NVR, Inc. — Form 10-Q Summary
Business context and reporting period
For the quarter and nine months ended September 30, 2022. NVR builds and sells homes, primarily on a pre-sold basis, and provides mortgage and title services to homebuilding customers. Unless noted otherwise, financial amounts below are in millions of dollars; the filing reports statements in thousands.
Financial and operating performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Consolidated revenue | $2,776.9 | $2,395.6 | $7,814.3 | $6,720.7 |
| Net income | $411.4 | $332.1 | $1,270.8 | $902.1 |
| Diluted EPS | $118.51 | $86.44 | $358.61 | $231.75 |
| Homebuilding gross margin | 23.6% | 22.2% | 26.0% | 21.6% |
| Operating cash flow | — | $1,052.9 | $982.3 |
Q3 revenue rose 16% and net income 24% year over year. Homebuilding revenue increased 17% in the quarter, reflecting 5% more settlements and a 12% higher average settlement price. Settlements were 5,949 units at an average $460,500. In contrast, net new orders fell 15% to 4,421; the cancellation rate increased to 15.0% from 9.2%. Backlog declined 11% to 10,758 homes, with a reported value of $5.087 billion.
Mortgage banking income fell to $17.6 million from $39.0 million in Q3; for the first nine months it was $95.7 million versus $136.8 million. NVR attributed the decline mainly to lower gains on loan sales amid a more competitive mortgage market and a lower mortgage capture rate.
At September 30, cash and cash equivalents were approximately $1.767 billion, plus $54.2 million of restricted cash. Total assets were $5.390 billion and shareholders’ equity was $3.085 billion. Cash, restricted cash and cash equivalents declined $815.6 million during the first nine months. Operating activities provided $1.053 billion; financing used $1.848 billion, primarily for $1.384 billion of share repurchases and redemption of $600 million of notes.
NVR redeemed its $600 million of 3.95% notes in June. Remaining senior notes have $900 million principal due in 2030 (reported carrying value $915.3 million). There was no borrowing under the $300 million revolving credit facility or the $150 million mortgage repurchase facility. Management reported approximately $286.6 million of unused credit-facility capacity and $150 million of unused mortgage-facility capacity. The company repurchased 295,148 shares for $1.384 billion in the first nine months; $623.9 million remained under board-approved repurchase authorizations at quarter-end.
Material changes versus the prior comparable period
- Profit and homebuilding margins rose as higher settlement prices flowed through from earlier strong demand and pricing. Higher materials and labor costs partly offset margin gains.
- Demand weakened: Q3 net new orders declined 15%, and cancellations increased. Nine-month new orders fell 12%; backlog units were down 11% year over year.
- Mortgage banking income declined materially, notwithstanding higher loan closing volume, as loan-sale gains and capture rates weakened.
- Cash decreased substantially, principally reflecting share repurchases and the $600 million debt redemption; operating cash flow remained positive and higher than in the prior-year period.
Outlook, risks and unusual items
Management expects higher mortgage rates, affordability pressures, inflation, weaker consumer confidence and possible recession to weigh on new-home demand. It also expects ongoing materials, labor and land cost pressure, pricing pressure, and supply-chain disruption that can extend construction cycles. Management gave no specific numerical earnings or revenue guidance, but said the balance sheet and disciplined lot strategy position NVR to pursue opportunities amid market volatility. It expects substantially all quarter-end backlog, except cancellations and subject to construction delays, to settle within 12 months.
NVR controlled approximately 131,400 lots, primarily through finished-lot purchase agreements. Cash and letter-of-credit deposits supporting third-party agreements were approximately $543.4 million and $7.3 million, respectively; related contract-land-deposit impairment reserves were $32.2 million. The company recorded Q3 lot-deposit impairment charges of approximately $8.8 million, compared with a $4.1 million reversal in Q3 2021. Management says its loss exposure is generally limited to deposits, subject to limited specific-performance obligations.
Mortgage rate volatility affected the fair value of mortgage commitments and loans; mortgage banking recorded a $28.8 million fair-value adjustment to expense in Q3 2022. Litigation is described as ordinary-course and not expected by management to materially adversely affect financial position, results or cash flows. The filing reports no material changes to previously disclosed risk factors, and no material changes in market risk. Management cautions that actual results may differ from expectations.
Important facts for investors to verify
- Whether order trends, cancellation rates, backlog and home prices stabilize or deteriorate as mortgage rates and affordability change.
- Whether construction-cycle delays and materials, labor and land costs affect settlements and margins as older backlog homes are completed.
- Whether mortgage banking profitability and capture rates recover, and how interest-rate movements affect loan-sale economics and fair values.
- Whether lot-deposit impairments increase, and the status and obligations of the company’s land agreements and commitments.
- How continued share repurchases, debt maturities and liquidity availability affect cash and capital allocation.