Green Brick Partners(GRBK) - 2021 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net income attributable to Green Brick over the last 12 months reached $123.7 million, a 100% increase over the prior 12-month period [9] - First quarter net orders of 1,082 homes and ending backlog of $996 million, both represent all-time records for the company, up 28% and 45% over Q4 2020 record levels [10] - Q1 2021 diluted EPS of $0.51, an increase of 65% over Q1 2020, with annualized net income return on average book equity growing from 11.9% in Q1 2020 to 15.9% during Q1 2021 [35] Business Line Data and Key Metrics Changes - The company started a record 2,043 homes in the last six months and ended the quarter with 2,303 homes under construction, a 62% increase from a year ago [10] - Homebuilding gross margin for Q1 2021 was up 230 basis points over Q1 2020, with adjusted homebuilding gross margin similarly up 200 basis points quarter-over-quarter [33] - The average FICO score for Q1 2021 home closings was 754, with 88% of fundings exceeding a FICO score of 700 [25] Market Data and Key Metrics Changes - Significant population growth in Texas, Colorado, Florida, and Georgia, with Texas leading the nation with an increase of just under 4 million people this decade [14] - Dallas-Fort Worth and Atlanta had the largest 12-month decline in active listings as of April 30, 2021, with listings down 70% and 63% respectively, indicating strong demand [17] - The imbalance between housing demand and supply in core markets is expected to persist through 2022, providing continued pricing power [18] Company Strategy and Development Direction - The company operates under a simpler owner structure, with more than two-thirds of top-line revenues generated by wholly owned builders [13] - Focus on expanding entry-level segment through growth in Trophy Signature and CB JENI brands, with a strategic emphasis on larger communities [12] - Plans to expand into Denver through a partnership with Challenger Homes, leveraging existing relationships and local expertise [58] Management's Comments on Operating Environment and Future Outlook - Management expects revenues, margins, and profitability to improve significantly beginning next quarter, driven by record sales order growth [40] - The company is limiting for-sale inventory to units that have been completed framing to reduce risk and capture more price increases [41] - Supply chain issues are not back to normal, with cycle times extending about a month, but management is adapting to manage these challenges [72] Other Important Information - The company acquired approximately 5,600 home sites during the quarter, expanding total lots owned and controlled by 118% over the past 12 months [11] - Interest coverage of 12.7 for Q1 2021 represents a 49% growth over Q1 2020, indicating strong cash flow generation [34] - The company will hold its inaugural virtual investor day on August 6, 2021, to provide insights into growth plans and operating strategy [42] Q&A Session Summary Question: How to think about ASP for the year? - Management noted that ASP may increase by $30,000 to $40,000 from the end of last year due to significant price increases [46][47] Question: What is the outlook for community count? - Management indicated that they do not expect much growth in community count as they focus on larger, higher absorption communities [48] Question: How will cash flow be reinvested? - The company plans to reinvest substantial cash flow into land and development, potentially approaching $500 million to $600 million [56] Question: How has traffic and orders looked in April and early May? - Traffic has been strong, but the company is limiting sales to avoid outpacing production [61] Question: Will new order activity in Q2 be down from Q1? - Management confirmed that new order activity in Q2 could be down sequentially from Q1 due to intentional pacing [65] Question: What is the expected tax rate for the remainder of the year? - The tax rate experienced in Q1 is expected to be representative of what should be seen for the remainder of the year [77] Question: What is the outlook for sequential improvement in earnings? - Management is hopeful for larger sequential improvement in Q3 compared to Q2, contingent on input costs [106]