Green Brick Partners, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; unaudited. Comparisons are with the three months ended March 31, 2022 unless noted. Amounts below are in U.S. dollars.
Business context and operating performance
Green Brick is a homebuilder and land developer operating through Central and Southeast builder segments and a land development segment. Management attributed stronger homebuilding activity to its market locations, more finished and finishing spec inventory entering the quarter, and low new and existing-home supply in its markets.
- Home closings revenue rose 23.8% to $449.4 million; 761 homes were delivered, up 15.7%, and average delivered-home price increased 7.0% to $590,600.
- Net new home orders increased 77.5% to 1,067; the cancellation rate fell to 6.2% from 8.0%. Quarterly absorption reached a company record of 13.3 homes per average active selling community.
- Backlog was $550.6 million, or 843 homes, down 36.5% in value and 40.8% in units year over year, but up 49.2% in value and 57.0% in units from December 31, 2022. Backlog may not indicate future revenue because contracts can be canceled.
- Total revenue increased 14.9% to $452.1 million. Land and lots revenue fell to $1.7 million from $29.0 million, primarily because the prior-year quarter included a $27.0 million land sale.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Total revenue | $452.1 million | $393.6 million |
| Gross profit | $124.6 million | $108.4 million |
| Residential units gross margin | 27.6% | 27.8% |
| Income before taxes | $87.2 million | $82.6 million |
| Net income attributable to Green Brick | $64.2 million | $61.6 million |
| Diluted earnings per common share | $1.37 | $1.20 |
| Net cash from operating activities | $154.7 million | $(14.0) million |
- Residential units gross margin eased 0.2 percentage points year over year, while rising from 26.2% in Q4 2022. Total gross profit increased 15.0%; SG&A rose to $45.9 million from $34.3 million, and SG&A as a share of revenue increased to 10.2% from 8.7%. Management cited higher brokerage commissions and the lower land-and-lot revenue mix.
- Cash and cash equivalents were $177.3 million at March 31, up from $76.6 million at year-end; restricted cash was $18.4 million. Operating cash flow benefited from a $50.0 million inventory decrease and a $17.5 million increase in accrued expenses. Investing activities used $3.1 million; financing activities used $49.2 million, including $20.0 million net revolver repayments, $15.4 million of share repurchases, and $11.1 million of distributions to noncontrolling interests.
- Inventory was $1.373 billion, down from $1.423 billion at December 31, 2022. Total assets were $1.706 billion and total equity was $1.127 billion.
- Debt, net of issuance costs, comprised $335.9 million of senior unsecured notes and $14.6 million of notes payable; no principal was outstanding on either revolving credit facility. The filing reports debt to total capitalization of 23.8% and net debt to total capitalization of 13.3%. The $325 million unsecured revolver and $35 million secured facility were available.
- Management reported compliance with debt covenants and stated that cash on hand, available credit and expected operating cash flows should be sufficient for the next 12 months. Interest coverage was 24.32x against a 2.0x minimum; the covenant rolling-average debt-to-capitalization ratio was 25.6% against a 40.0% maximum.
Material changes, outlook and risks
- Residential units revenue growth reflected more deliveries and higher average selling prices. Land and lots revenue was substantially lower because Q1 2022 included a land sale.
- Management targets a debt-to-capitalization ratio of approximately 30%–35% and described continued investment in land acquisition, development and homebuilding. The filing provides no specific earnings or revenue forecast.
- The board approved an additional $100 million repurchase authorization on April 27, 2023, available after completion of the 2022 plan. At March 31, $33.3 million remained under the 2022 plan; 467,875 shares were repurchased in Q1 for approximately $15.4 million.
- The put and purchase options for the 20% minority interest in GRBK GHO Homes were amended to begin in April 2027 rather than April 2024.
- One community with a carrying value of approximately $26.6 million underwent further impairment analysis; no impairment charge was recorded in Q1. Outstanding letters of credit and performance bonds were $3.1 million, and management did not expect material claims. The company also disclosed ordinary-course legal matters and stated it did not expect them to materially adversely affect results, liquidity or financial condition.
- Risks include housing-market cyclicality and seasonality; higher interest rates and inflation affecting demand and buyer qualification; labor, material and other cost pressures; land acquisition and entitlement challenges; mortgage financing availability; geographic concentration; weather and regulatory risks; and potential inventory write-downs. Management noted that deliveries and cash receipts are typically weighted toward the second half of the year.
Important facts for investors to verify
- Whether the strong order and absorption trends continue, and how backlog conversion, cancellations and home prices affect future closings.
- Whether residential margins withstand construction costs, brokerage commissions and market pricing changes.
- How much operating cash flow reflects sustainable operations versus inventory and accrued-expense timing; inventory was a major cash-flow driver.
- Debt maturities, revolver availability, covenant headroom and the effect of planned land investment and repurchases on liquidity.
- Performance of the community subject to impairment analysis and the timing and terms of land and lot option commitments.
- The filing states that results for this seasonally affected quarter are not necessarily indicative of full-year results.