Green Brick Partners, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Amounts are in U.S. dollars. The financial statements are unaudited.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Total revenue | $234.5 million | $213.3 million | Up 10.0% |
| Gross profit / gross margin | $59.0 million / 25.2% | $49.0 million / 23.0% | Margin up 2.2 percentage points |
| Income before income taxes | $35.3 million | $22.8 million | Up 55.0% |
| Net income attributable to Green Brick | $26.0 million; $0.51 diluted EPS | $15.9 million; $0.31 diluted EPS | Up 63.2% |
| Operating cash flow | $(8.0) million | $1.2 million | Changed to cash use |
Residential units revenue rose 13.6% to $217.2 million. The company delivered 516 homes, up 15.2%, while the average delivered-home selling price edged down 0.8% to $418,900. Residential-unit gross margin improved to 25.4% from 23.0%, which management attributed primarily to fewer sales incentives and price increases in certain communities. Land and lots revenue declined 21.9% to $17.2 million.
SG&A was $29.5 million, up from $26.9 million, but builder operations SG&A declined as a share of segment revenue to 12.4% from 13.3%. Equity income from unconsolidated entities increased to $3.9 million from $2.6 million. Other income was $1.9 million versus a $1.9 million loss, principally reflecting prior-year $3.4 million write-offs of option deposits and pre-acquisition costs and higher title and settlement activity in 2021. The effective tax rate was 21.3%, compared with 26.5%.
Balance sheet, debt and liquidity
- At March 31, 2021, cash and cash equivalents were $28.7 million and restricted cash was $14.8 million. Total assets were $1.080 billion; inventory was $920.9 million, up $76.3 million from year-end.
- Total debt, net of issuance costs, was $239.5 million: $235.6 million of senior unsecured notes and $3.8 million of net line-of-credit borrowings. The unsecured revolver had no outstanding balance; the secured revolver had $5.0 million outstanding. Net debt was $210.8 million. Debt to total capitalization was 26.4%; net debt to total capitalization was 24.0%.
- In February 2021, Green Brick issued $125 million of 3.25% senior unsecured notes due in installments from 2024 through 2028. Proceeds primarily repaid revolving-credit borrowings and funded general corporate purposes. The company reported compliance with debt covenants and said cash, available credit and operating cash flows should be sufficient to service debt over the next 12 months.
- Operating cash use primarily reflected a $76.0 million inventory increase, partly offset by cash generated from operations and increases in customer deposits, accounts payable and accrued expenses. Financing activities provided $18.6 million. Cash and restricted cash together ended the quarter at $43.4 million.
Outlook, commentary and risks
No specific revenue or earnings guidance was provided. Management said it expects to maintain high margins, citing product price increases to offset some input-cost increases, including lumber. It targets a debt-to-capitalization ratio of approximately 30%–35% to support investment and growth, compared with 26.4% at quarter-end. Management attributed strong demand to the Trophy brand, more selling communities, low interest rates, first-time buyers and demand for suburban homes during the pandemic.
Net new home orders rose 71.2% to 1,082, the cancellation rate fell to 6.0% from 16.5%, and backlog increased 133.0% to $995.7 million (2,029 homes). Management cautioned that backlog may not become revenue because contracts can be canceled. The company reported 18,939 owned or controlled lots, up from 14,468 at year-end, and $27.8 million of earnest money deposits at risk on contracts for 9,220 lots with an aggregate purchase price of approximately $338.8 million.
Key disclosed risks include COVID-19 effects, economic and housing-market cyclicality, interest rates and mortgage availability, material and labor shortages or cost increases, land acquisition and entitlement challenges, severe weather, and inventory impairment. Management reported no community impairment indicators at quarter-end and no Q1 2021 inventory impairment. Outstanding letters of credit and performance bonds totaled $10.2 million; the company did not expect material claims. It also reported that legal matters were not expected to have a material adverse effect. A $50 million share-repurchase program was authorized in March 2021, available through December 31, 2022.
Management noted seasonality: orders typically peak in spring and summer, while deliveries and cash receipts are generally greater in the second half of the year. Results for this quarter are not necessarily indicative of full-year results.
Important facts for investors to verify
- Whether the strong order growth and near-record backlog convert into closings and revenue, and whether cancellations remain low.
- Whether homebuilding margins withstand lumber, labor and other construction-cost pressures, and whether price increases offset those costs.
- How the expanded land position and $27.8 million of at-risk earnest money deposits affect future cash requirements and returns.
- Debt maturity, interest-rate and covenant exposure, including the planned use of additional leverage and available revolver capacity.
- Whether management’s margin and liquidity expectations remain achievable amid seasonality, pandemic-related uncertainty and housing-market changes.