adjusted income before income taxes and related margin, (iii) adjusted home closings gross margin; (iv) EBITDA and adjusted EBITDA and (v) 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 net income/(loss), excluding to the extent applicable in a given period, the impact of inventory or land impairment charges, impairment of investment in unconsolidated entities, pre-acquisition abandonment charges, gain/loss on land transfers to joint ventures, extinguishment of debt, net, and legal reserves or settlements the Company deems not to be in the ordinary course of business and in the case of adjusted net income and adjusted earnings per common share, the tax impact due to such items. Adjusted home closings gross margin is a non-GAAP financial measure calculated as GAAP home closings gross margin (which is inclusive of capitalized interest), excluding inventory impairment charges.
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), and non-cash compensation expense, inventory or land impairment charges, impairment of investments in unconsolidated entities, pre-acquisition abandonment charges, gain/loss on land transfers to joint ventures, extinguishment of debt, net, and legal reserves or settlements that the Company deems not to be in the ordinary course of business, in each case, as applicable in a given period.
Net homebuilding debt to capitalization ratio is a non-GAAP financial measure we calculate by dividing (i) total debt, plus unamortized debt issuance cost/(premium), net, and less mortgage warehouse facilities borrowings, net of unrestricted cash and cash equivalents ("net homebuilding debt"), by (ii) total capitalization (the sum of net homebuilding debt and total stockholders' equity).
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 net homebuilding debt to capitalization ratio 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 adjusted net income, adjusted earnings per common share and 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 net homebuilding debt to capitalization ratio 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. We believe that adjusted home closings gross margin is useful to investors because it allows investors to evaluate the performance of our homebuilding operations without the varying effects of items or transactions we do not believe are characteristic of our ongoing operations or performance.
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.
A reconciliation of (i) adjusted net income and adjusted earnings per common share, (ii) adjusted income before income taxes and related margin, (iii) adjusted home closings gross margin, (iv) EBITDA and adjusted EBITDA, and (v) net homebuilding debt to capitalization ratio to the comparable GAAP measures is presented below.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Adjusted Net Income and Adjusted Earnings Per Common Share
Three Months Ended September 30,
(Dollars in thousands, except per share data)20242023
Net income $251,126 $170,691
Inventory impairment charges(1)
- 11,791
Loss on extinguishment of debt, net- 269
Tax impact due to above non-GAAP reconciling items- (3,060)
Adjusted net income$251,126 $179,691
Basic weighted average number of shares104,132 108,837
Adjusted earnings per common share - Basic$2.41 $1.65
Diluted weighted average number of shares106,089 110,622
Adjusted earnings per common share - Diluted$2.37 $1.62
Adjusted Income Before Income Taxes and Related Margin
Three Months Ended September 30,
(Dollars in thousands)20242023
Income before income taxes$332,691 $228,406
Inventory impairment charges(1)
- 11,791
Loss on extinguishment of debt, net- 269
Adjusted income before income taxes$332,691 $240,466
Total revenue$2,120,842 $1,675,545
Income before income taxes margin15.7 %13.6 %
Adjusted income before income taxes margin15.7 %14.4 %
Adjusted Home Closings Gross Margin
Three Months Ended September 30,
(Dollars in thousands)20242023
Home closings revenue, net$2,029,134 $1,611,883
Cost of home closings1,525,825 1,238,999
Home closings gross margin$503,309 $372,884
Inventory impairment charges(1)
- 11,791
Adjusted home closings gross margin$503,309 $384,675
Home closings gross margin as a percentage of home closings revenue, net24.8 %23.1 %
Adjusted home closings gross margin as a percentage of home closings revenue, net24.8 %23.9 %
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EBITDA and Adjusted EBITDA Reconciliation
Three Months Ended September 30,
(Dollars in thousands)20242023
Net income before allocation to non-controlling interests$251,472 $170,446
Interest expense/(income), net3,379 (5,782)
Amortization of capitalized interest30,064 32,377
Income tax provision81,219 57,960
Depreciation and amortization2,668 2,728
EBITDA$368,802 $257,729
Non-cash compensation expense5,461 5,702
Inventory impairment charges(1)
- 11,791
Loss on extinguishment of debt, net
- 269
Adjusted EBITDA$374,263 $275,491
Total revenue$2,120,842 $1,675,545
Net income before allocation to non-controlling interests as a percentage of total revenue11.9 %10.2 %
EBITDA as a percentage of total revenue17.4 %15.4 %
Adjusted EBITDA as a percentage of total revenue17.6 %16.4 %
(1) Included in Cost of home closings on the unaudited Condensed consolidated statements of operations.
