NVR, Inc. — Form 10-Q Summary
Reporting period: Quarter ended September 30, 2021; comparisons are with the corresponding 2020 periods unless stated otherwise. Financial amounts are in U.S. dollars; amounts below are in millions except per-share data.
Business context
NVR builds and sells single-family homes, townhomes and condominiums, primarily on a pre-sold basis, and provides mortgage banking and title services to homebuyers. Operations are reported across four homebuilding regions and mortgage banking. NVR generally obtains finished lots through purchase agreements with third-party developers rather than developing land itself.
Financial and operating performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Consolidated revenue | $2,395.6 | $1,990.0 | $6,720.7 | $5,192.9 |
| Income before taxes | $434.1 | $321.5 | $1,163.6 | $692.7 |
| Net income | $332.1 | $256.5 | $902.1 | $596.2 |
| Diluted EPS | $86.44 | $65.11 | $231.75 | $153.03 |
| Homebuilding gross margin | 22.2% | 20.0% | 21.6% | 18.8% |
- Q3 consolidated revenue rose 20% and net income rose 29%; diluted EPS increased 33%. Nine-month revenue increased 29% and net income increased 51%.
- Q3 homebuilding revenue was $2,336.6 million, up 22%, reflecting 10% more settlements and an 11% higher average settlement price. Nine-month homebuilding revenue increased 29%, with settlements up 20% and average settlement price up 7%.
- Q3 net new orders declined 22% to 5,201 homes, while average order price increased 15% to $442,000. For the first nine months, orders declined 3% and average order price increased 15%. Management attributed weaker order volume largely to fewer active communities.
- Backlog at September 30 was 12,145 homes, essentially flat year over year; backlog value increased 15% to $5,372.9 million. The cancellation rate was 9.2% in Q3 versus 11.8% a year earlier.
- Mortgage banking income was $39.0 million in Q3, down from $51.8 million, primarily due to lower secondary-market gains on loan sales. Nine-month mortgage banking income increased to $136.8 million from $78.3 million.
Cash flow, liquidity and debt
- For the first nine months, operating cash flow was $982.3 million, compared with $579.3 million in 2020. Investing cash use was $12.0 million; financing cash use was $1,032.0 million.
- Cash, restricted cash and cash equivalents totaled $2,748.1 million at period-end, including $2,681.1 million of homebuilding cash and $22.0 million of mortgage banking cash. The combined cash-flow balance decreased $61.7 million from year-end 2020.
- NVR repurchased approximately 244,595 shares for $1,152.9 million during the nine months. Shareholders’ equity was $3,017.1 million, down from $3,103.1 million at December 31, 2020.
- Senior notes had a carrying value of $1,516.5 million: $600 million principal of 3.95% notes due September 2022 and $900 million principal of 3.00% notes due May 2030. No borrowings were outstanding under the $300 million revolving credit facility or the $150 million mortgage repurchase facility. Approximately $15.6 million of the credit facility’s letter-of-credit sublimit was in use.
- Management described liquidity as strong, citing approximately $2.7 billion in cash and about $284.4 million of unused committed revolving-credit capacity, plus $150 million unused mortgage-facility capacity.
Management commentary, outlook and risks
- Management said demand remained strong, supported by low mortgage rates and limited housing supply, contributing to strong pricing and sales absorption. It expected supply-chain disruptions to continue for several quarters as suppliers worked to meet demand.
- Higher lumber, other commodity and labor costs partly offset pricing and operating-leverage benefits. Management noted that high lumber prices affected consolidated margins through third-quarter consolidation adjustments.
- The company expected to settle substantially all September 30 backlog within the next 12 months, subject to cancellations and construction delays. This is an expectation, not formal earnings guidance.
- Risks cited include COVID-19 and related actions, supply-chain and subcontractor capacity constraints, labor and land availability and costs, interest rates, customer mortgage financing, mortgage loan resale markets, competition, regulation and regional economic conditions. Management said litigation in the ordinary course was not expected to materially affect financial position, results or cash flows; no material risk-factor changes were reported.
- Lot-deposit recoveries were $17.5 million for the first nine months of 2021, versus $31.2 million of net impairment charges in the comparable 2020 period. The 2021 recoveries reflected improved market conditions and reduced the deposit impairment reserve to $34.7 million from $52.2 million at year-end 2020.
- The effective tax rate was 23.5% in Q3 and 22.5% for nine months, compared with 20.2% and 13.9%, respectively, in 2020. The filing attributes year-to-year differences primarily to excess tax benefits from stock-option exercises and notes future rate volatility may continue.
Important facts for investors to verify
- Whether order volume, community count and backlog conversion improve despite Q3 order declines and production-capacity constraints.
- Whether lumber, commodity, labor and supply-chain pressures continue to offset pricing gains and homebuilding margins.
- Whether the company can refinance or repay the $600 million principal amount of notes due in September 2022 on acceptable terms.
- Whether cash generation and liquidity remain sufficient alongside substantial share repurchases and ongoing inventory and lot-deposit commitments.
- Whether backlog cancellations, construction delays, mortgage-market conditions or changes in customer demand materially alter expected settlements.