Earnings call transcript Q2 2023

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Operator

Good afternoon. And welcome to Green Brick Partners Earnings Call for the Second Quarter ended June 30, 2023.

Following today’s remarks, we will hold a Q&A session.

As a reminder, this call is being recorded and will be available for playback.

In addition, a presentation will accompany today’s webcast and also is available on the company website at investors.greenbank -- sorry, investors.greenbrickpartners.com.

call Rick Jim and Costello, Chief Officer. the Chief Co-Founder Jed on Operating Officer; Executive Chief us today Brickman, is and Dolson, Joining Financial Officer;

including discussed XXXX for beyond. company In and call Some detailed operational release and on press filings, the financial and information is of forward-looking, SEC the yesterday’s material company’s expectations that this the risks has are differ no as forward-looking may future its expectations. its cause and any from the to results XXXX, obligation to company today, update statements of make. company’s may August X, statements The it

in non-GAAP metrics. earnings presentation the the G company the include also comments available metrics by be these can reconciliation release and that The on information Regulation the required financial and website. The the in of company found other yesterday issued

With call turn to Brickman. the Jim that, I over

Jim Brickman

The you. Brick Green the XX.X% return report metrics on I book by extraordinary. our has by key reflected delivered performance in another quarter. of to am for our Thank quarter, highlighted our teams annualized level been that equity and execution displayed pleased outstanding second

we gross margin sequentially of slide public XXX homebuilding QX quarter, points to our XX.X% XX.X%, second only homebuilders the achieved company is Most $XXX highest in on homes, homebuilding second XXX This margin closing basis revenues. the five. During than This million in the our XXXX. high among record notably, is history. as shown basis increased lower highest generating in XXX gross home points delivered

highest adjacent land our our are history. efficiency. XX% sequentially of share infill results $XX diluted Earnings focus operational second diluted up $X.XX, strategy second result and was which was quarter income on the company exceptional was self-development infill We EPS in the locations, and million. during Net believe and per

all XXX,XXX the as repurchased of stock for we as common carried second Strong December shares total into outstanding XX, normal of million, experienced seasonality. was demand shares representing sales that of momentum quarter X.X% of above our our year-to-date, brands XXXX. $XX.X Additionally,

to Net homebuilding new this our the homeowners shown in public in of highest the highest company’s year-over-year our second and reflected net on in our slide new XX% second any increased among increase Year-to-date, peers percentage growth history. is four. XXX homes, XX% homeowners of the quarter quarter

Our in points to cancellation down was rate year-over-year and XXX X.X% the industry. basis remained the lowest

demand There homes. the are forces fueling for multiple work at new

entering life a same at X First, of approximately while be underproduction country that housing, a homebuying units, and million shown on after growing decade in time, propelling our the faces chronic them slide fast as are of market, shortage into housing stages of Z are to millennials six. over Gen the of segment a

with their in has to their our homeowners existing seven. years. country Most existing their the May level reluctant driven markets as homebuying low sell all-time near population in-migration are and homes who and home younger on slide loans forfeit prime are significantly, seen much low record best to that interest in a are significant among rate a inventory in fact The the in

back a homes buyers construction for locations existing more inventory, particularly housing the the found factors attractive existing of going to again Many lowest inventory infill an yet XXXX. alternative. home we The wars is pushing presence. surprisingly our bidding for of themselves current where in in May are as These have to month homebuyers strong new

up as decade XX% digits homes from that this Street homes Wall Journal as historic teens. and year, a new restated single-family of The a high levels new single all sale reported ago for in share as the

and life significant competition existing submarkets and as infill other entitlement our in from long-term adjacent result, a where and believe and land of development and strategic our holdings We builders one our advantages infill inventories expertise, limited. is

were year year-to-date to from expected Atlanta XX. revenues approximately this Approximately infill generated on finished slides in to adjacent finished XX% be lots infill of and DFW locations our and and are and XX of in self-developed areas shown total and be our adjacent XX% infill desirable infill in

of peaked in incentives communities demand, December through declined in of two have As a quarters XXXX first result our XXXX. this steadily and the

We for capitalize a overall open in reserves this acquisition land role abundant in marketplace. plays continue and Land on to liquidity of lot selection pivotal and is upon and cash up approach wide our site array a and us in based success to will disciplined possibilities our opportunities underwriting. a believe

remaining debt, to Banks typically self-develop. about the fund builders require only is lot Most the is XX% XX%. or a XX% more development capital have sheet to of private at do equity which their with balance customers of not best from cost

accumulation we find an of attractive much has in interest avoid cost cash allowed the financing to million if and also us of higher environment Our in high $XXX act rate today’s quickly investment.

