NVR, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. NVR builds and sells homes, primarily on a pre-sold basis, and provides mortgage and title services through its mortgage banking business. Unless otherwise stated, financial amounts below are in millions of dollars.
Key financial results
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Consolidated revenue | $2,338 | $2,659 | $4,517 | $5,037 |
| Income before taxes | $471 | $574 | $905 | $1,140 |
| Net income | $404 | $433 | $748 | $859 |
| Diluted EPS | $116.54 | $123.65 | $216.52 | $240.05 |
| Homebuilding gross margin | 24.3% | 26.3% | 24.4% | 27.3% |
| Operating cash flow | Not separately provided for Q2 | $344 | $447 |
Q2 revenue fell 12%, net income fell 7%, and diluted EPS fell 6% year over year. For the first half, revenue declined 10% and net income declined 13%. Lower home settlements and reduced homebuilding margins were key pressures. Q2 homebuilding revenue declined 13% as settlements fell 13%; the average settlement price was broadly unchanged. Selling, general and administrative expense rose to 6.5% of homebuilding revenue from 5.1%.
Q2 net new orders increased 27% to 5,905 units, while average new-order price decreased 5% to $447,300. The cancellation rate improved to 10.9% from 14.3%. June 30 backlog was 11,231 homes, down 9% in units and 12% in value year over year, at an average price of $458,600.
Mortgage banking income increased 25% in Q2 to $36.5 million, but declined 17% for the first half to $64.5 million. Six-month loan closing volume decreased 16% to $2.62 billion. The Q2 effective tax rate was 14.3%, versus 24.5%; the six-month rate was 17.3%, versus 24.6%, primarily reflecting higher tax benefits from stock-option exercises.
Cash, debt and liquidity
- At June 30, 2023, homebuilding cash and cash equivalents were $2.679 billion; mortgage banking cash was $13.9 million. Total assets were $6.267 billion and shareholders’ equity was $4.153 billion.
- Operating cash flow for the first half was $344 million, compared with $447 million a year earlier. Cash, restricted cash and cash equivalents increased $184 million. Inventory growth used $232 million of cash; mortgage loan activity was also a significant use.
- Senior notes had $900 million aggregate principal outstanding, bear interest at 3.00%, and mature in May 2030. No borrowings were outstanding under the $300 million revolving credit facility or the $150 million mortgage repurchase facility at quarter-end. The mortgage facility was extended in July 2023 through July 17, 2024.
- First-half share repurchases totaled $311 million for 56,001 shares; $196.6 million remained under the then-current authorization at June 30. The board approved an additional $500 million authorization on August 2, 2023.
Material changes, outlook and risks
- Management reported improving second-quarter demand, supported by limited resale-home supply, improving consumer confidence and stabilizing mortgage rates. Affordability remained challenging, and higher rates could contribute to an economic slowdown.
- Management cited continuing pressure from labor, materials and land costs, as well as pricing pressure and potential margin effects. Supply-chain conditions improved and construction cycle times improved. NVR expects to settle substantially all June 30 backlog within 12 months, subject to cancellations and construction delays; this is not a guarantee.
- The company controlled approximately 130,400 lots, mainly through finished-lot purchase agreements. Deposits may be forfeited if NVR does not perform; net contract land deposits were $516.7 million, with a $46.4 million impairment reserve. Approximately 21,500 additional potential lots under raw-land contracts were not included in controlled lots and may require approvals.
- Unusual items included a $6.9 million Q2 reversal of prior lot-deposit impairment reserves and a $33.3 million Q2 corporate interest-income contribution, compared with $3.1 million a year earlier. The six-month fair-value adjustment on mortgage derivatives and loans was a $42.5 million gain, included in mortgage banking fees.
- NVR is subject to ordinary-course litigation; management does not expect it to materially affect financial position, results or cash flows. The filing reports no material changes to previously disclosed risk factors or market risks. Forward-looking risks include interest rates, customer financing availability, land and material costs, labor availability, regulation, competition and economic conditions.
Investor verification priorities
- Check whether rising new orders convert into settlements and rebuild backlog, and monitor cancellations, average selling prices and regional performance.
- Assess whether labor, material, incentive and closing-cost pressures continue to compress homebuilding margins.
- Review cash generation and inventory growth alongside the scale of lot deposits, purchase commitments and potential forfeiture exposure.
- Separate recurring operating performance from the large tax benefits tied to stock-option exercises and mortgage fair-value gains.
- Track share repurchases, the new authorization, and the company’s substantial cash position relative to its $900 million senior-note principal.