Green Brick Partners, Inc. — Q2 2017 Form 10-Q
Reporting period: Three and six months ended June 30, 2017; unaudited. Green Brick combines homebuilding and land development, primarily in the Dallas and Atlanta markets.
Financial and operating performance
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $105.0 million | $98.9 million | $204.3 million | $168.9 million |
| Gross profit | $22.9 million | $22.1 million | $44.2 million | $36.5 million |
| Operating profit | $13.4 million | $12.3 million | $25.0 million | $17.8 million |
| Net income attributable to Green Brick | $7.7 million | $6.7 million | $13.9 million | $9.8 million |
| Diluted EPS | $0.16 | $0.14 | $0.28 | $0.20 |
- Q2 revenue increased 6.1%; six-month revenue increased 21.0%. Home sales drove growth: deliveries rose 11.8% in Q2 and 24.1% year to date, while average delivered-home prices declined 4.2% and 2.7%, respectively, partly due to a shift toward lower-priced townhomes.
- Consolidated gross margin was approximately 21.8% in Q2 (22.4% in 2016) and 21.6% for six months (21.6% in 2016). Homebuilding gross margin improved to 21.7% in Q2 and 21.4% year to date, from 21.6% and 21.0%.
- Cash from operations was $3.7 million for six months, versus cash used of $6.4 million in 2016. Inventory increased to $434.6 million from $410.3 million at year-end. Cash and cash equivalents were $27.3 million; cash, cash equivalents and restricted cash totaled $31.8 million, down from $39.6 million at year-end.
- Debt comprised $74.0 million drawn on revolving credit lines and $10.2 million in notes payable, versus $85.9 million combined at year-end. Management reported a 17.4% debt-to-total-capitalization ratio and targeted approximately 35%–40% to support investment. Credit covenants were met. Credit-line rates were 4.3% secured and 3.7% unsecured; management estimated a 1% rate increase would add about $0.8 million annual interest cost, potentially capitalized.
- Total assets were $554.3 million, liabilities $142.9 million, and stockholders’ equity $411.5 million as of June 30, 2017.
Material changes, outlook and risks
- Net new home orders rose 13.0% in Q2 and 16.3% for six months. June-end backlog was 331 homes valued at $165.2 million, up 7.8% in units and 17.7% in value year over year. Cancellation rates increased to 14.0% for Q2 and 14.8% year to date, from 13.7% and 11.9%.
- Management described improving housing conditions in Dallas and Atlanta, citing employment, consumer confidence, affordability and constrained supply. It gave no specific numerical earnings or revenue guidance; results are subject to homebuilding seasonality, and the filing cautions that backlog may be canceled and is not assured future revenue.
- Risks include housing and land-market cyclicality, mortgage and borrowing-rate increases, financing availability, labor and material costs, land acquisition and development execution, regulation, weather, warranty and litigation exposure, and geographic concentration. Management said no material litigation was pending or known to be threatened and did not identify material changes to previously disclosed risk factors.
- Warranty accruals were $1.5 million at June 30, 2017. The company reported no fair-value write-downs of inventory or long-lived assets during the six-month period and was in compliance with its credit covenants.
- Prior-year indirect project costs were reclassified from salary and SG&A expense to residential cost of sales; management said the reclassification was not material and did not affect prior-period net income. The company also disclosed related-party land transactions and home purchases under its employee discount policy.
Investor verification priorities
- Assess whether order and backlog growth converts to closings and cash, particularly given higher cancellation rates and the disclosed seasonality.
- Track inventory growth, land-development commitments and the availability and borrowing-base limits of revolving facilities.
- Verify delivered-home price and product mix trends against the higher average price of backlog homes.
- Review related-party transactions, warranty accruals and the impacts of variable interest rates and tax items.