NVR, INC. (dollars in thousands, except per share data)
Forward-Looking Statements
Some of the statements in this Quarterly Report on Form 10-Q, as well as statements made by us in periodic press releases or other public communications, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "believes," "expects," "may," "will," "should" or "anticipates" or the negative thereof or other comparable terminology. All statements other than of historical facts are forward-looking statements. Forward-looking statements contained in this document may include those regarding market trends, our financial position and financial results, business strategy, the impact of the COVID-19 pandemic on our business and customers, supply chain disruptions, the outcome of pending litigation, investigations or similar contingencies, projected plans and objectives of management for future operations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results or performance to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements. Such risk factors include, but are not limited to the following: the economic impact of COVID-19 and related supply chain disruption; general economic and business conditions (on both a national and regional level); interest rate changes; access to suitable financing by us and our customers; increased regulation in the mortgage banking industry; the ability of our mortgage banking subsidiary to sell loans it originates into the secondary market; competition; the availability and cost of land and other raw materials used by us in our homebuilding operations; shortages of labor; weather related slow-downs; building moratoriums; governmental regulation; fluctuation and volatility of stock and other financial markets; mortgage financing availability; and other factors over which we have little or no control. We undertake no obligation to update such forward-looking statements except as required by law. For additional information regarding risk factors, see Part II, Item 1A of this Quarterly Report on Form 10-Q and Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 .
Unless the context otherwise requires, references to "NVR," "we," "us," or "our" include NVR and its consolidated subsidiaries.
Results of Operations for the Three and Six Months Ended
Business Environment and Current Outlook
During the second quarter of 2022, we began to experience a rapid decline in
demand for new homes. Home affordability during the second quarter was
negatively impacted by rising mortgage interest rates and higher home prices. In
addition to affordability issues, current market conditions including a high
rate of inflation and the possibility of a recession have contributed to lower
consumer confidence levels. We also continue to face higher costs for certain
materials and labor as strong demand in prior quarters has resulted in increased
construction activity and demand for building materials and contractor labor.
These factors along with the ongoing effects of the COVID-19 pandemic have led
to supply chain disruptions and longer construction cycle times. We expect to
continue to face these disruptions throughout 2022, and we continue to work
closely with our suppliers and trade partners to manage these disruptions.
We expect that demand for new homes may continue to be negatively impacted by
lower consumer confidence, affordability issues, high inflation and the
possibility of a recession. We also expect to continue to face cost pressures
related to building materials, labor and land costs, which will impact profit
margins based on our ability to manage these costs while balancing sales pace
and pricing. Although we are unable to predict the extent to which this will
impact our operational and financial performance, we believe that we are well
positioned to take advantage of opportunities that may arise from future
economic and homebuilding market volatility due to the strength of our balance
sheet and our disciplined lot acquisition strategy.
23--------------------------------------------------------------------------------
Table of Contents
Business
Our primary business is the construction and sale of single-family detached homes, townhomes and condominiums, all of which are primarily constructed on a pre-sold basis. To fully serve customers of our homebuilding operations, we also operate a mortgage banking and title services business. We primarily conduct our operations in mature markets. Additionally, we generally grow our business through market share gains in our existing markets and by expanding into markets contiguous to our current active markets. Our four homebuilding reportable segments consist of the following regions: Mid Atlantic:Maryland ,Virginia ,West Virginia ,Delaware andWashington, D.C. North East :New Jersey andEastern Pennsylvania Mid East: NewYork, Ohio ,Western Pennsylvania ,Indiana andIllinois South East:North Carolina ,South