Green Brick Partners, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; comparisons are primarily with FY2019. This is an annual filing, not a standalone fourth-quarter report. Green Brick develops land and builds homes, principally in Dallas–Fort Worth, Atlanta and Florida’s Treasure Coast.
Financial and operating performance
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Total revenue | $976.0 million | $791.7 million | +23.3% |
| Net income attributable to Green Brick | $113.7 million | $58.7 million | +93.8% |
| Diluted earnings per share | $2.24 | $1.16 | +93.1% |
| Home deliveries | 2,208 | 1,719 | +28.4% |
| Average delivered-home price | $418,400 | $437,600 | -4.4% |
| Net new home orders | 2,885 | 1,923 | +50.0% |
| Backlog | 1,463 homes; $686.9 million | 786 homes; $346.8 million | Units +86.1%; value +98.0% |
- Residential-unit gross margin improved to 24.1% from 21.3%; homebuilding gross margin rose to 24.2% from 21.4%. Management cited fewer sales incentives, price increases in some communities and greater use of company-developed lots.
- Total gross profit was $234.6 million, up from $169.1 million. Selling, general and administrative expense was $112.1 million, but declined to 11.5% of revenue from 12.4%.
- Operating cash flow was $35.1 million, versus $22.1 million used in FY2019. Inventory increased $90.3 million, partly offset by cash generated from operations and increases in accrued expenses and customer and builder deposits. Investing activities used $13.3 million; financing activities used $25.9 million.
- Cash and cash equivalents were $19.5 million at year-end, down from $33.3 million. Restricted cash was $14.2 million, bringing cash and restricted cash to $33.6 million.
- Debt to total capitalization was 25.6% and net debt to total capitalization was 23.8%. Year-end debt, net of issuance costs, was $219.9 million, including $106.7 million of revolving-credit borrowings and $111.1 million of senior unsecured notes. The company reported compliance with its debt covenants and said cash, available credit and expected operating cash flows should cover the next 12 months.
Material changes and developments
- Sales fell sharply in late March and April amid COVID-19 restrictions, then rebounded from May; net sales increased 88.8% in the third quarter and 43.7% in the fourth quarter versus the corresponding 2019 quarters.
- During 2020, the company acquired the remaining interests in CB JENI, making it wholly owned. It also formed BHome Mortgage, a 49%-owned mortgage-services joint venture, and invested in the GBTM Sendera land-development joint venture.
- Lots owned or controlled increased to 14,468 from 8,976. Land and lots revenue rose 44.0%, while average lot selling price declined 19.6%, reflecting more entry-level lot sales.
- Equity income from unconsolidated entities increased to $16.7 million from $9.8 million. Other income declined to $4.1 million from $8.1 million, including a $1.5 million net loss related to option deposits and pre-acquisition costs.
- Effective tax rate fell to 17.5% from 23.7%, primarily reflecting reinstated federal energy-efficient-home tax credits. Net income tax expense nevertheless increased to $25.0 million from $20.0 million.
Outlook, risks and unusual items
- No numerical earnings or revenue guidance is provided. Management expects the December 31, 2020 backlog to be delivered during 2021, subject to normal cancellations; backlog is not assured revenue.
- Management intends to maintain disciplined costs and pricing, continue land investment and use leverage prudently. Its stated target debt-to-capitalization ratio is approximately 30%–35%.
- Management reported supply-chain constraints involving appliances and windows and higher lumber costs, which could delay closings and compress margins. Subcontractor and labor availability, inflation, mortgage availability and interest rates are additional risks.
- COVID-19’s duration and economic effects remain uncertain. A downturn, higher unemployment, cancellation increases or weaker housing demand could reduce sales, prices, deliveries and profitability. The company’s geographic concentration in its core markets adds exposure to regional housing conditions.
- Inventory was $844.6 million. The company recorded a de minimis inventory impairment in 2020; inventory valuation depends on assumptions about sales prices, absorption, costs and market conditions. Inventory impairment evaluation was the auditor’s critical audit matter.
- At year-end, $29.0 million of earnest-money deposits were at risk under contracts covering 4,722 lots with an aggregate purchase price of approximately $324.9 million. A separate limited guarantee related to an unconsolidated joint venture has a maximum potential payment of $2.0 million; management assessed payment risk as very low.
- Subsequent events: in February 2021, the company issued $125 million of 3.25% senior unsecured notes due 2028; in March 2021, the board authorized a new $50 million share-repurchase program.
Most important facts for investors to verify
- Whether the substantial backlog converts to 2021 closings, and how cancellations compare with the reported 13.0% FY2020 rate.
- Whether labor, lumber, appliance and window constraints affect build times, closing volumes or homebuilding margins.
- How the increase in owned and controlled lots affects future cash requirements, inventory risk and returns on capital.
- Available borrowing capacity, upcoming facility maturities and the effect of the 2021 note issuance on total debt and interest costs.
- Whether tax-credit benefits, housing demand and the improved margins reported in 2020 are sustainable; the filing provides no quantitative forward earnings guidance.