MDC(MDC) - 2023 Q1 - Quarterly Report

Part I. Financial Information This section presents the company's unaudited consolidated financial statements and management's analysis for the quarter ended March 31, 2023 Item 1. Unaudited Consolidated Financial Statements This section presents the unaudited consolidated financial statements for the quarter ended March 31, 2023, detailing financial position, performance, cash flows, and comprehensive accounting notes Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific points in time Consolidated Balance Sheet Summary (in thousands) | Metric | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Total Assets | $5,315,821 | $5,363,272 | | Total Liabilities | $2,185,700 | $2,271,488 | | Total Stockholders' Equity | $3,130,121 | $3,091,784 | | Homebuilding Cash & Equivalents | $781,738 | $696,075 | | Homebuilding Inventories | $3,257,775 | $3,515,779 | | Mortgage loans held-for-sale, net | $166,252 | $229,513 | Consolidated Statements of Operations and Comprehensive Income This statement details the company's revenues, expenses, and net income over a specific period, reflecting operational performance Consolidated Statements of Operations Summary (in thousands) | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :----------------------------------- | :------------------------------------------- | :------------------------------------------- | | Home sale revenues | $1,020,016 | $1,240,520 | | Homebuilding Gross profit | $171,469 | $318,482 | | Homebuilding pretax income | $90,999 | $188,499 | | Financial services revenues | $29,486 | $29,131 | | Financial services pretax income | $17,970 | $13,383 | | Net income | $80,700 | $148,421 | | Basic EPS | $1.10 | $2.09 | | Diluted EPS | $1.08 | $2.02 | | Dividends declared per share | $0.50 | $0.50 | Consolidated Statements of Changes in Stockholders' Equity This statement outlines changes in equity components, including net income, other comprehensive income, and dividends, over a period Consolidated Statements of Changes in Stockholders' Equity Summary (in thousands) | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :----------------------------------- | :------------------------------------------- | :------------------------------------------- | | Balance at beginning of period | $3,091,784 | $2,597,146 | | Net income | $80,700 | $148,421 | | Other comprehensive income (loss) | $323 | $0 | | Shares issued under stock-based compensation programs, net | $(11,740) | $(12,628) | | Cash dividends declared | $(36,543) | $(35,583) | | Stock-based compensation expense | $5,597 | $13,726 | | Balance at end of period | $3,130,121 | $2,711,082 | Consolidated Statements of Cash Flows This statement categorizes cash inflows and outflows from operating, investing, and financing activities over a period Consolidated Statements of Cash Flows Summary (in thousands) | Metric | 3 Months Ended March 31, 2023 (in thousands) | 3 Months Ended March 31, 2022 (in thousands) | | :------------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash provided by operating activities | $426,164 | $118,055 | | Net cash used in investing activities | $(244,760) | $(6,884) | | Net cash used in financing activities | $(93,508) | $(126,280) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $87,896 | $(15,109) | | Cash, cash equivalents and restricted cash, end of period | $804,991 | $588,350 | Notes to Unaudited Consolidated Financial Statements These notes provide detailed explanations and additional information supporting the consolidated financial statements - The financial statements are unaudited and prepared in accordance with SEC rules, reflecting normal and recurring adjustments[21] - Forward-looking statements are included, highlighting known and unknown risks that could materially affect results[22] 1. Basis of Presentation This note describes the accounting principles and rules used in preparing the unaudited consolidated financial statements - The unaudited consolidated financial statements are prepared in accordance with SEC rules and U.S. GAAP, reflecting all necessary adjustments[21] 2. Recently Issued Accounting Standards This note discusses the impact of recently issued accounting standards on the company's financial reporting - The company plans to adopt ASU 2020-04 (Reference Rate Reform) in Q2 2023, but does not expect a material impact on its financial statements[24] 3. Segment Reporting This note provides financial information for the company's operating segments, including homebuilding and financial services Homebuilding Revenues by Segment (in thousands) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :-------- | :------------------ | :------------------ | | West | $577,933 | $707,311 | | Mountain | $301,155 | $335,128 | | East | $140,928 | $198,081 | | Total | $1,020,016 | $1,240,520 | Financial Services Revenues by Segment (in thousands) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :------------------ | :------------------ | :------------------ | | Mortgage operations | $18,419 | $17,601 | | Other | $11,067 | $11,530 | | Total | $29,486 | $29,131 | Total Pretax Income by Segment (in thousands) | Segment | 2023 (in thousands) | 2022 (in thousands) | | :------------------ | :------------------ | :------------------ | | Homebuilding | $90,999 | $188,499 | | Financial Services | $17,970 | $13,383 | | Total | $108,969 | $201,882 | 4. Earnings Per Share This note details the calculation of basic and diluted earnings per share for common stockholders EPS Calculation Summary (in thousands, except per share data) | Metric | 2023 | 2022 | | :------------------------------------------------- | :----- | :----- | | Net income attributable to common stockholders (basic) | $80,254 | $147,665 | | Numerator for diluted EPS | $80,258 | $147,681 | | Weighted-average common shares outstanding (basic) | 72,647,659 | 70,766,146 | | Denominator for diluted EPS | 74,021,989 | 72,938,414 | | Basic Earnings Per Common Share | $1.10 | $2.09 | | Diluted Earnings Per Common Share | $1.08 | $2.02 | 5. Fair Value Measurements This note describes the valuation methodologies and fair value hierarchy for financial instruments Fair Value of Financial Instruments (in thousands) | Financial Instrument | Hierarchy | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :-------- | :------------------------------ | :------------------------------- | | Debt securities (available-for-sale) | Level 1 | $809,377 | $561,100 | | Mortgage loans held-for-sale, net | Level 2 | $166,252 | $229,513 | Senior Notes Carrying Amount vs. Fair Value (in thousands) | Senior Notes | Carrying Amount (Mar 31, 2023) | Fair Value (Mar 31, 2023) | Carrying Amount (Dec 31, 2022) | Fair Value (Dec 31, 2022) | | :--------------------------------------- | :----------------------------- | :-------------------------- | :----------------------------- | :-------------------------- | | 3.850% due Jan 2030 | $298,012 | $256,148 | $297,949 | $246,236 | | 2.500% due Jan 2031 | $347,486 | $272,690 | $347,413 | $255,374 | | 6.000% due Jan 2043 | $491,176 | $432,430 | $491,120 | $414,017 | | 3.966% due Aug 2061 | $346,105 | $205,959 | $346,094 | $204,014 | | Total | $1,482,779 | $1,167,227 | $1,482,576 | $1,119,641 | - Loss on mortgage loans held-for-sale, net, was $2.3 million for Q1 2023, compared to $5.0 million for the same period in the prior year[38] 6. Inventories This note provides a breakdown of inventory types and details related to inventory impairments Total Inventories by Type (in thousands) | Inventory Type | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Housing completed or under construction | $1,585,951 | $1,722,061 | | Land and land under development | $1,671,824 | $1,793,718 | | Total inventories | $3,257,775 | $3,515,779 | Total Inventory Impairments (in thousands) | Inventory Type | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | Housing Completed or Under Construction | $664 | $660 | | Land and Land Under Development | $7,136 | $0 | | Total Inventory Impairments | $7,800 | $660 | - The fair value of impaired inventory after impairments was $13,016 thousand in Q1 2023, with a discount rate of 18%[50] 7. Capitalization of Interest This note explains the company's policy and amounts related to the capitalization of homebuilding interest Homebuilding Interest Activity (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :------------------------------------------------ | :------------------ | :------------------ | | Homebuilding interest incurred | $17,454 | $17,258 | | Interest capitalized during period | $17,454 | $17,258 | | Previously capitalized interest included in home cost of sales | $(16,065) | $(14,844) | | Interest capitalized, end of period | $61,310 | $60,468 | - All homebuilding interest incurred was capitalized for the three months ended March 31, 2023 and 2022, as qualified assets exceeded homebuilding debt[51] 8. Leases This note provides details on the company's operating lease arrangements, including costs and liabilities Net Lease Cost (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :---------------- | :------------------ | :------------------ | | Operating lease cost | $2,156 | $2,131 | | Sublease income | $(144) | $(83) | | Net lease cost | $2,012 | $2,048 | - Weighted-average remaining lease term for operating leases was 3.8 years at