Carolina ,Florida andTennessee Our lot acquisition strategy is predicated upon avoiding the financial requirements and risks associated with direct land ownership and development. We generally do not engage in land development (see discussion below of our land development activities). Instead, we typically acquire finished building lots from various third party land developers pursuant to fixed price finished lot purchase agreements ("LPAs"). These LPAs require deposits, typically ranging up to 10% of the aggregate purchase price of the finished lots, in the form of cash or letters of credit that may be forfeited if we fail to perform under the LPA. This strategy has allowed us to maximize inventory turnover, which we believe enables us to minimize market risk and to operate with less capital, thereby enhancing rates of return on equity and total capital. In addition to constructing homes primarily on a pre-sold basis and utilizing what we believe is a conservative lot acquisition strategy, we focus on obtaining and maintaining a leading market position in each market we serve. This strategy allows us to gain valuable efficiencies and competitive advantages in our markets, which we believe contributes to minimizing the adverse effects of regional economic cycles and provides growth opportunities within these markets. Our continued success is contingent upon our ability to control an adequate supply of finished lots on which to build. In certain specific strategic circumstances, we deviate from our historical lot acquisition strategy and engage in joint venture arrangements with land developers or directly acquire raw ground already zoned for its intended use for development. Once we acquire control of raw ground, we determine whether to sell the raw parcel to a developer and enter into an LPA with the developer to purchase the finished lots or to hire a developer to develop the land on our behalf. While joint venture arrangements and direct land development activity are not our preferred method of acquiring finished building lots, we may enter into additional transactions in the future on a limited basis where there exists a compelling strategic or prudent financial reason to do so. We expect, however, to continue to acquire substantially all our finished lot inventory using LPAs with forfeitable deposits.
As of
Lot Purchase Agreements
We controlled approximately 127,700 lots under LPAs with third parties through
deposits in cash and letters of credit totaling approximately
Joint Venture Limited Liability Corporations ("JVs")
We had an aggregate investment totaling approximately$30,000 in five JVs, expected to produce approximately 5,400 lots. Of the lots to be produced by the JVs, approximately 5,050 lots were controlled by us and approximately 350 were either under contract with unrelated parties or currently not under contract. We had additional funding commitments totaling approximately$2,000 to one of the JVs atJune 30, 2022 .Land Under Development
We owned land with a carrying value of approximately
24--------------------------------------------------------------------------------
Table of Contents
agreement related to one parcel, a portion of which we expect will be offset by
development credits of approximately
See Notes 2, 3 and 4 to the condensed consolidated financial statements included herein for additional information regarding LPAs, JVs and land under development, respectively.
Raw Land Purchase Agreements
In addition, we have certain properties under contract with land owners that are expected to yield approximately 23,900 lots, which are not included in the number of total lots controlled. Some of these properties may require rezoning or other approvals to achieve the expected yield. As ofJune 30, 2022 , these properties are controlled with deposits in cash totaling approximately$6,500 , of which approximately$4,300 is refundable if certain contractual conditions are not met. We generally expect to assign the raw land contracts to a land developer and simultaneously enter into an LPA with the assignee if the project is determined to be feasible.
Key Financial Results
Our consolidated revenues for the second quarter of 2022 totaled$2,658,943 , a 16% increase from the second quarter of 2021. Net income for the second quarter endedJune 30, 2022 was$433,314 , or$123.65 per diluted share, increases of 35% and 50% when compared to net income and diluted earnings per share in the second quarter of 2021, respectively. Our homebuilding gross profit margin percentage increased to 26.3% in the second quarter of 2022 from 22.6% in the second quarter of 2021. New orders, net of cancellations ("New Orders") decreased by 16% in the second quarter of 2022 compared to the second quarter of 2021. The average sales price for New Orders in the second quarter of 2022 was$471.6 , an increase of 7% compared to the second quarter of 2021.
