Green Brick Partners, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Amounts below are in millions of dollars unless otherwise noted. The company operates homebuilding and land-development businesses, primarily in Central and Southeast markets.
Financial results
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $407.9 | $342.3 | $1,326.7 | $950.6 |
| Gross profit | $133.3 | $91.3 | $410.6 | $251.3 |
| Net income attributable to Green Brick | $73.5 | $48.5 | $236.4 | $126.7 |
| Diluted earnings per share | $1.57 | $0.95 | $4.82 | $2.48 |
| Residential units gross margin | 32.3% | 26.9% | 31.0% | 26.5% |
Q3 residential-unit revenue grew 17.1%; higher average selling prices more than offset fewer deliveries. For the first nine months, residential-unit revenue rose 43.2%, reflecting higher selling prices and more deliveries. Total gross margin improved, as home price increases outpaced cost inflation. Q3 SG&A was $43.3 million, up from $33.7 million; nine-month SG&A was $119.3 million versus $97.2 million.
Cash flow, balance sheet and debt
- Operating cash flow was $31.3 million for the first nine months, versus $114.5 million used in the prior-year period. Inventory increased $248.3 million to $1,453.1 million, a major use of cash.
- Cash and cash equivalents were $48.2 million at September 30, down from $77.2 million at year-end; restricted cash was $18.7 million. Financing activities used $53.0 million, including $101.5 million of share repurchases, partly offset by net line-of-credit borrowings.
- Total debt, net of issuance costs, was $393.3 million, including $42.9 million of line borrowings, $335.7 million of senior notes and $14.6 million of notes payable. Net debt was $345.1 million. Debt-to-capitalization was 28.0%; net debt-to-capitalization was 25.5%.
- The unsecured revolving facility had $45.0 million outstanding against $300.0 million of commitments; the separate $35.0 million secured facility was undrawn. Management reported covenant compliance and stated available cash, credit capacity and expected operating cash flows should cover debt service over the next 12 months.
Demand, changes and outlook
- Q3 deliveries fell 11.9% to 650 homes, while average delivered home price rose 32.6% to $607,300. Nine-month deliveries increased 8.9% to 2,189, with average price up 31.4% to $579,400.
- Net new orders fell 41.4% in Q3 and 34.7% year to date. Q3 cancellation rate increased to 17.6% from 6.9%; year-to-date it was 11.8% versus 6.7%. Backlog at quarter-end fell 44.6% in value and 54.0% in units year over year, to $564.0 million and 841 homes.
- Management attributed softer traffic and higher cancellations to rapidly rising mortgage rates and inflation’s effect on buyer purchasing power. Spec homes rose to 65.1% of units under construction, versus 30.8% a year earlier. Backlog may not convert to revenue because contracts can be canceled.
- Management cited higher labor and input costs, reduced skilled-labor availability, and material shortages and longer delivery lead times. It gave no specific earnings or revenue guidance in the provided filing text; it described a leverage target of approximately 30%–35% debt to total capitalization to support investment and growth.
- The 2022 Inflation Reduction Act’s extension and modification of the 45L energy-efficient home credit contributed to lower effective tax rates: 17.4% in Q3 and 20.6% year to date, versus 21.3% in the comparable prior-year periods.
Risks, contingencies and unusual items
Key disclosed risks include weaker housing demand from interest rates and inflation, mortgage availability, construction-cost and labor pressures, land acquisition and entitlement challenges, weather, and potential inventory impairments. Management reported no community impairment indicators or impairment charges at September 30. It stated legal matters were not expected to materially adversely affect results, liquidity or financial condition. Letters of credit and performance bonds totaled $6.8 million. The company repurchased approximately $101.5 million of stock during the nine-month period; $48.7 million remained available under its $100 million repurchase authorization at quarter-end.
Investor verification priorities
- Track orders, cancellations, backlog conversion and spec-home levels as mortgage rates and affordability change.
- Assess whether home-price realizations continue to outpace labor and material cost increases and preserve margins.
- Monitor inventory investment, operating cash generation, available revolver capacity and debt maturities.
- Review the effects of land commitments, development needs, and the remaining share-repurchase authorization on liquidity.