March 31, 2023, with a weighted-average discount rate of 5.5%[57] - Present value of operating lease liabilities was $25,671 thousand at March 31, 2023[58] 9. Homebuilding Prepaids and Other Assets This note details the composition of homebuilding prepaids and other assets, including land option deposits Homebuilding Prepaids and Other Assets (in thousands) | Asset Type | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------------------ | :------------------------------ | :------------------------------- | | Land option deposits | $20,058 | $19,539 | | Operating lease right-of-use asset | $24,559 | $25,636 | | Prepaids | $11,073 | $13,333 | | Total prepaids and other assets | $66,721 | $70,007 | 10. Homebuilding Accrued and Other Liabilities and Financial Services Accounts Payable and Accrued Liabilities This note provides a breakdown of accrued liabilities for both homebuilding and financial services segments Homebuilding Accrued and Other Liabilities (in thousands) | Liability Type | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------------ | :------------------------------ | :------------------------------- | | Accrued compensation and related expenses | $57,040 | $100,653 | | Customer and escrow deposits | $47,191 | $42,296 | | Warranty accrual | $46,666 | $46,857 | | Lease liability | $25,426 | $26,574 | | Accrued interest | $14,889 | $30,934 | | Income taxes payable | $49,461 | $23,880 | | Total accrued and other liabilities | $342,167 | $383,406 | Financial Services Accounts Payable and Accrued Liabilities (in thousands) | Liability Type | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :------------------------------------ | :------------------------------ | :------------------------------- | | Insurance reserves | $82,815 | $84,108 | | Accounts payable and other accrued liabilities | $18,061 | $26,428 | | Total accounts payable and accrued liabilities | $100,876 | $110,536 | 11. Warranty Accrual This note details the activity and balance of the warranty accrual, reflecting changes in home closings and expenditures Warranty Accrual Activity (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :------------------------ | :------------------ | :------------------ | | Balance at beginning of period | $46,857 | $37,491 | | Expense provisions | $5,635 | $5,832 | | Cash payments | $(5,826) | $(4,817) | | Adjustments | $0 | $2,440 | | Balance at end of period | $46,666 | $40,946 | - The warranty accrual decreased in Q1 2023 due to increased cash payments and fewer home closings, contrasting with an increase in Q1 2022 due to higher general warranty related expenditures[65] 12. Insurance and Construction Defect Claim Reserves This note outlines the company's reserves for insurance and construction defect claims, based on actuarial studies Insurance and Construction Defect Claim Reserves Activity (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :------------------------ | :------------------ | :------------------ | | Balance at beginning of period | $94,574 | $82,187 | | Expense provisions | $3,789 | $4,432 | | Cash payments, net of recoveries | $(5,226) | $(2,195) | | Balance at end of period | $93,137 | $84,424 | - Reserves are based on actuarial studies considering historical trends, claim patterns, and regulatory environments[67][68] 13. Income Taxes This note explains the effective income tax rate and income tax expense, highlighting factors influencing changes - The effective income tax rate decreased to 25.9% for Q1 2023 from 26.5% for Q1 2022, primarily due to energy tax credits benefiting 2023[71] - Income tax expense was $28.3 million for Q1 2023, down from $53.5 million in Q1 2022[71] 14. Senior Notes This note provides details on the company's senior unsecured notes, including carrying values and guarantees Carrying Values of Senior Notes (in thousands) | Senior Notes | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--------------------------------------- | :------------------------------ | :------------------------------- | | 3.850% due Jan 2030, net | $298,012 | $297,949 | | 2.500% due Jan 2031, net | $347,486 | $347,413 | | 6.000% due Jan 2043, net | $491,176 | $491,120 | | 3.966% due Aug 2061, net | $346,105 | $346,094 | | Total | $1,482,779 | $1,482,576 | - Senior notes are unsecured, fully and unconditionally guaranteed by most homebuilding segment subsidiaries, and do not contain financial covenants[73] 15. Stock-Based Compensation This note details the types and amounts of stock-based compensation expense, explaining factors for changes Stock-Based Compensation Expense (in thousands) | Expense Type | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------- | :------------------ | :------------------ | | Stock option grants expense | $157 | $587 | | Restricted stock awards expense | $3,562 | $2,587 | | Performance share units expense | $1,779 | $11,708 | | Total stock-based compensation | $5,498 | $14,882 | - The decrease in total stock-based compensation was primarily due to lower performance share units (PSUs) expense, as 2020 PSU awards vested and 2021 PSU expense was adjusted based on performance target probability[74][75] 16. Commitments and Contingencies This note outlines the company's various commitments and potential liabilities, including surety bonds and option contracts - Outstanding surety bonds totaled $359.1 million and letters of credit totaled $116.0 million at March 31, 2023, supporting land development and other obligations[76] - Estimated cost to complete obligations related to these bonds and letters of credit were approximately $157.3 million and $75.1 million, respectively[76] - Cash deposits, capitalized costs, and letters of credit at risk for lot option contracts totaled $19.2 million, $2.6 million, and $2.2 million, respectively, for 2,951 lots[80] 17. Derivative and Financial Instruments This note describes the company's use of derivative instruments to manage market risks, including interest rate fluctuations Notional Amounts and Fair Value of Derivative and Financial Instruments (in thousands) | Instrument | Notional Value (Mar 31, 2023) | Derivatives, Net (Mar 31, 2023) | Notional Value (Dec 31, 2022) | Derivatives, Net (Dec 31, 2022) | | :--------------------------------------- | :------------------------------ | :------------------------------ | :------------------------------ | :------------------------------ | | Interest rate lock commitments | $391,487 | $2,682 | $394,004 | $(1,678) | | Forward sales of mortgage backed securities | $362,500 | $(2,349) | $323,000 | $(5,269) | | Mandatory delivery forward loan sale commitments | $106,607 | $(81) | $105,060 | $79 | | Best-effort delivery forward loan sale commitments | $11,237 | $3 | $139,972 | $1,970 | - The company recorded net losses on these derivative and financial instruments of $(3.8) million for Q1 2023, compared to net gains of $17.5 million for Q1 2022[84] 18. Lines of Credit This note details the company's revolving credit facility and mortgage repurchase facility, including available capacity and terms - The Revolving Credit Facility has an aggregate commitment of $1.2 billion, extendable to $1.7 billion, with approximately $1.14 billion available at March 31, 2023[86][90] - The Revolving Credit Facility was amended effective April 11, 2023, to transition from a eurocurrency-based interest rate to a Secured Overnight Financing Rate (SOFR) based interest rate[87] - HomeAmerican's Mortgage Repurchase Facility has a total capacity of $230 million at March 31, 2023, with $130.5 million of mortgage loans obligated to repurchase[91][92] 19. Related Party Transactions This note discloses transactions with related parties, including a sublease agreement with an entity associated with an executive - The company has a sublease agreement with CVentures, Inc., where Larry A. Mizel, the Executive Chairman, is the President[94] 20. Supplemental Guarantor Information This note provides information on subsidiaries that guarantee the company's senior notes and intercompany balances - Most homebuilding segment subsidiaries fully and unconditionally guarantee the company's senior notes[96] - Amounts due to non-guarantor subsidiaries from the Obligor Group totaled $46.7 million at March 31, 2023[97] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial condition and operational results, highlighting market challenges and strategic responses Overview This overview summarizes key financial highlights, including net income, segment performance, and liquidity position - Net income for Q1 2023 was $80.7 million ($1.08 diluted EPS), a 46% decrease year-over-year, primarily driven by a 52% decrease in homebuilding pretax income[104] - Financial services pretax income increased by 34% year-over-year, partially offsetting the decline in homebuilding[104] - Net orders decreased 44% and net order value decreased 48% in Q1 2023 compared to Q1 2022, reflecting challenging housing market conditions[101] - The company ended the quarter with $1.61 billion in cash, cash equivalents, and marketable securities, and $2.79 billion in total liquidity, maintaining a debt-to-capital ratio of 32.3%[103] Homebuilding This section analyzes the performance of the homebuilding segment, including pretax income, assets, deliveries, and sales metrics Pretax Income (Loss) This section details the homebuilding segment's