Taylor Morrison Home Corp - Quarter Report: 2023 September (Form 10-Q)

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Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-35873

TAYLOR MORRISON HOME CORPORATION

(Exact name of registrant as specified in its Charter)

Delaware

83-2026677

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)


4900 N. Scottsdale Road, Suite 2000		85251
Scottsdale,	Arizona
(Address of principal executive offices)		(Zip Code)

(480) 840-8100

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 par value	TMHC	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding as of October 25, 2023
Common stock, $0.00001 par value		107,448,537

Table of Contents

TAYLOR MORRISON HOME CORPORATION

TABLE OF CONTENTS



Part I		FINANCIAL INFORMATION
	2	ITEM 1.	Financial Statements of Taylor Morrison Home Corporation (Unaudited)
	2		Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022
	3		Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022
	4		Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2023 and 2022
	6		Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022
	7		Notes to the Unaudited Condensed Consolidated Financial Statements
	21	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	34	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk
	35	ITEM 4.	Controls and Procedures


Part II		OTHER INFORMATION
	36	ITEM 1.	Legal Proceedings
	36	ITEM 1A.	Risk Factors
	37	ITEM 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
	37	ITEM 3.	Defaults Upon Senior Securities
	37	ITEM 4.	Mine Safety Disclosures
	37	ITEM 5.	Other Information
	38	ITEM 6.	Exhibits

	39	SIGNATURES

TAYLOR MORRISON HOME CORPORATION 10-Q

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ITEM 1. FINANCIAL STATEMENTS

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, unaudited)


	September 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	613,811	$	724,488
Restricted cash		765		2,147
Total cash, cash equivalents, and restricted cash		614,576		726,635
Real estate inventory:
Owned inventory		5,479,987		5,346,905
Consolidated real estate not owned		423		23,971
Total real estate inventory		5,480,410		5,370,876
Land deposits		206,258		263,356
Mortgage loans held for sale		241,749		346,364
Lease right of use assets		76,463		90,446
Prepaid expenses and other assets, net		305,581		265,392
Other receivables, net		188,723		191,504
Investments in unconsolidated entities		329,634		282,900
Deferred tax assets, net		67,656		67,656
Property and equipment, net		262,671		202,398
Goodwill		663,197		663,197
Total assets	$	8,436,918	$	8,470,724
Liabilities
Accounts payable	$	272,830	$	269,761
Accrued expenses and other liabilities		487,262		490,253
Lease liabilities		86,401		100,174
Customer deposits		380,544		412,092
Estimated development liabilities		42,271		43,753
Senior notes, net		1,468,255		1,816,303
Loans payable and other borrowings		332,177		361,486
Revolving credit facility borrowings		—		—
Mortgage warehouse borrowings		191,645		306,072
Liabilities attributable to consolidated real estate not owned		423		23,971
Total liabilities	$	3,261,808	$	3,823,865
COMMITMENTS AND CONTINGENCIES (Note 13)
Stockholders’ equity
Total stockholders’ equity		5,175,110		4,646,859
Total liabilities and stockholders’ equity	$	8,436,918	$	8,470,724

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

TAYLOR MORRISON HOME CORPORATION 10-Q

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ITEM 1. FINANCIAL STATEMENTS

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Home closings revenue, net	$	1,611,883		$	1,983,775		$	5,221,225		$	5,511,204
Land closings revenue		14,291			14,225			31,439			66,651
Financial services revenue		40,045			27,749			117,108			98,419
Amenity and other revenue		9,326			8,895			28,194			56,517
Total revenue		1,675,545			2,034,644			5,397,966			5,732,791
Cost of home closings		1,238,999			1,438,164			3,980,749			4,084,748
Cost of land closings		13,572			11,571			30,620			50,139
Financial services expenses		23,128			20,395			70,618			66,092
Amenity and other expenses		8,128			6,574			25,010			39,264
Total cost of revenue		1,283,827			1,476,704			4,106,997			4,240,243
Gross margin		391,718			557,940			1,290,969			1,492,548
Sales, commissions and other marketing costs		98,797			94,692			304,591			279,950
General and administrative expenses		68,994			52,357			205,904			189,905
Net (income)/loss from unconsolidated entities		(1,934	)		1,180			(7,049	)		2,986
Interest (income)/expense, net		(5,782	)		4,382			(12,013	)		13,823
Other expense/(income), net		2,968			5,751			6,683			(4,720	)
Loss/(gain) on extinguishment of debt, net		269			(71	)		269			(13,542	)
Income before income taxes		228,406			399,649			792,584			1,024,146
Income tax provision		57,960			90,418			196,005			243,300
Net income before allocation to non-controlling interests		170,446			309,231			596,579			780,846
Net loss/(income) attributable to non-controlling interests		245			548			(235	)		(3,377	)
Net income available to Taylor Morrison Home Corporation	$	170,691		$	309,779		$	596,344		$	777,469
Earnings per common share
Basic	$	1.57		$	2.75		$	5.48		$	6.63
Diluted	$	1.54		$	2.72		$	5.40		$	6.56
Weighted average number of shares of common stock:
Basic		108,837			112,701			108,827			117,242
Diluted		110,622			113,780			110,536			118,438

See accompanying Notes to the Unaudited Condensed Consolidated Financial Statements

TAYLOR MORRISON HOME CORPORATION 10-Q

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ITEM 1. FINANCIAL STATEMENTS

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share data, unaudited)

For the three months ended September 30, 2023


	Common Stock					Additional Paid-in Capital		Treasury Stock					Stockholders' Equity
	Shares			Amount		Amount		Shares		Amount			Retained Earnings		Accumulated Other Comprehensive Income		Non- controlling Interest			Total Stockholders’ Equity
Balance – June 30, 2023		109,443,784		$	1	$	3,051,377		51,506,248	$	(1,140,706	)	$	3,167,268	$	359	$	17,014		$	5,095,313
Net income		—			—		—		—		—			170,691		—		(245	)		170,446
Exercise of stock options and issuance of restricted stock units, net(1)		164,510			—		3,649		—		—			—		—		—			3,649
Repurchase of common stock		(2,169,657	)		—		—		2,169,657		(100,000	)		—		—		—			(100,000	)
Stock compensation expense		—			—		5,702		—		—			—		—		—			5,702
Balance – September 30, 2023		107,438,637		$	1	$	3,060,728		53,675,905	$	(1,240,706	)	$	3,337,959	$	359	$	16,769		$	5,175,110

(1)

Dollar amount includes $3.7 million of stock options exercised netted with the value of shares withheld for taxes on the issuance of restricted stock units.

For the three months ended September 30, 2022


	Common Stock					Additional Paid-in Capital		Treasury Stock					Stockholders' Equity
	Shares			Amount		Amount		Shares		Amount			Retained Earnings		Accumulated Other Comprehensive Income		Non- controlling Interest			Total Stockholders’ Equity
Balance – June 30, 2022		113,640,725		$	1	$	3,008,619		45,556,244	$	(991,276	)	$	2,156,505	$	689	$	19,357			4,193,895
Net income		—			—		—		—		—			309,779		—		(548	)		309,231
Exercise of stock options and issuance of restricted stock units, net(1)		80,708			—		1,512		—		—			—		—		—			1,512
Repurchase of common stock		(4,213,256	)		—		—		4,213,256		(104,999	)		—		—		—			(104,999	)
Stock compensation expense		—			—		5,333		—		—			—		—		—			5,333
Distributions to non-controlling interests of consolidated joint ventures		—			—		—		—		—			—		—		(1,515	)		(1,515	)
Changes in non-controlling interests of consolidated joint ventures		—			—		—		—		—			—		—		9			9
Balance – September 30, 2022		109,508,177		$	1	$	3,015,464		49,769,500	$	(1,096,275	)	$	2,466,284	$	689	$	17,303		$	4,403,466

(1)

Dollar amount includes $1.5 million of stock options exercised netted with the value of shares withheld for taxes on the issuance of restricted stock units.

TAYLOR MORRISON HOME CORPORATION 10-Q

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ITEM 1. FINANCIAL STATEMENTS

For the nine months ended September 30, 2023


	Common Stock					Additional Paid-in Capital		Treasury Stock					Stockholders' Equity
	Shares			Amount		Amount		Shares		Amount			Retained Earnings		Accumulated Other Comprehensive Income		Non- controlling Interest		Total Stockholders’ Equity
Balance – December 31, 2022		107,995,262		$	1	$	3,025,489		51,396,923	$	(1,137,138	)	$	2,741,615	$	359	$	16,533	$	4,646,859
Net income		—			—		—		—		—			596,344		—		235		596,579
Exercise of stock options and issuance of restricted stock units, net(1)		1,722,357			—		16,733		—		—			—		—		—		16,733
Repurchase of common stock		(2,278,982	)		—		—		2,278,982		(103,568	)		—		—		—		(103,568	)
Stock compensation expense		—			—		18,506		—		—			—		—		—		18,506
Changes in non-controlling interests of consolidated joint ventures		—			—		—		—		—			—		—		1		1
Balance – September 30, 2023		107,438,637		$	1	$	3,060,728		53,675,905	$	(1,240,706	)	$	3,337,959	$	359	$	16,769	$	5,175,110

(1)

Dollar amount includes $26.1 million of stock options exercised netted with the value of shares withheld for taxes on the issuance of restricted stock units.

For the nine months ended September 30, 2022


	Common Stock					Additional Paid-in Capital		Treasury Stock					Stockholders' Equity
	Shares			Amount		Amount		Shares		Amount			Retained Earnings		Accumulated Other Comprehensive Income		Non- controlling Interest			Total Stockholders’ Equity
Balance – December 31, 2021		121,833,649		$	1	$	2,997,211		36,828,559	$	(760,863	)	$	1,688,815	$	689	$	45,129		$	3,970,982
Net income		—			—		—		—		—			777,469		—		3,377			780,846
Exercise of stock options and issuance of restricted stock units, net(1)		615,469			—		779		—		—			—		—		—			779
Repurchase of common stock		(12,940,941	)		—		—		12,940,941		(335,412	)		—		—		—			(335,412	)
Stock compensation expense		—			—		17,474		—		—			—		—		—			17,474
Distributions to non-controlling interests of consolidated joint ventures		—			—		—		—		—			—		—		(30,443	)		(30,443	)
Changes in non-controlling interests of consolidated joint ventures		—			—		—		—		—			—		—		(760	)		(760	)
Balance – September 30, 2022		109,508,177		$	1	$	3,015,464		49,769,500	$	(1,096,275	)	$	2,466,284	$	689	$	17,303		$	4,403,466

(1)

Dollar amount includes $4.4 million of stock options exercised netted with the value of shares withheld for taxes on the issuance of restricted stock units.