capital historical At decreased fixed all at we strategic to This growth for or about opportunities with ratio as our capital to dry rate gives expansion that continue for the average Green Brick primarily low debt and XX.X%, of on of end the shareholders. provide significant only return believe slide identify Further, was XX.X%. debt a an cost shown of excellent we to total us total at powder will our as X.X%. four, to net long-term debt our quarter,

now over regarding will detail to Rick I to more that, turn provide With financials. our this

Rick Costello

the Thank second XXXX that of slide units, quarter in XXXX. year-over-year all-time of second you, of during XXX QX high XX% presentation. level lower Jim. to deliveries were the lapping fact deliveries the levels half eight the declined to Please an of reflecting we turn starts of Home and the in

closings home constant the delivered to $XXX quarter, $XXX,XXX. history. revenue to the year-over-year for million. remained Year-to-date, second The homes million This highest $XXX ASP company closings brought at X.X% in grew of second revenue home our

units SG&A as XX.X% primarily revenue increase residential commissions. up QX, X.X% year-over-year, an a due in was brokerage from percentage of to in

company and share, the XX% per history. quarter was second quarter $X.XX from in per share up first earnings Diluted highest second for the the

second improving near low level, remained for X.X%. record a cancellation basis the quarter Our year-over-year points XXX to rate

public lowest on homebuilders. quarter cancellation slide shown the was As our XX, rate second among the

normal earlier, momentum seasonality sales above selling spring season. was mentioned the Jim As throughout

During quarter, orders level XXX second net any quarter order for company XX% the home second increased homes, history. year-over-year highest our in to new

compared mix in a $XXX,XXX to decline year Changes million. incentives continue second in lead rate. on year year-to-date, slide in homebuilding from have new with product our public growth prior home orders shown year-over-year four, ASP from to year we the $XXX Revenues XX% in the this an XX% peers As net up orders to as resulted new orders ago. higher period year of slightly in to quarter and X% was a

Active QX to up communities of at end XX% the selling year-over-year were XX.

Our in XX% quarters active selling orders absorption quarterly homes, history. rate community X.X third three up this absorption of highest in for was rate now year. are our up XX% net the two on our best Year-to-date, company history to the year-over-year of per average heels year-over-year

under and of selling, quarter levels of XXXX Sequentially, finishing quarter. our by lower a units result construction, homes was our the available the spec during half of second and declined therefore, QX from sell number two, of driven second to a starts that the and This attributable absorption of inventory high second our the an impacted XXXX. in smaller pipeline to the inventory, finished XXXX, quarter rate to in pace unsustainable one, of, X.X sales in a units record in first XX.X as

having detail delivered brands margin on with industry was five. XXXX, Our the as is homebuilding points experienced during of gross in the drove Jed in gross shown provide shortly QX highest slide XX.X% further our all XXX the margins. margins our quarter basis QX. what than homes second will higher on homebuilding This on higher higher

The entering our the X.X% due $XXX quarter second to quarter, of smaller backlog backlog XX% value at year-over-year while the ASP of to to $XXX,XXX. end the million decreased increased

ending Sequentially, from increase represented significant However, year. the increased of of backlog beginning backlog X.X%. dollars a the XX%

construction from as the construction a down unchanged from is at units of XX.X% XX/XX/XX. the second at total the under units percentage quarter, under XX% which at quarter end of previous Spec was

strong units. of delivered to With under QX, from quarter and sequentially modestly backdrop demand in we XXX second XX% starts homes our X,XXX construction units. sales to quarter the second the momentum, by X,XXX XXX in On during the increased increased units units

ever. balance our than is stronger Lastly, sheet

XXX% debt As rate of our outstanding June and long-term. fixed XX% is XX, XXXX,

the costs. borrowing mentioned, of million on $XXX As have short-term second cash the at of quarter, high we end hand Jim to avoid us allowing

capital total ratio XX and points decreased to XXX from Debt XX.X%. last year to basis points sequentially basis

total down XXX to capital last down from was debt last points net of quarter. basis Our X,XXX and low a points historic basis XX.X%, year ratio from at

With will now that, Jed. Jed? over it turn to I

Jed Dolson

both from of in is builders Supply during Rick. we Because infill see limited. of these the demand our to continuing levels quarter. Thank surprised the are constrained not resale and is location, and for locations our competition homes high second inventory you, other