Net Homebuilding Debt to Capitalization Ratio Reconciliation
(Dollars in thousands)As of September 30, 2024As of June 30, 2024As of September 30, 2023
Total debt$2,143,223 $2,150,021 $1,992,077
Plus: unamortized debt issuance cost, net7,056 7,496 8,815
Less: mortgage warehouse facilities borrowings(233,331)(276,205)(191,645)
Total homebuilding debt$1,916,948 $1,881,312 $1,809,247
Total stockholders' equity
5,723,462 5,526,542 5,175,110
Total capitalization$7,640,410 $7,407,854 $6,984,357
Total homebuilding debt to capitalization ratio25.1 %25.4 %25.9 %
Total homebuilding debt1,916,948 1,881,312 1,809,247
Less: cash and cash equivalents(256,447)(246,845)(613,811)
Net homebuilding debt$1,660,501 $1,634,467 $1,195,436
Total stockholders' equity
$5,723,462 $5,526,542 $5,175,110
Total capitalization$7,383,963 $7,161,009 $6,370,546
Net homebuilding debt to capitalization ratio22.5 %22.8 %18.8 %
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three and nine months ended September 30, 2024 compared to three and nine months ended September 30, 2023
Ending Active Selling Communities
As of September 30,
Change
20242023
East120 107 12.1 %
Central106 94 12.8 %
West114 124 (8.1 %)
Total340 325 4.6 %
The total ending active selling communities increased by 4.6% at September 30, 2024 when compared to September 30, 2023, primarily driven by our East and Central segments which had multiple master plan community openings. The increase of community openings were partially offset by community close-outs.
Net Sales Orders
Three Months Ended September 30,
Net Sales Orders (1)
Sales Value (1)
Average Selling Price
(Dollars in thousands)20242023Change 20242023Change 20242023Change
East1,14094021.3 %$610,892 $559,524 9.2 %$536 $595 (9.9)%
Central74764116.5 %398,587 374,224 6.5 %534 584 (8.6)%
West9431,011(6.7 %)651,841 680,666 (4.2 %)691 673 2.7 %
Total2,8302,5929.2 %$1,661,320 $1,614,414 2.9 %$587 $623 (5.8 %)
Nine Months Ended September 30,
Net Sales Orders (1)
Sales Value (1)
Average Selling Price
(Dollars in thousands)20242023Change 20242023Change 20242023Change
East3,595 3,066 17.3 %$2,004,598 $1,786,988 12.2 %$558 $583 (4.3)%
Central2,466 2,123 16.2 %1,362,042 1,248,196 9.1 %552 588 (6.1)%
West3,566 3,280 8.7 %2,404,249 2,219,056 8.3 %674 677 (0.4 %)
Total9,6278,46913.7 %$5,770,889 $5,254,240 9.8 %$599 $620 (3.4 %)
(1) Net sales orders and sales value represent the number and dollar value, respectively, of new sales contracts executed with customers, net of cancellations.
Net sales orders increased 9.2% for the three months ended September 30, 2024, compared to the same period in the prior year, primarily due to our East and Central regions as a result of new community openings. The decrease in the West was primarily driven by traditional seasonality with lower sales in the summer months as well as community close-outs. Net sales orders increased 13.7% for the nine months ended September 30, 2024, compared to the same period in the prior year due to strong sales in the first quarter of 2024 as a result of fewer cancellations and improved buyer confidence. Average selling prices decreased for both the three and nine months ended September 30, 2024, compared to the same periods in the prior year as a result of a decrease in option and lot premium revenues in certain markets as well as product mix.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Sales Order Cancellations
Cancellation Rate(1)
Three Months EndedSeptember 30,Nine Months EndedSeptember 30,
2024202320242023
East8.4 %8.0 %8.0 %8.2 %
Central9.3 %14.9 %9.0 %16.3 %
West10.4 %12.1 %8.8 %13.1 %
Total Company9.3 %11.4 %8.6 %12.3 %
(1) Cancellation rate represents the number of canceled sales orders divided by gross sales orders.
The total company cancellation rate decreased for the three and nine months ended September 30, 2024, compared to the same periods in the prior year. We believe the decrease in cancellations is due to improved buyer confidence as a result of stabilizing macro economic factors such as mortgage interest rates and inflation.