Homebuilding Operations
The following table summarizes the results of operations and other data for our homebuilding operations:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Financial Data:
Revenues $ 2,610,062 $ 2,224,560 $ 4,919,289 $ 4,188,271
Cost of sales $ 1,924,727
26.3 % 22.6 % 27.3 % 21.2 %
Selling, general and administrative expenses $ 132,432 $ 113,406 $ 261,942 $ 234,825
Operating Data:
New orders (units) 4,663 5,521 10,590 11,835
Average new order price $ 471.6 $ 440.2 $ 468.3 $ 424.4
Settlements (units) 5,820 5,685 11,034 10,757
Average settlement price $ 448.4 $ 391.3 $ 445.8 $ 389.3
Backlog (units) 12,286 12,627
Average backlog price $ 473.9 $ 428.5
New order cancellation rate 14.3 % 8.3 % 12.1 % 9.0 %
Consolidated Homebuilding - Three Months Ended
Homebuilding revenues increased 17% in the second quarter of 2022 compared to
the same period in 2021, as a result of a 2% increase in settlements and a 15%
increase in the average settlement price. The increase in settlements was
attributable to a 5% higher backlog unit balance entering the second quarter of
2022 compared to the same period in 2021, offset partially by a lower backlog
turnover rate quarter over quarter attributable in part to the impact of supply
chain issues on our construction cycle times. The increase in the average
settlement price was
25--------------------------------------------------------------------------------
Table of Contents
primarily attributable to a 14% higher average sales price of units in backlog entering the second quarter of 2022 compared to the same period of 2021.
Gross profit margin percentage in the second quarter of 2022 increased to 26.3%,
from 22.6% in the second quarter of 2021. Gross profit margins were favorably
impacted by the increase in the average settlement price attributable to
improved pricing power in prior quarters, offset partially by higher material
and labor costs.
New Orders decreased 16% while the average sales price of New Orders increased
7% in the second quarter of 2022 compared to the second quarter of 2021. New
Orders were negatively impacted by a significant increase in mortgage interest
rates during the quarter, which resulted in a decline in affordability and in
turn, led to lower absorption rates quarter over quarter. Additionally, New
Orders were negatively impacted by an increase in the cancellation rate in the
second quarter of 2022 compared to the same period in 2021. The increase in the
average sales price of New Orders was primarily attributable to significant
price appreciation resulting from strong demand in prior quarters.
Selling, general and administrative ("SG&A") expense in the second quarter of
2022 increased by approximately $19,000 compared to the second quarter of 2021,
but as a percentage of revenue remained flat at 5.1% in each quarter. The
increase in SG&A expense was due primarily to a $10,100 increase in personnel
costs attributable to both increased headcount and to a $7,800 increase in
equity-based compensation. The increase in equity-based compensation was due to
a block grant of non-qualified stock options ("Options") and restricted share
units ("RSUs") in the second quarter of 2022 to key management employees and
directors, as further discussed in Note 7 in the accompanying condensed
consolidated financial statements.
Consolidated Homebuilding - Six Months Ended
Homebuilding revenues increased 17% in the first six months of 2022 compared to the same period in 2021, as a result of a 3% increase in settlements and a 15% increase in the average settlement price. The increase in settlements was attributable to a 10% higher backlog unit balance entering 2022 compared to the same period in 2021, offset partially by a lower backlog turnover rate year over year attributable in part to the impact of supply chain issues on our construction cycle times. The increase in the average settlement price was primarily attributable to a 15% higher average sales price of units in backlog entering 2022 compared to the same period of 2021. Gross profit margin percentage in the first six months of 2022 increased to 27.3%, from 21.2% in the first six months of 2021. Gross profit margins were favorably impacted by the increase in the average settlement price attributable to improved pricing power in prior quarters, offset partially by higher material and labor costs year over year. New Orders decreased 11% while the average sales price of New Orders increased 10% in the first six months of 2022 compared to the same period in 2021. New Orders were negatively impacted by a 6% decrease in the average number of active communities year over year. Additionally, the significant increase in