Atlanta, to our job geographic cities two contributed and the of sales and footprint Additionally, our success. heavy in leading also population DFW growth in

performance of all the exceptionally Sales have communities. seasonal interest impact limited in year-over-year with growth areas quarter. exceeded expectations and seem housing our we during slowing in across the second rates XX% to order net pleased High demand are most

With to levels moderated in from record sales available fewer the QX. the finished sell, and finishing homes in quarter second

Green the continued to demand to further of in Brick, QX. us decrease X.X% create X.X% which incentives from price sales orders healthy unmet quarter for enabled However, previous selling to

Reduced Fort margins to XX% different favorable and incentives gross Worth orders increase approximately cost buys in due to our in the quarter. were brands. XX% incentives We new communities second reduce to or able strategic for prices homebuilding and our in Dallas, drove our land higher across basis products of

construction an days XX For of end by second homes cycle all average closed XXXX. across quarter, the from our times in brands the decreased of

stabilization to materials are supply general and chain. and the We of availability pricing pleased in the across labor see

with pricing and largest margins. construction on an and should opportunities industry-leading We negotiating cycle edge times, our maintaining improvements, our DFW, in seizing give land homebuilder with and us the ongoing identifying in as our lot scale competitive along believe operational continue trades, to third reducing

our With lots working we are sales, continuing in diligently bring line. to to finish the development strong

XXXX infill and in Atlanta of concentrated As slide and lot DFW adjacent areas. and desirable seen in expected will be XX, on deliveries most XX our infill

quarter, end second slide X,XXX approximately and shown the XXXX, balance delivered our lots of we have XX, December as lots As on on approximately XX. finished of sheet expect of to X,XXX finished the as

XXXX. X,XXX approximately cost lots industry-leading the a year we for XXXX beginning help as us lots basis continue should year For of X,XXX through favorable finished context, believe margins. the that of about gross These per had after to averaging starts we generate of

we In existing infill take and finished high market that to quality also strong a locations. with lots in inventory, well suited we with sheet low home balance ample environment an believe persistently are share

the cost higher of private with due which capital may impact the particularly more builders This banking financing and sector stresses, from could and be terms. true follow-up to stringent smaller

the at desirable level Austin a soft believe growing Austin of strong presence had demand end sales at establish we Trinity in and for Lastly, positioned for to and homes unmet Austin well the is market. in entry is July. opening in We Ranch a there Trophy

our share to excited quarters. results of are market our We in newest coming

to With over that, turn closing I Jim remarks. will it Jim? for

Jim Brickman

my our extend To employees. Jed. call you, I appreciation draw Thank to to want our today, close to

Our have achieved am together it model really talk about am superior done, to returns. collective to continue that. did and of our adjusted teams I but and is done risk I it that to we immensely getting proud confident our efforts get should provide not what

and that the to a and in we to we rate for about homes environment. opportunities housing ahead, and persist before Looking interest market possibilities continues positioned large excited single-family high strength The meet demand us. well the even are resilience show remain

forward industry you deliver to today results with shareholders. performance value you with our It’s again demonstrate and to speaking been The share achieve our next to leading to ability pleasure our constantly share quarter. look accomplishments we a we today and

questions. Thank the line you. now We open for

Operator

Thank Reichardt you. comes [Operator of Instructions] Please Your line from go the first BTIG. of question ahead. Carl

Carl Reichardt

sure morning, what good is. Good guys. or Good afternoon Not morning. it Thanks. time

also of we of three second more for trends see some about seasonality seasonal in? started normal activity sales to talked in similar or you curious all sort quarter. if norm above July if I am showing the So creeping is normal above

Jim Brickman

But Carl. we and change we didn’t sales change continued from really June see that rolled or we degradation on any the June radical any at all tracking margin didn’t July closely, and see either. pretty much

Carl Reichardt

mix you curious I your talk relative Okay. fairly Great, wide and the you ranging, then mentioned if performance, your some of versus the especially think, product Jim. And peers. well. end is Thank you for are brands and about can am you that. the to Trophy Can type I absorptions talk Jed, mean, say, doing Signature that mid-to-high about I for, all product? performance of pricing homes

Jed Dolson

move so we buyers. high more just high time optionality entry to have take level end this is They constrained supply What are for that. is I seen The very Yeah. Carl, is first is very, Jed. that the demand up. will there. more the the

in So it’s as well. competitive, places a still our we are little paces getting but those underwriting more

Operator

Thank you.

line Your perhaps, next Rygiel go Riley your question comes is on of [ph]. of line from the Please ahead. B. Alex mute. Alex,

Alex Rygiel

much. as notable Thank finished The lot in inventory prior to number a relative it’s X,XXX Sorry high about you very rate. that. seems sales of your year

the growth expect community acceleration an count here question expect should an in I guess So lost we should is, acceleration or in sales? we

