Green Brick Partners(GRBK) - 2019 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) These unaudited statements detail the company's financial position, operations, and cash flows for the three and nine months ended September 30, 2019, reflecting asset growth and revenue increases Condensed Consolidated Balance Sheets Total assets increased to $865.8 million by September 30, 2019, driven by higher inventory, while liabilities rose due to new senior unsecured notes Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash | $35,123 | $38,315 | | Inventory | $740,799 | $668,961 | | Total Assets | $865,789 | $784,026 | | Liabilities & Equity | | | | Borrowings on lines of credit, net | $164,792 | $200,386 | | Senior unsecured notes, net | $73,358 | $— | | Total Liabilities | $337,087 | $289,863 | | Total Equity | $516,493 | $485,632 | Condensed Consolidated Statements of Income Total revenues for Q3 2019 increased 37.7% to $209.4 million, with net income attributable to the company rising to $15.7 million Income Statement Summary (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | 9 Months 2019 | 9 Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $209,404 | $152,052 | $561,538 | $438,527 | | Total Gross Profit | $44,725 | $36,668 | $120,372 | $110,373 | | Net Income | $19,139 | $15,373 | $46,754 | $47,607 | | Net Income Attributable to GRBK | $15,671 | $12,197 | $42,736 | $38,269 | | Diluted EPS | $0.31 | $0.24 | $0.84 | $0.75 | Condensed Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity increased to $508.7 million for the nine months ended September 30, 2019, primarily due to $42.7 million in net income - Key changes in equity for the nine months ended September 30, 2019 include net income of $42.7 million, stock repurchases of $2.2 million, and distributions to noncontrolling interests of $11.0 million[15] Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $21.2 million for the nine months ended September 30, 2019, with financing activities providing $22.6 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(21,239) | $(38,325) | | Net cash used in investing activities | $(1,838) | $(29,383) | | Net cash provided by financing activities | $22,554 | $72,433 | | Net (decrease) increase in cash | $(523) | $4,725 | Notes to Condensed Consolidated Financial Statements These notes detail significant accounting policies, including the adoption of Topic 842, inventory composition, debt structure, and share repurchase programs - The company adopted the new lease standard (Topic 842) on January 1, 2019, recognizing operating lease liabilities of $4.2 million and right-of-use assets of $4.1 million[41][44] - Sales commission expenses were reclassified from 'cost of residential units' to 'selling, general and administrative expense' starting in Q1 2019 to improve comparability with peers[28] Inventory Breakdown (in thousands) | Category | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Homes completed or under construction | $321,058 | $268,763 | | Land and lots - developed and under development | $418,700 | $399,809 | | Land held for sale | $1,041 | $389 | | Total inventory | $740,799 | $668,961 | - On August 8, 2019, the company issued $75.0 million in senior unsecured notes due 2026 with a fixed rate of 4.00% per annum[64] - Under the 2018 Share Repurchase Program, the company repurchased 208,001 shares for approximately $1.8 million during Q3 2019, with $26.8 million remaining available for future repurchases[68][72][203] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported strong operational performance in Q3 2019, with significant increases in home deliveries and orders, despite a decline in residential gross margin due to sales incentives Results of Operations Residential units revenue increased 43.4% in Q3 2019, driven by higher home deliveries and orders, though gross margin declined due to sales incentives Key Operating Metrics (Q3 2019 vs Q3 2018) | Metric | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | New homes delivered | 443 | 312 | 42.0% | | Home closings revenue | $197.3M | $137.4M | 43.6% | | Net new home orders | 436 | 297 | 46.8% | | Backlog (units) | 710 | 685 | 3.6% | | Residential units gross margin | 21.3% | 24.8% | (3.5) p.p. | Key Operating Metrics (Nine Months 2019 vs 2018) | Metric | 9M 2019 | 9M 2018 | % Change | | :--- | :--- | :--- | :--- | | New homes delivered | 1,205 | 905 | 33.1% | | Home closings revenue | $529.0M | $401.6M | 31.7% | | Net new home orders | 1,334 | 1,118 | 19.3% | | Residential units gross margin | 21.4% | 25.6% | (4.2) p.p. | - The decrease in residential gross margin was primarily attributed to lower initial prices on new communities and increased sales incentives, which helped drive significant revenue growth[153][166] Lots Owned and Controlled The company owned and controlled 9,269 lots as of September 30, 2019, an increase driven by a strategic shift towards more controlled lots Lots Owned and Controlled | Category | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | Total lots owned | 6,414 | 6,235 | | Total lots controlled | 2,855 | 1,843 | | Total lots owned and controlled | 9,269 | 8,078 | Liquidity and Capital Resources The company maintained a solid liquidity position with $35.1 million in unrestricted cash and a debt-to-total capitalization ratio of 31.9% - As of September 30, 2019, the company had $35.1 million in unrestricted cash[179] - The debt-to-total capitalization ratio was 31.9% and the net debt-to-total capitalization ratio was 28.5% as of September 30, 2019[182] - Primary uses of capital were home construction, land acquisition and development, and operating expenses, funded by cash from operations, credit facilities, and senior unsecured notes[180][183] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate sensitivity, which impacts housing demand and borrowing costs on its variable-rate debt - The company's operations are sensitive to interest rate changes, which can affect housing demand and borrowing costs[193] - As of September 30, 2019, a 1.0% increase in interest rates would raise annual interest expense by approximately $1.7 million on its variable-rate debt[195] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2019[197] - No material changes were made to the internal control over financial reporting during the three months ended September 30, 2019[198] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any material litigation, nor is it aware of any threatened material litigation - The company is not involved in any material legal proceedings[201] Item 1A. Risk Factors No material changes to risk factors have been reported since the Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes in risk factors were reported since the last Annual Report on Form 10-K[202] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 208,001 shares for approximately $1.8 million during Q3 2019, with $26.8 million remaining for future repurchases Share Repurchases (Q3 2019) | Period | Total Shares Purchased | Average Price Paid | Dollar Value Remaining Under Program | | :--- | :--- | :--- | :--- | | July 2019 | 144,584 | $8.43 | $27,412,979 | | August 2019 | — | — | $27,412,979 | | September 2019 | 63,417 | $9.14 | $26,833,664 | | Total Q3 | 208,001 | $8.64 | $26,833,664 | Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including agreements for senior unsecured notes and CEO/CFO certifications - Exhibits filed include agreements related to the August 2019 senior note issuance and required CEO/CFO certifications[207]