NVR, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. NVR builds and sells homes, primarily on a pre-sold basis, and provides mortgage and title services to its homebuyers. Unless otherwise stated, dollar amounts below are in millions.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Consolidated revenue | $2,283.6 | $1,620.4 | $4,325.0 | $3,202.9 |
| Income before taxes | $417.5 | $209.8 | $729.5 | $371.2 |
| Net income | $321.3 | $164.1 | $570.1 | $339.8 |
| Diluted EPS | $82.45 | $42.50 | $145.53 | $87.56 |
| Homebuilding gross margin | 22.6% | 19.2% | 21.2% | 18.0% |
- Q2 consolidated revenue rose 41%, net income 96%, and diluted EPS 94% year over year. For the six months, revenue rose 35% and net income 68%.
- Homebuilding revenue was $2,224.6 million in Q2 and $4,188.3 million for the first half. Homebuilding SG&A was 5.1% of revenue in Q2 versus 6.5% a year earlier; first-half SG&A was 5.6% versus 6.8%.
- Mortgage banking income before tax was $39.2 million in Q2 and $97.8 million for the first half, compared with $15.0 million and $26.5 million, respectively, in 2020.
- Operating cash flow was $521.0 million for the first half, up from $370.7 million. Cash, restricted cash and cash equivalents totaled $2,664.8 million at June 30, down $145.0 million from year-end, largely reflecting share repurchases.
- NVR reported $2,597.6 million of homebuilding cash and $20.8 million of mortgage banking cash. Senior notes had $1,516.8 million carrying value ($1,500 million principal); no borrowings were outstanding under either revolving facility. Management reported approximately $288 million of unused committed capacity on the corporate revolver and $150 million on the mortgage repurchase facility.
- Total assets were $5,854.4 million and shareholders’ equity was $3,042.3 million at June 30. The company repurchased approximately 165,000 shares for $754.4 million during the first half.
Operating changes and outlook
- Home settlements increased 32% in Q2 to 5,685 units; average settlement price rose 6% to $391,300. For the first half, settlements rose 26% to 10,757 units.
- Q2 net new orders decreased 6% to 5,521 units, while average order price rose 20% to $440,200. First-half net orders increased 8% to 11,835 units, with average order price up 15% to $424,400.
- June 30 backlog increased 19% year over year to 12,627 homes, with backlog value up 35% to $5,410.4 million and average backlog price at $428,500. The first-half cancellation rate was 9%, versus 18% in 2020. NVR expects to settle substantially all June backlog within 12 months, subject to cancellations and construction delays.
- Management described demand as strong, supported by low mortgage rates and limited housing supply, and noted rising prices. It expected supply-chain disruptions to persist over the next several quarters. Subcontractor capacity constraints and material availability lengthened production cycles and slowed backlog conversion.
- Higher selling prices and operating leverage supported margins, while higher lumber, commodity and labor costs were a drag. Management warned that lumber costs embedded in homes still in inventory could weigh on consolidated margins as those homes settle.
- No specific full-year numerical earnings or revenue guidance was provided. The filing notes typical seasonality, with higher orders in the first half and higher settlements, revenue and net income in the second half.
Risks, contingencies and notable items
- COVID-19 continues to create uncertainty for operations, demand, employees, customers and trade partners. Other cited risks include interest rates, financing availability, land and material costs, labor shortages, regulation, competition, weather and mortgage-market conditions.
- NVR controlled approximately 114,100 lots, including about 112,000 under finished-lot purchase agreements. Deposits under these agreements may be forfeited if NVR fails to perform; reported net contract land deposits were $425.3 million, with total stated risk of loss of $432.3 million including letters of credit.
- Contract land deposit conditions improved: NVR recorded net recoveries of approximately $13.4 million in the first half of 2021, compared with approximately $37.3 million of impairment charges in the first half of 2020.
- Ordinary-course litigation was not expected by management and counsel to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors or market risks. Disclosure controls were assessed as effective.
- The effective tax rate was 23.0% in Q2 and 21.9% for the first half, compared with 21.8% and 8.5% in the comparable 2020 periods; equity-award tax benefits contributed to year-to-year variability.
Investor verification checklist
- Check whether order trends, cancellation rates and the $5.4 billion backlog convert into settlements on schedule.
- Monitor lumber, labor and other input costs, production-cycle delays, and their effect on realized homebuilding margins.
- Review cash deployment and future repurchases alongside the $1.5 billion senior-note principal and available credit facilities.
- Assess exposure to forfeitable lot deposits, land availability, and mortgage financing and secondary-market conditions.
- Compare subsequent tax rates and results with this filing’s discussion of seasonality and ongoing COVID-19 and supply-chain uncertainty.