Jim Brickman

Yeah.

are to chime have We Jed going on this. in

not contain count to of communities these but lot are of only We going lots. growth and are have there communities, some community the absolute more our lots do number more in numbers a in

think? you So, Jed, what do

Jed Dolson

Yeah.

say, we about development issues having XX of XXX months. have excited, We kind XX Alex, we that besiege because, months the oh, of had that out the gap past with we are all are excited are these have phase that sorry, delays community, are, the industry land and piece whole not to lots getting really deliveries

Alex Rygiel

And a follow-on question. to that

As community the size of communities would absorption grows, rates those in expect well? to your as accelerate you the

Jed Dolson

Yeah.

really are again, on and that We excited months of some communities of out COVID of we just we that are record coming track about kind really delivering three bought are excited now -- had them. we new

the up. high and some and sales per go are double-digit really the are produce think should that we our significantly We we land absorptions market communities we like and seeing under think we basis so general absorption month

Operator

comes of McCanless line Jay question from go Please Instructions] the you. Thank ahead. Wedbush. of Your next [Operator

Jay McCanless

Good morning, Thanks. everyone.

because effect have First had, bit question and script existing not homeowners think, of Green in you little in assumption? Is of correct but I the deck, to the a locations. kind infill answered it seems already just your I the Brick probably a this wanting has in more like move benefited that of locked

Jim Brickman

Yeah.

They assumption. that’s and price locations. builders. don’t have the kind think of I points those the of higher correct locations. a only they in lots all see those only we it self-develop builder in and AAA are any really We Atlanta where in are We have we

Jay McCanless

Right.

in what price, in back where factors raising are you are of dialing and causing communities? not guess, I you the what at XX% are are it raise to those is communities that incentives So, -- you the not XX% least prices to

Jed Dolson

competitors. other Just more competition from

Rick Costello

a really offer And are buy-downs things seeing that either we rate Jay, number. are one very of we the to is not that’s big long-term and having

to a not of that in So having is do kind effect like price increase.

Jim Brickman

is Those some is Kind Costco at and in of in The in location, simplistic and we pretty pretty Jim. look locations. kind what the tailor most to most locations locations experiencing our very that, -- of sell very go of velocity. kind just of this we the BB+ could great a Then much very, those way are We are margins we super Walmart want. are to strong. very, sales

competition, down we public our a are a XX%, expected competitive, have that you builders to be to type down more lot buying have And the corner. when mortgages a rate’s of more go XX% on there’s it’s going interest C then business general and dollar we to right because lot location, other high,

Operator

you. Thank

next the of of BTIG. go comes ahead. Your from line Reichardt question Please Carl

Carl Reichardt

Thanks.

that mix? X% Just you plus you the I out follow-up Thanks. you down incentives mentioned, incentives X% mix. think, average about two, one break order for price and between talked Rick, year-on-year Can you is between and guys.

Rick Costello

location ultra-high but of is much like-for-like, All a Princeton right. a location, end -- higher it Jed said, to can of for not is also only It from no No. price attributed instance. -- to it carries And That’s going be performing as the well, a it doubt a and tag. probably some too deep dive. Frisco

Jed Dolson

Carl, this is Jed.

what to Does high add answer the price incentive closing usually though me amount, sense? this the our Let and it In locations try to make or on absolute of on is price. locations double the is periphery probably that. A an even in cost home mortgage dollar it’s that our half

Carl Reichardt

Yeah. Yeah.

mix you variable got it. The in I particular. for Okay. guys is

then that’s actually, one asked. for So why too. I Jim, And follow-up have I

builders strong, put lot the about So, private are debt. you Jim, in cost a a of equity you of high and talked

an acquisition as cost are privates type banks starting you transom, of from see to all it we they about thinking you on, interested in of funds any more the standpoint, are not? look are future guys. at seeing So at maybe the movement and activity the across selling whether Thanks, or

Jim Brickman

investment they know two or things both in did criteria. deals. Well, buying I expect knew I closed the because we of that, I builders that saw We buy our and the saw the chuckled. never one them way bankers/brokers I and

There So sure them out hurdle and answer. there. it’s we we and taking are I meet no But a place actually bankers wouldn’t see yes them, talking see the our didn’t to they because didn’t involved, brokers some transactions and after am rate.

Operator

are There you. no Thank this time. further questions at

conference today’s concludes this So call.

You may now disconnect.

Green Brick Partners (GRBK) 3 Aug 232023 Q2 Earnings call transcript