pretax income by region, highlighting factors contributing to changes Homebuilding Pretax Income by Segment (in thousands) | Segment | 2023 (in thousands) | 2022 (in thousands) | Change | % Change | | :-------- | :------------------ | :------------------ | :----- | :------- | | West | $43,200 | $130,526 | $(87,326) | (67)% | | Mountain | $25,036 | $50,506 | $(25,470) | (50)% | | East | $15,309 | $31,394 | $(16,085) | (51)% | | Corporate | $7,454 | $(23,927) | $31,381 | 131 % | | Total | $90,999 | $188,499 | $(97,500) | (52)% | - The decrease in homebuilding pretax income was due to an 18% decrease in home sale revenues and an 890 basis point decrease in gross margin from home sales[106] - Corporate segment pretax income increased due to decreased compensation-related costs and increased interest income[107] Assets This section reviews the composition and changes in homebuilding assets across different segments Total Homebuilding Assets by Segment (in thousands) | Segment | March 31, 2023 (in thousands) | December 31, 2022 (in thousands) | Change | % Change | | :-------- | :------------------------------ | :------------------------------- | :----- | :------- | | West | $2,098,329 | $2,275,144 | $(176,815) | (8)% | | Mountain | $898,227 | $1,005,622 | $(107,395) | (11)% | | East | $407,046 | $427,926 | $(20,880) | (5)% | | Corporate | $1,574,847 | $1,249,370 | $325,477 | 26 % | | Total | $4,978,449 | $4,958,062 | $20,387 | 0 % | - Total homebuilding assets remained relatively flat, with an increase in Corporate segment assets (cash and marketable securities) offsetting decreases in West and Mountain segment assets (receivables, land, and housing inventory)[108] New Home Deliveries & Home Sale Revenues This section presents data on new home deliveries, home sale revenues, and average selling prices by segment New Home Deliveries & Home Sale Revenues (in thousands, except homes) | Metric | 2023 Homes | 2023 Home Sale Revenues (in thousands) | 2023 Average Price (in thousands) | 2022 Homes | 2022 Home Sale Revenues (in thousands) | 2022 Average Price (in thousands) | % Change Homes | % Change Revenues | % Change Average Price | | :------- | :--------- | :------------------------------------- | :-------------------------------- | :--------- | :------------------------------------- | :-------------------------------- | :--------------- | :---------------- | :-------------------- | | West | 1,064 | $577,933 | $543.2 | 1,243 | $707,311 | $569.0 | (14)% | (18)% | (5)% | | Mountain | 487 | $301,155 | $618.4 | 548 | $335,128 | $611.5 | (11)% | (10)% | 1 % | | East | 300 | $140,928 | $469.8 | 442 | $198,081 | $448.1 | (32)% | (29)% | 5 % | | Total | 1,851 | $1,020,016 | $551.1 | 2,233 | $1,240,520 | $555.5 | (17)% | (18)% | (1)% | - The decrease in new home deliveries was due to a lower backlog at the beginning of the period, partially offset by an increase in backlog conversion rates from quick move-in inventory[110] - Average selling price in the West segment decreased due to a mix shift from California to Arizona divisions, while the East segment saw an increase due to a mix shift to higher-priced communities in Florida[112][116] Gross Margin from Home Sales This section analyzes the gross margin from home sales, identifying key factors influencing its change - Gross margin from home sales decreased by 890 basis points to 16.8% in Q1 2023 (from 25.7% in Q1 2022)[118] - The decrease was largely driven by increases in both incentives and construction costs, and $7.8 million of inventory impairments[118] Inventory Impairments This section details the amounts and types of inventory impairments recognized during the period Total Inventory Impairments (in thousands) | Inventory Type | 2023 (in thousands) | 2022 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | Housing Completed or Under Construction | $664 | $660 | | Land and Land Under Development | $7,136 | $0 | | Total Inventory Impairments | $7,800 | $660 | - Total inventory impairments increased significantly to $7.8 million in Q1 2023 from $0.7 million in Q1 2022, with the majority in land and land under development in the Mountain segment[120] Selling, General and Administrative Expenses This section reviews selling, general, and administrative expenses, including their components and impact on revenues Selling, General and Administrative Expenses (in thousands) | Expense Type | 2023 (in thousands) | 2022 (in thousands) | % of Home Sale Revenues (2023) | % of Home Sale Revenues (2022) | | :------------------------------------------ | :------------------ | :------------------ | :------------------------------- | :------------------------------- | | General and