Green Brick Partners, Inc. — FY 2019 Form 10-K
Reporting period: Year ended December 31, 2019; comparisons are to FY 2018 unless noted. This is an annual filing, not a standalone fourth-quarter report, and the provided text does not give separate Q4 financial results. Green Brick is a homebuilding and land-development company concentrated in Dallas, Atlanta and Vero Beach, with a noncontrolling investment in a Colorado Springs builder.
Financial and operating performance
| Metric | FY 2019 | FY 2018 | Change / context |
|---|---|---|---|
| Total revenue | $791.7 million | $623.6 million | +26.9% |
| Residential units revenue | $759.8 million | $578.9 million | +31.3%; 96% of 2019 revenue |
| Land and lots revenue | $31.8 million | $44.8 million | −28.9% |
| Gross profit | $169.1 million | $154.2 million | Gross margin approximately 21.4%, versus 24.7% |
| Net income | $64.3 million | $64.5 million | Nearly flat |
| Net income attributable to Green Brick | $58.7 million | $51.6 million | +13.6%; diluted EPS $1.16 versus $1.02 |
| Net cash used in operating activities | $22.1 million | $39.5 million | Cash outflow narrowed; inventory growth was a major use |
| Cash and restricted cash, year-end | $37.7 million | $41.8 million | Unrestricted cash was $33.3 million versus $38.3 million |
| Debt, net of issuance costs | $238.0 million | $200.4 million | Includes $164.6 million of revolving-credit borrowings and $73.4 million of notes |
- Home deliveries rose 33.6% to 1,719; average delivered home price declined 1.4% to $437,600, which management attributed to product mix.
- Net new orders increased 37.7% to 1,923; year-end backlog rose 35.1% to 786 homes, valued at $346.8 million. The cancellation rate improved to 12.9% from 14.9%.
- Residential-unit gross margin fell to 21.3% from 25.2%, primarily due to lower initial prices in new communities and increased customer incentives. The company reclassified sales commissions from cost of residential units to SG&A in 2019; prior amounts were conformed, with no effect on net income.
- Inventory increased to $753.6 million from $669.0 million. The company owned or controlled 8,976 lots at year-end, up from 8,078.
- Debt to total capitalization was 31.3%, within management’s target range of approximately 30%–35%. The company reported compliance with debt-facility financial covenants at year-end.
Material changes and unusual items
- Green Brick issued $75 million of 4.00% senior unsecured notes due 2026; proceeds were used to repay revolving-credit borrowings. Revolver borrowings were $200.4 million at year-end 2018 and $164.6 million at year-end 2019.
- The company acquired the remaining membership and voting interests in Southgate in November 2019. It also acquired the remaining interests in Centre Living at year-end, after which the company held 90% and a former owner held 10%.
- Trophy Signature Homes began selling homes in 2019 and generated $13.9 million in revenue. Green Brick announced plans in December 2019 to expand Trophy into Houston.
- Other income rose to $9.0 million from $2.6 million, primarily due to approximately $5.0 million in forfeited lot-sale deposits and increased title closing and settlement services.
- The fair-value change in contingent consideration was $4.9 million, compared with $1.7 million in 2018. A $5.3 million earnout to the GRBK GHO minority partner was earned for 2019 performance. In February 2020, the parties moved the start of put/purchase options from April 2021 to April 2024; the company was evaluating the accounting impact.
- Income tax expense was $20.0 million, versus $17.1 million; the effective tax rate rose to 23.7% from 21.0%. The company wrote off $13.7 million of gross Minnesota state NOL carryforwards and the related deferred tax asset and valuation allowance, determining they were not expected to be used.
Liquidity, outlook and risks
- Operating cash flow remained negative as the company invested in inventory, including an $84.0 million increase in inventory cited in the cash-flow discussion. Financing cash flow was positive $25.9 million; investing cash flow was negative $7.9 million.
- At year-end, the secured revolver had $38.0 million drawn against a $75.0 million commitment, with $8.9 million of letters of credit reducing availability. The unsecured revolver had $128.0 million drawn; stated aggregate lending commitments were $215.0 million, subject to borrowing-base limits. Revolver maturities extend to 2021 and 2022; the secured facility matures in 2022.
- Management expected substantially all year-end backlog to close in 2020, subject to normal cancellations. Backlog is not assured revenue and can be canceled. The filing provides no quantified revenue or earnings guidance for 2020.
- Management cited favorable demand and growth fundamentals in its core markets and intends to continue investing in land, development and homebuilding. The company generally expects seasonal order strength in spring and summer and more deliveries in the second half.
- Key risks include housing-market and interest-rate downturns, local-market concentration, land and inventory impairment, mortgage availability, labor and material shortages or price increases, subcontractor dependence, entitlement and environmental delays, severe weather, cancellation risk, and access to capital. Revolving debt also has floating rates, and the filing discusses uncertainty surrounding the future transition from LIBOR.
- Land and lot purchase/option contracts covered 2,557 lots with approximately $189.8 million in aggregate purchase price; $17.3 million of earnest-money deposits were at risk. The company reported a limited $2.0 million guarantee related to EJB River Holdings; its stated maximum exposure to that investment and guarantee was $7.3 million.
- Ordinary-course litigation was disclosed; management did not believe its disposition would materially adversely affect results, liquidity or financial condition. Letters of credit were $9.0 million and performance bonds $5.4 million at year-end; management did not expect material claims in the foreseeable future.
- The company does not anticipate paying cash dividends in the foreseeable future. RSM issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls and internal control were effective as of year-end.
Important facts for investors to verify
- Whether backlog converts to closings in 2020, including realized cancellation rates, sales incentives and average selling prices.
- Whether homebuilding margins stabilize after the 2019 decline, and how new-community pricing and product mix affect profitability.
- Inventory growth, lot commitments and operating cash flow needs relative to cash, revolver availability, debt maturities and covenant headroom.
- The accounting and cash implications of GRBK GHO contingent consideration and the February 2020 extension of put/purchase-option dates.
- Execution and funding of Trophy’s Houston expansion, and the returns from the company’s land, builder and joint-venture investments.
- Potential exposures from land-development guarantees, option deposits, legal matters, warranties, environmental requirements and construction-cost volatility.