Green Brick Partners, Inc.

Good afternoon, everyone, and welcome to GreenBrick Partners' earnings call for the third quarter ended September 30th, 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 the third quarter investor call presentation. The company reminds you that during this conference call, it will make various forward-looking statements within the meanings of the safe harbor provisions of the United States Private Securities Litigation 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 comments related to the anticipated impact of COVID-19 on our future operations, prospects, and other aspects of the business of GreenBrick partners are based on current expectations and are subject to risks and uncertainties. Those factors could cause actual results or outcomes to differ materially from those expected are set forth in our press release which was released on Thursday, October 29, 2020, and the risk factors described in the company's most recent annual and quarterly filings with the Securities and Exchange Commission. Green Break Partners undertakes no duty to update any forward-looking statements that are made during this call. In addition, our comments will include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by Regulation G regarding these metrics can be found in the earnings release that Greenbrick issued yesterday and in the presentation available on the company's website. I would now like to turn the conference over to Greenbrick CEO, Jim Brickman. Please go ahead, sir.

Thank you, operator. Hi, everybody. I hope this call finds you well. With me is Rick Costello, our CFO, and Jed Dolson, our COO. Thanks for joining the call. As the operator mentioned, the presentation that accompanies this earnings call can be found on our webpage at greenbrickpartners.com. At the top of the webpage, click on Investors and Governance. Then click on the option that says Reporting, and then scroll down the page until you see the second quarter investor call presentation. I'll give everybody a second to do this. The inflection that started more than a year ago accelerated this quarter. We are seeing unprecedented demand for our homes as many people adapt to a post-COVID lifestyle. People want to own their own spaces, have a home office, and grill for their family and friends in their own backyard. Our neighborhoods offer these homes at reasonable price points in some of the best and most diversified growth markets in the country. We are benefiting from rapid growth and successful expansion of our trophy signature homes brand in the DFW market. Our net new home orders this quarter were up 89% year over year and 41% sequentially from Q2 2020. This was driven by order growth at every price point from entry level to second time move up home buyers. With demand for new quality homes at the highest levels in more than a decade, GreenBrick has successfully continued to expand its community count, growing 18% from the prior year. At the same time, GreenBrick has grown profitably, managing pace and price as we increased our Q3 2020 sales absorption by 58% and gross margins by 370 basis points year over year to 24.8%. We have leveraged our much higher volumes with only moderate growth in operating expenses to drive earnings per share to our record quarterly basic EPS of 69 cents, up 123% over Q3 2019. Over the past three months, our company has grown our owned and controlled lots over 31% to an all-time record of 12,066 lots. which is net of starts during the quarter, which also set a record of over 700 homes started during the third quarter. Thanks to the hard work of our land team and our strong relationships with land sellers and municipalities in our core markets, GreenBrick has been able to quickly and efficiently invest its strong operating cash flow into investments in land to fund our future plan growth. It is important to note this record growth in land and lots was achieved while actually decreasing our debt to capital ratio by 250 basis points from Q2 2020 to 25.3%. This is one of the lowest of all public builders. The combination of our consistently strong growth and profitability with our conservative balance sheet has been critically important in building our relationship with Prudential Private Capital. resulting in our second issuance of senior notes this August. This 37.5 million senior unsecured note was issued due in 2027 at a fixed rate of 3.35%, a rate comparable with that of long-term rates paid by lower-leveraged large-cap peers. The low cost of our debt clearly distinguishes Green Brick from our small-cap and mid-cap peers, and we believe will allow for further expansion in our core markets in 2021. Please flip to slide four of our presentation. We are a diversified builder with eight brands in four major markets with a wide array of product types and price ranges. We believe this stratification of products will continue to appeal to a broad base of homebuyers and expect that our entry-level segment will continue to rapidly expand through growth in our trophy signature and CB Jenny plans. As we discussed in our Q2 2020 earnings call, Greenbrick now operates under a much simpler owner structure than seen in the past. For the nine months ending September 30th, 2020, over 66% of our total revenues were generated through wholly owned subsidiaries, compared to only 5% for the nine months ended September 30, 2019. Driven by increased ownership in our Southgate, Center Living, CB Jenny, and Normandy brands, as well as the expansion of Trophy Signature Homes, this increased control has allowed GreenBrick to adapt quickly to the booming demand for our new homes and rapidly respond to new challenges as they arise. Slide five announces Green Brick's second consecutive recognition on Fortune Magazine's 100 fastest growing companies. This year showed Green Brick jumping 38 spots to 55th place and is an excellent acknowledgement of Green Brick's tremendous growth story. On slide six, we highlight the resilience of our key markets of Dallas, Fort Worth, and Atlanta. Like every other economy in the country, the COVID-19 pandemic created a major disruption in commercial activity and led to significant rise in unemployment earlier in the year. However, as shown on the graph in this page, our DFW and Atlanta markets ended the quarter with the lowest and second lowest unemployment rates out of the 10 largest metropolitan areas in the United States. Additionally, the Dallas-Plano-Irving sub-market market had the lowest year-over-year increase in its unemployment rate of the 38 metropolitan subdivisions in the nation. With 85% of our ending active selling communities in these core markets of DFW and Atlanta, we believe that GreenBrick is fully prepared to capture more new homebuyers in these markets as demonstrated by a robust 89% year-over-year sales growth from Q3 2019 to Q3 2020. We believe this strong bounce back from the lowest seen in April is further proof that our focus on business-friendly, pro-growth markets is the correct and best choice that will continue to differentiate us from peers. Thanks to the superior and economically diversified markets where we operate, Greenbrick is poised to capitalize on what we believe are long-term positive shifts in homeownership. As seen on slide seven, the national homeownership participation rate has risen since the Fed began reducing interest rates in August 2019. As of September 30th, 2020, the national homeownership rate now sits at 67.4%. Sustained homeownership rates above 67% have not been seen in over a decade, indicating there's a clear secular shift taking place toward homeownership. With interest rates expected to remain low for the foreseeable future and an increased appreciation and demand for larger, energy-efficient, fresh-looking homes with dedicated work-from-home spaces, we fully expect this positive trend to continue. Strikingly, this quarter saw the homeownership rate of buyers under 35 increase 270 basis points from the third quarter of 2019 to 40.2%. and decreased only 40 basis points from the 40.6% seen in Q2 2020. This quarter represents the first time the home ownership rate has exceeded 40% for two consecutive quarters since 2008. Millennials currently represent the fastest growing ownership segment, and we believe this age group will continue to drive future increases in overall home ownership. While this trend will be constrained by the available supply of housing, we believe that this higher ownership rate, especially related to younger home buyers, should at a minimum be considered the new normal. With home ownership of buyers under 35 still 340 basis points below its peak in the mid-2000s, we feel this shift represents a true secular change in home building marketplace and that Green Brick Partners is fully prepared to address this growing market. Jed Dolson, our Chief Operating Officer and Executive Vice President, will now speak in greater detail to the growth drivers in our land position.

