Green Brick Partners Inc (GRBK) 2017 Q2 法說會逐字稿

Good afternoon, everyone, and welcome to Green Brick Partners' Earnings Call for the Second Quarter Ended June 30, 2017. (Operator Instructions) As a reminder, this call is being recorded and will be available for playback. Details for accessing the replay will be made available at the end of the call. A slideshow for supporting today's presentation is available on Green Brick Partners' website, www.greenbrickpartners.com. Go to the Investor Presentations tab and click on Presentations & Webcasts.

The company reminds you that during this conference call, it will make various forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance, strategies, prospects and other aspects of the business of Green Brick Partners are based on current expectations and are subject to risks and uncertainties. A number of factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements.

Please read the cautionary statement regarding forward-looking statements contained in the company's press release, which was released on Monday, August 7, and the risk factors described in the company's most recent annual and quarterly filings with the Securities and Exchange Commission.

Green Brick Partners undertakes no duty to update any forward-looking statements that are made during the course of this call. Today, the company will be referring to adjusted EPS and adjusted homebuilding gross margin, which are non-GAAP financial measures. The reconciliation of adjusted EPS to net income attributable to Green Brick and adjusted homebuilding gross margin to homebuilding gross margins are contained in the earnings release that Green Brick issued yesterday.

I would now like to turn the conference call over to Green Brick CEO, Jim Brickman. Please go ahead, sir.

Thanks for joining our call. With me is Rick Costello, our CFO; and Jed Dolson, our Head of Land Development and Acquisition. As the operator mentioned, a presentation that accompanies this earnings call can be found on our web page at greenbrickpartners.com. At the top of the page, click on Investors & Governance, then click on the white tab that says Presentations & Webcasts, that's where you'll see the second quarter investor call presentation. I'll give everyone a second to go over to the presentation.

Okay. We had a great first half of the year. Our second quarter pretax income was $12.0 million, that's an increase of 10% from the second quarter 2016. Year-to-date, our pretax income of $22.1 million is up 43% over the first half of 2016.

Significantly, on a trailing 12-month basis, our net new orders are at 958 units, up 20% -- up 24% year-over-year. And our home closings for the last 12 months are at 934 units, up 29% year-over-year. We also continue to be able to source additional lot positions that can exceed our conservative underwriting leverage hurdle rates. Compared to last year at this time, we now own and control over 900 more home sites, an increase of 20% to a total of 5,400 lots owned and controlled, plus our business continues to experience top line revenue growth without sacrificing gross margins. Our adjusted gross margin for the last 12 months remained at 23.1%, the same as the prior 2 quarters.

Please flip to Slide 3. During the last year, Dallas and Atlanta continued to be ranked as the second and third largest job growth markets in the nation, not only are both markets adding significant numbers of new jobs, but most markets are only -- the only job growth rates over 3% among major job markets, with total employment over 1.5 million.

On Slide 4, you can see that Dallas continues to be the #1 new housing market in the nation, getting more than 31,000 starts. Atlanta, as the third largest market, is expanding at an even faster rate.

Slide 5 shows that starts and closing in Dallas are still expanding, but still below peak activity.

Slide 6 shows that in Dallas the lot inventory levels are at a very healthy 19.4 months supply. What the graph does not tell you is how supply-constrained lots are in the most prime AAA locations. Green Brick owns or controls almost 3,800 lots in the Dallas Metroplex in AAA locations, like Frisco, Allen and Flower Mound.

Slide 7 shows that Atlanta, despite double-digit growth in starts and closings, is still about 65% below peak. Most of this growth is attributable to the north, where all of Green Brick's Atlanta communities are located.

Putting all this together, this quarter's results show that our focus on creating better neighborhoods for our homebuyers and for the cities we build in continues to pay off in the bottom line.

Next, Rick Costello, our CFO, will discuss our second quarter results in more detail. Please turn to Slide 9 for a summary of those results. Rick?

Thanks, Jim, and thank you all for joining us today to review our 2017 second quarter and year-to-date financial results. I'm going to start with the highlights, and then move into the details.

For Q2 '17 versus Q2 '16, and year-to-date for the first 6 months of the year, here are some key operational metrics. Net new orders increased by 13% for the quarter and 16% year-to-date. Home deliveries increased by 12% for the quarter and 24% year-to-date. Home sales revenues increased by 7% for the quarter and 21% year-to-date. The dollar value of units in backlog increased by 18% year-over-year. And as Jim mentioned, our pretax income was up 10% for the quarter and 43% year-to-date.

And now for more details. For the second quarter, the number of net new homeowners orders was 270 homes, an increase of 13% compared to the second quarter of '16. For the first 2 quarters of '17 versus '16, our net new homeowners have grown by 16% from 479 to 557. Green Brick delivered 237 homes for the quarter, 12% more than the second quarter of 2016. Year-to-date, Green Brick delivered 463 homes, a 24% increase over the first half of 2016.

Home sales revenues were $100.3 million for the quarter, an increase of 7% over the second quarter of 2016. Year-to-date, Green Brick's home sale revenues grew to $193.7 million, up 21% over the first half of 2016. The average sales price of homes delivered was $423,000 for the quarter and $418,000 year-to-date, down 4% and 3% versus 2016, as the mix of homes sold leaned more towards townhomes, which typically are lower-priced versions of the single-family homes. Specifically, townhome revenues as a percentage of our total closing revenues have risen from 31% for the first half of 2016 to 43% for the first half of 2017.

That said, if you look at our builder platforms within the categories of homes built, they have experienced ASP growth ranging from 1% up to 14%. As the end of the second quarter, Green Brick had a total of 54 active selling communities, a year-over-year increase of 12.5%. Homes under construction increased 8% to 714 units as of June 30 compared to 660 units as of June 30, 2016.

