Green Brick Partners, Inc. - 10-Q Summary (Period Ended June 30, 2016)
Business Context and Reporting Period
This is a Quarterly Report on Form 10-Q for Green Brick Partners, Inc., covering the period ended June 30, 2016. The Company operates in the real estate industry, combining residential land development and homebuilding. Its core markets are the high-growth metropolitan areas of Dallas, Texas and Atlanta, Georgia. The Company acquires and develops land, provides financing to controlled builders, and participates in their profits. As of August 4, 2016, there were 48,937,084 shares of common stock outstanding.
Key Financial Metrics
| Metric | Six Months Ended June 30, 2016 | Six Months Ended June 30, 2015 |
|---|---|---|
| Total Revenues | $168.9 million | $130.4 million |
| Net Income (Total) | $13.9 million | $13.2 million |
| Net Income Attributable to Green Brick | $9.8 million | $7.8 million |
| Diluted EPS (Attributable to Green Brick) | $0.20 | $0.25 |
| Cash and Cash Equivalents (End of Period) | $24.1 million | $16.8 million |
| Total Debt (Lines of Credit + Notes Payable) | $72.5 million | $57.7 million |
| Inventory | $382.0 million | $344.1 million |
| Operating Cash Flow | ($7.8 million) used | ($11.7 million) used |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 29.5% year-over-year for the six-month period, driven primarily by a 45.7% increase in residential unit sales revenue ($160.4 million vs. $110.0 million).
- Operational Volume: Home deliveries increased 21.5% to 373 units. Net new home orders increased 38.0% to 479 units.
- Pricing Power: The average sales price of homes delivered increased 20.0% to $429,920, reflecting a shift in product mix toward higher-priced single-family homes and local market appreciation.
- Backlog: Backlog units increased 23.3% to 307 homes, with a total backlog value of $140.3 million (up 37.1%).
- Land Development: Revenue from land and lot sales decreased 58.2% to $8.5 million due to a strategic shift toward selling lots to controlled builders (intercompany sales) rather than third parties, delaying revenue recognition until home closing.
- Profitability: While total net income remained relatively flat, net income attributable to Green Brick increased 26.0%. Gross margin for builder operations decreased slightly to 22.7% from 25.3% due to amortization of capitalized interest and the mix of closings.
Guidance, Outlook, Risks, and Unusual Items
- Outlook: Management cites sustainable housing market recovery in Dallas and Atlanta, driven by job growth, lower interest rates, and supply constraints. The Company targets a debt-to-total-capitalization ratio of 35% to 40% (currently less than 17%).
- Capital Resources: The Company has two primary lines of credit: a $50.0 million secured facility with Inwood National Bank (maturity extended to May 2019) and a $40.0 million unsecured facility with Citibank/Credit Suisse (maturity December 2018). Total borrowings on lines of credit were $63.5 million as of June 30, 2016.
- Share Repurchase: A program to repurchase up to 1,000,000 shares was authorized in March 2016; no shares were repurchased in the first half of 2016.
- Internal Controls: The Company disclosed that its disclosure controls and procedures were ineffective as of June 30, 2016, due to material weaknesses in internal control over financial reporting. Remediation efforts are underway, including the hiring of a new Corporate Controller and Director of Internal Audit.
- Risks: Key risks include cyclicality in the homebuilding industry, interest rate volatility, labor and material shortages, and the inability to acquire land at reasonable prices.
Investor Verification Checklist
- Internal Control Remediation: Verify the progress of remediation efforts regarding the material weaknesses in internal controls over financial reporting.
- Backlog Conversion: Monitor the conversion rate of the $140.3 million backlog into actual revenue, noting the 11.9% cancellation rate for the six-month period.
- Debt Covenants: Confirm continued compliance with financial covenants on the $63.5 million outstanding lines of credit, specifically leverage and interest coverage ratios.
- Land Inventory: Assess the valuation and liquidity of the $382.0 million inventory, particularly the portion held as "land not owned under option agreements."
- Related Party Transactions: Review ongoing transactions with controlled builders and affiliated entities (e.g., TPG, Centre Living) for terms and potential conflicts.