Green Brick Partners(GRBK) - 2022 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Residential revenue for Q3 2022 increased by 17.1% year-over-year to $397 million, driven by a 33$74 million, or $1.57 per diluted share, representing a year-over-year increase of 65$408 million [29] - Homebuilding gross margin reached a record high of 32.4% in Q3 2022, up from 32.3% in Q2 2022 [30] Business Line Data and Key Metrics Changes - The number of closings declined by 12% to 650 homes due to lower start pace in prior quarters and a smaller backlog [29][33] - Net new home orders decreased by 41% year-over-year to 404, with a quarterly absorption rate per average active selling community decreasing to 5.3 homes [33][40] - Cancellation rate increased to 17.6% for Q3 2022 compared to 6.9% for the same period last year [34] Market Data and Key Metrics Changes - The U.S. housing market has seen mortgage rates more than double from a year ago, hitting a 20-year high in October [9] - Existing home listings in the DFW area represent a 2.2 months supply, while finished new home inventory represents a 1.3 months supply, both below pre-pandemic levels [15][17] - The company’s core markets, particularly Dallas and Atlanta, have shown better performance compared to other markets like California and Las Vegas [13][14] Company Strategy and Development Direction - The company maintains a strong balance sheet with a debt to total capital ratio of 28% and net debt to total capital of 25.5% [19] - The strategic focus includes disciplined land investment underwriting and maintaining a superior land pipeline [20][26] - The company plans to slow down land acquisitions and development spending by approximately 45% in 2023 compared to 2022 [50][100] Management's Comments on Operating Environment and Future Outlook - Management expects the housing inventory and market to remain choppy in the short term due to high mortgage rates and inflationary pressures [11] - Long-term demand for homes is anticipated to continue, driven by millennials entering the housing market [18] - The company is optimistic about its position in the market, citing strong demographics and migration trends in its core markets [13][14] Other Important Information - The company has been actively managing its sales pace and construction starts on a community-by-community basis [43] - The company expects to complete 880 finished lots between 2022 and 2023 in 73 communities [51] - The company is focused on value engineering to reduce cycle times and costs, with a modest sequential improvement in cycle times noted [55] Q&A Session Summary Question: SG&A increase and future run rate - Management explained that the increase in SG&A was due to fixed costs and a larger denominator from lower revenues, with plans to cut costs moving forward [63][66] Question: Opportunities for growth in existing or new markets - Management indicated potential opportunities in 2023 for acquiring private builders and expanding into new markets, particularly in the southeastern U.S. [68][69] Question: Direction of gross margins in the near term - Management noted that gross margins in A Class infill neighborhoods are being maintained due to supply constraints, while C location neighborhoods face more challenges [72][73] Question: Incentives and cancellations in October - Management confirmed that incentives increased from 4.2% in Q3 to 6.3% in October, with cancellations also rising [97] Question: Number of starts this quarter - The company started 490 homes in Q3 2022, down from 801 homes a year ago [105][106] Question: Pricing strategy for new communities - Management stated that pricing strategy will depend on neighborhood location, with a focus on competitive pricing in new neighborhoods [108]