mortgage interest rates during the first six months of 2022 resulted in a decline in affordability and in turn, led to lower absorption rates year over year. The increase in the average sales price of New Orders was primarily attributable to significant price appreciation resulting from strong demand in prior quarters. SG&A expense in the first six months of 2022 increased by approximately$27,100 compared to the same period in 2021, but as a percentage of revenue decreased to 5.3% in 2022 from 5.6% in 2021 due to improved leveraging of SG&A costs. The increase in SG&A expense was due primarily to an increase of approximately$18,200 in personnel costs attributable to both increased headcount and to an increase of approximately$5,300 in equity-based compensation. As noted in the quarterly SG&A discussion above, the increase in equity-based compensation was due to a block grant of Options and RSUs in the second quarter of 2022. Our backlog represents homes sold but not yet settled with our customers. As ofJune 30, 2022 , our backlog decreased on a unit basis by 3% to 12,286 units and increased on a dollar basis by 8% to$5,821,745 when compared to 12,627 units and$5,410,376 , respectively, as ofJune 30, 2021 . The decrease in backlog units was primarily attributable to an 11% decrease in New Orders in the six-month period endedJune 30, 2022 compared to the same period in 2021. Backlog dollars were higher due primarily to a 10% increase in the average sales price of New Orders during the six-month period endedJune 30, 2022 compared to the same period in 2021. 26
--------------------------------------------------------------------------------
Table of Contents
Our backlog may be impacted by customer cancellations for various reasons that are beyond our control, such as failure to obtain mortgage financing, inability to sell an existing home, job loss, or a variety of other reasons. In any period, a portion of the cancellations that we experience are related to new sales that occurred during the same period, and a portion are related to sales that occurred in prior periods and therefore appeared in the opening backlog for the current period. Calculated as the total of all cancellations during the period as a percentage of gross sales during that same period, our cancellation rate was approximately 12% and 9% in the first six months of 2022 and 2021, respectively. During the most recent four quarters, approximately 3% of a reporting quarter's opening backlog cancelled during the fiscal quarter. We can provide no assurance that our historical cancellation rates are indicative of the actual cancellation rate that may occur during the remainder of 2022 or future years. Other than those units that are cancelled, and subject to potential construction delays resulting from continued supply chain and/or COVID-19 related disruptions, we expect to settle substantially all of ourJune 30, 2022 backlog within the next twelve months. The backlog turnover rate is impacted by various factors, including, but not limited to, changes in New Order activity, internal production capacity, external subcontractor capacity, building material supply chain disruptions and other external factors over which we do not exercise control.
Reportable Segments
Homebuilding segment profit includes all revenues and income generated from the sale of homes, less the cost of homes sold, SG&A expenses, and a corporate capital allocation charge determined by corporate management. The corporate capital allocation charge eliminates in consolidation and is based on the segment's average net assets employed. The corporate capital allocation charged to the operating segment allows the Chief Operating Decision Maker to determine whether the operating segment is providing the desired rate of return after covering our cost of capital. We record charges on contract land deposits when we determine that it is probable that recovery of the deposit is impaired. For segment reporting purposes, impairments on contract land deposits are generally charged to the operating segment upon the termination of an LPA with the developer, or the restructuring of an LPA resulting in the forfeiture of the deposit. We evaluate our entire net contract land deposit portfolio for impairment each quarter. For presentation purposes below, the contract land deposit reserve atJune 30, 2022 andDecember 31, 2021 has been allocated to the respective year's reportable segments to show contract land deposits on a net basis. The net contract land deposit balances below also include approximately$8,100 and$10,100 atJune 30, 2022 andDecember 31, 2021 , respectively, of letters of credit issued as deposits in lieu of cash.
