Green Brick Partners(GRBK) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported a net income of $75 million for the second quarter, with earnings per diluted share at $1.63, reflecting a 19% sequential increase and the second highest diluted EPS in company history [38][62] - Homebuilding gross margin increased by 370 basis points sequentially to 31.3%, the highest among public homebuilders, and only 110 basis points lower than the record high of 32.4% achieved in Q3 2022 [79][86] - The debt to total capital ratio decreased to 22.9%, and the net debt to total capital ratio reached a historic low of 10.6%, providing significant liquidity for future opportunities [12][44] Business Line Data and Key Metrics Changes - Home deliveries in Q2 declined 11% year-over-year to 783 units, attributed to a high level of deliveries in Q2 2022 and lower starts in the latter half of 2022 [8] - The cancellation rate improved by 400 basis points year-over-year to 7.4%, remaining the lowest in the industry [9][80] - Net new home orders increased by 51% year-over-year to 822 homes, marking the highest order level for any second quarter in company history [4][85] Market Data and Key Metrics Changes - The company noted that existing home inventory reached near all-time record low levels, which has driven demand for new home construction [5][50] - Approximately 80% of total revenues year-to-date were generated from self-developed infill and infill-adjacent locations, indicating a strong market presence in desirable areas [6][66] - The company is well-positioned to capture market share due to a strong balance sheet and ample high-quality finished lots in infill locations [52][66] Company Strategy and Development Direction - The company emphasizes its strategic long-term advantage in entitlement and development expertise, focusing on infill and infill-adjacent submarkets where competition is limited [59][82] - The management believes that ongoing operational improvements and scale as the third largest homebuilder in DFW will enhance competitive pricing and maintain industry-leading margins [14][66] - The company plans to capitalize on land and lot opportunities in the current marketplace, supported by abundant cash reserves [82] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the resilience and strength of the housing market, indicating that they are well-positioned to meet the large demand for single-family homes [70] - The company noted that high interest rates have had limited impact on slowing housing demand in most communities [13] - Management highlighted the chronic shortage of approximately 4 million housing units in the country, which is expected to drive demand for new homes [58] Other Important Information - The company repurchased 803,000 shares of common stock for $27.7 million year-to-date, representing 1.7% of total shares outstanding as of December 31, 2022 [57] - The average selling price (ASP) of new orders declined by 8% year-over-year to $596,000, influenced by changes in product mix and slightly higher incentives [63] Q&A Session Summary Question: How is the performance of mid-to-high-end homes compared to Trophy Signature products? - Management noted that the high-end market is supply constrained, leading to high demand, while entry-level homes face more competition [28] Question: Has the reluctance of existing homeowners to sell benefited Green Brick? - Management confirmed that their infill locations have indeed benefited from this trend, as existing homeowners are hesitant to forfeit low-interest loans [22][32] Question: Can you break down the 8% decline in average order price between incentives and mix? - Management explained that incentives in A locations are typically lower than in peripheral locations, affecting the overall average order price [24] Question: Are there signs of increased activity among private builders considering selling? - Management indicated that they have observed some private builders facing challenges due to high costs of capital, which may lead to increased activity in the market [91]