Now let's review some of these key metrics on a last 12-month basis. Regarding construction, over the trailing 12 months, we've started 988 homes versus 860 homes as of June 30, 2016, an increase of 15%. Regarding sales, net new orders for the last 12 months stand at 958 homes, up 24% from 771 homes as of the end of Q2 2016. And regarding closings, units closed for the 12 months totaled 934 homes, up 29% from 722 homes at 6/30/16. The adjusted homebuilding gross margin percentage increased slightly to 22.4% for Q2 2017 versus 22.3% for Q2 of '16. Our last 12 months gross margin percentage is at 23.1%, again, which is unchanged now for 3 quarters running.

Please recall that our cost of sales include the cost of sales commissions, this diverges from the majority of other public builders who include commission and SG&A where it's a stand-alone item. So in any period presented, you can add about 4.0% to our reported margins to increase them and thereby make them comparable to most other public builders.

At June 30, 2017, our builder operations segment had a backlog of 331 sold, but unclosed homes, with a total value of approximately $165.2 million, an increase of 18% from the prior year. At June 30, the average sales price of homes in backlog was approximately $499,000, an increase of 9% compared to the prior year.

Finally, and perhaps most importantly, is the bottom line. Income before taxes attributable to Green Brick was $12.0 million for the second quarter of 2017 compared to $10.9 million for the second quarter of '16, an increase of 10%. Adjusted EPS was $0.25 per share for the second quarter of 2017 versus $0.22 per share for the second quarter of 2016, an increase of 14%.

Year-to-date, Green Brick income before taxes is up 43% to $22.1 million and adjusted EPS is up 41% to $0.45. Now to put our performance in perspective. With homebuilding revenues up 21% year-to-date, our pretax income is up 43%, over double. Clearly, our earnings performance is expanding far faster than our revenue growth rate, resulting in markedly improved return on total invested capital.

I will now turn the call back to Jim, who will wrap up our part of the call prior to opening things up for Q&A. Jim?

Okay. Thanks, Rick. I'm very proud of the entire Green Brick team that led us to this really great quarter. Because of our decades-long relationship with many large and small landowners and mixed-use developers, and our strong working relationships with the staff in the many municipalities in which we operate, we are continuing to see land development opportunities that should allow us to grow our business profitably. We have a number of these deals teed up that will generate great opportunities for us in 2018 and beyond. For example, just after the second quarter concluded, Green Brick purchased land to develop 210 home sites in the almost totally built out Coppell School District, which is a suburb of Dallas. We have presold half of the lots on an option contract to a large private builder. Our Normandy Homes we'll build on the other half.

Thank you for your help and support. I'll now turn the call back to the operator for questions. Operator?

(Operator Instructions) Your first question comes from the line of Chase Basta from AWH Capital.

Can you talk a little bit more about the lots you own in Dallas and Atlanta, like what would it take to duplicate this position today relative to what you've invested in? And how do you view the desirability of these lots relative to how what the deals you're seeing in the market today? Just something to kind of help us better get our arms around the value here would be really helpful.

Okay. I'll -- this is Jim Brickman. I'll answer a part of that question. And Jed, you should probably chime in too since you are in this -- in the trenches in this day to day. But I think it might be helpful to take a step backward and kind of take a look at what really Green Brick's strategic advantage is over many of our peers. After the Great Recession, many land developers or most land developers went broke. Subsequent to them, builders could option lots from banks with a small amount of investment and those lot prices were below replacement cost. For the most part, all of these lots have been sold and houses have been built on these lots. And today, it's a very different situation, builders across the country are faced with a shortage of lots located where buyers want and can afford to live. And while all of this has been taking place, the cities -- and I think we built in what -- Jed, 24 different municipalities right now?

24 in Dallas alone.

Yes. While all this is going on, the cities have become much more demanding and how they view the entitlement of their land. They are getting down to actually having a lot of input in the actual homes that will be built in their neighborhoods. In this kind of environment, I think Green Brick has really a significant advantage, because we have decades-long relationships, as I talked about in our phone call. And just as important, we are the land developer and builders that -- where we work pretty much hand-in-hand with these city officials, and the residents and these officials can actually see communities and homes that we've developed in many of these award-winning communities in -- Bellmoore was the Community of the Year in Atlanta. Twin Creeks was Community of the Year in Dallas. Green Brick Partners was Developer of the Year. So we aren't showing these people renderings, they can walk into neighborhoods all over town and see that we really do a better job of executing and developing, and I think that's what sets us apart to make the numbers. I think the environment has changed. We can't find a 610-lot community like Bellmoore that will achieve our unlevered hurdle rates on our land because the upfront investment is too big. So what we're doing is really working harder. Warren Jolly and Jeff Kingsfield and his team that work very hard and they have a number of deals in teed up in Atlanta. They're much smaller deals, but they're still intricate deals and they might be 40-lot deals, 80-lot deals, and they will make our hurdle rates and still allow The Providence Group to make a good rate return on our capital. Jed, do you have anything you want to add?

I would just say that the distressed debt -- lots or all, as Jim mentioned, has all been chewed through and homes have been built and sold on those. We feel like many of our assets are still in that next wave, which was the recovery wave where we weren't buying from bank -- distressed banks, but we were buying from land sellers at discounted values compared to today.

Yes, the 3 -- Bellmoore, we still have 410 lots left, about. We have a couple hundred at Deerfield. We have a lot of lots at Twin Creeks. And Jed and our builders have done a really good job replacing lots in a very competitive land market.

Ladies and gentlemen, there are no further questions at this time. This now does conclude today's conference call. You may now disconnect.