NVR, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are to Q1 2020 unless otherwise noted. NVR builds and sells homes and provides mortgage and title services. Amounts below are in millions, except per-share data, unit counts, and percentages.
Financial and operating results
- Revenue: $2,041.4, up 29%. Homebuilding revenue was $1,963.7, up 26%; mortgage banking fees were $77.7, versus $26.8.
- Profit: Net income was $248.8, up 42%; diluted EPS was $63.21, up 41%. Income before taxes was $312.0. The effective tax rate was 20.3%, compared with a tax benefit rate of 8.9% in Q1 2020.
- Homebuilding margin: Gross margin was 19.7%, versus 16.8%; SG&A was 6.2% of revenue, down from 7.1%. The margin comparison benefited substantially from approximately $36.4 of lot-deposit impairment charges in Q1 2020.
- Cash flow: Operating cash flow was $328.3, versus $68.4. Cash, restricted cash, and equivalents increased $4.7 to $2,814.5. Inventory growth used $120.7 of cash; treasury-stock purchases used $377.4.
- Liquidity and debt: Cash and equivalents on the balance sheet totaled $2,774.2. Senior notes had $1,517.1 carrying value ($1.5 billion principal); no borrowings were outstanding under the $300.0 revolving credit facility or the $150.0 mortgage repurchase facility. Management reported approximately $288.0 of unused credit capacity after letters of credit and $150.0 of unused mortgage-facility capacity.
- Demand and backlog: Net new orders rose 26% to 6,314 units; average order price rose 10% to $410,500. Settlements increased 20% to 5,072 units. Backlog grew 42% to 12,791 homes, valued at $5,204.1, up 51%. Cancellation rate declined to 9.6% from 20.8%.
Changes versus Q1 2020
Revenue, net income, and diluted EPS increased, supported by stronger home settlements and mortgage banking results. Homebuilding gross margin improved, but the prior-year comparison was depressed by lot-deposit impairments. Mortgage banking income rose to $58.6 from $11.5, mainly reflecting higher mortgage volume and recovery from prior-year market disruption. Input costs for lumber, other commodities, and labor increased; backlog turnover was slower amid production and subcontractor capacity constraints.
Outlook, risks, and contingencies
Management reported continued strong demand, supported by historically low mortgage rates and limited housing supply, and rising home prices. It expects elevated material and labor costs and supply-chain challenges to continue over the next several quarters. The filing provides no quantified earnings or revenue guidance. Management cautioned that COVID-19 and related developments, financing conditions, consumer demand, and construction disruptions make future effects uncertain. Other cited risks include land and materials availability and cost, labor shortages, regulation, competition, weather, and mortgage-market conditions.
NVR expected to settle substantially all March 31 backlog within 12 months, excluding cancellations and subject to construction delays; it cautioned that historical cancellation rates may not predict future cancellations. Litigation arising in the ordinary course was not expected by management to have a material adverse effect. The company controlled approximately 106,100 lots under purchase agreements and had about $404.3 of total stated risk of loss on contract land deposits and related letters of credit. A land parcel was sold in April 2021 for approximately $45.8, near carrying value. The mortgage repurchase facility expires July 21, 2021.
Important facts for investors to verify
- Whether higher lumber, commodity, and labor costs, together with production constraints, affect future margins and backlog conversion.
- Whether order growth, lower cancellations, and the large backlog persist as mortgage rates and housing supply change.
- How much of the gross-margin improvement reflects underlying performance versus the unusual prior-year impairment comparison.
- Whether mortgage banking gains and favorable loan-sale conditions are sustainable, and whether the mortgage facility is renewed before expiration.
- Cash use from substantial share repurchases: $377.4 in Q1, including 86,523 shares at an average $4,362.13 per share.