The following tables summarize certain homebuilding operating activity by
reportable segment for the three and six months ended
Selected Segment Financial Data:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Revenues:
Mid Atlantic $ 1,208,312 $ 1,048,416 $ 2,350,020 $ 1,984,556
North East 237,394 193,245 412,945 355,438
Mid East 521,038 478,179 982,442 903,132
South East 643,318 504,720 1,173,882 945,145
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Gross profit margin:
Mid Atlantic $ 323,986 $ 235,944 $ 642,200 $ 427,246
North East 59,162 36,090 100,866 65,037
Mid East 115,849 89,702 217,256 167,206
South East 194,236 112,859 346,335 202,589
27--------------------------------------------------------------------------------
Table of Contents
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Gross profit margin percentage:
Mid Atlantic 26.8 % 22.5 % 27.3 % 21.5 %
North East 24.9 % 18.7 % 24.4 % 18.3 %
Mid East 22.2 % 18.8 % 22.1 % 18.5 %
South East 30.2 % 22.4 % 29.5 % 21.4 %
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Segment profit:
Mid Atlantic $ 251,739 $ 174,481 $ 501,520 $ 303,548
North East 41,297 21,510 67,225 36,737
Mid East 82,512 59,887 153,695 108,828
South East 150,822 78,919 264,276 135,584
Operating Activity:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Average Average Average Average
Units Price Units Price Units Price Units Price
New orders, net of cancellations:
Mid Atlantic 1,860 $ 535.1 2,090 $ 535.4 4,167 $ 531.8 4,381 $ 518.1
North East 441 $ 503.7 394 $ 499.3 901 $ 513.5 834 $ 486.3
Mid East 1,114 $ 410.5 1,320 $ 375.7 2,648 $ 403.6 3,115 $ 361.1
South East 1,248 $ 420.0 1,717 $ 360.3 2,874 $ 421.6 3,505 $ 348.7
Total 4,663 $ 471.6 5,521 $ 440.2 10,590 $ 468.3 11,835 $ 424.4
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Average Average Average Average
Units Price Units Price Units Price Units Price
Settlements:
Mid Atlantic 2,292 $ 527.1 2,224 $ 471.4 4,472 $ 525.5 4,234 $ 468.7
North East 472 $ 503.0 433 $ 446.3 820 $ 503.6 805 $ 441.5
Mid East 1,356 $ 384.2 1,404 $ 340.6 2,566 $ 382.8 2,667 $ 338.6
South East 1,700 $ 378.4 1,624 $ 310.7 3,176 $ 369.6 3,051 $ 309.8
Total 5,820 $ 448.4 5,685 $ 391.3 11,034 $ 445.8 10,757 $ 389.3
As of June 30,
2022 2021
Average Average
Units Price Units Price
Backlog:
Mid Atlantic 4,613 $ 541.1 4,626 $ 517.7
North East 1,050 $ 519.3 979 $ 485.7
Mid East 3,109 $ 399.0 3,322 $ 364.8
South East 3,514 $ 438.2 3,700 $ 359.0
Total 12,286 $ 473.9 12,627 $ 428.5
28--------------------------------------------------------------------------------
Table of Contents
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
New order cancellation rate:
Mid Atlantic 15.2 % 7.8 % 12.5 % 8.7 %
North East 9.8 % 6.6 % 9.0 % 8.9 %
Mid East 17.0 % 10.4 % 14.1 % 9.3 %
South East 11.7 % 7.5 % 10.5 % 9.2 %
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Average active communities:
Mid Atlantic 155 153 153 156
North East 38 32 36 33
Mid East 121 126 125 133
South East 92 109 91 110
Total 406 420 405 432
Homebuilding Inventory:
June 30, 2022 December 31, 2021
Sold inventory:
Mid Atlantic $ 945,903 $ 867,892
North East 197,451 154,053
Mid East 425,800 342,011
South East 540,641 439,892
Total (1) $ 2,109,795 $ 1,803,848
June 30, 2022 December 31, 2021
Unsold lots and housing units inventory:
Mid Atlantic $ 114,633 $ 87,412
North East 18,007 14,656
Mid East 17,822 12,892
South East 25,488 14,193
Total (1) $ 175,950 $ 129,153
(1) The reconciling items between segment inventory and consolidated inventory
include certain consolidation adjustments necessary to convert the reportable
segments' results, which are predominantly maintained on a cash basis, to a full
accrual basis for external financial statement presentation purposes. These
consolidation adjustments are not allocated to our operating segments.