Sales Order Backlog
As of September 30,
Sold Homes in Backlog (1)
Sales ValueAverage Selling Price
(Dollars in thousands)20242023Change 20242023Change 20242023Change
East2,1762,421(10.1)%$1,493,828 $1,613,188 (7.4)%$687 $666 3.2 %
Central1,2381,464(15.4)%758,008 960,269 (21.1)%612 656 (6.7)%
West2,2782,2332.0 %1,578,168 1,523,545 3.6 %693 682 1.6 %
Total5,6926,118(7.0)%$3,830,004 $4,097,002 (6.5)%673 670 0.4 %
(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 and total sales value decreased by 7.0% and 6.5% at September 30, 2024 compared to September 30, 2023, respectively. The decrease in units in the East is primarily due to improved cycle times in the current year as well as the prior year backlog including homes relating to the opportunistic bulk sale transactions to real estate investors. The decrease in backlog units in the Central region is due to the closeout of certain high volume communities and improved cycle times. The increase in backlog units in the West is due to an improvement in the cancellation rate coupled with strong sales in the first half of the year in certain master planned communities and other recent community openings. In addition, we had more Quick Move-In homes which sold and closed during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023, which further contributed to the decrease in company-wide sales order backlog.
Home Closings Revenue
Three Months Ended September 30,
Homes ClosedHome Closings Revenue, NetAverage Selling Price
(Dollars in thousands)20242023Change 20242023Change 20242023Change
East1,32099632.5 %$758,179 C$572,971 32.3 %$574 $575 (0.2 %)
Central93270931.5 %515,643 423,396 21.8 %553 597 (7.4)%
West1,14293422.3 %755,312 615,516 22.7 %661 659 0.3 %
Total3,3942,63928.6 %$2,029,134 $1,611,883 25.9 %$598 $611 (2.1)%
Nine Months Ended September 30,
Homes ClosedHome Closings Revenue, NetAverage Selling Price
(Dollars in thousands)20242023Change 20242023Change 20242023Change
East3,490 3,228 8.1 %$1,991,038 C$1,906,862 4.4 %$570 $591 (3.6 %)
Central2,628 2,376 10.6 %1,468,197 1,499,420 (2.1 %)559 631 (11.4 %)
West3,207 2,701 18.7 %2,126,281 1,814,943 17.2 %663 672 (1.3)%
Total9,3258,30512.3 %$5,585,516 $5,221,225 7.0 %599 629 (4.8)%
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The number of homes closed increased by 28.6% and 12.3% for the three and nine months ended September 30, 2024, compared to the same periods in the prior year, respectively. The increases are generally due to improved sales pace and cycle times. In addition, the West region had several master plan communities that began closing homes during the current year periods. Average selling price decreased company-wide as a result of home closings mix and a decrease in option revenue and lot premium revenue in certain markets for the three and nine months ended September 30, 2024, compared to the same periods in the prior year. Despite the decrease in average selling price, home closings revenue, net increased company-wide for the three and nine months ended September 30, 2024, compared to the same periods in the prior year as a result of the increase in homes closed being greater than the decrease in average selling price.
Land Closings Revenue
Three Months Ended September 30,
(Dollars in thousands)20242023Change
East$12 $4,077 $(4,065)
Central1,775 10,214 (8,439)
West26,033 - 26,033
Total$27,820 $14,291 $13,529
Nine Months Ended September 30,
(Dollars in thousands)20242023Change
East$871 C$9,030 $(8,159)
Central21,116 22,409 (1,293)
West26,292 - 26,292
Total$48,279 $31,439 $16,840
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. Land closings revenue in the West for the three and nine months ended September 30, 2024 was mainly due to lot sales in one of our Portland markets. Land closings revenue in the Central region for the nine months ended September 30, 2024 was due to land sales in our Texas markets. The prior year included lots sales in certain Florida markets within our East region.