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

TAYLOR MORRISON HOME CORPORATION 10-Q

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ITEM 1. FINANCIAL STATEMENTS

TAYLOR MORRISON HOME CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)


	Nine Months Ended September 30,
	2023			2022
Cash Flows from Operating Activities
Net income before allocation to non-controlling interests	$	596,579		$	780,846
Adjustments to reconcile net income to net cash provided by operating activities:
Net (income)/loss from unconsolidated entities		(7,049	)		2,986
Stock compensation expense		18,506			17,474
Loss/(gain) on extinguishment of debt, net		269			(13,542	)
Gain on land transfers		—			(14,508	)
Distributions of earnings from unconsolidated entities		7,377			5,318
Depreciation and amortization		23,717			25,448
Operating lease expense		19,271			20,543
Debt issuance costs amortization		2,574			1,574
Change in Urban Form assets due to sale		—			11,675
Inventory impairments		11,791			—
Changes in operating assets and liabilities:
Real estate inventory and land deposits		(87,776	)		(610,346	)
Mortgage loans held for sale, prepaid expenses and other assets		24,081			245,633
Customer deposits		(31,548	)		41,707
Accounts payable, accrued expenses and other liabilities		(27,231	)		(82,578	)
Income taxes payable		—			27,757
Net cash provided by operating activities		550,561			459,987
Cash Flows from Investing Activities:
Purchase of property and equipment		(47,042	)		(22,478	)
Distributions of capital from unconsolidated entities		733			95,517
Investments of capital into unconsolidated entities		(47,795	)		(91,846	)
Net cash used in investing activities		(94,104	)		(18,807	)
Cash Flows from Financing Activities
Increase in loans payable and other borrowings		2,426			33,495
Repayments on loans payable and other borrowings		(18,367	)		(50,761	)
Borrowings on revolving credit facilities		—			182,548
Repayments on revolving credit facilities		—			(214,077	)
Borrowings on mortgage warehouse facilities		2,203,261			1,783,748
Repayments on mortgage warehouse facilities		(2,317,688	)		(2,051,300	)
Repayments on senior notes		(350,000	)		(264,935	)
Proceeds from stock option exercises and issuance of restricted stock units, net		16,733			779
Payment of principal portion of finance lease		(1,313	)		(1,340	)
Repurchase of common stock, net		(103,568	)		(335,412	)
Cash and distributions to non-controlling interests of consolidated joint ventures, net		—			(30,443	)
Net cash used in financing activities		(568,516	)		(947,698	)
Net Increase/Decrease in Cash and Cash Equivalents and Restricted Cash	$	(112,059	)	$	(506,518	)
Cash, Cash Equivalents, and Restricted Cash — Beginning of period		726,635			836,340
Cash, Cash Equivalents, and Restricted Cash — End of period	$	614,576		$	329,822
Supplemental Cash Flow Information
Income tax payments	$	(154,267	)	$	(176,683	)
Supplemental Non-Cash Investing and Financing Activities:
Change in loans payable issued to sellers in connection with land purchase contracts	$	126,903		$	184,458
Change in inventory not owned	$	(23,548	)	$	(581	)
Investments of land in unconsolidated joint ventures, net	$	—		$	146,649

See accompanying Notes to Unaudited Condensed Consolidated Financial Statements

TAYLOR MORRISON HOME CORPORATION 10-Q

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ITEM 1. FINANCIAL STATEMENTS

TAYLOR MORRISON HOME CORPORATION

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS

Description of the Business — Taylor Morrison Home Corporation (“TMHC”), through its subsidiaries (together with TMHC referred to herein as “we,” “our,” “the Company” and “us”), owns and operates a residential homebuilding business and is a land developer. We operate in the states of Arizona, California, Colorado, Florida, Georgia, Nevada, North and South Carolina, Oregon, Texas, and Washington. 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 are the general contractors for all real estate projects and retain subcontractors for home construction and land development. Our homebuilding segments operate under our 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. We also 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 wholly owned insurance agency, Taylor Morrison Insurance Services, LLC (“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.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Consolidation — The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Consolidated Financial Statements and accompanying notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”). Certain prior year amounts have been reclassified to conform to current year presentation. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements include all normal and recurring adjustments that are considered necessary for the fair presentation of our results for the interim periods presented. Results for interim periods are not necessarily indicative of results to be expected for a full fiscal year.

Joint Ventures - We consolidate certain joint ventures in accordance with Accounting Standards Codification (“ASC”) Topic 810, Consolidation. The income from the percentage of the joint venture not owned by us is presented as “Net income attributable to non-controlling interests” on the unaudited Condensed Consolidated Statement of Operations. The equity from the percentage of the joint ventures not owned by us is presented as “Non-controlling interests” on the unaudited Condensed Consolidated Statement of Stockholders’ Equity. The balance of Non-Controlling interests will fluctuate from period to period as a result of activities within the respective joint ventures which may include the allocation of income or losses, distributions or contributions associated with the partners within the joint venture.

Use of Estimates — The preparation of financial statements in accordance with GAAP requires us to make estimates and assumptions that affect the amounts reported in the unaudited Condensed Consolidated Financial Statements and these accompanying notes. Significant estimates include real estate development costs to complete, valuation of real estate, valuation of acquired assets, valuation of goodwill, valuation of development liabilities, valuation of equity awards, valuation allowance on deferred tax assets, and reserves for warranty and self-insured risks. Actual results could differ from those estimates.

Real Estate Inventory — Inventory consists of raw land, land under development, homes under construction, completed homes, and model homes, all of which are stated at cost. In addition to direct carrying costs, we also capitalize interest, real estate taxes, and related development costs that benefit the entire community, such as field construction supervision and related direct overhead. Home vertical construction costs are accumulated and charged to Cost of home closings at the time of home closing using the specific identification method. Land acquisition, development, interest, and real estate taxes are allocated to homes and units generally using the relative sales value method. Generally, all overhead costs relating to purchasing, vertical construction of a home, and construction utilities are considered overhead costs and allocated on a per unit basis. These costs are capitalized to inventory from the point development begins to the point construction is completed. Changes in estimated costs to be incurred in a community are generally allocated to the remaining lots on a prospective basis.

The life cycle of a typical community generally ranges from two to five years, commencing with the acquisition of unentitled or entitled land, continuing through the land development phase and concluding with the sale, construction and delivery of homes. Actual

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ITEM 1. FINANCIAL STATEMENTS

community duration will vary based on the size of the community, the sales absorption rate and whether we purchased the property as raw land or as finished lots.

We capitalize qualifying interest costs to inventory during the development and construction periods. Capitalized interest is charged to Cost of home closings when the related inventory is charged to Cost of home closings.

We assess the recoverability of our inventory in accordance with the provisions of ASC Topic 360, Property, Plant, and Equipment. We review our real estate inventory for indicators of impairment on a community-level basis during each reporting period. If indicators of impairment are present for a community, an undiscounted cash flow analysis is generally prepared in order to determine if the carrying value of the assets in that community exceeds the estimated undiscounted cash flows. Generally, if the carrying value of the assets exceeds their estimated undiscounted cash flows, the assets are potentially impaired, requiring a fair value analysis. Our determination of fair value is primarily based on a discounted cash flow model which includes projections and estimates relating to sales prices, construction costs, sales pace, and other factors. However, fair value can be determined through other methods, such as appraisals, contractual purchase offers, and other third party opinions of value. Changes in these expectations may lead to a change in the outcome of our impairment analysis, and actual results may also differ from our assumptions. For the three and nine months ended September 30, 2023, we recorded $11.8 million of inventory impairment relating to one of our communities in our West reporting segment. For the three and nine months ended September 30, 2022, we recorded no inventory impairment to our real estate inventory. Impairments are recorded to Cost of home closings or Cost of land closings on the Consolidated Statement of Operations.

In certain cases, we may elect to cease development and/or marketing of an existing community if we believe the economic performance of the community would be maximized by deferring development for a period of time to allow for market conditions to improve. We refer to such communities as long-term strategic assets. The decision may be based on financial and/or operational metrics as determined by us. For those communities that have been temporarily closed or development has been discontinued, we do not allocate interest or other costs to the community's inventory until activity resumes. Such costs are expensed as incurred. In addition, if we decide to cease development, we will evaluate the project for impairment and then cease future development and marketing activity until such a time when we believe that market conditions have improved and economic performance can be maximized. Our assessment of the carrying value of our long-term strategic assets typically includes estimates of future performance, including the timing of when development will recommence, the type of product to be offered, and the margin to be realized. In the future, some of these inactive communities may be re-opened while others may be sold. As of September 30, 2023 and December 31, 2022, we had no inactive projects.

In the ordinary course of business, we enter into various option agreements to acquire lots in staged takedowns which may require a significant cash deposit. We are not legally obligated to purchase the balance of the lots, but would forfeit any existing deposits and could be subject to financial and other penalties if the lots are not purchased. Real estate not owned under these agreements is reflected in Consolidated real estate not owned with a corresponding liability in Liabilities attributable to consolidated real estate not owned in the unaudited Condensed Consolidated Balance Sheets.

Land held for sale — 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 is considered held for sale once management intends to actively sell a parcel within the next 12 months or the parcel is under contract to sell. Land held for sale is recorded at the lower of cost or fair value less costs to sell. In determining the value of land held for sale, we consider recent offers received, prices for land in recent comparable sales transactions, and other factors. We record fair value adjustments for land held for sale within Cost of land closings on the unaudited Condensed Consolidated Statements of Operations.

Land banking arrangements — We have land purchase agreements with various land sellers. As a method of acquiring land in staged takedowns, while limiting risk and minimizing the use of funds from our available cash or other financing sources, we may transfer our right under certain specific performance agreements to entities owned by third parties (“land banking arrangements”). These entities use equity contributions from their owners and/or incur debt to finance the acquisition and development of the land. The entities grant us an option to acquire lots in staged takedowns. In consideration for this option, we make a non-refundable deposit. We are not legally obligated to purchase the balance of the lots, but would forfeit any existing deposits and could be subject to financial and other penalties if the lots were not purchased. We do not have an ownership interest in these entities or title to their assets and do not guarantee their liabilities. These land banking arrangements help us manage the financial and market risk associated with land holdings which are not included in the unaudited Condensed Consolidated Balance Sheets.

Investments in Consolidated and Unconsolidated Entities

Consolidated Entities — In the ordinary course of business, we enter into land purchase contracts, lot option contracts and land banking arrangements in order to procure land or lots for the construction of homes. Such contracts enable us to control significant lot positions with a minimal initial capital investment and substantially reduce the risk associated with land ownership and development. In accordance with ASC Topic 810, Consolidation, when we enter into agreements to acquire land or lots and pay a non-refundable

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deposit, we evaluate if a Variable Interest Entity (“VIE”) should be created if we are deemed to have provided subordinated financial support that will absorb some or all of an entity’s expected losses if they occur. If we are the primary beneficiary of the VIE, we consolidate the VIE and reflect such assets and liabilities as Consolidated real estate not owned and Liabilities attributable to consolidated real estate not owned, respectively, in the unaudited Condensed Consolidated Balance Sheets.

Unconsolidated Joint Ventures — We use the equity method of accounting for entities which we exercise significant influence but do not have a controlling interest over the operating and financial policies of the investee. For unconsolidated entities in which we function as the managing member, we have evaluated the rights held by our joint venture partners and determined that the partners have substantive participating rights that preclude the presumption of control. Our share of net earnings or losses is included in Net income/loss from unconsolidated entities on the unaudited Condensed Consolidated Statement of Operations when earned and distributions are credited against our Investments in unconsolidated entities on the unaudited Condensed Consolidated Balance Sheets when received.

We evaluate our investments in unconsolidated entities for indicators of impairment semi-annually. A series of operating losses of an investee or other factors may indicate that a decrease in value of our investment in the unconsolidated entity has occurred which is other-than-temporary. The amount of impairment recognized, if any, is the excess of the investment's carrying amount over its estimated fair value. Additionally, we consider various qualitative factors to determine if a decrease in the value of the investment is other-than-temporary. These factors include age of the venture, stage in its life cycle, intent and ability for us to recover our investment in the entity, financial condition and long-term prospects of the entity, short-term liquidity needs of the unconsolidated entity, trends in the general economic environment of the land, entitlement status of the land held by the unconsolidated entity, overall projected returns on investment, defaults under contracts with third parties (including bank debt), recoverability of the investment through future cash flows and relationships among the entity's partners. If we believe that the decline in the fair value of the investment is temporary, then no impairment is recorded. We recorded a $3.5 million impairment charge related to an investment in one of our unconsolidated entities for the nine months ended September 30, 2022. No such charges were recorded for the three months ended September 30,2022 or the three and nine months ended September 30, 2023.

Revenue Recognition — Revenue is recognized in accordance with ASC Topic 606, Revenue from Contracts with Customers (“Topic 606”). The standard's core principle requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services.

Home and land closings revenue

Under Topic 606, the following steps are applied to determine home closings revenue and land closings revenue recognition: (1) identify the contract(s) with our customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the performance obligation(s) are satisfied. Our home sales transactions, have one contract, with one performance obligation, with each customer to build and deliver the home purchased (or develop and deliver land). Based on the application of the five steps, the following summarizes the timing and manner of the recognition of home and land sales revenue:

•

Revenue from closings of residential real estate is recognized when the buyer has made the required minimum down payment, obtained necessary financing, the risks and rewards of ownership are transferred to the buyer, and we have no continuing involvement with the property, which is generally upon the close of escrow. Revenue is reported net of any discounts and incentives.

•

Revenue from land sales is recognized when a significant down payment is received, title passes and collectability of the receivable, if any, is reasonably assured, and we have no continuing involvement with the property, which is generally upon the close of escrow.

Amenity and other revenue

We own and operate certain amenities such as golf courses, clubhouses, and fitness centers, which require us to provide club members with access to the facilities in exchange for the payment of club dues. We collect club dues and other fees from club members, which are invoiced on a monthly basis. Revenue from our golf club operations is also included in amenity and other revenue. Amenity and other revenue also includes revenue from the sale of assets from our Urban Form and Build-to-Rent operations.