administrative expenses | $42,776 | $71,983 | 4.2 % | 5.8 % | | Marketing expenses | $23,096 | $25,632 | 2.3 % | 2.1 % | | Commissions expenses | $29,116 | $31,699 | 2.9 % | 2.6 % | | Total SG&A expenses | $94,988 | $129,314 | 9.3 % | 10.4 % | - Total SG&A expenses decreased by $34.3 million, and as a percentage of home sale revenues, decreased by 110 basis points to 9.3%, primarily due to lower compensation-related costs and reduced headcount[122] Other Homebuilding Operating Data This section provides additional operational metrics for the homebuilding segment, including orders, cancellations, and inventory Net New Orders and Active Subdivisions This section presents data on net new home orders, their dollar value, and the number of active subdivisions Net New Orders (in thousands, except homes) | Metric | 2023 Homes | 2023 Dollar Value (in thousands) | 2023 Average Price (in thousands) | 2022 Homes | 2022 Dollar Value (in thousands) | 2022 Average Price (in thousands) | % Change Homes | % Change Dollar Value | % Change Average Price | | :------- | :--------- | :------------------------------- | :-------------------------------- | :--------- | :------------------------------- | :-------------------------------- | :--------------- | :-------------------- | :-------------------- | | West | 1,012 | $566,909 | $560.2 | 1,704 | $1,000,954 | $587.4 | (41)% | (43)% | (5)% | | Mountain | 410 | $237,546 | $579.4 | 920 | $581,971 | $632.6 | (55)% | (59)% | (8)% | | East | 345 | $152,809 | $442.9 | 527 | $253,850 | $481.7 | (35)% | (40)% | (8)% | | Total | 1,767 | $957,264 | $541.7 | 3,151 | $1,836,775 | $582.9 | (44)% | (48)% | (7)% | - Monthly absorption rate decreased by 53% to 2.56 homes per community per month in Q1 2023[126] - Average active subdivisions increased by 18% to 230 in Q1 2023[127] Cancellation Rate This section reports on home cancellation rates, reflecting changes in market demand and buyer confidence Cancellation Rates | Metric | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Cancellations as a Percentage of Homes in Beginning Backlog | 25 % | 8 % | | Cancellations as a Percentage of Gross Sales | 30 % | 17 % | - Increased cancellation rates reflect softening housing market demand and homebuyer sentiment[132] Backlog This section details the home backlog in terms of homes and dollar value, and factors influencing its changes Backlog (in thousands, except homes) | Metric | 2023 Homes | 2023 Dollar Value (in thousands) | 2023 Average Price (in thousands) | 2022 Homes | 2022 Dollar Value (in thousands) | 2022 Average Price (in thousands) | % Change Homes | % Change Dollar Value | % Change Average Price | | :------- | :--------- | :------------------------------- | :-------------------------------- | :--------- | :------------------------------- | :-------------------------------- | :--------------- | :-------------------- | :-------------------- | | West | 1,839 | $1,020,206 | $554.8 | 4,677 | $2,651,123 | $566.8 | (61)% | (62)% | (2)% | | Mountain | 638 | $444,681 | $697.0 | 2,546 | $1,668,048 | $655.2 | (75)% | (73)% | 6 % | | East | 413 | $197,034 | $477.1 | 1,335 | $628,631 | $470.9 | (69)% | (69)% | 1 % | | Total | 2,890 | $1,661,921 | $575.1 | 8,558 | $4,947,802 | $578.1 | (66)% | (66)% | (1)% | - The decrease in backlog was primarily a result of lower net new orders and a shift in consumer preference to quick move-in homes, leading to a focus on speculative construction starts[133] Homes Completed or Under Construction (WIP lots) This section provides data on the number of homes completed or under construction, distinguishing between sold and unsold units Homes Completed or Under Construction | Metric | 2023 | 2022 | % Change | | :------------------------------------ | :----- | :----- | :------- | | Unsold: Completed | 255 | 19 | 1,242 % | | Unsold: Under construction | 1,277 | 313 | 308 % | | Total unsold started homes | 1,532 | 332 | 361 % | | Sold homes under construction or completed | 2,493 | 7,445 | (67)% | | Model homes under construction or completed | 560 | 513 | 9 % | | Total homes completed or under construction | 4,585 | 8,290 | (45)% | - The significant increase in total unsold started homes is due to higher cancellation rates and a strategic pivot to focus more on speculative construction starts[134] Lots Owned and Optioned (including homes completed or under construction) This section details the total number of lots owned and optioned, reflecting land acquisition strategies Lots Owned and Optioned | Segment | 2023 Lots Owned | 2023 Lots Optioned | 2023 Total | 2022 Lots Owned | 2022 Lots Optioned | 2022 Total | Total % Change | | :-------- | :-------------- | :----------------- | :--------- | :-------------- | :----------------- | :--------- | :------------- | | West | 11,766 | 422 | 12,188 | 15,548 | 4,237 | 19,785 | (38)% | | Mountain | 4,944 | 1,034 | 5,978 | 6,741 | 4,240 | 10,981 | (46)% | | East | 3,281 | 1,495 | 4,776 | 4,318 | 2,728 | 7,046 | (32)% | | Total | 19,991 | 2,951 | 22,942 | 26,607 | 11,205 | 37,812 | (39)% | - Total owned and optioned lots decreased by 39% year-over-year, reflecting an intentional slowdown in land acquisition and approval activity due to market uncertainty[135] - The company aims to maintain a two to three-year supply of land[135] Financial Services This section analyzes the performance of the financial services segment, including revenues, pretax income, and mortgage operations data Financial Services Revenues and Pretax Income (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | % Change | | :-------------------------- | :------------------ | :------------------ | :------- | | Total financial services revenues | $29,486 | $29,131 | 1 % | | Total financial services pretax income | $17,970 | $13,383 | 34 % | - Financial services pretax income increased by 34% due to decreased salary-related expenses (lower headcount) and an increased capture rate in mortgage operations, and higher interest income from insurance operations[136] Mortgage Operations Data | Metric | 2023 | 2022 | % or Percentage Change | | :------------------------------------------ | :----- | :----- | :--------------------- | | Total Originations (Loans) | 1,221 | 1,314 | (7)% | | Total Originations (Principal) | $555,608 | $605,800 | (8)% | | Capture rate as % of all homes delivered | 66 % | 59 % | 7 % | | Capture rate as % of all homes delivered (excludes cash sales) | 72 % | 62 % | 10 % | | FHA loans as % of product mix | 17 % | 12 % | 5 % | | Conventional loans as % of product mix | 64 % | 68 % | (4)% | | Loans Sold to Third Parties (Loans) | 1,354 | 1,527 | (11)% | | Loans Sold to Third Parties (Principal) | $620,329 | $691,358 | (10)% | Income Taxes This section discusses the effective income tax rate and its drivers for the reporting period - The overall effective income tax rate was 25.9% for Q1 2023, down from 26.5% in Q1 2022, primarily due to energy tax credits benefiting 2023[139] Critical Accounting Estimates and Policies This section confirms the consistency of critical accounting estimates and policies and the nature of management's judgments - The company's critical accounting estimates and policies have not changed from those reported in its 2022 Annual Report on Form 10-K[142] - Management's estimates and judgments are based on historical experience and other reasonable factors, with actual results potentially differing if future conditions vary significantly[141] Liquidity and Capital Resources This section assesses the company's ability to meet its financial obligations and fund operations through available capital Material Cash Requirements This section outlines significant future cash obligations, including debt payments, lease payments, and option contracts - Outstanding senior notes totaled $1.5 billion in principal, with no maturities within 12 months; future interest payments total $1.3 billion, with $64.2 million due within 12 months[146] - Required operating lease future minimum payments were $28.5 million at March 31, 2023[146] - The company had $20.1 million in cash deposits and $2.7 million in letters of credit securing option contracts to purchase 2,951 lots for an estimated $332.8 million[147] - Outstanding surety bonds and letters of credit totaled $359.1 million and $116.0 million, respectively, with estimated completion costs of $157.3 million and $75.1 million[148] Capital Resources This section describes the components of the company's capital structure and its adequacy for future needs - The company's capital structure includes stockholders' equity, long-term senior notes, a Revolving Credit Facility, and a Mortgage Repurchase Facility[149] - Management believes current capital resources, including cash, marketable securities, and available credit, are adequate to satisfy short and long-term capital requirements[149][150] Senior Notes, Revolving Credit Facility and Mortgage Repurchase Facility This section provides details on the company's debt instruments and credit facilities, including terms and covenants - Senior notes are unsecured, guaranteed by homebuilding subsidiaries, and do not contain financial covenants[152] - The Revolving Credit Facility, with $1.14 billion available at March 31, 2023, was amended to a SOFR-based interest rate and is subject to financial covenants (consolidated tangible net worth and leverage