29--------------------------------------------------------------------------------
Table of Contents
Lots Controlled and Land Deposits:
June 30, 2022 December 31, 2021
Total lots controlled:
Mid Atlantic 48,900 47,900
North East 11,600 11,900
Mid East 23,700 23,700
South East 49,000 41,400
Total 133,200 124,900
June 30, 2022 December 31, 2021
Contract land deposits, net:
Mid Atlantic $ 247,884 $ 257,244
North East 56,289 51,257
Mid East 53,815 52,537
South East 174,487 146,246
Total $ 532,475 $ 507,284
Mid Atlantic
Three Months Ended
The Mid Atlantic segment had an approximate$77,300 , or 44%, increase in segment profit in the second quarter of 2022 compared to the second quarter of 2021. The increase in segment profit was driven by an increase in segment revenues of approximately$159,900 , or 15%, coupled with an increase in gross profit margins. Segment revenues increased due to increases in settlements and the average settlement price of 3% and 12%, respectively. The increases in settlements and the average settlement price were primarily attributable to a 6% higher backlog unit balance and a 10% higher average sales price of units in backlog entering the second quarter of 2022 compared to backlog entering the second quarter of 2021. The Mid Atlantic segment's gross profit margin percentage increased to 26.8% in the second quarter of 2022 from 22.5% in the second quarter of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 12% increase in the average settlement price, offset partially by higher material and labor costs quarter over quarter. Segment New Orders decreased 11% in the second quarter of 2022 compared to the second quarter of 2021. The average sales price of New Orders was flat quarter over quarter. New Orders were negatively impacted by a significant increase in mortgage interest rates during the quarter which resulted in a decline in affordability and in turn, led to lower absorption rates quarter over quarter. Additionally, New Orders were negatively impacted by an increase in the segment's cancellation rate in the second quarter of 2022 compared to the same period in 2021.
Six Months Ended
The Mid Atlantic segment had an approximate$198,000 , or 65%, increase in segment profit in the first six months of 2022 compared to the first six months of 2021. The increase in segment profit was driven by an increase in segment revenues of approximately$365,500 , or 18%, coupled with an increase in gross profit margins. Segment revenues increased due to increases in settlements and the average settlement price of 6% and 12%, respectively. The increases in settlements and the average settlement price were primarily attributable to a 10% higher backlog unit balance and a 14% higher average sales price of units in backlog entering 2022 compared to backlog entering 2021. The Mid Atlantic segment's gross profit margin percentage increased to 27.3% in the first six months of 2022 from 21.5% in the first six months of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 12% increase in the average settlement price, offset partially by higher material and labor costs period over period. Segment New Orders decreased 5% in the first six months of 2022 compared to the first six months of 2021. The average sales price of New Orders increased 3% in the first six months of 2022 compared to the first six months 30
--------------------------------------------------------------------------------
Table of Contents
of 2021. New Orders were negatively impacted by the significant increase in mortgage interest rates during the first six months of 2022 resulting in a decline in affordability and in turn, led to lower absorption rates year over year. The increase in the average sales price of New Orders was attributable to significant price appreciation resulting from strong demand in prior quarters.
Three Months Ended
TheNorth East segment had an approximate$19,800 , or 92%, increase in segment profit in the second quarter of 2022 compared to the second quarter of 2021, due primarily to an increase in segment revenues of approximately$44,100 , or 23%, coupled with an increase in gross profit margins. Segment revenues increased due to increases in settlements and the average settlement price of 9% and 13%, respectively. The increase in settlements was attributable to a 6% higher backlog unit balance entering the second quarter of 2022 compared to backlog entering the second quarter of 2021, coupled with a higher backlog turnover rate quarter over quarter. The increase in the average settlement price was primarily attributable to a 12% higher average sales price of units in backlog entering the second quarter of 2022 compared to backlog entering the second quarter of 2021. The segment's gross profit margin percentage increased to 24.9% in the second quarter of 2022 from 18.7% in the second quarter of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 13% increase in the average settlement price quarter over quarter, offset partially by higher material and labor costs quarter over quarter. Segment New Orders and the average sales price of New Orders increased 12% and 1%, respectively, in the second quarter of 2022 compared to the second quarter of 2021. The increase in New Orders was primarily attributable to a 16% increase in the average number of active communities, offset partially by lower absorption rates quarter over quarter.