Segment Home Closings Gross Margins
Three Months Ended September 30,
East Central West Consolidated
(Dollars in thousands)20242023202420232024202320242023
Home closings revenue, net$758,179 $572,971 $515,643 $423,396 $755,312 $615,516 $2,029,134 $1,611,883
Cost of home closings551,542 414,752 388,565 314,978 585,718 509,269 1,525,825 1,238,999
Home closings gross margin$206,637 $158,219 $127,078 $108,418 $169,594 $106,247 $503,309 $372,884
Home closings gross margin %27.3 %27.6 %24.6 %25.6 %22.5 %17.3 %24.8 %23.1 %
Nine Months Ended September 30,
East Central West Consolidated
(Dollars in thousands)20242023202420232024202320242023
Home closings revenue, net$1,991,038 $1,906,862 $1,468,197 $1,499,420 $2,126,281 $1,814,943 $5,585,516 $5,221,225
Cost of home closings1,458,270 1,379,990 1,096,603 1,120,006 1,676,867 1,480,753 4,231,740 3,980,749
Home closings gross margin$532,768 $526,872 $371,594 $379,414 $449,414 $334,190 $1,353,776 $1,240,476
Home closings gross margin %26.8 %27.6 %25.3 %25.3 %21.1 %18.4 %24.2 %23.8 %
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Consolidated home closings gross margin increased 170 basis points to 24.8% from 23.1% for the three months ended September 30, 2024 and 40 basis points to 24.2% from 23.8% for the nine months ended September 30, 2024 compared to the same periods in the prior year. The decreases in the East and Central region are primarily a result of closing product mix. In addition, a decrease in lot premium and option revenue as well as an increase in finance incentives at the time of closing further contributed to the changes in home closings gross margin for the East and Central regions. The increase in the West region is due to closing product mix and a decrease in incentives and discounts. In addition, the West region was negatively impacted by an impairment charge in the three and nine months ended September 30, 2023.
Financial Services
The following is a summary for the periods presented of our financial services income before income taxes as well as supplemental data:
Three Months EndedSeptember 30,Nine Months EndedSeptember 30,
(Dollars in thousands)20242023Change 20242023Change
Mortgage services revenue$38,284 $31,089 23.1 %$113,423 $87,637 29.4 %
Title services and other revenues11,370 8,956 27.0 %32,106 29,471 8.9 %
Total financial services revenue49,654 40,045 24.0 %145,529 117,108 24.3 %
Financial services net income from unconsolidated entities1,337 1,671 (20.0 %)7,236 7,205 0.4 %
Total revenue50,991 41,716 22.2 %152,765 124,313 22.9 %
Financial services expenses27,304 23,128 18.1 %80,553 70,618 14.1 %
Financial services income before income taxes$23,687 $18,588 27.4 %$72,212 $53,695 34.5 %
Total originations:
Number of Loans2,312 1,742 32.7 %6,418 5,291 21.3 %
Principal$1,074,620 $813,929 32.0 %$2,958,946 $2,500,799 18.3 %
Three Months EndedSeptember 30,Nine Months EndedSeptember 30,
2024202320242023
Supplemental data:
Average FICO score754753752754
Funded origination breakdown:
Government (FHA,VA,USDA)20.4 %20.0 %21.8 %18.0 %
Other agency75.8 %76.0 %75.1 %77.0 %
Total agency96.2 %96.0 %96.9 %95.0 %
Non-agency3.8 %4.0 %3.1 %5.0 %
Total funded originations100.0 %100.0 %100.0 %100.0 %
Total financial services revenue increased by 24.0% and 24.3% for the three and nine months ended September 30, 2024 compared to the same periods in the prior year. These increases are a result of a 33% and 21% increase, respectively, in mortgage originations for the three and nine months ended September 30, 2024, compared to the same periods in the prior year. In addition, the revenue earned on the sale of loans also increased in the current year periods compared to the prior year periods.
Sales, Commissions and Other Marketing Costs
Sales, commissions and other marketing costs, as a percentage of home closings revenue, net, decreased to 5.8% from 6.1% for the three months ended September 30, 2024 compared to the same period in the prior year. The decrease was primarily driven by the increase in home closings revenue, net as well as leverage in controllable sales and marketing costs. Sales, commissions and other marketing costs, as a percentage of home closings revenue, net, increased to 6.0% from 5.8% for the nine months ended September 30, 2024 compared to the same period in the prior year. The increase was primarily due to an increase in external commissions costs and advertising costs in an effort to maintain sales traffic.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and Administrative Expenses
General and administrative expenses as a percentage of home closings revenue, net, decreased to 4.0% from 4.3% for the three months ended September 30, 2024 compared to the same period in the prior year. The decrease was primarily due to the increase in home closings revenue, net as well as leverage in fixed general and administrative costs. General and administrative expenses as a percentage of home closings revenue, net, increased to 4.2% from 3.9% for the nine months ended September 30, 2024 compared to the same period in the prior year. The increase was primarily due to an increase in payroll related expenses.
Net Income from Unconsolidated Entities
Net income from unconsolidated entities was $0.7 million and $6.1 million for the three and nine months ended September 30, 2024, respectively, and $1.9 million and $7.0 million for the three and nine months ended September 30, 2023, respectively. The decrease in net income from unconsolidated entities is primarily due to new joint ventures which experienced start-up expenses prior to having the opportunity to generate income.
