Green Brick Partners, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Green Brick is a homebuilder and land developer operating primarily in Central and Southeast markets. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $373.8 | $232.8 | $608.3 | $446.1 |
| Gross profit | $101.0 | $53.9 | $160.0 | $102.9 |
| Gross margin | 27.0% | 23.2% | 26.3% | 23.1% |
| Income before taxes | $74.0 | $36.2 | $109.2 | $58.9 |
| Net income attributable to Green Brick | $52.3 | $33.6 | $78.2 | $49.6 |
| Diluted earnings per share | $1.02 | $0.66 | $1.53 | $0.98 |
Q2 residential revenue rose 45.8% to $333.5 million, with 757 homes delivered, up 36.9%, and average delivered home price up 7.0% to $438,900. For the first half, residential revenue increased 31.2% to $550.7 million and deliveries rose 27.2% to 1,273. Land and lot revenue was $40.3 million in Q2 and $57.5 million for the first half, including land sales.
Residential gross margin increased to 26.8% in Q2 from 23.2%, and to 26.2% for the first half from 23.1%. Management attributed the improvement mainly to higher prices and fewer sales incentives. SG&A was $34.0 million in Q2 and $63.5 million for the first half; as a share of revenue it declined year over year.
Cash flow, debt and liquidity
- Cash and cash equivalents were $33.5 million at June 30, 2021, versus $19.5 million at December 31, 2020; restricted cash was $23.6 million. Total cash and restricted cash was $57.1 million.
- First-half operating cash flow was a use of $118.7 million, versus a source of $39.0 million in the prior-year period. Inventory increased $261.2 million, a primary cash use; financing provided $143.7 million.
- Debt, net of issuance costs, totaled approximately $366.5 million: $130.6 million on credit lines and $235.6 million of senior unsecured notes. The company issued $125 million of 3.25% notes in February 2021.
- Debt to total capitalization was 33.8%; net debt to total capitalization was 31.7%. Management targets debt to capitalization of approximately 30%–35%. The company reported compliance with debt covenants and said cash, credit availability and expected operating cash flows should cover debt service for the next 12 months.
- Inventory was $1.106 billion, up from $844.6 million at year-end. Total equity was $731.7 million.
Changes, outlook and risks
- Demand and orders were strong: first-half net new orders increased 38.9%, while the cancellation rate fell to 6.6% from 16.6%. Q2 orders rose 3.8% year over year; Q2 cancellation rate was 7.6%, versus 16.9%.
- Backlog at June 30 was 1,876 homes valued at $974.3 million, up 87.8% in units and 118.2% in value year over year. Backlog is subject to cancellations and is not necessarily indicative of future revenue.
- Management metered Q2 sales to better align orders with the company’s ability to deliver homes after demand exceeded capacity. The company had raised prices by an average of 9%–25%, depending on builder, from late 2020 through April 2021.
- Management cited low interest rates, first-time buyers, suburban demand and the Trophy brand as factors supporting activity. It also warned that strong demand is increasing material and appliance costs and causing shortages and longer delivery lead times. Other disclosed risks include labor shortages, higher costs, interest-rate and mortgage availability changes, land access and entitlement issues, severe weather, seasonality, and inventory impairments.
- No specific earnings or revenue guidance was provided. The filing notes typical seasonality: orders tend to be strongest in spring and summer, while more deliveries and cash receipts generally occur in the second half.
- The effective tax rate was 21.2% for both Q2 and the first half, versus 3.7% and 12.5% in the corresponding 2020 periods. The comparison reflects, in part, $6.7 million of favorable energy-home tax credits recognized in Q2 2020.
- No inventory impairment was recorded in the first half of 2021. Outstanding letters of credit and performance bonds were $7.0 million; management did not expect material claims. The company stated that legal matters were not expected to materially adversely affect results, liquidity or financial condition.
Important facts for investors to verify
- Whether delivery capacity, materials availability and labor costs allow the company to convert its elevated backlog into closings at current margins.
- How much of the first-half operating cash outflow reflects deliberate land and inventory investment, and the pace at which that investment converts to cash.
- Debt balances, borrowing availability, covenant headroom and the impact of floating-rate credit-line borrowings.
- Backlog cancellations and the sustainability of pricing, margins and unusually low cancellation rates.
- Land purchase commitments and deposits at risk: the company reported $24.7 million of earnest money deposits associated with 3,787 lots and an aggregate purchase price of approximately $270.4 million.