NVR, Inc. — 2021 Form 10-K Summary
Business context and reporting period. This annual filing covers the fiscal year ended December 31, 2021. NVR builds and sells single-family homes, townhomes and condominiums, primarily on a pre-sold basis, and provides mortgage banking and title services. It operates across 34 metropolitan areas in 14 states and Washington, D.C.
Key financial and operating metrics
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Consolidated revenue | $8.951 billion | $7.537 billion | +19% |
| Net income | $1.237 billion | $901 million | +37% |
| Diluted earnings per share | $320.48 | $230.11 | +39% |
| Homebuilding gross margin | 22.3% | 19.0% | +3.3 percentage points |
| Net cash from operating activities | $1.242 billion | $925 million | +$317 million |
| Cash, restricted cash and equivalents at year-end | $2.637 billion | $2.810 billion | -$173 million |
| Senior notes outstanding | $1.5 billion | $1.5 billion | No material change |
Homebuilding revenue was $8.702 billion, up 19%. Settlements rose 9% to 21,540 homes, with average settlement price up 9% to $403,900. Net new orders declined 2% to 22,721, while average new-order price increased 15% to $436,100. Year-end backlog grew 10% to 12,730 homes and 26% to $5.782 billion; average backlog price rose to $454,200 from $396,200.
Mortgage banking income increased 23% to $171.6 million. Loan closing volume increased 14% to $6.074 billion, and the mortgage capture rate was 89%, compared with 90% in 2020. The effective tax rate increased to 22.24% from 16.40%, primarily because excess tax benefits from stock-option exercises were lower.
Material changes versus the prior year
- Strong demand and pricing power drove higher settlement prices and homebuilding gross margin, more than offsetting increased lumber, materials and labor costs.
- Operating cash flow increased, but cash balances declined as NVR repurchased $1.538 billion of stock and funded higher inventory. The company repurchased 322,038 shares during 2021.
- Supply-chain disruption and subcontractor capacity constraints lengthened construction cycles and reduced backlog turnover. Backlog nevertheless increased, partly because fewer homes moved through production and settlement.
- Homebuilding new orders fell 2%, while average active communities declined 9% to 424.
- The contract land deposit reserve was $30.0 million at year-end, down from $52.2 million in 2020; the company recorded a net pre-tax recovery of previously impaired deposits during 2021.
Liquidity, debt and capital allocation
Management reported approximately $2.6 billion of cash and cash equivalents, $284 million of unused capacity under its $300 million revolving credit facility, and $150 million of unused mortgage repurchase capacity. Neither facility had borrowings outstanding at year-end. The revolving credit agreement runs to February 2026; the mortgage repurchase agreement expires in July 2022.
The $1.5 billion of senior notes includes $600 million due September 2022 and $900 million due May 2030. NVR said it expected to use cash to repay or retire the 2022 maturity. It reported compliance with debt covenants. The company had approximately $508 million remaining under board-authorized share-repurchase programs and has no current intention to pay cash dividends.
Outlook, risks and unusual items
Management described demand as strong but gave no quantified financial guidance. It expected supply-chain disruption to continue well into 2022 and anticipated ongoing pressure from building-material, labor and land costs. Management said margins would depend on managing these costs while balancing sales pace and pricing. It expected to settle substantially all year-end backlog during 2022, subject to cancellations and construction delays.
- Key risks include higher mortgage rates, inflation and reduced housing affordability; weaker demand or consumer confidence; material and labor shortages and cost increases; and continued COVID-19-related or other supply-chain disruptions.
- Execution depends on controlling an adequate supply of finished lots. NVR generally uses lot purchase agreements with forfeitable deposits, but may lose deposits or incur impairments if market or community conditions deteriorate. At year-end it controlled approximately 124,900 lots and had about $30.0 million reserved against contract land deposits.
- Mortgage operations depend on homebuilding activity and the ability to sell originated loans in secondary markets. Loan repurchase and early-payment-default claims remain potential exposures; the mortgage repurchase reserve was approximately $21.4 million.
- Warranty reserve increased to $134.9 million from $119.6 million. Management said ordinary-course litigation was not expected to materially affect financial position, results or cash flows. Bonds and letters of credit totaled approximately $36.6 million; management did not anticipate material losses under these arrangements.
- The auditor issued unqualified opinions on the financial statements and internal controls. The critical audit matter was the assessment of the contract land deposit reserve, which requires estimates and community-specific judgments.
- Other notable items: NVR recognized a $1.3 million impairment related to one joint venture in the fourth quarter. Effective February 16, 2022, Paul W. Praylo moved from COO to a non-executive Area President role.
Important facts for investors to verify
- Whether backlog converts to 2022 settlements as expected, and how cancellations and extended build times affect that conversion.
- Whether pricing and cost controls can sustain margins amid lumber, labor and land-cost pressure.
- The adequacy of the contract land deposit and warranty reserves, including the assumptions underlying the land-deposit reserve highlighted by the auditor.
- How the $600 million 2022 note maturity is repaid or refinanced, and whether liquidity and share repurchases change materially.
- How mortgage rates, loan-sale market conditions and mortgage repurchase claims affect mortgage banking results.