Green Brick Partners, Inc. quarterly report, Q2 FY2022

Green Brick Partners, Inc. — Q2 2022 Form 10-Q

Reporting period: Three and six months ended June 30, 2022; unaudited. Amounts are in U.S. dollars unless otherwise noted.

Business context and reporting period

Green Brick is a homebuilder and land developer operating through Central and Southeast builder operations and a land development segment. Management attributed strong year-over-year revenue growth primarily to higher home prices, more deliveries, and strong Trophy brand performance. The filing notes seasonal effects and cautions that interim results are not necessarily indicative of full-year results.

Financial results and liquidity

Metric	Q2 2022	Q2 2021	Six months 2022	Six months 2021
Total revenue	$525.1 million	$373.8 million	$918.8 million	$608.3 million
Gross profit	$168.9 million	$101.0 million	$277.3 million	$160.0 million
Net income attributable to Green Brick	$101.3 million	$52.3 million	$162.8 million	$78.2 million
Diluted EPS	$2.08	$1.02	$3.25	$1.53
Residential units gross margin	32.3%	26.8%	30.4%	26.2%

Q2 revenue rose 40.5%; six-month revenue rose 51.0%. Q2 and six-month net income attributable to Green Brick increased approximately 93.7% and 108.2%, respectively.
Residential units revenue increased 53.7% in Q2 and 59.3% for the first half, reflecting more deliveries and higher average selling prices. Average home selling price was $579,500 in Q2 and $567,600 for the first half.
Cash provided by operating activities was $49.4 million for the first half, versus $118.7 million used in the prior-year period. Inventory increased $164.8 million; management also cited a $34.4 million increase in accrued expenses as a source of operating cash.
At June 30, unrestricted cash was $66.8 million and restricted cash was $22.9 million. Inventory was $1.369 billion, up from $1.204 billion at year-end 2021.
Total debt, net of issuance costs, was $384.9 million, comprising $34.7 million net borrowings on lines of credit, $335.6 million of senior unsecured notes, and $14.7 million of notes payable. The company reported a 28.9% debt-to-total-capitalization ratio and 25.1% net debt-to-total-capitalization ratio. It reported covenant compliance and 24.6x trailing interest coverage.

Material changes versus prior comparable periods

Deliveries increased 16.4% in Q2 and 20.9% in the first half. Higher prices and deliveries drove homebuilding revenue and gross profit growth; homebuilding costs also increased with delivery volume, input prices, and the mix of more expensive homes.
Net new home orders declined 9.8% in Q2 and 32.0% in the first half. Q2 backlog fell 27.1% in value and 42.1% in units year over year, to $710.2 million and 1,087 homes.
Q2 cancellation rate increased to 11.4% from 7.6%; the six-month rate was 9.6% versus 6.6%. Management said the rates remained within the company’s historical range.
Land and lots revenue decreased 68.7% in Q2 and 27.7% for the first half, partly because the prior-year periods included sales of parcels zoned for retail and multifamily use.
The company repurchased $92.3 million of common stock in the first half, including approximately 4.4 million shares. It completed its $50 million 2021 repurchase plan and began a new $100 million authorization; $57.8 million remained available at June 30.

Outlook, management commentary, risks, and contingencies

Management cited rising interest rates and inflation as potential constraints on buyer purchasing power and mortgage qualification. It reported lower buyer traffic in the second half of Q2 and said labor and material costs, availability, and delivery lead times remained pressured.
The company reported that 57.5% of units under construction were spec homes at quarter-end, up from 45.0% a year earlier. Management said this was somewhat above its historic range, while noting Trophy’s business model uses a higher proportion of spec homes.
No specific revenue, earnings, or delivery guidance for the full year was provided in the supplied filing text. Management said cash, available credit, and expected operating cash flows should be sufficient to service debt over the next 12 months and targeted debt-to-capitalization of approximately 30%–35% to support growth.
Risks identified include higher rates and inflation, weaker housing demand, labor and material shortages or cost increases, mortgage financing volatility, land acquisition and entitlement challenges, severe weather, and inventory impairment. The company reported no community impairment indicators or impairment charges at June 30.
Earnest money deposits of $25.2 million were at risk on contracts to purchase 3,184 lots with an aggregate purchase price of approximately $229.4 million. Outstanding letters of credit and performance bonds totaled $4.9 million; management did not expect material claims. The company said legal matters were not expected to materially adversely affect results, liquidity, or financial condition.
The filing reports a 5.75% cumulative preferred dividend and a quarterly dividend declared after quarter-end, payable September 15, 2022. Management stated the company was in compliance with its debt covenants. Disclosure controls were assessed as effective, with no material change in internal control reported.

Important facts for investors to verify

Whether the declines in orders and backlog, higher cancellation rates, and reduced buyer traffic persist as mortgage rates and affordability change.
Whether homebuilding margins remain resilient as labor, material, and other input costs rise, and as the share of spec homes increases.
How inventory investment, lot ownership and control, and the $229.4 million of lot purchase contracts affect future cash needs and land exposure.
Debt facility availability, floating-rate borrowing costs, covenant headroom, and the company’s capacity to fund land investment and repurchases while maintaining liquidity.
The pace and price of further repurchases under the remaining $57.8 million authorization, and the impact of repurchases and preferred dividends on capital allocation.