Green Brick Partners(GRBK) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics - Record home closing revenue of $547 million, up 20% YoY, with 987 homes closed, a 26% increase [3][11] - Homebuilding gross margin reached a record 34.5%, up 320 basis points YoY and 110 basis points higher than the previous record [4][12] - Net income attributable to Green Brick grew 35.3% YoY, with diluted EPS increasing 38% to$ 4.14 [4][16] - Annualized return on equity for the first half of 2024 was 28.3%, and book value increased 26% YoY to $31.21 per share [4] - Total debt to total capital ratio was 17.7%, with a net debt to total capital ratio of 10.9% and a weighted average pay rate of 3.4% [5][17] Business Line Data and Key Metrics - Trophy, the entry-level and first-time move-up brand, closed 810 homes, representing 45% of total home closings and 34% of total home closing revenue [26] - Net new orders in Q2 were up 4.0% YoY to 855 homes, the highest level for any second quarter in company history [14] - Active selling communities grew 22% YoY to 105, with Trophy's community count increasing 41% YoY to 38 [15] - Cancellation rate remained low at 9.2%, one of the lowest among public homebuilding peers [15] Market Data and Key Metrics - Dallas-Fort Worth and Atlanta are the largest markets, with very few third-party lot developers, allowing the company to self-develop land and control lot deliveries [8][25] - Existing home inventory remains near historic lows, particularly in infill and infill-adjacent submarkets, where the company generates over 80% of its revenues [9] - The US housing market faces a systemic shortage of 4 million to 7 million units, driven by demographic shifts and an aging housing stock [9] Company Strategy and Industry Competition - The company prioritizes self-development of land, avoiding expensive premiums charged by third-party developers, which contributes to industry-leading gross margins [6][24] - Green Brick's land-light model contrasts with peers who face increasing finished lot costs, with the company's average developed lot cost expected to increase only 30 basis points annually [13] - The company announced the establishment of Green Brick Mortgage, a wholly owned mortgage company, to enhance control over the mortgage origination process and capture more earnings [10] Management Commentary on Operating Environment and Future Outlook - Management highlighted the company's ability to generate superior returns and growth due to its capital allocation and land strategy, positioning it for long-term success [20] - The company remains optimistic about long-term secular demographic shifts and rising demand, particularly if mortgage rates drop [20] - Green Brick is well-positioned for continued growth into 2025 and beyond, with a strong pipeline of land and lot inventory [26] Other Important Information - The company repurchased approximately 1.5% of its shares outstanding, valued at$ 38 million, during the second quarter [18] - Cycle times have stabilized at 5.4 months, a reduction of more than two months from Q2 2023, with further optimization expected [24] Q&A Session Summary Question: Can we expect the start pace to increase in the coming quarters? - The start pace will depend on sales performance, but the company expects cycle times to shorten over time, particularly with Trophy's faster delivery times [28][29] Question: Are incentives expected to impact gross margins in Q3? - Incentives are variable and depend on interest rates and seasonality, but the company has flexibility to adjust prices if needed [32][33] Question: What is the plan if the economy slows down? - The company does not plan to sell into the build-for-rent market and has sufficient margin cushion to maintain sales velocity even in a downturn [37][38] Question: Why were prices only raised in a third of communities? - Seasonality toward the end of the quarter impacted pricing ability [36]