Green Brick Partners, Inc. — Q2 2023 Form 10-Q
Business context and reporting period. This unaudited quarterly report covers the three and six months ended June 30, 2023. Green Brick is a homebuilder and land developer operating through Central and Southeast builder segments, with related investments in unconsolidated entities. Dollar figures below are in millions unless otherwise noted.
Financial and operating performance
- Q2 revenue: $456.3, down 13.1% from $525.1. Residential units revenue declined 11.3% to $454.4; land and lots revenue fell 85.4% to $1.8.
- Q2 profitability: Gross profit was $142.9 versus $168.9; residential units gross margin was 31.3%, down from 32.3% a year earlier, but up from 27.6% in Q1 2023. Net income was $81.1 versus $108.0; net income attributable to Green Brick was $75.3 versus $101.3. Diluted EPS was $1.63 versus $2.08.
- First-half results: Revenue was $908.4, down 1.1%; gross profit was $267.5 versus $277.3. Net income attributable to Green Brick was $139.5 versus $162.8, and diluted EPS was $3.00 versus $3.25. Residential units gross margin was 29.5%, down from 30.4%.
- Drivers and expenses: Q2 home deliveries fell 11.1% to 783, while average delivered home price was essentially flat at $580,000. First-half deliveries rose 0.3% to 1,544, with average price up 3.1% to $585,200. Q2 SG&A rose to $49.2 from $41.8; management cited higher brokerage commissions and incentive compensation. Equity income from unconsolidated entities declined to $5.7 from $8.5 in Q2. Other income increased to $4.8 from $2.7, primarily due to interest income and forfeited customer deposits.
- Orders and backlog: Q2 net new orders increased 50.8% to 822; the cancellation rate improved to 7.4% from 11.4%. Backlog at quarter-end was 882 homes, valued at $586.0, down 18.9% in units and 17.5% in value year over year, but up 58.8% in value from December 31, 2022. First-half orders rose 64.8%, and the cancellation rate was 6.7% versus 9.6%.
- Cash flow and liquidity: First-half operating cash flow was $210.2 versus $49.4, supported in part by an $18.9 inventory decrease, compared with a $164.8 inventory increase in the prior-year period. Investing used $7.8; financing used $64.4, including $28.0 of share repurchases, $20.0 of net line-of-credit repayments, and $11.1 of distributions to noncontrolling interests. June 30 cash and cash equivalents were $209.6, with $21.6 of restricted cash.
- Debt and capital: Total debt, net of issuance costs, was $348.4; net debt after cash was $138.8. Debt-to-total-capitalization was 22.9%, and management’s non-GAAP net-debt ratio was 10.6%; its stated target debt-to-capitalization range is approximately 30%–35%. No principal was outstanding on the $325.0 unsecured revolver or the $35.0 secured revolver at quarter-end. Senior unsecured notes carry fixed rates of 3.25%–4.00% and mature from 2024 through 2029. The company reported compliance with debt covenants.
- Balance sheet: Inventory was $1,404.4, down from $1,422.7 at year-end; total assets were $1,776.6 and total equity was $1,190.2. The company repurchased 803,591 shares for approximately $27.7 during the first half, excluding excise tax.
Material changes, outlook, and risks
- Management attributed stronger order growth to improving market conditions, limited existing-home supply, the company’s infill and infill-adjacent locations, and higher availability of finished or nearly finished spec homes. Management said many buyers had adjusted to higher mortgage rates.
- Q2 deliveries and revenue were lower, primarily because of a lower starts pace in prior quarters and a smaller opening backlog. Management said incentives declined as the sales environment improved and construction costs eased, contributing to the sequential gross-margin recovery; year-over-year margins nevertheless remained lower.
- No specific full-year earnings, revenue, or delivery guidance is provided in the supplied filing text. Management stated that cash on hand, available credit capacity, and expected operating cash flows should be sufficient for the next 12 months to fund operations and service debt. The company also said results are seasonal and not necessarily indicative of full-year results.
- Key disclosed risks include interest rates and buyer financing, inflation and construction costs, labor availability, land acquisition and entitlement, weather, inventory impairment, geographic concentration, access to capital, and debt service. Management identified one selling community with impairment indicators and a $26.6 carrying value for further analysis; no inventory impairment was recorded in the periods presented.
- Land and lot purchase contracts past feasibility covered 3,922 lots with an aggregate purchase price of approximately $202.8 and $15.9 of earnest money deposits at risk. The company generally may terminate such contracts by forfeiting deposits, subject to contract terms. Outstanding letters of credit and performance bonds were $3.0; management did not expect material claims.
- Other notable items: the operating agreement for the 20% minority interest in GRBK GHO was amended to defer the start of put and purchase options from April 2024 to April 2027. Green Brick Mortgage, LLC was terminated during the quarter, with a de minimis loss on dissolution. The board approved a new $100.0 repurchase authorization after completion of the existing plan.
Important facts for investors to verify
- Whether order momentum, lower cancellations, and the quarter-end backlog translate into completed deliveries and revenue; backlog may be canceled and is not assured future revenue.
- Whether incentives and construction costs continue to support margin recovery, given the year-over-year decline in residential gross margin and higher SG&A.
- Inventory quality and impairment exposure, plus the capital and deposit risks associated with owned lots, option contracts, and development commitments.
- Cash-flow sustainability: first-half operating cash flow benefited from working-capital movements, and homebuilding cash flows are seasonal.
- Debt maturities beginning in 2024, covenant headroom, floating-rate credit availability, and use of the remaining repurchase authorizations.
- Potential outcomes and financial effects of legal, regulatory, warranty, and other contingencies; the company states it does not expect legal matters to materially affect results, liquidity, or financial condition.