NVR(NVR) - 2023 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Condensed Consolidated Financial Statements Unaudited statements for Q1 2023 show decreased net income and EPS year-over-year, while total assets and shareholders' equity increased from year-end 2022 Condensed Consolidated Balance Sheets As of March 31, 2023, total assets increased to $6.08 billion, driven by cash, while total shareholders' equity grew to $3.85 billion Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $6,075,905 | $5,660,973 | | Homebuilding Cash and cash equivalents | $2,786,503 | $2,503,424 | | Total Inventory | $1,865,542 | $1,788,275 | | Total Liabilities | $2,230,559 | $2,154,124 | | Senior notes | $914,427 | $914,888 | | Total Shareholders' Equity | $3,845,346 | $3,506,849 | Condensed Consolidated Statements of Income Net income for Q1 2023 decreased to $344.4 million from $426.1 million year-over-year, driven by lower homebuilding and mortgage banking revenues Consolidated Income Statement Summary (in thousands, except per share data) | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Homebuilding Revenues | $2,131,333 | $2,309,227 | | Mortgage Banking Fees | $46,944 | $69,182 | | Net Income | $344,352 | $426,100 | | Diluted EPS | $99.89 | $116.56 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities for Q1 2023 was $315.5 million, while a significant reduction in share buybacks lowered cash used in financing activities Consolidated Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $315,522 | $309,326 | | Net cash used in investing activities | ($2,915) | ($4,318) | | Net cash used in financing activities | ($28,532) | ($714,903) | | Net increase (decrease) in cash | $284,075 | ($409,895) | Notes to Condensed Consolidated Financial Statements The notes detail significant accounting policies, debt, segment reporting, and the company's use of Lot Purchase Agreements to control land - The company's primary method for land acquisition is through Lot Purchase Agreements (LPAs) with third-party developers, which minimizes land ownership risk; as of March 31, 2023, NVR controlled approximately 123,100 lots under these agreements[23][26] - NVR operates four homebuilding reportable segments (Mid Atlantic, North East, Mid East, South East) and one mortgage banking segment; the Mid Atlantic segment is the largest contributor to revenue[47][49][52] - As of March 31, 2023, the company had $900 million in aggregate principal of Senior Notes outstanding, maturing in 2030 with a 3.00% interest rate[70][71][72] - The effective tax rate for Q1 2023 was 20.6%, down from 24.7% in Q1 2022, primarily due to a higher income tax benefit from stock option exercises[81] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses improved Q1 2023 demand amid affordability challenges, noting decreased revenue and net income alongside a lower gross margin Business Environment and Outlook New home demand improved in Q1 2023 due to limited resale inventory, though high mortgage rates and cost pressures continue to pose challenges - New home demand improved in Q1 2023, favorably impacted by a limited supply of homes in the resale market[85] - Market conditions continue to be impacted by affordability challenges, high inflation, and interest rate volatility, which are expected to weigh on demand[85] - The company expects to continue facing cost pressures but has seen an improvement in supply chain issues, which should improve construction cycle times[85] Homebuilding Operations Homebuilding revenues decreased 8% in Q1 2023 due to fewer settlements, and the gross profit margin declined to 24.6% from 28.5% year-over-year Homebuilding Operations Summary | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Revenues | $2,131,333 | $2,309,227 | | Gross profit margin % | 24.6% | 28.5% | | New orders (units) | 5,888 | 5,927 | | Settlements (units) | 4,639 | 5,214 | | Backlog (units) | 10,411 | 13,443 | | New order cancellation rate | 13.9% | 10.3% | - The decrease in revenues was caused by an 11% drop in units settled, partially offset by a 4% increase in the average settlement price[98] - The new order cancellation rate increased to 13.9% in Q1 2023 from 10.3% in Q1 2022[97][103] Mortgage Banking Segment The mortgage banking segment's profit fell 41% to $29.4 million in Q1 2023, driven by lower loan volume and reduced gains on loan sales Mortgage Banking Operations Summary | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Loan closing volume (principal) | $1,237,283 | $1,484,593 | | Segment profit | $29,427 | $50,106 | | Capture rate | 83% | 86% | | Mortgage banking fees | $46,944 | $69,182 | - The decrease in segment profit was primarily attributable to a $22.2 million (32%) decrease in mortgage banking fees, mainly from lower gains on the sale of loans[130] Liquidity and Capital Resources The company maintains a strong liquidity position with $2.8 billion in cash and continued its share repurchase program, buying back $110 million in stock - As of March 31, 2023, the company had approximately $2.8 billion in cash and cash equivalents[134] - In Q1 2023, NVR repurchased 21,174 shares of its common stock for an aggregate price of $110 million; approximately $397.6 million remained available under its repurchase authorization[136][142] - The company has access to a $300 million unsecured revolving credit facility and a $150 million revolving mortgage repurchase facility, both with no outstanding borrowings at quarter-end[138][139] Quantitative and Qualitative Disclosure About Market Risk The company reports no material changes in its market risks during the first quarter of 2023 - There have been no material changes in the company's market risks during the first quarter of 2023[144] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - An evaluation of disclosure controls and procedures, supervised by the CEO and CFO, concluded that they were effective as of March 31, 2023[145] - No changes in internal control over financial reporting occurred in the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal controls[145] PART II OTHER INFORMATION Legal Proceedings Ongoing litigation from the ordinary course of business is not expected to have a material adverse effect on the company's financial results - Management believes that ongoing litigation, which arises in the ordinary course of business, is not expected to have a material adverse effect on the company's financial condition or results[147] Risk Factors No material changes have been made to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K have occurred[148] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 21,174 shares in Q1 2023, with approximately $397.6 million remaining under its repurchase authorization Share Repurchases in Q1 2023 | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 1 - 31, 2023 | — | $— | | February 1 - 28, 2023 | 9,965 | $5,104.63 | | March 1 - 31, 2023 | 11,209 | $5,279.75 | | Total | 21,174 | $5,197.33 | - As of March 31, 2023, the company had approximately $397,637 thousand remaining under its share repurchase authorizations[149] Exhibits This section lists filed exhibits, including Sarbanes-Oxley certifications and XBRL interactive data files - Exhibits filed include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, along with XBRL interactive data files[150]