Jed? Thanks, Jim. Take a look at slide 8, titled Growth Drivers, which demonstrate that Greenbrook still has a long pathway toward future growth. On a last 12-month basis, total revenues from Q3 of 2018 to Q3 of 2020 have grown 65% over that two-year period. Additionally, our backlog grew 79% to $553 million as of September 30, 2020. These improvements indicate that Greenberg is positioned to capitalize on the booming demand of new homes and is already capturing waves of the new buyers. During these last 24 months, we also increased our lots owned and controlled by 49% and grew the average number of selling communities by 51%. In fact, in the last quarter alone, GreenBrick added 3,600 lots to our inventory of lots owned and controlled, while Trophy Signature Homes opened 12 new selling communities. With our dramatic growth in lots owned and controlled and record starts of over 700 units this quarter, We are confident that we have the necessary levels of sold and spec inventory to hit significant growth in 2021 and beyond. On slide 9, we established the relationship between total lots owned and controlled and our total top line revenues. As you can see from the chart on this slide, each investment we made in land has been highly correlated to a future growth in revenue. For the last 12 months, ending September 30th, 2020, our revenues have already grown 27% over the 12 months ending September 30th, 2019. With our massive investment in land and lots this quarter, we believe we can continue to maintain significant growth well into 2022. Slide 10 further details our Q3 2020 land investment, which resulted in a 31.5% sequential growth in total lots for the company. As the slide details, roughly two-thirds of this land growth was spread across three DFW communities. These communities represent significant long-term investments in our Texas market, and will be a dependable source of new lots as our trophy signature homes and CB Jenny brands continue to expand across the Metroplex. Slide 11 details the growth we have already seen in our trophy brand over the past 12 months. When picking a new location for one of our builders, we are diligent to target a minimum under 21% unleveraged internal rate of return for new properties that in turn drives our industry-leading gross margins. As you can see from our community map on this slide, we were able to more than double Trophy's active selling communities over the past year and have been thrilled to see Trophy perform with both entry-level and move-up buyers. With the total annual housing starts in DFW expected to exceed $35,000, We believe Trophy can continue to expand its footprint across the entire DFW Metroplex for years to come. Please move to slide 12. John Burns Real Estate Consulting has published maps of our Dallas and Atlanta metropolitan areas where they have designated grades on some markets of most desirable being an A location through most affordable being an F location. Based on a variety of subjective factors such as 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 the sub-markets rated most desirable. In the current market environment, we believe that our superior market positioning will be key in differentiating our results from our peers. This positioning is further strengthened by the lot supply shortages in both the northern suburbs of Dallas and Atlanta, which we believe will be a strategic advantage for us, as we expect land development activity for other builders will slow in the coming months. Our community count grew 18% from Q3 2019 to 100 active communities as of September 30, 2020, as we continue to open more communities geared toward the first-time buyer. However, this increased focus on affordability has not been at the cost of increased risk. Based on our Q3 2020 home closings with our unconsolidated mortgage venture, Greenbrook saw an average FICO score of 760, with 89% of the fundings exceeding a FICO score of 700. The creditworthiness of our average buyer profile is a fundamental strength of many of the A markets where we operate, which we believe will continue to mitigate risk for our business. Next, Rick Costello, our CFO, will discuss our third quarter and annual results in more detail.