Green Brick Partners, Inc.

Good afternoon, everyone, and welcome to GreenBrick Partners' earnings call for the first quarter ended March 31, 2020. Following today's remarks, we will hold a question and answer session. As a reminder, this call is being recorded and will be available for playback. A slideshow supporting today's presentation is available on GreenBrick Partners' website at www.greenbrickpartners.com. go to Investors and Governance, then click on the option that says Reporting, and then scroll down the page until you see a first quarter investor call presentation. The company reminds you that during this conference call, it will make various forward-looking statements within the meaning of a safe harbor provisions of the United States Private Securities Legislation Reform Act of 1995. including its financial and operational expectations for 2020 and the future. Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance strategies, including but not limited to the comments related to the anticipated impact of COVID-19 on our future operations, prospects, and any other aspect of the business of Green Brick Partners, are based on current expectations and are subject to risk and uncertainties. Those factors that could cause actual results or outcomes to differ materially from those expected are set forth in our press release, which was released on Monday, May 11, 2020, and the risk factors described in the company's most recent annual and quarterly filings with the Securities and Exchange Commission. GreenBrick Partners undertakes no duty or update any forward-looking statements that are made during the call. In addition, our comments will include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by Registration G regarding these metrics can be found in the earnings release that GreenBrick issued yesterday and the presentation available on the company's website. I would now like to turn the conference over to Green Bricks CEO, Jim Brickman. Please go ahead, sir.

Thank you. Hi, everyone. I hope this call finds everybody else safe and healthy. With me is Rick Costello, our CFO, and Jed Dolson, our president of the Texas region. Thanks for joining the call. As the operator mentioned, the presentation that accompanies this earnings call can be found on our website at greenbrickpartners.com. At the top of our web page, click on Investors and Governance. Then click on the option that says Reporting. And then scroll down the page until you see the first quarter investor call presentation. I'll give everyone a second to do this. I'm pleased to report that we closed our first quarter of 2020 with yet another record-breaking quarter, including an all-time high basic EPS, a record backlog of 427.3 million, and net new home orders up 42%. Under more typical circumstances and absent COVID-19, this would be a cause for celebration. Seeing much of the country come to a stop in a matter of weeks was something even the most seasoned CEO could not anticipate. We feel more confident now than only weeks ago, but we remain cautious about the potential effects of the COVID-19 pandemic will have on Americans, our business, and the economy as a whole. As conditions change, we will continue to evolve our COVID-19 response that was first implemented in the beginning of March to reflect the best interests of our staff, customers, and business. Please flip to slide four of your presentation. We are a diversified builder with eight brands in four major markets. Our diversification includes a wide array of home types and price ranges from homes as low as $200,000 As we continue to evaluate the consequences of this pandemic, we remain positive that our diversification efforts have placed us in a position to continue to weather the storm. While our industry has undoubtedly been impacted, home building has been designated as an essential business in 100% of the markets where we participate. And all of our operations, including mortgage and title services, sales and construction, have remained active. Beginning mid-March, employees with the capacity to work remotely have been doing so. And stringent social distancing guidelines have been implemented for the remainder of our employees. On slide five, we have outlined some of our ongoing COVID-19 response. We have revised our land spend strategy to improve our liquidity and better reflect lower net new orders. This has entailed reducing purchases of lots and land, slowing land development spend on existing projects, and halting expansion into new markets like Houston. By effectively idling parts of our business, we believe we can maintain very strong liquidity while positioning our operations to meet buyer demand. I am pleased to report that our sales offices remain fully operational by offering buyers private appointments, implementing private self-guided tours, and for areas with the strongest stay-at-home orders, live virtual tours accessible directly from the customer's home. In an effort to remedy the significant decline in foot traffic, we have expanded our digital marketing efforts. As a result, in March, we saw an increase in digital traffic of 76% over the prior year, and a year-over-year increase of 44% for April. Here are the details for the impacts on sales and cancellations since mid-March. Net sales in April were down 42% from April 2019. But the first 11 days of May, our net sales are already over 80% of sales for all of April, with three weeks remaining. In fact, our net sales for May are running 25% higher than in May 2019. For the six-week period ending May 11th, our sales have steadily improved with gross sales and net sales both increasing each week. And our net sales in the week ending yesterday have gone up by 440% since the first week of April 6th when things were very slow. Our cancellation rate was elevated in March and continued to be high in April, where the April cancellation rate of 31% was almost double the Q1 cancel rate of 16.5%. But our cancellation rate for the last two weeks is now consistently normal around 17.1% versus our first quarter average of 16.5%. Our mortgage and title ventures have also continued to operate within the confines of social distancing, which has included moving the majority of meetings to digital platforms and conducting over 95% of our closings as drive-through closings. See the map on slide six where we begin our discussion of the markets we participate in and how COVID-19 has impacted our business in these specific locations. Approximately 65% of our building revenues in Q1 were from our Dallas operations, and the latest data indicates that our Dallas communities are located in cities which have been identified as some of the most recession-resistant cities in the country. Indeed, a report from Smart Asset recently named Frisco, Plano, and Denton as three of the four most recession-proof cities in the country, with Arlington included in the top 20. Continuing with our Dallas story, we are seeing some really nice results in our trophy signature and CB Jenny brands. Interestingly, sales have also increased in our higher brand, second-time move-up Southgate brand, and our first-time move-up Normandy brand. Please scroll to slide 7. Atlanta has not performed as well due to worse conditions economically and delays due to the wettest winter on record. However, we are optimistic with four new lower price point neighborhoods set to open in the next six months. Most of our lots and homes are located in AAA-constrained North Atlanta suburbs like Alpharetta and John Creek, where lot supply, including lots under development, is less than two years. In Vero Beach and the Florida Treasure Coast, our large buyer deposits of nearly 13% of the purchase price has resulted in a very low cancellation rate on our backlog sales. We believe that once our age-targeted northeastern buyers can resume travel to Florida, sales of our low-density, affordable homes will pick up considerably. Lastly, we anticipate the demand to remain consistently strong in Colorado Springs due to a very robust economy with new home demand driven by military installations, low interest rates, and first-time buyers. Jed Dolson, our president of the Texas region, will now speak in greater detail to our land position and gross margins. Jed?