Financial services revenue

Mortgage operations and hedging activity related to financial services are not within the scope of Topic 606. Loan origination fees (including title fees, points, and closing costs) are recognized at the time the related real estate transactions are completed, which is usually upon the close of escrow. Generally, loans TMHF originates are sold to third party investors within a short period of time, on a

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non-recourse basis. Gains and losses from the sale of mortgages are recognized in accordance with ASC Topic 860-20, Sales of Financial Assets. TMHF does not have continuing involvement with the transferred assets; therefore, we derecognize the mortgage loans at time of sale, and based on the difference between the selling price and carrying value of the related loans upon sale, record a gain/loss on sale in the period of sale. Also included in Financial services revenue/expenses are realized and unrealized gains and losses from hedging instruments. ASC Topic 815-25, Derivatives and Hedging, requires that all hedging instruments be recognized as assets or liabilities on the balance sheet at their fair value. We do not meet the criteria for hedge accounting; therefore, we account for these instruments as free-standing derivatives, with changes in fair value recognized in Financial services revenue/expenses on the statement of operations in the period in which they occur.

3. EARNINGS PER SHARE

Basic earnings per common share is computed by dividing net income available to TMHC by the weighted average number of shares of Common Stock (as defined in Note 10) outstanding during the period. Diluted earnings per share gives effect to the potential dilution that could occur if all outstanding dilutive equity awards to issue shares of Common Stock were exercised or settled.

The following is a summary of the components of basic and diluted earnings per share (in thousands, except per share amounts):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Numerator:
Net income available to TMHC	$	170,691	$	309,779	$	596,344	$	777,469
Denominator:
Weighted average shares – basic		108,837		112,701		108,827		117,242
Restricted stock units		940		629		895		659
Stock Options		845		450		814		537
Weighted average shares – diluted		110,622		113,780		110,536		118,438
Earnings per common share – basic:
Net income available to Taylor Morrison Home Corporation	$	1.57	$	2.75	$	5.48	$	6.63
Earnings per common share – diluted:
Net income available to Taylor Morrison Home Corporation	$	1.54	$	2.72	$	5.40	$	6.56

The above calculations of weighted average shares - diluted exclude 353,947 and 282,124 of anti-dilutive stock options and unvested restricted stock units (“RSUs”) for the three and nine months ended September 30, 2023, respectively, and 1,560,934 and 1,470,941 of anti-dilutive stock options and RSUs for the three and nine months ended September 30, 2022, respectively.

4. REAL ESTATE INVENTORY AND LAND DEPOSITS

Inventory consists of the following (in thousands):


	As of
	September 30, 2023		December 31, 2022
Real estate developed and under development	$	3,758,671	$	3,607,227
Real estate held for development or held for sale (1)		46,528		43,314
Total owned		3,805,199		3,650,541
Operating communities (2)		1,487,591		1,506,241
Capitalized interest		187,197		190,123
Total owned inventory		5,479,987		5,346,905
Consolidated real estate not owned		423		23,971
Total real estate inventory	$	5,480,410	$	5,370,876

(1)

Real estate held for development or held for sale includes properties which are not in active production.

(2)

Operating communities consist of all vertical construction costs relating to homes in progress and completed homes.

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The development status of our land inventory is as follows (dollars in thousands):


	As of
	September 30, 2023				December 31, 2022
	Owned Lots		Book Value of Land Developed and Under Development		Owned Lots		Book Value of Land Developed and Under Development
Homebuilding owned lots
Undeveloped		15,204	$	483,845		14,985	$	522,594
Under development		8,281		943,792		10,716		1,106,751
Finished		19,423		2,375,673		18,366		2,018,062
Total homebuilding owned lots		42,908		3,803,310		44,067		3,647,407
Other assets(1)		—		1,889		—		3,134
Total owned lots		42,908	$	3,805,199		44,067	$	3,650,541

(1)

The remaining book value of land and development relates to parcels of commercial assets which are. excluded from the homebuilding owned lots presented in the table.

Undeveloped lots are those where no phase specific development work has commenced. Under development lots include land where phase specific development has commenced. Finished lots are fully developed. This classification allows for multi-phase or master planned communities to be presented in more than one lot status based on their development.

We have land option purchase contracts, land banking arrangements and other controlled lot agreements. We do not have title to the properties, and the property owner and its creditors generally only have recourse against us in the form of retaining any non-refundable deposits. We are also not legally obligated to purchase the balance of the lots. Deposits related to these lots are capitalized when paid and classified as Land deposits until the associated property is purchased. The table below presents a summary of our controlled lots for the following periods (dollars in thousands):


	As of
	September 30, 2023						December 31, 2022
	Controlled Lots		Purchase Price		Land Deposits (1)		Controlled Lots		Purchase Price		Land Deposits (1)
Homebuilding controlled lots
Land option purchase contracts		7,971	$	691,072	$	44,704		6,582	$	428,612	$	47,678
Land banking arrangements		6,199		877,021		135,821		7,369		1,057,065		156,653
Other controlled lots		17,299		1,119,355		22,962		16,891		956,712		50,218
Total controlled lots		31,469	$	2,687,448	$	203,487		30,842	$	2,442,389	$	254,549

(1)

Land deposits are non-refundable and represent exposure to loss related to our contracts with third parties, unconsolidated entities, and land banking arrangements.. In addition, at September 30, 2023 and December 31, 2022 we had refundable deposits of $2.8 million and $8.8 million respectively.

Capitalized Interest — Interest capitalized, incurred and amortized is as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Interest capitalized - beginning of period	$	191,304		$	185,364		$	190,123		$	168,670
Interest incurred and capitalized(1)		28,270			38,871			94,452			119,415
Interest amortized to cost of home closings		(32,377	)		(33,774	)		(97,378	)		(97,624	)
Interest capitalized - end of period	$	187,197		$	190,461		$	187,197		$	190,461

(1)

Excludes Interest (income)/expense, net on the unaudited Condensed Consolidated Statement of Operations as such amounts are not capitalizable.

5. INVESTMENTS IN CONSOLIDATED AND UNCONSOLIDATED ENTITIES

Unconsolidated Entities

We have investments in a number of joint ventures with third parties. These entities are generally involved in real estate development, homebuilding, Build-to-Rent, and/or mortgage lending activities. The primary activity of the real estate development joint ventures is development and sale of lots to joint venture partners and/or unrelated builders. Our share of the joint venture profit relating to lots we purchase from the joint ventures is deferred until homes are delivered by us and title passes to a homebuyer.

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Summarized, unaudited condensed combined financial information of unconsolidated entities that are accounted for by the equity method are as follows (in thousands):


	As of
	September 30, 2023		December 31, 2022
Assets:
Real estate inventory	$	895,627	$	749,942
Other assets		161,331		146,770
Total assets	$	1,056,958	$	896,712
Liabilities and owners’ equity:
Debt	$	286,941	$	238,263
Other liabilities		40,086		31,824
Total liabilities	$	327,027	$	270,087
Owners’ equity:
TMHC	$	329,634	$	282,900
Others		400,297		343,725
Total owners’ equity	$	729,931	$	626,625
Total liabilities and owners’ equity	$	1,056,958	$	896,712


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenues	$	44,010		$	25,495		$	95,647		$	150,062
Costs and expenses		(37,810	)		(27,310	)		(76,575	)		(145,238	)
Net income/(loss) from unconsolidated entities	$	6,200		$	(1,815	)	$	19,072		$	4,824
TMHC’s share in net income/(loss) of unconsolidated entities	$	1,934		$	(1,180	)	$	7,049		$	(2,986	)
Distributions to TMHC from unconsolidated entities	$	2,226		$	10,006		$	8,110		$	100,835

Consolidated Entities

We have several joint ventures for the purpose of real estate development and homebuilding activities, which we have determined to be VIEs. As the managing member, we oversee the daily operations and have the power to direct the activities of the VIEs, or joint ventures. For this specific subset of joint ventures, based upon the allocation of income and loss per the applicable joint venture agreements and certain performance guarantees, we have potentially significant exposure to the risks and rewards of the joint ventures. Therefore, we are the primary beneficiary of these joint venture VIEs, and the entities are consolidated.

As of September 30, 2023, the assets of the consolidated joint ventures totaled $278.0 million, of which $27.9 million was cash and cash equivalents, $78.7 million was owned inventory and $122.0 million was fixed assets (primarily related to Urban Form). The majority of the fixed asset balance which was classified as held for sale as of December 31, 2022, was reclassified as held for investment during the second quarter of 2023. As of December 31, 2022, the assets of the consolidated joint ventures totaled $277.6 million, of which $38.9 million was cash and cash equivalents, $72.0 million was owned inventory and $123.2 million was fixed assets. The liabilities of the consolidated joint ventures totaled $149.0 million and $155.5 million as of September 30, 2023 and December 31, 2022, respectively, and were primarily comprised of loans payable and other borrowings, accounts payable and accrued expenses and other liabilities.

6. ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities consist of the following (in thousands):


	As of September 30, 2023		As of December 31, 2022
Real estate development costs to complete	$	43,838	$	53,155
Compensation and employee benefits		119,193		112,294
Self-insurance and warranty reserves		170,236		161,675
Interest payable		24,645		37,434
Property and sales taxes payable		35,000		30,046
Other accruals		94,350		95,649
Total accrued expenses and other liabilities	$	487,262	$	490,253

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Self-Insurance and Warranty Reserves – We accrue for the expected costs associated with our limited warranty, deductibles and self-insured exposure under our various insurance policies within Beneva Indemnity Company (“Beneva”), a wholly owned subsidiary. A summary of the changes in reserves are as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Reserve - beginning of period	$	160,326		$	137,491		$	161,675		$	141,839
Additions to reserves		28,076			2,514			67,411			34,917
Cost of claims incurred		(18,795	)		(3,541	)		(62,622	)		(43,743	)
Changes in estimates to pre-existing reserves		629			3,527			3,772			6,978
Reserve - end of period	$	170,236		$	139,991		$	170,236		$	139,991

7. DEBT

Total debt consists of the following (in thousands):


	As of
	September 30, 2023							December 31, 2022
	Principal		Unamortized Debt Issuance (Costs)/ Premium			Carrying Value		Principal		Unamortized Debt Issuance (Costs)/ Premium			Carrying Value
5.625% Senior Notes due 2024(1)		—		—			—		350,000		(628	)		349,372
5.875% Senior Notes due 2027		500,000		(2,867	)		497,133		500,000		(3,459	)		496,541
6.625% Senior Notes due 2027(2)		27,070		1,094			28,164		27,070		1,310			28,380
5.75% Senior Notes due 2028		450,000		(2,709	)		447,291		450,000		(3,183	)		446,817
5.125% Senior Notes due 2030		500,000		(4,333	)		495,667		500,000		(4,807	)		495,193
Senior Notes subtotal	$	1,477,070	$	(8,815	)	$	1,468,255	$	1,827,070	$	(10,767	)	$	1,816,303
Loans payable and other borrowings		332,177		—			332,177		361,486		—			361,486
$1 Billion Revolving Credit Facility(3)(4)		—		—			—		—		—			—
$100 Million Revolving Credit Facility(3)(4)		—		—			—		—		—			—
Mortgage warehouse borrowings		191,645		—			191,645		306,072		—			306,072
Total debt	$	2,000,892	$	(8,815	)	$	1,992,077	$	2,494,628	$	(10,767	)	$	2,483,861

(1)

On September 1, 2023, the 5.625% Senior Notes due 2024 (the "2024 Senior Notes") were redeemed in full.

(2)

Unamortized Debt Issuance (Cost)/Premium for such notes is reflective of fair value adjustments as a result of purchase accounting.

(3)

Unamortized debt issuance costs are included in the Prepaid expenses and other assets, net on the Condensed Consolidated Balance Sheets.

(4)

The $1 Billion Revolving Credit Facility Agreement together with the $100 Million Revolving Credit Facility Agreement, the “Revolving Credit Facilities”.

Debt Instruments

Excluding the debt instruments discussed below, the terms governing all other debt instruments listed in the table above have not substantially changed from the year ended December 31, 2022. For information regarding such instruments, refer to Note 8 - Debt to the Consolidated Financial Statements in our Annual Report. As of September 30, 2023, we were in compliance with all of the covenants in the debt instruments listed in the table above.