Interest Expense/(Income), Net
Interest expense, net was $3.4 million and $7.4 million for the three and nine months ended September 30, 2024, respectively, while interest income, net was $5.8 million and $12.0 million for the three and nine months ended September 30, 2023, respectively. The increase in interest expense, net was primarily due to a decrease in interest income earned on our outstanding cash balance as well as increase in the amount of non-capitalizable interest expense relating to land banking arrangements.
Other (Income)/Expense, Net
Other income, net was $3.6 million for the three months ended September 30, 2024 and other expense, net was $3.8 million for the nine months ended September 30, 2024. The other income, net in the current period was primarily related to the change in estimate for our estimated development liabilities. Other expense for the nine months ended September 30, 2024 was primarily related to legal costs. Other expense, net was $3.0 million and $6.7 million for the three and nine months ended September 30, 2023, respectively, which is primarily related to an increase in self-insurance reserves.
Income Tax Provision
The effective tax rate for the three and nine months ended September 30, 2024 was 24.4% and 24.3%, respectively, compared to 25.4% and 24.7% for the same periods in 2023. For the three months ended September 30, 2024, the effective tax rate differed from the U.S. federal statutory income tax rate primarily due to state income taxes, credits related to homebuilding activities, non-deductible executive compensation, and excess tax benefits from share-based compensation.
Our income tax rate for the third quarter of 2024 was lower than the same period last year primarily due to increased credits related to homebuilding activities.
Net Income
Net income and diluted earnings per share for the three months ended September 30, 2024 was $251.1 million and $2.37, respectively. Net income and diluted earnings per share for the three months ended September 30, 2023 was $170.7 million and $1.54, respectively. The increases in net income and diluted earnings per share from the prior year were primarily attributable to higher home closings revenue, net and higher gross margin dollars.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Liquidity
We finance our operations through the following:
•Cash generated from operations;
•Borrowings under our $1 Billion Revolving Credit Facility;
•Our various series of senior notes;
•Mortgage warehouse facilities;
•Project-level real estate financing (including non-recourse loans, land banking, and joint ventures); and
•Performance, payment and completion surety bonds, and letters of credit.
Cash flows for each of our communities depend on the status of the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash expenditures for land acquisitions, on and off-site development, construction of model homes, general landscaping and other amenities. Because these costs are a component of our inventory and are not recognized in our statement of operations until a home closes, we incur significant cash outflows prior to recognition of earnings.
Substantially all of our cash currently on deposit with major financial institutions exceeds insured limits. We limit exposure relating to our short-term financial instruments by diversifying these financial instruments among various counterparties, which consist of major financial institutions. Generally, deposits may be redeemed on demand and are maintained with financial institutions with reputable credit.
The table below summarizes our total cash and liquidity as of the dates indicated (in thousands):
As of
(Dollars in thousands)September 30, 2024December 31, 2023
Total cash, excluding restricted cash$256,447 $798,568
$1 Billion Revolving Credit Facility availability(1)
1,000,000 1,000,000
$100 Million Revolving Credit Facility availability(2)
- 100,000
Letters of credit outstanding(54,222)(61,181)
Revolving Credit Facilities availability945,778 1,038,819
Total liquidity$1,202,225 $1,837,387
(1)During the three months ended September 30, 2024, we borrowed and repaid $100 million under our $1 Billion Revolving Credit Facility.
(2)During the three months ended September 30, 2024, the $100 Million Revolving Credit Facility matured.
We believe we have adequate capital resources from cash generated from operations and sufficient access to external financing sources under our $1 Billion Revolving Credit Facility to conduct our operations for the next twelve months. Beyond the next twelve months, our primary demand for funds will be for payments of our long-term debt as it becomes due, land purchases, lot development, home and amenity construction, long-term capital investments, investments in our joint ventures, payments of ongoing operating expenses, including income taxes, and repurchases of our common stock. We believe we will generate sufficient cash from our operations to meet the demands for such payments, however we may also access the capital markets to obtain additional liquidity through debt and equity offerings or refinance debt to secure capital for such long-term demands. As part of our operations, we may also from time to time purchase our outstanding debt or common stock through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt and/or purchases of common stock, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
Cash Flow Activities
Operating Cash Flow Activities
Our net cash used in operating activities was $228.2 million for the nine months ended September 30, 2024, compared to net cash provided by operating activities of $550.6 million for the nine months ended September 30, 2023. The change in cash used in operating activities is primarily due to an increase spend in real estate inventory and land deposits as well as an increase in our mortgage loans held for sale, partially offset by an increase in net income and accounts payable, accrued expenses, and other liabilities.