Thanks, Jim. Please move to slide eight. John Burns Real Estate Consulting has published maps of our Atlanta and Dallas metropolitan areas where they have designated grades of some markets of most desirable, being an A market, through most affordable, an F market. based on a variety of subjective factors such as quality of schools, proximity of jobs, and the existence of infrastructure for quality of life. We have overlaid the locations of our green brick communities with green dots. The preponderance of our communities are in some markets rated as most desirable. In the current market environment, we believe that superior market position of our lot inventory will be key to differentiating our results from our peers. With strong lot positions in some of the most high-demand areas of Dallas and Atlanta, we are hopeful that our team builders will be able to bear the impact of the COVID-19 crisis. This position is further strengthened by the lot supply shortages in both northern suburbs of Dallas and Atlanta, which we believe will be a strategic advantage for us as we expect land development activity will slow in the coming months. Moving on to our community count, which grew 18% from Q1 of 2019 to 93 active selling communities today. We continue to open more communities geared towards first-time buyer. However, this increase on affordability has not been at the cost of increased risk. Based on our Q1 2020 home closings of our unconsolidated mortgage venture, Greenbrick saw an average FICO score of 755, with 85% of our fundings exceeding a FICO score of 700. The creditworthiness of our average buyer profile is a fundamental strength of the A markets where we operate. We believe we will continue to mitigate risk of our business. Our lot supply is also uniquely positioned to create positive cash flows for GreenBrick as we strategically reduce our land spending. As you can see on slide 9, GreenBrick has maintained a consistent percentage of owned lots at or above 70% for the past two years. With more than 45% of these owned lot inventory finished or nearly finished, We are confident in our ability to simultaneously slow our land pipeline down while still maintaining an ample supply of lots for our team builders. This supply of ready lots will translate into strong positive cash flow in future quarters as we close homes. This would not be possible in a land light business model. We also believe that our land position will permit GreenBrick to generate some of the best margins in the industry as we close homes. Slide 10 of our presentation compares our Q1 2020 gross margins with available peer data. Our gross margin just reported in Q1 was 23.1%. This was up 230 basis points over Q1 2019 and sequentially was up 150 basis points over Q4 2019. We believe our strong margin experience this quarter is evidence that our conservative land underwriting and prudent planning are a winning strategy that has left the company well prepared to manage pace and price during the remainder of 2020. The next two slides demonstrate the significant improvement Greenberg has made in diversifying our product lines over the past two years. Let's first look at slide 11. As Jim mentioned earlier, we now offer eight unique brands with the addition of GHO Homes in 2018 and Trophy Signature Homes in 2019. Our robust single family growth of 99% from Q1 2018 to Q1 2020 is highlighted by GHO's revenue of $22.4 million. and Trophies revenues of $28.0 million in the current quarter. GHO and Trophies homes sell at lower average sales price with their more affordable age targeted product and affordable products respectively. As a result of this product diversification, our ASP has decreased 6% since the first quarter of 2018, all while maintaining higher than average industry gross margins, and profitability. This improved affordability will be crucial in preserving and hopefully improving our market share under the current economic conditions. Slide 12 visually demonstrates that we have grown our revenues and provided stable earnings by not concentrating on any one homebuyer segment. We now address six distinct consumer segments which all experience strong revenue growth and sales volumes in Q1 of 2020. Our 42% year-over-year growth in net new orders demonstrates the health of our markets prior to the COVID-19 pandemic. The growth breaks down as follows. Entry level up 211%. Age targeted up 11%. First time move up, up 146%. Suburban townhome up 8%. Second time move up, down 24 percent and our urban living up 46 percent our expectation is for the entry-level segment those homes with average sales price under 300 000 to grow in size in terms of community account sales orders and closings in that regard during the rest of the calendar year 2020 trophy signature homes and cb jenny homes are expected to open a combined seven additional entry-level communities up from the current eight entry-level communities. Next, Rick Costello, our CFO, will discuss our first quarter and annual results in more detail.