5.625% Senior Notes due 2024

Our 2024 Senior Notes were redeemed in full on September 1, 2023 using cash on hand at a price equal to 100%, plus the accrued and unpaid interest up to, but excluding, the redemption date. As a result of the redemption of the 2024 Senior Notes, we recorded a net loss on extinguishment of debt of $0.3 million for the three months ended September 30, 2023 to Loss/(gain) on extinguishment of debt, net, on the Condensed Consolidated Statement of Operations, which included the write-off of net unamortized deferred financing fees.

$1 Billion Revolving Credit Facility

Our $1 Billion Revolving Credit Facility has a maturity date of March 11, 2027. We had no outstanding borrowings under our $1 Billion Revolving Credit Facility as of September 30, 2023 and December 31, 2022.

As of September 30, 2023 and December 31, 2022, we had $3.1 million and $3.8 million, respectively, of unamortized debt issuance costs relating to our $1 Billion Revolving Credit Facility, which are included in Prepaid expenses and other assets, net, on the unaudited Condensed Consolidated Balance Sheets. As of September 30, 2023 and December 31, 2022, we had $70.4 million and $69.2 million,

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respectively, of utilized letters of credit, resulting in $929.6 million and $930.8 million, respectively, of availability under the $1 Billion Revolving Credit Facility.

The $1 Billion Revolving Credit Facility contains certain “springing” financial covenants, requiring us and our subsidiaries to comply with a maximum debt to capitalization ratio of not more than 0.60 to 1.00 and a minimum consolidated tangible net worth level, currently of at least $3.2 billion. The financial covenants would be in effect for any fiscal quarter during which any (a) loans under the $1 Billion Revolving Credit Facility are outstanding during the last day of such fiscal quarter or on more than five separate days during such fiscal quarter or (b) undrawn letters of credit (except to the extent cash collateralized) issued under the $1 Billion Revolving Credit Facility in an aggregate amount greater than $40.0 million or unreimbursed letters of credit issued under the $1 Billion Revolving Credit Facility are outstanding on the last day of such fiscal quarter or for more than five consecutive days during such fiscal quarter. For purposes of determining compliance with the financial covenants for any fiscal quarter, the $1 Billion Revolving Credit Facility provides that we may exercise an equity cure by issuing certain permitted securities for cash or otherwise recording cash contributions to our capital that will, upon the contribution of such cash, be included in the calculation of consolidated tangible net worth and consolidated total capitalization. The equity cure right is exercisable up to twice in any period of four consecutive fiscal quarters and up to five times overall.

The $1 Billion Revolving Credit Facility contains certain restrictive covenants including limitations on incurrence of liens, the payment of dividends and other distributions, asset dispositions and investments in entities that are not guarantors, limitations on prepayment of subordinated indebtedness and limitations on fundamental changes. The $1 Billion Revolving Credit Facility contains customary events of default, subject to applicable grace periods, including for nonpayment of principal, interest or other amounts, violation of covenants (including financial covenants, subject to the exercise of an equity cure), incorrectness of representations and warranties in any material respect, cross default and cross acceleration, bankruptcy, material monetary judgments, ERISA events with material adverse effect, actual or asserted invalidity of material guarantees and change of control.

As of September 30, 2023, we were in compliance with all of the covenants under the $1 Billion Revolving Credit Facility.

Mortgage Warehouse Borrowings

The following is a summary of our mortgage warehouse borrowings (in thousands):

As of September 30, 2023

Facility

Amount
Drawn

Facility
Amount

Interest
Rate

Expiration
Date

Collateral (1)

Warehouse A

39,294

60,000

Daily SOFR + 1.70%

on Demand

Mortgage Loans

Warehouse B(2)

—

N/A

Warehouse C

51,990

100,000

Term SOFR + 1.65%

on Demand

Mortgage Loans & Pledged Cash

Warehouse D

42,938

100,000

Daily SOFR + 1.50%

September 4, 2024

Mortgage Loans

Warehouse E

57,423

100,000

Term SOFR + 1.60%

on Demand

Mortgage Loans

Total

191,645

360,000

As of December 31, 2022

Facility

Amount
Drawn

Facility
Amount

Interest
Rate

Expiration
Date

Collateral (1)

Warehouse A

29,066

60,000

Daily SOFR + 1.70%

on Demand

Mortgage Loans

Warehouse B

94,258

150,000

BSBY 1M + 1.65%

on Demand

Mortgage Loans

Warehouse C

53,607

75,000

Term SOFR + 1.65%

on Demand

Mortgage Loans & Pledged Cash

Warehouse D

83,259

140,000

Daily SOFR + 1.50%

September 6, 2023

Mortgage Loans

Warehouse E

45,882

70,000

Term SOFR + 1.60%

on Demand

Mortgage Loans

Total

306,072

495,000

(1)

The mortgage warehouse borrowings outstanding as of September 30, 2023 and December 31, 2022 were collateralized by $241.7 million and $346.4 million, respectively, of mortgage loans held for sale, which comprise the balance of mortgage loans held for sale, and approximately $0.8 million and $2.1 million, respectively, of restricted cash on our unaudited Condensed Consolidated Balance Sheets.

(2)

Beginning October 1, 2023, the lender for Warehouse B discontinued providing mortgage warehouse facility financings to the industry in general. We terminated the facility on August 17, 2023. The facility amounts for Warehouses D and E were expanded to offset the loss of liquidity from Warehouse B.

Loans Payable and Other Borrowings

Loans payable and other borrowings as of September 30, 2023 and December 31, 2022 consist of project-level debt due to various land sellers and financial institutions for specific projects. Project-level debt is generally secured by the land that was acquired and the principal payments generally coincide with corresponding project lot closings or a principal reduction schedule. Loans payable bear interest at rates that ranged from 0% to 9% and 0% to 8% at each of September 30, 2023 and December 31, 2022, respectively. We impute interest for loans with no stated interest rates.

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8. FAIR VALUE DISCLOSURES

ASC Topic 820 provides a framework for measuring fair value under GAAP, expands disclosures about fair value measurements, and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of the fair value hierarchy are summarized as follows:

Level 1 — Fair value is based on quoted prices for identical assets or liabilities in active markets.

Level 2 — Fair value is determined using quoted prices for similar assets or liabilities in active markets or quoted prices for identical or similar assets or liabilities in markets that are not active or are directly or indirectly observable.

Level 3 — Fair value is determined using one or more significant inputs that are unobservable in active markets at the measurement date, such as a pricing model, discounted cash flow, or similar technique.

The fair value of our mortgage loans held for sale is derived from negotiated rates with partner lending institutions. Derivative assets and liabilities include interest rate lock commitments (“IRLCs”) and mortgage backed securities (“MBS”). The fair value of IRLCs is based on the value of the underlying mortgage loans, quoted MBS prices and the probability that the mortgage loan will fund within the terms of the IRLCs. We estimate the fair value of the forward sales commitments based on quoted MBS prices. The fair value of our mortgage warehouse borrowings, loans payable and other borrowings, and the borrowings under our Revolving Credit Facilities approximate carrying value due to their short term nature and variable interest rate terms. The fair value of our Senior Notes is derived from quoted market prices by independent dealers in markets that are not active. The fair value of our Equity Security Investment in a public company is based upon quoted prices for identical assets in an active market. There were no changes to or transfers between the levels of the fair value hierarchy for any of our financial instruments as of September 30, 2023, when compared to December 31, 2022.

The carrying value and fair value of our financial instruments are as follows:


		September 30, 2023						December 31, 2022
(Dollars in thousands)	Level in Fair Value Hierarchy	Carrying Value			Estimated Fair Value			Carrying Value		Estimated Fair Value
Description:
Mortgage loans held for sale	2	$	241,749		$	241,749		$	346,364	$	346,364
IRLCs	3		(5,408	)		(5,408	)		2,386		2,386
MBSs	2		7,125			7,125			1,090		1,090
Mortgage warehouse borrowings	2		191,645			191,645			306,072		306,072
Loans payable and other borrowings	2		332,177			332,177			361,486		361,486
5.625% Senior Notes due 2024 (1)(2)	2		—			—			349,372		347,375
5.875% Senior Notes due 2027 (2)	2		497,133			473,860			496,541		480,060
6.625% Senior Notes due 2027 (2)	2		28,164			24,972			28,380		26,123
5.75% Senior Notes due 2028 (2)	2		447,291			419,589			446,817		421,358
5.125% Senior Notes due 2030 (2)	2		495,667			437,940			495,193		434,330
Equity Security	1		460			460			460		460

(1)

On September 1, 2023, the 2024 Senior Notes were redeemed in full.

(2)

Carrying value for Senior Notes, as presented, includes unamortized debt issuance costs and premiums. Debt issuance costs are not factored into the fair value calculation for the Senior Notes.

Fair value measurements are used for inventories on a nonrecurring basis when events and circumstances indicate that their carrying value is not recoverable. The following table presents the fair value for our inventories measured at fair value on a nonrecurring basis:


(Dollars in thousands)	Level in Fair Value Hierarchy		As of September 30, 2023		As of December 31, 2022
Description:
Real estate inventories		3	$	19,263	$	48,360

9. INCOME TAXES

The effective tax rate for the three and nine months ended September 30, 2023 was 25.4% and 24.7%, respectively, compared to 22.6% and 23.8%, respectively, for the same periods in 2022.

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compensation, and special deductions and credits related to homebuilding activities. The Inflation Reduction Act, enacted in August 2022, extended Internal Revenue Code ("IRC") §45L energy efficient homebuilding tax credits and applies to homes closed in 2022-2032.

The Inflation Reduction Act also created a 15% corporate alternative minimum tax. The corporate alternative minimum tax had no impact on our consolidated financial statements for the three and nine months ended September 30, 2023.

There were no unrecognized tax benefits as of September 30, 2023 or December 31, 2022.

10. STOCKHOLDERS’ EQUITY

Capital Stock

The Company’s authorized capital stock consists of 400,000,000 shares of common stock, par value $0.00001 per share (the “Common Stock”), and 50,000,000 shares of preferred stock, par value $0.00001 per share.

Stock Repurchase Program

The following table summarizes share repurchase activity for the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2023			2022			2023			2022
Amount available for repurchase — beginning of period	$	275,570		$	425,000		$	279,138		$	230,413
Amount cancelled from expired or unused authorizations		—			—			—			(75,000	)
Additional amount authorized for repurchase		—			—			—			500,000
Amount repurchased		(100,000	)		(104,999	)		(103,568	)		(335,412	)
Amount available for repurchase — end of period	$	175,570		$	320,001		$	175,570		$	320,001

The Company repurchased 2,169,657 and 2,278,982 shares during the three and nine months ended September 30, 2023, respectively. The Company repurchased 4,213,256 and 12,940,941 shares during the three and nine months ended September 30, 2022, respectively.

The Inflation Reduction Act was enacted on August 16, 2022 and includes a one percent excise tax on the net repurchase of company stock. This act was effective as of January 1, 2023 and did not have a material impact on our financial statements for the three and nine months ended September 30, 2023. We will continue to assess the impact it may have on our financial results.

11. STOCK BASED COMPENSATION

Equity-Based Compensation

In April 2013, we adopted the Taylor Morrison Home Corporation 2013 Omnibus Equity Award Plan (the “Plan”). The Plan was most recently amended and restated in May 2022. The Plan provides for the grant of stock options, RSUs, performance-based restricted stock units (“PRSUs”), and other equity-based awards deliverable in shares of our Common Stock. As of September 30, 2023, we had an aggregate of 5,117,222 shares of Common Stock available for future grants under the Plan.

The following table provides the outstanding balance of RSUs, PRSUs, and stock options as of September 30, 2023:


	RSUs and PRSUs				Stock Options
	Units		Weighted Average Grant Date Fair Value		Units		Weighted Average Exercise Price Per Share
Balance at September 30, 2023		1,490,914	$	30.26		2,265,448	$	26.80

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The following table provides information regarding the amount and components of stock-based compensation expense, all of which is included in General and administrative expenses in the unaudited Condensed Consolidated Statements of Operations (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Restricted stock units (1)	$	4,615	$	4,215	$	15,502	$	14,133
Stock options		1,087		1,118		3,004		3,341
Total stock compensation	$	5,702	$	5,333	$	18,506	$	17,474

(1)

Includes compensation expense related to time-based RSUs and PRSUs.

