Green Brick Partners, Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016. Dollar amounts are in millions unless otherwise noted. Green Brick combines residential land development and homebuilding, with core markets in Dallas, Texas, and Atlanta, Georgia.
Financial results and operating metrics
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | $70.0 | $58.5 | +19.7% |
| Gross profit / gross margin | $15.7 / 22.4% | $16.2 / 27.7% | Profit down 3.2% |
| Operating profit / margin | $5.5 / 7.8% | $8.4 / 14.4% | Profit down 34.8% |
| Net income | $4.5 | $6.2 | Down 27.4% |
| Net income attributable to Green Brick | $3.1; $0.06 per diluted share | $4.0; $0.13 per diluted share | Down 23.0%; weighted-average shares rose to 48.8 million from 31.3 million |
| Cash from operating activities | $(17.3) | $(10.1) | Greater cash use |
| Cash and cash equivalents at period end | $24.5 | $18.9 | — |
Homebuilding drove revenue growth: residential-unit sales rose 34.2% to $66.6 million. The company delivered 161 homes, up 11.0%, while average delivered home price increased 20.8% to $413,839. Net new home orders increased 29.0% to 240; backlog rose 15.7% to 280 homes, valued at $129.2 million, up 39.3%. The cancellation rate improved to 10.1% from 12.3%.
Land-and-lot revenue fell 62.1% to $3.3 million, mainly as fewer lots were sold to third parties and more were transferred to controlled builders; intercompany revenue is not recognized until the home closes. Builder-operations gross profit was $14.7 million, but homebuilding gross margin declined to 22.1% from 27.6%. Management cited the prior-year mix of high-margin community closings and current-period capitalized-interest amortization.
Balance sheet, debt, and liquidity
- Total assets were $505.5 million, including inventory of $376.1 million, up from $344.1 million at December 31, 2015. The company reported $24.5 million in cash and $1.0 million in restricted cash.
- Lines of credit totaled $67.5 million outstanding: $27.5 million under a secured Inwood facility with a $50 million commitment, and $40.0 million under an unsecured facility with a $40 million commitment. Notes payable totaled $10.0 million. The company reported debt to total capitalization below 18%, against a stated target of approximately 35%–40%.
- Both credit facilities impose borrowing-base and financial-covenant requirements; the company said it was in compliance at March 31, 2016. The filing does not clearly quantify undrawn borrowing availability after borrowing-base limits.
- Operating cash use reflected investment in inventory, which increased $32.5 million in the cash-flow statement. Financing provided $20.6 million, including $20.0 million of net line-of-credit borrowings. The company reported a $79.2 million net deferred tax asset.
Outlook, risks, and notable items
- Management described improving housing conditions in Dallas and Atlanta, citing rising consumer confidence, low interest rates, affordability, and lower home-inventory levels. It saw demand and supply constraints in its target markets as supportive of future growth. No specific earnings or revenue guidance was provided.
- The company owned or controlled 4,672 home sites at quarter-end, compared with 4,734 at year-end 2015. It said it intended to keep acquiring and developing lots and to redeploy cash generated from inventory sales.
- On May 3, 2016, after quarter-end, the company amended the Inwood facility: maturity was extended to May 1, 2019, and certain borrowing-base percentages were increased. The amendment also provides for a non-usage fee beginning in 2017.
- In March 2016, the board authorized repurchases of up to 1 million shares through 2017, to be funded with available cash; none were repurchased during Q1.
- Disclosure controls and procedures were deemed ineffective as of March 31, 2016 because previously reported material weaknesses in internal control over financial reporting had not been remediated. Management said remediation efforts were underway.
- Risks highlighted include housing-market and mortgage-rate sensitivity, land and construction cost inflation, labor and materials availability, land acquisition and development execution, geographic concentration, financing access and debt obligations, and warranty, environmental, regulatory, and other litigation risks. The company reported no litigation outstanding or related accruals at quarter-end.
- The filing notes a $1.9 million out-of-period equity adjustment recorded in Q4 2015 relating to an overaccrual of distributions payable from 2014; management judged it immaterial to prior-period financial statements. The filing also discloses related-party land transactions and partnerships with an entity affiliated with a controlled builder’s president.
Key facts for investors to verify
- Whether higher home deliveries, orders, and backlog convert to revenue and cash, particularly given that backlog may be canceled.
- Whether homebuilding gross margins stabilize after the decline, and how product mix, community openings, and capitalized-interest amortization affect results.
- How inventory growth and operating cash outflows are funded, including actual borrowing-base availability, covenant headroom, and variable-rate exposure.
- Progress remediating the disclosed material weaknesses and restoring effective disclosure controls.
- Economics and governance of related-party transactions, land commitments, and the proposed share-repurchase program.