Specialist
Former executive at NVR Inc
Agenda
- NVR (NYSE: NVR) – competitive positioning and impacts of its asset-lite business model, highlighting broader adoption of the model by smaller peers
- Implications of rising rates and geographical growth opportunities, drawing comparisons to historical economic downturns and NVR’s relative performance
- H2 2022 outlook, noting recent management changes and impact on strategy
Questions
1.
Where do you think we are in the US housing cycle? What indicators or metrics would you highlight to support your view?
2.
Where should we expect to see cancellations continue to tick higher, if at all? Are there any common denominators, either regions or customer groups, that you think are more likely to start to cancel in the coming months?
3.
What are your expectations for NVR in terms of settlements, orders, ASP and community count through H2 2022 and into 2023?
4.
How do you expect gross margins will trend? We saw NVR post high 20s, while Street forecasts have them falling to 23% in 2023. Does that seem realistic? What do sustainable operating or gross margins look like in your view?
5.
How did NVR strategy or business shift over the decades you were there? What have been the more underappreciated or misunderstood elements of the company that you’ve seen shift or evolve over the last few decades?
6.
There’s a lot of focus on NVR’s asset-lite model as recession fears mount and rates rise. Could you give us some perspective on the past cycles you worked through and the company’s performance in those past markets, drawing parallels to today? What’s different this time around and what similarities would you
draw?
7.
Some smaller builders have replicated NVR’s asset-lite and optioning strategy. How has that impacted NVR’s competitive dynamics or strategy? Has anything shifted there as competitors have emerged with similar strategies?
8.
You said if everybody had an asset-lite strategy, it would be better for NVR. To what extent does competition make it harder for NVR to find the best lots?
9.
Where does NVR’s competitive advantage lie in its strategy? As you said, the company started decades earlier and has a scale advantage. What can it do a lot better than its peers when it comes to the asset-lite business model? Is it the financing side, or screening for the best lots?
10.
Is there anything else that makes the advantage with the asset-lite model particularly defensible? To play devil’s advocate, if management was to leave NVR, why couldn’t it replicate the strategy elsewhere? Are there any other inherent core advantages that just lie at the company?
11.
To what extent is it difficult for NVR to move into new geographies? How does the company’s strategy affect its ability to move into new regions?
12.
To clarify, you’re saying the hottest markets are usually the hardest for NVR to get into and take share? Does that serve as another tailwind with a recession looming? Perhaps the company won’t be in some of the overheated markets?
13.
NVR has eight manufacturing facilities. What does the company do at the facilities and what is the competitive advantage for having that many while peers have only a few?
14.
What levers can NVR pull to control costs in the event of an economic downturn? What unique advantages does the company have when it comes to cost control?
15.
We’ve seen mortgages fall, and price declines come in. What levers do builders have to potentially slow the pace of building to slow price depreciation? What could we expect to see out of public builders besides NVR in the coming months as things start to slow down and they try to control things?
16.
NVR has a long history of buying back shares. Do you expect management will remain aggressive on that buyback strategy as P&L starts to wane, as you alluded to, or might it pull back?
17.
How would you describe the culture at NVR and what are your views on the new CEO, Eugene Bredow?
18.
What unique risks would you highlight with the changeover in NVR management? You mentioned less homebuilding experience.
19.
What are you most concerned about regarding the US housing market or NVR specifically?