At September 30, 2023 and December 31, 2022, the aggregate unrecognized value of all outstanding stock-based compensation awards was approximately $32.9 million and $27.1 million, respectively.

12. REPORTING SEGMENTS

We have multiple homebuilding operating components which are engaged in the business of acquiring and developing land, constructing homes, marketing and selling homes, and providing warranty and customer service. We aggregate our homebuilding operating components into three reporting segments, East, Central, and West, based on similar long-term economic characteristics. The activity from our Build-to-Rent and Urban Form operations are included in our Corporate segment. We also have a Financial Services reporting segment. We have no inter-segment sales as all sales are to external customers.

Our reporting segments are as follows:


East		Atlanta, Charlotte, Jacksonville, Naples, Orlando, Raleigh, Sarasota, and Tampa
Central		Austin, Dallas, Denver, and Houston
West		Bay Area, Las Vegas, Phoenix, Portland, Sacramento, Seattle, and Southern California
Financial Services		Taylor Morrison Home Funding, Inspired Title Services, and Taylor Morrison Insurance Services

Segment information is as follows (in thousands):


	Three Months Ended September 30, 2023
	East			Central			West			Financial Services		Corporate and Unallocated(1)			Total
Total revenue	$	582,557		$	433,610		$	615,817		$	40,045	$	3,516		$	1,675,545
Gross margin		158,096			109,481			106,103			16,917		1,121			391,718
Selling, general and administrative expenses		(42,957	)		(37,712	)		(45,442	)		91		(41,771	)		(167,791	)
Net (loss)/income from unconsolidated entities		—			(81	)		341			1,671		3			1,934
Interest and other (expense)/income, net (2)		(425	)		(2,380	)		(2,929	)		—		8,548			2,814
Loss on extinguishment of debt, net		—			—			—			—		(269	)		(269	)
Income/(loss) before income taxes	$	114,714		$	69,308		$	58,073		$	18,679	$	(32,368	)	$	228,406

(1)

Includes the activity from our Build-To-Rent and Urban Form operations.

(2)

Interest and other (expense)/income, net includes pre-acquisition write-offs of terminated projects.


	Three Months Ended September 30, 2022
	East			Central			West			Financial Services		Corporate and Unallocated(1)			Total
Total revenue	$	649,058		$	522,846		$	831,409		$	27,749	$	3,582		$	2,034,644
Gross margin		176,015			141,076			231,100			7,354		2,395			557,940
Selling, general and administrative expenses		(42,126	)		(32,589	)		(39,193	)		—		(33,141	)		(147,049	)
Net (loss)/income from unconsolidated entities		—			(86	)		(899	)		546		(741	)		(1,180	)
Interest and other (expense)/income, net (2)		(4,180	)		(1,325	)		(4,065	)		—		(563	)		(10,133	)
Gain on extinguishment of debt, net		—			—			—			—		71			71
Income/(loss) before income taxes	$	129,709		$	107,076		$	186,943		$	7,900	$	(31,979	)	$	399,649

(1)

Includes the activity from our Build-To-Rent and Urban Form operations.

(2)

Interest and other (expense)/income, net includes pre-acquisition write-offs of terminated projects.

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	Nine Months Ended September 30, 2023
	East			Central			West			Financial Services		Corporate and Unallocated(1)			Total
Total revenue	$	1,933,434		$	1,521,829		$	1,815,980		$	117,108	$	9,615		$	5,397,966
Gross margin		526,968			381,279			333,843			46,490		2,389			1,290,969
Selling, general and administrative expenses		(133,908	)		(120,058	)		(133,027	)		—		(123,502	)		(510,495	)
Net (loss)/income from unconsolidated entities		—			(63	)		(67	)		7,205		(26	)		7,049
Interest and other (expense)/income, net(2)		(2,773	)		(5,241	)		(2,157	)		—		15,501			5,330
Loss on extinguishment of debt, net		—			—			—			—		(269	)		(269	)
Income/(loss) before income taxes	$	390,287		$	255,917		$	198,592		$	53,695	$	(105,907	)	$	792,584

(1)

Includes the activity from our Build-To-Rent and Urban Form operations

(2)

Interest and other (expense)/income, net includes pre-acquisition write-offs of terminated projects.

(3)


	Nine Months Ended September 30, 2022
	East			Central			West			Financial Services		Corporate and Unallocated(1)			Total
Total revenue	$	1,810,041		$	1,351,093		$	2,433,893		$	98,419	$	39,345		$	5,732,791
Gross margin		476,241			332,440			635,318			32,327		16,222			1,492,548
Selling, general and administrative expenses		(127,041	)		(95,527	)		(125,086	)		—		(122,201	)		(469,855	)
Net (loss)/income from unconsolidated entities		—			(40	)		(7,004	)		4,799		(741	)		(2,986	)
Interest and other income/(expense), net(2)		5,498			(4,262	)		(9,734	)		—		(605	)		(9,103	)
Gain on extinguishment of debt, net		—			—			—			—		13,542			13,542
Income/(loss) before income taxes	$	354,698		$	232,611		$	493,494		$	37,126	$	(93,783	)	$	1,024,146

(1)

Includes the activity from our Build-To-Rent and Urban Form operations.

(2)

Interest and other income/(expense), net includes pre-acquisition write-offs of terminated projects.


	As of September 30, 2023
	East		Central		West		Financial Services		Corporate and Unallocated(1)		Total
Real estate inventory and land deposits	$	1,942,255	$	1,157,825	$	2,586,588	$	—	$	—	$	5,686,668
Investments in unconsolidated entities		56,652		121,549		86,047		5,283		60,103		329,634
Other assets		158,361		233,570		595,521		339,649		1,093,515		2,420,616
Total assets	$	2,157,268	$	1,512,944	$	3,268,156	$	344,932	$	1,153,618	$	8,436,918

(1)

Includes the assets from our Build-To-Rent and Urban Form operations.


	As of December 31, 2022
	East		Central		West		Financial Services		Corporate and Unallocated(1)		Total
Real estate inventory and land deposits	$	1,820,765	$	1,359,805	$	2,453,662	$	—	$	—	$	5,634,232
Investments in unconsolidated entities		46,629		104,070		80,310		5,283		46,608		282,900
Other assets		216,816		251,727		613,029		431,535		1,040,485		2,553,592
Total assets	$	2,084,210	$	1,715,602	$	3,147,001	$	436,818	$	1,087,093	$	8,470,724

(1)

Includes the assets from our Build-To-Rent and Urban Form operations.

13. COMMITMENTS AND CONTINGENCIES

Letters of Credit and Surety Bonds — We are committed, under various letters of credit and surety bonds, to perform certain development and construction activities and provide certain guarantees in the normal course of business. Outstanding letters of credit and surety bonds under these arrangements totaled $1.3 billion as of September 30, 2023 and $1.2 billion as of December 31, 2022. Although significant development and construction activities have been completed related to these site improvements, the bonds are generally not released until all development and construction activities are completed. We do not believe that it is probable that any outstanding bonds as of September 30, 2023 will be drawn upon.

Purchase Commitments —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 the routine conduct of our 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 property

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owner and its creditors generally have no recourse. Our obligations with respect to such contracts are generally limited to the forfeiture of the related non-refundable cash deposits. The aggregate purchase price for land under these contracts was $1.6 billion at September 30, 2023 and $1.5 billion at December 31, 2022.

Legal Proceedings — We are involved in various litigation and legal claims in the normal course of business, including actions brought on behalf of various classes of claimants. We are also subject to a variety of local, state, and federal laws and regulations related to land development activities, house construction standards, sales practices, mortgage lending operations, employment practices, and protection of the environment. As a result, we are subject to periodic examination or inquiry by various governmental agencies that administer these laws and regulations.

We establish liabilities for legal claims and regulatory matters when such matters are both probable of occurring and any potential loss can be reasonably estimated. At September 30, 2023 and December 31, 2022, our legal accruals were $19.1 million and $20.6 million, respectively. We accrue for such matters based on the facts and circumstances specific to each matter and revise these estimates as the matters evolve. In such cases, there may exist an exposure to loss in excess of any amounts currently accrued. Predicting the ultimate resolution of the pending matters, the related timing, or the eventual loss associated with these matters is inherently difficult. Accordingly, the liability arising from the ultimate resolution of any matter may exceed the estimate reflected in the recorded reserves relating to such matter. While the outcome of such contingencies cannot be predicted with certainty, we do not believe that the resolution of such matters will have a material adverse impact on our results of operations, financial position, or cash flows.

On April 26, 2017, a class action complaint was filed in the Circuit Court of the Tenth Judicial Circuit in and for Polk County, Florida by Norman Gundel, William Mann, and Brenda Taylor against Avatar Properties, Inc. (an acquired AV Homes entity), generally alleging that our collection of club membership fees in connection with the use of one of our amenities in our East homebuilding segment violates various laws relating to homeowner associations and other Florida-specific laws. The class action complaint seeks an injunction to prohibit future collection of club membership fees. On November 2, 2021, the trial court determined that the club membership fees were improper and that plaintiffs were entitled to $35.0 million in fee reimbursements. We appealed the court’s ruling to the Sixth District Court of Appeal on November 29, 2021, and on June 23, 2023 the District Court affirmed the trial court judgment in a split decision, with three separate opinions. Recognizing the potential “far-reaching effects on homeowners associations throughout the State,” the District Court certified a question of great public importance to the Florida Supreme Court. We have since filed a notice to invoke the discretionary review of the Florida Supreme Court.

Plaintiffs have agreed to continue to pay club membership fees pending the outcome of the appeal to the Florida Supreme Court. We believe, based on our assessment and the opinion of external legal counsel, that the trial and District Court’s legal interpretation constitutes legal error and the courts incorrectly ruled on this matter. In accordance with ASC Topic 450, Contingencies, we evaluated the range of loss and the likelihood of each potential amount of loss within the range.

While the ultimate outcome and the costs associated with litigation are inherently uncertain and difficult to predict, in evaluating the potential outcomes, we believe the more likely outcome is that we win the appeal to the Florida Supreme Court. This belief is based on our review of the legal merit of the judgment and the opinions of the trial and District Courts, as well as the opinion of external legal counsel. Accordingly, in assessing the range of possible loss, we believe the more likely outcome is that we win on appeal to the Florida Supreme Court and will have zero liability.

Leases — Our leases primarily consist of office space, construction trailers, model home leasebacks, a ground lease, equipment, and storage units. We assess each of these contracts to determine whether the arrangement contains a lease as defined by ASC 842, Leases. Lease obligations were $86.4 million and $100.2 million as of September 30, 2023 and December 31, 2022, respectively. We recorded lease expense of approximately $5.8 million and $19.3 million for the three and nine months ended September 30, 2023, and $6.9 million and $20.5 million for the three and nine months ended September 30, 2022, within General and administrative expenses on our unaudited Condensed Consolidated Statement of Operations.

14. MORTGAGE HEDGING ACTIVITIES

The following summarizes derivative instrument assets (liabilities) as of the periods presented:


	As of
	September 30, 2023					December 31, 2022
(Dollars in thousands)	Fair Value			Notional Amount (1)		Fair Value		Notional Amount (1)
IRLCs	$	(5,408	)	$	332,421	$	2,386	$	375,030
MBSs		7,125			479,000		1,090		504,000
Total	$	1,717				$	3,476

(1)

The notional amounts in the table above include mandatory and best effort mortgages, that have been locked and approved.

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Total commitments to originate loans approximated $359.9 million and $419.6 million as of September 30, 2023 and December 31, 2022, respectively. This amount represents the commitments to originate loans that have been locked and approved by underwriting. The notional amounts in the table above includes mandatory and best effort loans that have been locked and approved by underwriting.

We have exposure to credit loss in the event of contractual non-performance by our trading counterparties in derivative instruments that we use in our rate risk management activities. We manage this credit risk by selecting only counterparties that we believe to be financially strong, spreading the risk among multiple counterparties, placing contractual limits on the amount of unsecured credit extended to any single counterparty, and entering into netting agreements with counterparties, as appropriate. Commitments to originate loans do not necessarily reflect future cash requirements as some commitments are expected to expire without being drawn upon.

