NVR, Inc. 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; it does not provide a standalone fourth-quarter income statement summary. Unless otherwise noted, dollar amounts below are in U.S. dollars.
Business context
NVR builds and sells homes primarily on a pre-sold basis under the Ryan Homes, NVHomes and Heartland Homes brands, and provides mortgage banking and title services mainly to its homebuyers. Homebuilding operations span 35 metropolitan areas in 15 states and Washington, D.C. NVR generally controls lots through purchase agreements with forfeitable deposits rather than owning and developing land directly.
Financial and operating results
| Metric | 2022 | 2021 |
|---|---|---|
| Consolidated revenue | $10.526 billion | $8.951 billion |
| Net income | $1.726 billion | $1.237 billion |
| Diluted earnings per share | $491.82 | $320.48 |
| Operating cash flow | $1.870 billion | $1.242 billion |
| Cash and cash equivalents at year-end | $2.523 billion | $2.573 billion |
| Homebuilding gross margin | 25.8% | 22.3% |
| Mortgage banking income | $122.2 million | $171.6 million |
- Homebuilding revenue was $10.327 billion, up 19%. Settlements rose 6% to 22,732 homes; average settlement price rose 12% to $454,300.
- Homebuilding selling, general and administrative expense was $532.4 million, or 5.2% of homebuilding revenue, versus 5.5% in 2021.
- Net new orders fell 16% to 19,164, while average new-order price rose 6% to $462,800. Year-end backlog fell 28% to 9,162 homes and 25% in value to $4.326 billion; its average price was $472,200.
- The cancellation rate was 14.2%, compared with 9.2% in 2021. NVR expected to settle substantially all year-end backlog during 2023, subject to cancellations and construction delays.
- Mortgage loan closing volume rose 4% to $6.313 billion, but mortgage banking income declined 29%, primarily due to lower gains on loan sales and a lower mortgage capture rate (83% versus 89%).
Cash, liquidity and debt
- Operating cash flow was $1.870 billion. Investing activities used $27.4 million and financing activities used $1.905 billion, principally for $1.500 billion of share repurchases and redemption of $600 million of notes.
- At year-end, NVR reported $2.503 billion of homebuilding cash and cash equivalents, $289 million of unused capacity under its revolving credit facility, and $150 million of unused capacity under its mortgage repurchase facility.
- NVR had $900 million principal amount of 3.00% senior notes outstanding, due in May 2030; the balance-sheet carrying amount was $914.9 million. It redeemed $600 million of 3.95% notes at par in 2022. No borrowings were outstanding under either revolving facility at year-end.
- NVR repurchased 323,652 shares for $1.500 billion during 2022 and had approximately $507.7 million remaining under Board-approved repurchase authorizations. The company has never paid a cash dividend and reported no current intention to do so.
Material changes, outlook and risks
- Management said demand began declining significantly in the second quarter of 2022 as higher mortgage rates and home prices reduced affordability. Inflation, weaker consumer confidence, anticipated rate increases and recession concerns also weighed on demand.
- Management expects elevated pressure from mortgage rates, affordability, materials, labor and land costs, along with pricing pressure that may affect margins. It said the company’s balance sheet and lot-acquisition strategy position it to pursue opportunities amid market volatility, but did not provide numerical guidance.
- Finished-lot control increased to approximately 131,900 lots from 124,900. NVR held about 125,100 lots under third-party lot purchase agreements; deposits and letters of credit are generally at risk if NVR elects not to perform.
- The contract land deposit reserve rose to $57.1 million from $30.0 million. NVR recorded approximately $27.5 million of net pre-tax contract land deposit impairment charges in 2022; the reserve assessment was identified by the auditor as a critical audit matter.
- Other principal risks include interest-rate and housing-market volatility, mortgage availability and secondary-market access, construction supply-chain and labor constraints, lot availability and developer performance, warranty and construction-defect claims, regulation, and litigation. Management said ordinary-course litigation was not expected to materially affect financial position, results or cash flows.
- The 2022 effective tax rate was 23.42%, versus 22.24% in 2021; both years benefited from excess tax benefits related to equity awards. Management expects tax-rate variability from equity-plan activity and deferred-compensation distributions.
Important facts for investors to verify
- Whether lower new orders and the higher cancellation rate persist, and how much of the $4.326 billion backlog converts to 2023 settlements.
- Whether home prices and sales incentives can absorb higher construction and lot costs without materially reducing gross margins.
- The assumptions behind the $57.1 million lot-deposit reserve and the potential recoverability of deposits tied to controlled lots.
- Cash generation, share-repurchase pace and liquidity needs relative to lot commitments, debt service and the $900 million notes due in 2030.
- Mortgage banking profitability, capture rate, loan-sale execution and adequacy of the $21.8 million mortgage repurchase reserve.