NVR, Inc. — FY2023 Form 10-K
Business context and reporting period. This annual filing covers the fiscal year ended December 31, 2023; it does not provide standalone fourth-quarter financial results. NVR builds and sells homes, primarily on a pre-sold basis, across 36 metropolitan areas in 15 states and Washington, D.C. It also provides mortgage banking and title services, primarily to its homebuilding customers. The figures below are in U.S. dollars; financial amounts are generally converted from thousands to millions.
Financial and operating results
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Consolidated revenue | $9.518 billion | $10.526 billion | Down 10% |
| Net income | $1.592 billion | $1.726 billion | Down 8% |
| Diluted EPS | $463.31 | $491.82 | Down 6% |
| Homebuilding revenue | $9.315 billion | $10.327 billion | Down 10% |
| Homebuilding gross margin | 24.3% | 25.8% | Down 1.5 percentage points |
| Operating cash flow | $1.498 billion | $1.870 billion | Down 20% |
- Home settlements fell 9% to 20,662 units; average settlement price declined 1% to $450,700. New orders, net of cancellations, rose 13% to 21,729 units, while average new-order price fell 3% to $448,400.
- Year-end backlog increased 12% to 10,229 homes, valued at approximately $4.757 billion, up 10%; its average price fell to $465,000 from $472,200. NVR expects to settle substantially all of this backlog during 2024, excluding cancellations.
- Homebuilding gross margin was pressured by labor, materials, lots, incentives and closing costs; lower lumber costs partly offset these pressures. SG&A rose to $589 million, or 6.3% of homebuilding revenue, from $532 million, or 5.2%.
- Mortgage banking income increased 9% to $132.8 million despite a 9% decrease in loan closing volume, to $5.737 billion. The capture rate rose to 87% from 83%; higher net interest income and lower general and administrative costs supported the result.
- Cash and cash equivalents were $3.163 billion at year-end, including $3.126 billion in homebuilding and $36 million in mortgage banking; restricted cash was $52.6 million. Operating cash flow was primarily supported by earnings, while inventory increased $161.9 million.
- Cash, restricted cash and cash equivalents increased $640.9 million during 2023. Financing cash use was $833.0 million, including $1.082 billion of share repurchases, partly offset by $250.5 million of stock-option exercise proceeds.
- Senior notes totaled $900 million at face value, bear 3.00% interest and mature in May 2030. There were no borrowings under the $300 million revolving credit facility or the $150 million mortgage repurchase facility at year-end. NVR reported compliance with applicable debt covenants.
Changes, outlook and risk items
- Housing demand improved as mortgage rates stabilized and resale-home supply remained limited, but affordability reached a 35-year low in 2023. Management expects interest-rate volatility and economic uncertainty to continue affecting the 2024 housing market.
- Management anticipates continued margin pressure as it adjusts product offerings and pricing for demand, and from elevated materials, labor and land costs. Supply-chain disruptions mostly subsided and construction cycle times improved during 2023.
- The effective tax rate fell to 17.46% from 23.42%, primarily because excess tax benefits from equity awards rose to $153.6 million from $50.3 million. Management expects tax-rate volatility to continue; the lower rate materially supported reported earnings.
- NVR controlled approximately 141,500 lots at year-end, primarily through lot purchase agreements (LPAs) with forfeitable deposits. Contract land deposits had a $53.4 million impairment reserve; approximately 10,700 controlled lots were associated with that reserve. The auditor identified assessment of this reserve as a critical audit matter.
- Future contractual cash requirements include approximately $391.3 million of potential LPA deposits, assuming development milestones are met and NVR elects to acquire the lots, and approximately $172.1 million of future interest on senior notes. Management believes available cash, operating cash flows and facilities will meet cash requirements.
- Key risks include mortgage-rate and affordability changes, lot availability and deposit losses, construction costs and labor supply, mortgage-market access and regulation, construction defects and warranty claims, cybersecurity, weather, and local land-use and environmental rules. Management said ordinary-course litigation is not expected to materially affect financial position, results or cash flows.
- NVR does not pay a cash dividend and has no current intention to do so. It used the remaining amount under its $500 million repurchase authorization during the fourth quarter, announced a new authorization of up to $750 million in November 2023, and the Board approved a further authorization of up to $750 million in February 2024.
Important facts for investors to verify
- Whether 2024 backlog converts to settlements as expected, and how cancellations compare with the 12.8% FY2023 new-order cancellation rate.
- Whether homebuilding margins stabilize or continue to contract as incentives, labor, materials and lot costs change.
- The adequacy of the $53.4 million contract-land-deposit reserve and the economics of NVR’s controlled lots and future LPA commitments.
- How much earnings benefited from the $153.6 million excess tax benefit and whether future equity-award activity changes the effective tax rate.
- Ongoing repurchases relative to cash generation and liquidity; also note the mortgage repurchase facility expires July 17, 2024.