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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. The 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 on Form 10-K for the year ended December 31, 2022 (“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.

Business Overview

Our principal business is residential homebuilding and the development of lifestyle communities with operations across 11 states. 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. As of September 30, 2023, 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:


East		Atlanta, Charlotte, Jacksonville, Naples, Orlando, Raleigh, Sarasota, and Tampa
Central		Austin, Dallas, Denver, and Houston
West		Bay Area, Las Vegas, Phoenix, Portland, Sacramento, Seattle, and Southern California
Financial Services		Taylor Morrison Home Funding, Inspired Title Services, and Taylor Morrison Insurance Services

As of September 30, 2023, we employed approximately 2,700 full-time equivalent persons. Of these, approximately 2,300 were engaged in corporate and homebuilding operations, and the remaining approximately 400 were engaged in financial services.

Factors Affecting Comparability of Results

For the three months ended September 30, 2023 we recognized $11.8 million in inventory impairment. Impairments are recorded to Cost of home closings on the unaudited Condensed Consolidated Statement of Operations. For the three and nine months ended September 30, 2022, no inventory impairment was incurred.

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For the three and nine months ended September 30, 2023 we recognized a $0.3 million net loss on extinguishment of debt relating to our redemption of the 2024 Senior Notes. For the three and nine months ended September 30, 2022, we recognized a $0.1 million and $13.5 million net gain on extinguishment of debt relating to our partial redemption of our 6.625% Senior Notes due 2027. Such losses and gains are included in Loss/(gain) on extinguishment of debt, net on our unaudited Condensed Consolidated Statements of Operations.

For the three and nine months ended September 30, 2022, we recognized a $0.8 million and $14.5 million gain on land transfers relating to our unconsolidated joint ventures which is included in Other expense/(income), net on the unaudited Condensed Consolidated Statements of Operations. No such gains were recognized in the current year.

Third Quarter 2023 Highlights (all comparisons are of the current quarter to the prior year quarter, unless otherwise indicated):

•

Home closings revenue of $1.6 billion, driven by 2,639 home closings at an average price of $611,000.

•

GAAP Home closings gross margin of 23.1% and 23.9% excluding inventory impairment.

•

Net sales orders of 2,592, driven by a monthly absorption pace of 2.7 per community versus 2.1 a year ago.

•

74,000 homebuilding lots owned and controlled at quarter end, representing 6.1 years of total supply, of which 3.5 years was owned.

•

Homebuilding debt-to-capitalization of 25.9% on a gross basis and 18.8% net of $614 million of unrestricted cash. Total liquidity was $1.6 billion.

•

Credit rating upgraded by S&P Global to BB+ from BB with a Stable outlook.

•

Book value per share increased 21% year over year to $46.78.

Results of Operations

The following table sets forth our results of operations for the periods presented:


	Three Months Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2023			2022			2023			2022
Statements of Operations Data:
Home closings revenue, net	$	1,611,883		$	1,983,775		$	5,221,225		$	5,511,204
Land closings revenue		14,291			14,225			31,439			66,651
Financial services revenue		40,045			27,749			117,108			98,419
Amenity and other revenue		9,326			8,895			28,194			56,517
Total revenue		1,675,545			2,034,644			5,397,966			5,732,791
Cost of home closings		1,238,999			1,438,164			3,980,749			4,084,748
Cost of land closings		13,572			11,571			30,620			50,139
Financial services expenses		23,128			20,395			70,618			66,092
Amenity and other expenses		8,128			6,574			25,010			39,264
Total cost of revenue		1,283,827			1,476,704			4,106,997			4,240,243
Gross margin		391,718			557,940			1,290,969			1,492,548
Sales, commissions and other marketing costs		98,797			94,692			304,591			279,950
General and administrative expenses		68,994			52,357			205,904			189,905
Net (income)/loss from unconsolidated entities		(1,934	)		1,180			(7,049	)		2,986
Interest (income)/expense, net		(5,782	)		4,382			(12,013	)		13,823
Other expense/(income), net		2,968			5,751			6,683			(4,720	)
Loss/(gain) on extinguishment of debt, net		269			(71	)		269			(13,542	)
Income before income taxes		228,406			399,649			792,584			1,024,146
Income tax provision		57,960			90,418			196,005			243,300
Net income before allocation to non-controlling interests		170,446			309,231			596,579			780,846
Net income attributable to non-controlling interests		245			548			(235	)		(3,377	)
Net income available to Taylor Morrison Home Corporation	$	170,691		$	309,779		$	596,344		$	777,469
Home closings gross margin		23.1	%		27.5	%		23.8	%		25.9	%
Sales, commissions and other marketing costs as a percentage of home closings revenue, net		6.1	%		4.8	%		5.8	%		5.1	%
General and administrative expenses as a percentage of home closings revenue, net		4.3	%		2.6	%		3.9	%		3.4	%

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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 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 the net income/(loss) available to the Company excluding, to the extent applicable in a given period, the impact of inventory impairment charges, impairment of investment in unconsolidated entities, pre-acquisition abandonment charges, gains/losses on land transfers to joint ventures 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, as applicable, interest expense/(income), net, amortization of capitalized interest, income taxes, depreciation and amortization (EBITDA), non-cash compensation expense, if any, inventory impairment charges, impairment of investment in unconsolidated entities, pre-acquisition abandonment charges, gains/losses on land transfers to joint ventures and extinguishment of debt, net. 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 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). Adjusted home closings gross margin is a non-GAAP financial measure based on GAAP home closings gross margin (which is inclusive of capitalized interest), excluding inventory impairment charges.

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. 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.

Adjusted Net Income and Adjusted Earnings Per Common Share


	Three Months Ended September 30,
(Dollars in thousands, except per share data)	2023			2022
Net income available to TMHC	$	170,691		$	309,779
Inventory impairments		11,791			—
Gain on land transfers to joint ventures		—			(808	)
Loss/(gain) on extinguishment of debt, net		269			(71	)
Tax impact due to above non-GAAP reconciling items		(3,060	)		205
Adjusted net income	$	179,691		$	309,105
Basic weighted average number of shares		108,837			112,701
Adjusted earnings per common share - Basic	$	1.65		$	2.74
Diluted weighted average number of shares		110,622			113,780
Adjusted earnings per common share - Diluted	$	1.62		$	2.72

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Adjusted Income Before Income Taxes and Related Margin


	Three Months Ended September 30,
(Dollars in thousands)	2023			2022
Income before income taxes	$	228,406		$	399,649
Inventory impairments		11,791			—
Gain on land transfers to joint ventures		—			(808	)
Loss/(gain) on extinguishment of debt, net		269			(71	)
Adjusted income before income taxes	$	240,466		$	398,770
Total revenue	$	1,675,545		$	2,034,644
Income before income taxes margin		13.6	%		19.6	%
Adjusted income before income taxes margin		14.4	%		19.6	%

Adjusted Home Closings Gross Margin



	Three Months Ended September 30,
(Dollars in thousands)	2023			2022
Home closings revenue	$	1,611,883		$	1,983,775
Cost of home closings	$	1,238,999		$	1,438,164
Home closings gross margin	$	372,884		$	545,611
Inventory impairments		11,791			—
Adjusted home closings gross margin	$	384,675		$	545,611
Home closings gross margin as a percentage of home closings revenue		23.1	%		27.5	%
Adjusted home closings gross margin as a percentage of home closings revenue		23.9	%		27.5	%

EBITDA and Adjusted EBITDA Reconciliation


	Three Months Ended September 30,
(Dollars in thousands)	2023			2022
Net income before allocation to non-controlling interests	$	170,446		$	309,231
Interest (income)/expense, net		(5,782	)		4,382
Amortization of capitalized interest		32,377			33,774
Income tax provision		57,960			90,418
Depreciation and amortization		2,728			1,484
EBITDA	$	257,729		$	439,289
Non-cash compensation expense		5,702			5,333
Inventory impairments		11,791			—
Gain on land transfers to joint ventures		—			(808	)
Loss/(gain) on extinguishment of debt, net		269			(71	)
Adjusted EBITDA	$	275,491		$	443,743
Total revenue	$	1,675,545		$	2,034,644
Net income before allocation to non-controlling interests as a percentage of total revenue		10.2	%		15.2	%
EBITDA as a percentage of total revenue		15.4	%		21.6	%
Adjusted EBITDA as a percentage of total revenue		16.4	%		21.8	%

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net Homebuilding Debt to Capitalization Ratio Reconciliation


(Dollars in thousands)	As of September 30, 2023			As of June 30, 2023			As of September 30, 2022
Total debt	$	1,992,077		$	2,393,571		$	2,729,924
Plus: unamortized debt issuance cost, net		8,815			9,613			11,242
Less: mortgage warehouse borrowings	$	(191,645	)		(249,898	)		(146,335	)
Total homebuilding debt	$	1,809,247		$	2,153,286		$	2,594,831
Total equity		5,175,110			5,095,313			4,403,466
Total capitalization	$	6,984,357		$	7,248,599		$	6,998,297
Total homebuilding debt to capitalization ratio		25.9	%		29.7	%		37.1	%

Total homebuilding debt	$	1,809,247		$	2,153,286		$	2,594,831
Less: cash and cash equivalents		(613,811	)		(1,227,264	)		(329,244	)
Net homebuilding debt	$	1,195,436		$	926,022		$	2,265,587
Total equity		5,175,110			5,095,313			4,403,466
Total capitalization	$	6,370,546		$	6,021,335		$	6,669,053
Net homebuilding debt to capitalization ratio		18.8	%		15.4	%		34.0	%

Three and nine months ended September 30, 2023 compared to three and nine months ended September 30, 2022

Demand for housing has fluctuated the last several years partially as a result of macro economic conditions relating to inflation, increasing mortgage interest rates, and industry constraints relating to labor and supply shortages. We believe these events had a series of impacts on us including affordability constraints for some consumers and reduced overall consumer confidence which led to an increase in cancellation rates and reduced sales during the prior year. To mitigate these impacts we began to adjust pricing, primarily by offering finance incentives, as well as home discounts and other pricing reductions during the second half of 2022. These pricing adjustments and incentives helped drive an increase in sales orders and a gradual normalization in cancellations beginning in 2023. However, the recent increase in mortgage interest rates during the three months ended September 30, 2023 began to negatively impact our net sales orders in the latter half of the quarter. Operational information related to each period is presented below:

Ending Active Selling Communities


	As of September 30,				Change
	2023		2022
East		107		118		(9.3	)%
Central		94		105		(10.5	)%
West		124		103		20.4	%
Total		325		326		(0.3	)%

The total ending active selling communities decreased by one at September 30, 2023 compared to September 30, 2022. The increase in the West was due to several master planned community openings, which was offset by community closeouts in the East and Central regions.

Net Sales Orders


	Three Months Ended September 30,
	Net Sales Orders (1)							Sales Value (1)							Average Selling Price
(Dollars in thousands)	2023		2022		Change			2023		2022		Change			2023		2022		Change
East		940		1,041		(9.7	)%	$	559,524	$	640,093		(12.6	)%	$	595	$	615		(3.3	)%
Central		641		450		42.4	%		374,224		267,681		39.8	%		584		595		(1.8	)%
West		1,011		578		74.9	%		680,666		372,223		82.9	%		673		644		4.5	%
Total		2,592		2,069		25.3	%	$	1,614,414	$	1,279,997		26.1	%	$	623	$	619		0.6	%

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


	Nine Months Ended September 30,
	Net Sales Orders (1)							Sales Value (1)							Average Selling Price
(Dollars in thousands)	2023		2022		Change			2023		2022		Change			2023		2022		Change
East		3,066		3,189		(3.9	)%	$	1,786,988	$	1,976,798		(9.6	)%	$	583	$	620		(6.0	)%
Central		2,123		1,979		7.3	%		1,248,196		1,294,106		(3.5	)%		588		654		(10.1	)%
West		3,280		2,509		30.7	%		2,219,056		1,878,886		18.1	%		677		749		(9.6	)%
Total		8,469		7,677		10.3	%	$	5,254,240	$	5,149,790		2.0	%	$	620	$	671		(7.6	)%

(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 25.3% for the three months ended September 30, 2023 and 10.3% for the nine months ended September 30, 2023, compared to the same periods in the prior year, respectively. Beginning in third quarter of 2022, we believe our net sales were negatively impacted by the change in economic conditions and home buyer apprehensions due to rising mortgage interest rates and inflationary pressures. However, as both mortgage rates and inflationary pressures were relatively stable in the first half of the year along with our offering of pricing incentives or discounts, net sales improved. In addition, lower cancellation rates for the three months ended September 30, 2023 compared to the same quarter in the prior year contributed to the increase in net sales orders. However, during the three months ended September 30, 2023, mortgage interest rates increased again and our net sales orders began to slow during the second half of the quarter. Average selling prices remained relatively flat for three months ended September 30, 2023, but decreased for the nine months ended September 30, 2023 compared to the same periods in the prior year as a result of an increase in our pricing incentives and/or discounts in certain markets.