Six Months Ended
TheNorth East segment had an approximate$30,500 , or 83%, increase in segment profit in the first six months of 2022 compared to the first six months of 2021, due primarily to an increase in segment revenues of approximately$57,500 , or 16%, coupled with an increase in gross profit margins. Segment revenues increased due to increases in settlements and the average settlement price of 2% and 14%, respectively. The increases in settlements and the average settlement price were primarily attributable to a 2% higher backlog unit balance and a 14% higher average sales price of units in backlog entering 2022 compared to backlog entering 2021. The segment's gross profit margin percentage increased to 24.4% in the first six months of 2022 from 18.3% in the first six months of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 14% increase in the average settlement price, offset partially by higher material and labor costs period over period. Segment New Orders and the average sales price of New Orders increased 8% and 6%, respectively, in the first six months of 2022 compared to the first six months of 2021. The increase in New Orders was primarily attributable to a 7% increase in the average number of active communities quarter over quarter. The increase in the average sales price of New Orders was primarily attributable to significant price appreciation resulting from strong demand in prior quarters.
Mid East
Three Months Ended
The Mid East segment had an approximate$22,600 , or 38%, increase in segment profit in the second quarter of 2022 compared to the second quarter of 2021, due primarily to an increase in segment revenues of approximately$42,900 , or 9%, coupled with an increase in gross profit margins. Segment revenues increased due to a 13% increase in the average settlement price, offset partially by a 3% decrease in settlements. The increase in the average settlement price was primarily attributable to an 11% higher average sales price of units in backlog entering the second quarter of 2022 compared to same period in 2021. The decrease in settlements was attributable to a 4% lower backlog unit balance entering the second quarter of 2022 compared to the same period in 2021. The segment's gross profit margin percentage increased to 22.2% in the second quarter of 2022 from 18.8% in the 31
--------------------------------------------------------------------------------
Table of Contents
second quarter of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 13% increase in the average settlement price, offset partially by higher material and labor costs quarter over quarter.
Segment New Orders decreased 16% in the second quarter of 2022 compared to the second quarter of 2021, while the average sales price of New Orders increased 9%. New Orders were negatively impacted by a significant increase in mortgage interest rates during the quarter which resulted in a decline in affordability and in turn, led to lower absorption rates and an increase in the segment's cancellation rate quarter over quarter. Additionally, New Orders were negatively impacted by a 3% decrease in average number of active communities quarter over quarter. The increase in the average sales price of New Orders was primarily attributable to significant price appreciation resulting from strong demand in prior quarters.
Six Months Ended
The Mid East segment had an approximate$44,900 , or 41%, increase in segment profit in the first six months of 2022 compared to the first six months of 2021, due primarily to an increase in segment revenues of approximately$79,300 , or 9%, coupled with an increase in gross profit margins. Segment revenues increased due to a 13% increase in the average settlement price, offset partially by a 4% decrease in settlements year over year. The increase in the average settlement price was primarily attributable to an 11% higher average sales price of units in backlog entering 2022 compared to backlog entering 2021. The decrease in settlements was attributable to a lower backlog turnover rate due in part to the impact of supply chain issues on our construction cycle times. The segment's gross profit margin percentage increased to 22.1% in the first six months of 2022 from 18.5% in the first six months of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 13% increase in the average settlement price, offset partially by higher material and labor costs period over period. Segment New Orders decreased 15% in the first six months of 2022 compared to the first six months of 2021, while the average sales price of New Orders increased 12%. New Orders were negatively impacted by a significant increase in mortgage interest rates during the first six months of 2022 which resulted in a decline in affordability and in turn, lower absorption rates and an increase in the segment's cancellation rate year over year. Additionally, New Orders were negatively impacted by a 6% decrease in average number of active communities year over year. The increase in the average sales price of New Orders was primarily attributable to significant price appreciation resulting from strong demand in prior quarters. South East
Three Months Ended