Investing Cash Flow Activities
Net cash used in investing activities was $82.3 million for the nine months ended September 30, 2024, compared to $94.1 million for the nine months ended September 30, 2023. The decrease in cash used in investing activities was primarily due to an increase in net distributions of capital from unconsolidated entities.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Financing Cash Flow Activities
Net cash used in financing activities was $239.3 million for the nine months ended September 30, 2024, compared to $568.5 million for the nine months ended September 30, 2023. The decrease in cash used in financing activities was primarily due to the prior year including a $350 million repayment of senior notes.
Debt Instruments
For information regarding our debt instruments, including the terms governing our senior notes and our $1 Billion Revolving Credit Facility, see Note 7 - Debt to the unaudited Condensed consolidated financial statements included in this quarterly report.
Off-Balance Sheet Arrangements as of September 30, 2024
Investments in Land Development and Homebuilding Joint Ventures or Unconsolidated Entities
We participate in strategic land development and homebuilding joint ventures with related and unrelated third parties. Our participation with these entities, in some instances, enables us to acquire land to which we could not otherwise obtain access, or could not obtain access on terms that are as favorable. Our partners in these joint ventures historically have been land owners/developers, other homebuilders, and financial or strategic partners. Joint ventures with land owners/developers have given us access to sites owned or controlled by our partners. Joint ventures with other homebuilders have provided us with the ability to bid jointly with our partners for large or expensive land parcels. Joint ventures with financial or strategic partners have allowed us to combine our homebuilding expertise with access to our partners' capital.
In certain of our unconsolidated joint ventures, the joint ventures enter into loan agreements, whereby we or one of our subsidiaries will provide the joint venture lenders with customary guarantees, including completion, indemnity and environmental guarantees subject to usual non-recourse terms.
For the nine months ended September 30, 2024 and 2023, total cash investments of capital into unconsolidated joint ventures were $74.6 million and $47.8 million, respectively.
Land Option Contracts and Land Banking Agreements
We are subject to the usual obligations associated with entering into contracts (including land option contracts and land banking arrangements) for the purchase, development, and sale of real estate in our routine business. We have a number of land purchase option contracts and land banking agreements, generally through cash deposits, for the right to purchase land or lots at a future point in time with predetermined terms. We do not have title to the property and the creditors of the property owner generally have no recourse to the Company. Our obligations with respect to such contracts are generally limited to the forfeiture of the related non-refundable cash deposits and/or letters of credit provided to obtain the options. The aggregate purchase price for land under these contracts was $1.8 billion and $1.5 billion at September 30, 2024 and December 31, 2023, respectively.
Seasonality
Our business is seasonal. We have historically experienced, and in the future expect to continue to experience, variability in our results on a quarterly basis. We generally have more homes under construction, close more homes and have greater revenues and operating income in the third and fourth quarters of the year. Therefore, although new home contracts are obtained throughout the year, a higher portion of our home closings occur during the third and fourth calendar quarters. Our revenue therefore may fluctuate significantly on a quarterly basis, and we must maintain sufficient liquidity to meet short-term operating requirements. Factors expected to contribute to these fluctuations include:
•the timing of the introduction and start of construction of new projects;
•the timing of sales;
•the timing of closings of homes, lots and parcels;
•the timing of receipt of regulatory approvals for development and construction;
•the condition of the real estate market and general economic conditions in the areas in which we operate;
•mix of homes closed;
•construction timetables;
•the cost and availability of materials and labor; and
•weather conditions in the markets in which we build.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As a result of seasonal activity, our quarterly results of operations and financial position are not necessarily representative of the results we expect for the full year.
Inflation
We and the homebuilding industry in general may be adversely affected during periods of high inflation, primarily because of higher land, financing, labor and construction material costs. In addition, higher mortgage interest rates can significantly affect the affordability of mortgage financing to prospective homebuyers. We attempt to pass through to our buyers increases in our costs through increased sales prices. However, during periods of soft housing market conditions, we may not be able to offset our cost increases with higher selling prices.
Critical Accounting Policies and Estimates
There have been no significant changes to our critical accounting policies and estimates during the nine months ended September 30, 2024 compared to those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.
TAYLOR MORRISON HOME CORPORATION 10-Q