Sales Order Cancellations


	Cancellation Rate(1)
	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
East		8.0	%		9.2	%		8.2	%		7.3	%
Central		14.9	%		22.5	%		16.3	%		12.8	%
West		12.1	%		20.2	%		13.1	%		12.7	%
Total Company		11.4	%		15.6	%		12.3	%		10.6	%

(1)

Cancellation rate represents the number of canceled sales orders divided by gross sales orders.

The total company cancellation rate decreased for the three months ended September 30, 2023, but increased for the nine months ended September 30, 2023 compared to the same periods in the prior year. Our cancellations began increasing during the third quarter of 2022 which we believe was due to increasing mortgage interest rates and buyer apprehensions given the elevated macroeconomic uncertainty and affordability constraints for some consumers. As mortgage interest rates have stabilized we believe buyers' confidence has improved and we experienced a decrease in our cancellations for the quarter as compared to the same period in the prior year.

Sales Order Backlog


	As of September 30,
	Sold Homes in Backlog (1)							Sales Value							Average Selling Price
(Dollars in thousands)	2023		2022		Change			2023		2022		Change			2023		2022		Change
East		2,421		3,256		(25.6	)%	$	1,613,188	$	2,121,673		(24.0	)%	$	666	$	652		2.1	%
Central		1,464		2,489		(41.2	)%		960,269		1,694,111		(43.3	)%		656		681		(3.7	)%
West		2,233		2,196		1.7	%		1,523,545		1,579,937		(3.6	)%		682		719		(5.1	)%
Total		6,118		7,941		(23.0	)%	$	4,097,002	$	5,395,721		(24.1	)%	$	670	$	679		(1.3	)%

(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 23.0% and 24.1% at September 30, 2023 compared to September 30, 2022, respectively. The sold homes in backlog at September 30, 2022 reflected the strong selling market from 2021 and first half of 2022 along with extended cycle times. The sold homes in backlog at September 30, 2023 reflected home closings outpacing net sales orders for the trailing twelve months primarily as a result of improved cycle times.

Home Closings Revenue

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


	Three Months Ended September 30,
	Homes Closed							Home Closings Revenue, Net							Average Selling Price
(Dollars in thousands)	2023		2022		Change			2023		2022		Change			2023		2022		Change
East		996		1,118		(10.9	)%	$	572,971	$	638,270		(10.2	)%	$	575	$	571		0.7	%
Central		709		835		(15.1	)%		423,396		522,247		(18.9	)%		597		625		(4.5	)%
West		934		1,097		(14.9	)%		615,516		823,258		(25.2	)%		659		750		(12.1	)%
Total		2,639		3,050		(13.5	)%	$	1,611,883	$	1,983,775		(18.7	)%	$	611	$	650		(6.0	)%


	Nine Months Ended September 30,
	Homes Closed							Home Closings Revenue, Net							Average Selling Price
(Dollars in thousands)	2023		2022		Change			2023		2022		Change			2023		2022		Change
East		3,228		3,152		2.4	%	$	1,906,862	$	1,757,444		8.5	%	$	591	$	558		5.9	%
Central		2,376		2,277		4.3	%		1,499,420		1,347,828		11.2	%		631		592		6.6	%
West		2,701		3,421		(21.0	)%		1,814,943		2,405,932		(24.6	)%		672		703		(4.4	)%
Total		8,305		8,850		(6.2	)%	$	5,221,225	$	5,511,204		(5.3	)%	$	629	$	623		1.0	%

The number of homes closed and home closings revenue, net decreased by 13.5% and 18.7% for the three months ended September 30, 2023, and 6.2% and 5.3% for the nine months ended September 30, 2023 compared to the same periods in the prior year, respectively. The decreases are primarily driven by slower starts and fewer net sales orders in the prior year. The decreases for the nine months ended September 30, 2023 were partially offset by increases in the East and Central regions which experienced longer cycle times during 2022, moving closings to the first half of 2023. Several markets in these regions also experienced market appreciation in the prior year which increased the average selling price and home closings revenue, net.

Land Closings Revenue


	Three Months Ended September 30,
(Dollars in thousands)	2023		2022		Change
East	$	4,077	$	5,732	$	(1,655	)
Central		10,214		599		9,615
West		—		7,894		(7,894	)
Total	$	14,291	$	14,225	$	66


	Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		Change
East	$	9,030	$	36,482	$	(27,452	)
Central		22,409		3,265		19,144
West		—		26,904		(26,904	)
Total	$	31,439	$	66,651	$	(35,212	)

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 prior year had certain large land transactions, which were not experienced during 2023. The land closings revenue in the East for the nine months ended September 30, 2022 was due to the sale of certain commercial assets as well as the sale of residential lots in our Florida market. The land closings revenue in the West for the nine months ended September 30, 2022 was due to the sale of a certain project in our Oregon market.

Amenity and Other Revenue


	Three Months Ended September 30,
(Dollars in thousands)	2023		2022		Change
East	$	5,509	$	5,056	$	453
Central		—		—		—
West		301		257		44
Corporate		3,516		3,582		(66	)
Total	$	9,326	$	8,895	$	431

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


	Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		Change
East	$	17,542	$	16,115	$	1,427
Central		—		—		—
West		1,037		1,057		(20	)
Corporate		9,615		39,345		(29,730	)
Total	$	28,194	$	56,517	$	(28,323	)

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 amenity and other revenue in Corporate for the nine months ended September 30, 2022 is due to the sale of an asset relating to our Urban Form operations.

Home Closings Gross Margin


	Three Months Ended September 30,
	East						Central						West						Consolidated
(Dollars in thousands)	2023			2022			2023			2022			2023			2022			2023			2022
Home closings revenue, net	$	572,971		$	638,270		$	423,396		$	522,247		$	615,516		$	823,258		$	1,611,883		$	1,983,775
Cost of home closings		414,752			460,137			314,978			381,181			509,269			596,846			1,238,999			1,438,164
Home closings gross margin	$	158,219		$	178,133		$	108,418		$	141,066		$	106,247		$	226,412		$	372,884		$	545,611
Home closings gross margin %		27.6	%		27.9	%		25.6	%		27.0	%		17.3	%		27.5	%		23.1	%		27.5	%


	Nine Months Ended September 30,
	East						Central						West						Consolidated
(Dollars in thousands)	2023			2022			2023			2022			2023			2022			2023			2022
Home closings revenue, net	$	1,906,862		$	1,757,444		$	1,499,420		$	1,347,828		$	1,814,943		$	2,405,932		$	5,221,225		$	5,511,204
Cost of home closings		1,379,990			1,287,670			1,120,006			1,016,006			1,480,753			1,781,072			3,980,749			4,084,748
Home closings gross margin	$	526,872		$	469,774		$	379,414		$	331,822		$	334,190		$	624,860		$	1,240,476		$	1,426,456
Home closings gross margin %		27.6	%		26.7	%		25.3	%		24.6	%		18.4	%		26.0	%		23.8	%		25.9	%

Consolidated home closings gross margin decreased to 23.1% from 27.5% for the three months ended September 30, 2023, compared to the same period in the prior year and decreased to 23.8% from 25.9% for the nine months ended September 30, 2023 compared to the same period in the prior year. The decreases in home closings gross margin for the three months ended September 30, 2023 compared to the same period in the prior year is primarily as a result of pricing incentives and discounts in all of our segments. In addition, one community in our West region was impacted by inventory impairment as a result of a change in scope directly related to recently changing municipality requirements. Adjusting for inventory impairment, the West's home closings gross margin was 19.2% and consolidated was 23.9% for the three months ended September 30, 2023.

The increases in home closings gross margin in the East and Central regions for the nine months ended September 30, 2023 compared to the same periods in the prior year are as a result of price appreciation in several of the markets at the time the homes were sold (late 2021 and 2022). The decrease in home closings gross margin in our West region for the nine months ended September 30, 2023 compared to the same period in the prior year is a result of the pricing incentives and discounts which were above the company average for the first half of the current year as well as the inventory impairment noted above. Adjusting for such impairment, the West's home closings gross margin was 19.1% and consolidated was 24.0% for the nine months ended September 30, 2023.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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 Ended September 30,							Nine Months Ended September 30,
(Dollars in thousands)	2023		2022		Change			2023		2022		Change
Mortgage services revenue	$	31,089	$	18,291		70.0	%	$	87,637	$	71,792		22.1	%
Title services and other revenues		8,956		9,458		(5.3	)%		29,471		26,627		10.7	%
Total financial services revenue		40,045		27,749		44.3	%		117,108		98,419		19.0	%
Financial services net income from unconsolidated entities		1,671		546		206.0	%		7,205		4,799		50.1	%
Total revenue		41,716		28,295		47.4	%		124,313		103,218		20.4	%
Financial services expenses		23,128		20,395		13.4	%		70,618		66,092		6.8	%
Financial services income before income taxes	$	18,588	$	7,900		135.3	%	$	53,695	$	37,126		44.6	%
Total originations:
Number of Loans		1,742		1,551		12.3	%		5,291		4,728		11.9	%
Principal	$	813,929	$	701,323		16.1	%	$	2,500,799	$	2,108,122		18.6	%


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Supplemental data:
Average FICO score		753			752			754			753
Funded origination breakdown:
Government (FHA,VA,USDA)		20	%		18	%		18	%		17	%
Other agency		76	%		75	%		77	%		77	%
Total agency		96	%		93	%		95	%		94	%
Non-agency		4	%		7	%		5	%		6	%
Total funded originations		100	%		100	%		100	%		100	%

Total financial services revenue increased by 44.3% and 19.0% for the three and nine months ended September 30, 2023 compared to the same periods in the prior year, respectively. The increases are primarily due to an increase in mortgage originations, the average amount borrowed per loan, as well as the revenue earned on the sale of loans.

Sales, Commissions and Other Marketing Costs

Sales, commissions and other marketing costs, as a percentage of home closings revenue, net, increased to 6.1% from 4.8% and to 5.8% from 5.1% for the three and nine months ended September 30, 2023 compared to the same periods in the prior year. The increase was primarily due to an increase in external commissions costs and increased advertising costs in an effort to generate sales traffic, along with a decrease in home closings revenue, net.

General and Administrative Expenses

General and administrative expenses as a percentage of home closings revenue, net, increased to 4.3% from 2.6% and to 3.9% from 3.4% for the three and nine months ended September 30, 2023 compared to the same periods in the prior year. The increase was primarily due to the decrease in home closings revenue, net, along with an increase in payroll related expenses.

Net (Income)/Loss from Unconsolidated Entities

Net income from unconsolidated entities was $1.9 million and $7.0 million for the three and nine months ended September 30, 2023, respectively, while net loss from unconsolidated entities was $1.2 million and $3.0 million for the three and nine months ended September 30, 2022, respectively. Our joint ventures relating to our financial services segment experienced an increase in income for the three and nine months ended September 30, 2023 compared to the same period in the prior year. In addition, the nine months ended September 30, 2022 included impairment charges for one of our unconsolidated joint ventures.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest (Income)/Expense, Net

Interest income, net was $5.8 million and $12.0 million for the three and nine months ended September 30, 2023, respectively, and interest expense, net was $4.4 million and $13.8 million for the three and nine months ended September 30, 2022 . The net interest income for the three and nine months ended September 30, 2023 was primarily due to higher cash balances and an increase in the interest rates earned on such balances.

