NVR, Inc. — Q2 2022 Form 10-Q
Business context and reporting period. Unaudited results cover the three and six months ended June 30, 2022, compared with the same periods in 2021. NVR builds homes, primarily on a pre-sold basis, and provides mortgage and title services. Unless noted otherwise, dollar amounts below are rounded to millions.
Financial and operating results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Consolidated revenue | $2,658.9 | $2,283.6 | $5,037.4 | $4,325.0 |
| Income before taxes | $574.0 | $417.5 | $1,140.0 | $729.5 |
| Net income | $433.3 | $321.3 | $859.4 | $570.1 |
| Diluted EPS | $123.65 | $82.45 | $240.05 | $145.53 |
| Homebuilding gross margin | 26.3% | 22.6% | 27.3% | 21.2% |
| Operating cash flow | — | $447.2 | $521.0 |
Q2 consolidated revenue rose 16% and net income 35% year over year; diluted EPS rose 50%. Homebuilding revenue grew 17% in both the quarter and first half. Q2 settlements increased 2% and average settlement price rose 15%. Higher home prices supported margins, partly offset by increased materials and labor costs.
New orders fell 16% in Q2 to 4,663 units; average order price increased 7% to $471,600. The Q2 cancellation rate rose to 14.3% from 8.3%. At June 30, backlog was 12,286 homes, down 3% year over year in units but up 8% in dollar value to $5.82 billion. The six-month cancellation rate was 12.1%, versus 9.0%.
Mortgage banking income was $29.1 million in Q2, down from $39.2 million; first-half income was $78.1 million, down from $97.8 million. Lower gains on loan sales were the main driver. Mortgage capture rate was 84% for Q2 versus 89% a year earlier.
Balance sheet, cash flow and capital
Cash and cash equivalents totaled approximately $1.50 billion at June 30, 2022, compared with $2.57 billion at year-end 2021; cash, restricted cash and cash equivalents totaled $1.56 billion. Total assets were $5.29 billion and shareholders’ equity was $2.99 billion. Senior notes had $900 million principal outstanding, due in 2030; the reported carrying value was $915.8 million. NVR redeemed $600 million of 3.95% notes during Q2. No borrowings were outstanding under either the $300 million revolving credit facility or the $150 million mortgage repurchase facility.
Cash, restricted cash and equivalents decreased $1.07 billion in the first half. Operating activities provided $447.2 million; inventory growth used $431.4 million. Financing activities used $1.50 billion, primarily for $1.02 billion of share repurchases and the $600 million note redemption, partly offset by $113.8 million from option exercises. NVR reported $285.8 million of unused capacity on its revolving credit facility and $150 million on its mortgage facility.
NVR repurchased 207,132 shares for approximately $1.02 billion in the first half. Approximately $492.3 million remained under existing authorizations at June 30; on August 3, the board approved an additional $500 million authorization.
Outlook, risks and other notable items
Management gave no specific earnings or revenue guidance. It reported a rapid decline in new-home demand during Q2, citing higher mortgage rates and home prices, weaker affordability, inflation and lower consumer confidence, along with recession concerns. It expects these factors may continue to pressure demand. Supply-chain disruptions and longer construction cycles, as well as materials, labor and land cost pressures, were expected to persist through 2022. Management said margins will depend on managing costs while balancing sales pace and pricing, and described the balance sheet and disciplined lot strategy as positioning NVR to respond to market volatility.
NVR controlled approximately 133,200 lots, principally through finished-lot purchase agreements. Net contract land deposits were $524.4 million; management stated the primary risk of loss under these agreements is generally limited to deposits, subject to limited exceptions. Approximately 23,900 additional potential lots under raw-land contracts were not included in controlled lots and may require approvals. The company expected to settle substantially all June 30 backlog within 12 months, subject to cancellations and construction delays; it cautioned that historical cancellation rates may not predict future rates.
Management said ordinary-course litigation was not expected to materially affect financial position, results or cash flows. No material changes to previously disclosed risk factors or market risks were reported. The filing noted that mortgage-loan fair value and derivative gains or losses are sensitive to interest rates and market prices. A new mortgage repurchase agreement effective July 20, 2022 provides up to $150 million and expires July 19, 2023. Disclosure controls were assessed as effective.
Key investor verification points
- Track new orders, cancellation rates, backlog conversion and settlement pace as mortgage rates and affordability change.
- Assess whether homebuilding margins hold as pricing adjusts and materials, labor and land costs evolve.
- Monitor operating cash generation, inventory investment, large repurchases and liquidity after the debt redemption.
- Review lot-control commitments, deposit exposure, impairment reserves and approvals needed for potential raw-land lots.
- Evaluate mortgage banking income, capture rates and loan-sale fair-value effects amid changing interest rates.