tests)[154][155][157] - The Mortgage Repurchase Facility provides liquidity to HomeAmerican with a total capacity of $230 million and is currently under negotiation for extension[158] Dividends This section reports on cash dividends declared and paid per share during the reporting periods - Cash dividends of $0.50 per share were paid for the three months ended March 31, 2023 and 2022[161] MDC Common Stock Repurchase Program This section details the company's common stock repurchase authorization and any activity under the program - The company is authorized to repurchase up to 4.0 million shares of common stock but did not repurchase any shares under this program during Q1 2023[162] - 47,131 shares were withheld in February 2023 to cover withholding taxes due upon the vesting of restricted stock award shares[181] Consolidated Cash Flow This section analyzes the changes in cash flows from operating, investing, and financing activities - Net cash provided by operating activities significantly increased to $426.2 million in Q1 2023 (from $118.1 million in Q1 2022), driven by a decrease in housing inventory and trade receivables[164] - Net cash used in investing activities increased to $244.8 million in Q1 2023 (from $6.9 million in Q1 2022), primarily due to $434.4 million in marketable securities purchases, partially offset by $195.0 million in maturities[165] - Net cash used in financing activities decreased to $93.5 million in Q1 2023 (from $126.3 million in Q1 2022), mainly due to lower net payments on the mortgage repurchase facility[166] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, particularly interest rate fluctuations, and its use of financial instruments for mitigation - The company is exposed to market risks related to fluctuations in interest rates on mortgage loans held-for-sale, mortgage interest rate lock commitments (IRLCs), marketable securities, and debt[172] - Forward sales of mortgage-backed securities are the predominant derivative and financial instruments used to minimize market risk during the period from interest rate lock to loan commitment/sale[84][172][174] - At March 31, 2023, HomeAmerican had $385.7 million in IRLCs and $53.8 million in mortgage loans held-for-sale not yet committed to a mortgage purchaser, hedged by $362.5 million in forward sales of securities[172] Item 4. Controls and Procedures This section confirms the effectiveness of disclosure controls and procedures, reporting no material changes in internal control over financial reporting - Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[177] - There were no material changes in internal control over financial reporting during the quarter ended March 31, 2023[177] Part II. Other Information This section provides additional disclosures on legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section addresses legal actions in the ordinary course of business, with management expecting no material adverse financial impact - The company is named as defendants in various claims and legal actions arising in the ordinary course of the homebuilding business, including product liability and sales/financing claims[179] - Management believes the outcome of these matters will not have a material adverse effect on the company's financial condition, results of operations, or cash flows[179] Item 1A. Risk Factors This section confirms no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - There are no material changes from the risk factors included in the Company's 2022 Annual Report on Form 10-K[180] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports no common stock repurchases under the program, though shares were withheld for restricted stock vesting taxes - The company did not repurchase any shares of its common stock under its publicly announced repurchase program during the three months ended March 31, 2023[181] - 47,131 shares of common stock were withheld in February 2023 to cover withholding taxes due upon the vesting of restricted stock award shares[181] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including agreements, plans, certifications, and iXBRL financial statements - Exhibits include the Credit Agreement amendment (April 11, 2023), First Amendment to the 2021 Equity Incentive Plan, Subsidiary Guarantors list, Section 302 and 906 certifications, and iXBRL financial statements[185] Signatures This section contains the official signatures of authorized officers, confirming the submission of the Form 10-Q - The report was signed by Robert N. Martin, Senior Vice President and Chief Financial Officer, and Derek R. Kimmerle, Vice President, Controller and Chief Accounting Officer, on May 2, 2023[185]