Other Expense/(Income), Net

Other expense, net was $3.0 million and $6.7 million for the three and nine months ended September 30, 2023, respectively, and other expense, net was $5.8 million and other income, net was $4.7 million for the three and nine months ended September 30, 2022, respectively. The net expense in the current year was primarily related to an increase in self-insurance reserves for the first three quarters of the year. For the three months ended September 30, 2022, net other expense was largely related to the write off of pre-acquisition costs during the period. For the nine months ended September 30, 2022, net other income was primarily related to gains on land transferred at fair value as part of investments in two joint ventures with third parties.

Loss/(Gain) on Extinguishment of Debt, Net

Loss on extinguishment of debt, net was $0.3 million for the three and nine months ended September 30, 2023, while gain on extinguishment of debt, net was $0.1 million and $13.5 million for the three and nine months ended September 30, 2022. The loss for the three and nine months ended September 30, 2023 was due to the redemption of our 2024 Senior Notes in September 2023. This gain for the three and nine months ended September 30, 2022 was due to the tender offer and purchase of our 6.625% Senior Notes due 2027 in June 2022, which we completed in July of 2022.

Income Tax Provision

The effective tax rate for the three and nine months ended September 30, 2023 was 25.4% and 24.7%, respectively, compared to 22.6% and 23.8%, respectively, for the same periods in 2022.

For the three and nine months ended September 30, 2023 and 2022, the effective tax rate differed from the U.S. federal statutory income tax rate primarily due to state income taxes, non-deductible executive compensation, excess tax benefits related to stock-based compensation, and special deductions and credits related to homebuilding activities. The Inflation Reduction Act, enacted in August 2022, extended IRC §45L energy efficient homebuilding tax credits and applies to homes closed in 2022-2032.

Net Income

Net income available to TMHC and diluted earnings per share for the three months ended September 30, 2023 were $170.7 million and $1.54, respectively. Net income available to TMHC and diluted earnings per share for the three months ended September 30, 2022 were $309.8 million and $2.72, respectively. The decreases in net income and diluted earnings per share from the prior year were primarily attributable to lower gross margin, combined with higher sales commissions and other marketing costs and higher general and administrative expenses.

Liquidity and Capital Resources

Liquidity

We finance our operations through the following:


• Cash generated from operations;		• Mortgage warehouse facilities;
• Borrowings under our Revolving Credit Facilities;		• Project-level real estate financing (including non-recourse loans, land banking, and joint ventures); and
• Our various series of senior notes;		• 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

During 2023, several bank failures led to significant disruptions to the banking system and financial market volatility. While we maintained no accounts at any failed banks, substantially all of our cash currently on deposit with other 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, 2023			December 31, 2022
Total cash and cash equivalents, excluding restricted cash	$	613,811		$	724,488
$1 Billion Revolving Credit Facility availability		1,000,000			1,000,000
$100 Million Revolving Credit Facility availability		100,000			100,000
Letters of credit outstanding		(70,426	)		(69,249	)
Revolving Credit Facilities availability		1,029,574			1,030,751
Total liquidity	$	1,643,385		$	1,755,239

We believe we have adequate capital resources from cash generated from operations and sufficient access to external financing sources under our Revolving Credit Facilities 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, and repurchases of 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 equity through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt and/or purchases or equity, 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 provided by operating activities was $550.6 million for the nine months ended September 30, 2023, compared to $460.0 million for the nine months ended September 30, 2022. The increase in cash provided by operating activities is primarily driven by a significant decrease in spend on real estate inventory and land deposits during the nine months ended September 30, 2023 compared to the same period in the prior year partially offset by reduced cash provided by mortgages held for sale and lower net income in the current year.

Investing Cash Flow Activities

Net cash used in investing activities was $94.1 million for the nine months ended September 30, 2023, compared to $18.8 million for the nine months ended September 30, 2022. The increase in cash used in investing activities was primarily due to a net investment of $47.1 million of capital into unconsolidated entities in the nine months ended September 30, 2023 compared to a net distribution of $3.7 million of capital from unconsolidated entities in the prior year period.

Financing Cash Flow Activities

Net cash used in financing activities was $568.5 million for the nine months ended September 30, 2023, compared to $947.7 million for the nine months ended September 30, 2022. The decrease in cash used in financing activities was primarily due to lower net repayments on our mortgage warehouse facilities, loans payable and other borrowings, senior notes and mortgage warehouse facilities during the nine months ended September 30, 2023 compared to the same period in the prior year as well as significantly lower repurchases of Common Stock during the nine months ended September 30, 2023 compared to the same period in the prior year.

Debt Instruments

For information regarding our debt instruments, including the terms governing our senior notes and our Revolving Credit Facilities, see Note 7 - Debt to the Unaudited Condensed Consolidated Financial Statements included in this quarterly report.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Off-Balance Sheet Arrangements as of September 30, 2023

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 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, 2023 and 2022, total cash contributions to unconsolidated joint ventures were $47.8 million and $91.8 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 exposure 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 $1.6 billion at September 30, 2023 and $1.5 billion at December 31, 2022.

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;		• mix of homes closed;
• the timing of sales;		• construction timetables;
• the timing of closings of homes, lots and parcels;		• the cost and availability of materials and labor; and
• the timing of receipt of regulatory approvals for development and construction;		• weather conditions in the markets in which we build.
• the condition of the real estate market and general economic conditions in the areas in which we operate;

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 customers 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.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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, 2023 compared to those disclosed in Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Our operations are interest rate sensitive. We monitor our exposure to changes in interest rates and incur both fixed rate and variable rate debt. At September 30, 2023, approximately 90% of our debt was fixed rate and 10% was variable rate. None of our market sensitive instruments were entered into for trading purposes. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument but may affect our future earnings and cash flows, and may also impact our variable rate borrowing costs, which principally relate to any borrowings under our Revolving Credit Facilities and to borrowings by TMHF under its various mortgage warehouse facilities. As of September 30, 2023, we had no outstanding borrowings under our Revolving Credit Facilities. We had approximately $1.0 billion of additional availability for borrowings under the Revolving Credit Facilities including $129.6 million of additional availability for letters of credit under our $1 Billion Revolving Credit Facility as of September 30, 2023 (giving effect to $70.4 million of letters of credit outstanding as of such date).

The London Interbank Offered Rate (“LIBOR”) was historically the primary basis for determining interest payments on borrowings under each of our mortgage warehouse facilities and our Revolving Credit Facilities. ICE Benchmark Administration (“IBA”) no longer publishes the Overnight, 1, 3, 6 and 12 month US Dollar LIBOR. The Alternative Reference Rates Committee, which was convened by the Federal Reserve Board and the New York Federal Reserve, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended risk-free alternative rate for US Dollar LIBOR. In response to the planned discontinuation of LIBOR, our warehouse facilities agreements for facilities A, C, D, and E as well as our Revolving Credit Facilities have been restructured to begin using SOFR as the basis for determining interest rates. At this time, it is not possible to predict the full effect that the discontinuance of LIBOR, or the establishment of alternative reference rates such as SOFR, will have on us or our borrowing costs. SOFR is a relatively new reference rate and its composition and characteristics are not the same as LIBOR. Given the limited history of this rate and potential volatility as compared to other benchmark or market rates, the future performance of this rate cannot be predicted based on historical performance. The consequences of using SOFR could include an increase in the cost of our variable rate indebtedness.

We are required to offer to purchase all of our outstanding senior unsecured notes, as described in Note 7- Debt to the Unaudited Condensed Consolidated Financial Statements included in this quarterly report, at 101% of their aggregate principal amount plus accrued and unpaid interest upon the occurrence of specified change of control events. Other than in those circumstances, we do not have an obligation to prepay fixed rate debt prior to maturity and, as a result, we would not expect interest rate risk and changes in fair value to have a significant impact on our cash flows related to our fixed rate debt until such time as we are required to refinance, repurchase or repay such debt.

The following table sets forth principal payments by scheduled maturity and effective weighted average interest rates and estimated fair value of our debt obligations as of September 30, 2023. The interest rate for our variable rate debt represents the interest rate on our mortgage warehouse facilities. Because the mortgage warehouse facilities are secured by certain mortgage loans held for sale which are typically sold within approximately 20 - 30 days, its outstanding balance is included as a variable rate maturity in the most current period presented.


	Expected Maturity Date
(In millions, except percentage data)	2023			2024			2025			2026			2027			Thereafter			Total			Fair Value
Fixed Rate Debt	$	54.1		$	141.7		$	75.7		$	44.6		$	543.1		$	950.0		$	1,809.2		$	1,688.5
Weighted average interest rate(1)		3.0	%		3.0	%		3.0	%		3.0	%		5.5	%		5.6	%		5.1	%
Variable Rate Debt(2)	$	191.6		$	—		$	—		$	—		$	—		$	—		$	191.6		$	191.6
Weighted average interest rate		6.9	%		—			—			—			—			—			6.9	%

(1)

Represents the coupon rate of interest on the full principal amount of the debt.

(2)

Based upon the amount of variable rate debt outstanding at September 30, 2023, and holding the variable rate debt balance constant, each 1% increase in interest rates would increase the interest incurred by us by approximately $1.9 million per year.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of our principal executive officer, principal financial officer and principal accounting officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based on this evaluation, as of September 30, 2023 our principal executive officer, principal financial officer and principal accounting officer concluded that our disclosure controls and procedures were effective in alerting them in a timely manner to material information required to be disclosed in our periodic and other reports filed with the SEC.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information required with respect to this item can be found in Note 13 - Commitments and Contingencies under “Legal Proceedings” in the Notes to the Unaudited Condensed Consolidated Financial Statements included in this quarterly report.

ITEM 1A. RISK FACTORS

There have been no material changes to the risk factors set forth in Part I, Item 1A of our Annual Report. These risk factors may materially affect our business, financial condition or results of operations. You should carefully consider the risk factors set forth in our Annual Report and the other information set forth elsewhere in this quarterly report. You should be aware that these risk factors and other information may not describe every risk facing our Company.

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PART II — OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

On May 31, 2022, we announced that our Board of Directors had authorized the repurchase of up to $500.0 million of the Company's Common Stock through December 31, 2023. As of September 30, 2023, we had approximately $175.6 million of available capacity remaining under the repurchase program. Repurchases of the Company's Common Stock under the program will occur from time to time, if at all, in open market purchases, privately negotiated transactions or other transactions.The table below sets forth information regarding repurchases by the Company of it's Common Stock during the three months ended September 30, 2023.


Period	Total number of shares purchased		Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Approximate dollar value of shares that may yet be purchased under the plans or programs (in thousands)
July 1 to July 31, 2023		—	$	—		—	$	275,570
August 1 to August 31, 2023		1,032,911		46.52		1,032,911		227,523
September 1 to September 30, 2023		1,136,746		45.70		1,136,746		175,570
Total		2,169,657				2,169,657

Any stock repurchase program is subject to prevailing market conditions and other considerations, including our liquidity, the terms of our debt instruments, statutory requirements, planned land investment and development spending, acquisition and other investment opportunities and ongoing capital requirements. The program does not require us to repurchase any specific number of shares of Common Stock, and the program may be suspended, extended, modified or discontinued at any time.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Exhibit No.		Description

3.1		Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 30, 2019).
3.2		Amended and Restated By-laws (incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 7, 2023).
10.1*†		Amended and Restated Employment Agreement, dated July 24, 2023, between Taylor Morrison, Inc. and Curt VanHyfte
31.1*		Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
31.2*		Certification of Curt VanHyfte, Chief Financial Officer, pursuant to Section 302 of the Sarbanes–Oxley Act of 2002.
32.1**		Certification of Sheryl D. Palmer, Chief Executive Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
32.2**		Certification of Curt VanHyfte, Chief Financial Officer, pursuant to Section 906 of the Sarbanes–Oxley Act of 2002.
101.INS*		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document.
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104		Cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in inline XBRL (and contained in Exhibit 101).

* Filed herewith

** Furnished herewith

† Management contract or compensatory plan in which directors and/or executive officers are eligible to participate.

The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them other than for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		TAYLOR MORRISON HOME CORPORATION
		Registrant
DATE:	October 25, 2023
		/s/ Sheryl D. Palmer
		Sheryl D. Palmer
		Chairman of the Board of Directors and Chief Executive Officer (Principal Executive Officer)

		/s/ Curt VanHyfte
		Curt VanHyfte
		Executive Vice President and Chief Financial Officer (Principal Financial Officer)

		/s/ Joseph Terracciano
		Joseph Terracciano
		Chief Accounting Officer (Principal Accounting Officer)

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