The South East segment had an approximate$71,900 , or 91%, increase in segment profit in the second quarter of 2022 compared to the second quarter of 2021. The increase in segment profit was primarily driven by an increase in segment revenues of approximately$138,600 , or 27%, coupled with an increase in gross profit margins. The increase in revenues was attributable to a 5% increase in settlements and a 22% increase in the average settlement price quarter over quarter. The increase in settlements was attributable to a 10% higher backlog unit balance entering the second quarter of 2022 compared to the backlog unit balance entering the second quarter of 2021, offset by a lower backlog turnover rate attributable in part to the impact of supply chain issues on our construction cycle times. The increase in the average settlement price was primarily attributable to a 24% higher average sales price of units in backlog entering the second quarter of 2022 compared to backlog entering the second quarter of 2021. The segment's gross profit margin percentage increased to 30.2% in the second quarter of 2022 from 22.4% in the second quarter of 2021. Gross profit margins were favorably impacted primarily by the aforementioned 22% increase in the average settlement price, offset partially by higher material and labor costs quarter over quarter. Segment New Orders decreased 27% in the second quarter of 2022 compared to the second quarter of 2021, while the average sales price of New Orders increased 17% in the second quarter of 2022. The decrease in New Orders was primarily attributable to a 16% decrease in average number of active communities quarter over quarter. Additionally, New Orders were negatively impacted by a significant increase in mortgage interest rates during the second quarter of 2022 which resulted in a decline in affordability and led to lower absorption rates and an increase in the segment's cancellation rate quarter over quarter. The increase in the average sales price of New Orders was primarily attributable to significant price appreciation resulting from strong demand in prior quarters. 32
--------------------------------------------------------------------------------
Table of Contents
Six Months Ended
The South East segment had an approximate$128,700 , or 95%, increase in segment profit in the first six months of 2022 compared to the first six months of 2021. The increase in segment profit was driven by an increase in segment revenues of approximately$228,700 , or 24%, year over year. Segment revenues increased due to increases in settlements and the average settlement price of 4% and 19%, respectively, year over year. The increase in settlements was attributable to an 18% higher backlog unit balance entering 2022 compared to the backlog unit balance entering 2021, offset partially by a lower backlog turnover rate year over year due in part to the impact of supply chain issues on our construction cycle times. The increase in the average settlement price was primarily attributable to a 22% higher average sales price of units in backlog entering 2022 compared to backlog entering 2021. The segment's gross profit margin percentage increased to 29.5% in the first six months of 2022 from 21.4% in the first six months of 2021. Gross profit margins were favorably impacted by the aforementioned 19% increase in the average settlement price, offset partially by higher material and labor costs period over period. Segment New Orders decreased 18% in the first six months of 2022 compared to the first six months of 2021, while the average sales price of New Orders increased 21% year over year. The decrease in New Orders was primarily attributable to a 17% decrease in the average number of active communities. The average sales price of New Orders increased 21% in the first six months of 2022 compared to the first six months of 2021 due primarily to significant price appreciation resulting from strong demand in prior quarters.
Homebuilding Segment Reconciliations to Consolidated Homebuilding Operations
In addition to the corporate capital allocation and contract land deposit
impairments discussed above, the other reconciling items between homebuilding
segment profit and homebuilding consolidated income before tax include
unallocated corporate overhead (which includes all management incentive
compensation), equity-based compensation expense, consolidation adjustments and
external corporate interest expense. Our overhead functions, such as accounting,
treasury and human resources, are centrally performed and the costs are not
allocated to our operating segments. Consolidation adjustments consist of such
items to convert the reportable segments' results, which are predominantly
maintained on a cash basis, to a full accrual basis for external financial
statement presentation purposes, and are not allocated to our operating
segments. External corporate interest expense primarily consists of interest
charges on our Senior Notes, and is not charged to the operating segments
because the charges are included in the corporate capital allocation discussed
above.
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Homebuilding consolidated gross profit:
Mid Atlantic $ 323,986 $ 235,944 $ 642,200 $ 427,246
North East 59,162 36,090 100,866 65,037
Mid East 115,849 89,702 217,256 167,206
South East 194,236 112,859 346,335 202,589
Consolidation adjustments and other (7,898) 28,292 36,540 27,067
Homebuilding consolidated gross profit $ 685,335 $ 502,887 $ 1,343,197 $ 889,145
33--------------------------------------------------------------------------------
Table of Contents
© Edgar Online, source
