Green Brick Partners, Inc.

Good afternoon, everyone, and welcome to Green Brick Partners earnings call for the third quarter ended September 30th, 2021. 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 will accompany today's webcast and is available on Green Brick Partners website, www.greenbrickpartners.com. For listeners joining us by teleconference, 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 meaning of the safe harbor provisions of the United States Private Security's Litigation Reform Act of 1995, including its financial and operational expectations for 2021 and the future and anticipated impact of COVID-19 on future operations, prospects, and other aspects of our business. Investors are cautioned that such forward-looking statements are based on current expectations and are subject to risks and uncertainties and could cause actual results or outcomes to differ materially from those set forth in our forward-looking statements. These risks are set forth in our third quarter earnings press release, which was released on Tuesday, November 2, 2021, and the risk factors described in the company's most recent annual quarterly filings with the Securities and Exchange Commission. Green Brick 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 Regulations G regarding these metrics can be found in the earnings release that Green Brick issued yesterday and the presentation available on the company's website. I would now like to turn the conference over to Green Brick's CEO, Jim Brickman. Please go ahead, sir.

Thank you, Operator. Hi, everyone. With me is Rick Costello, our CFO, and Jed Dilson, our CLO. Thank you for joining the call. As the Operator mentioned, if you are joining us by phone today, the presentation that accompanies this earnings call can be found on our webpage at greenbrickpartners.com. At the top of our webpage, click on Investors and Governance, then click on the option that says Reportings. and scroll down the page until you see the third quarter investor call presentation. I'll give everyone a few seconds to do this. Our third quarter income of $48.5 million was a record for any third quarter and up nearly 40% from the prior year. Year to date, our net income is up 50% versus the first nine months of 2020. Thanks to a great team effort, we provided our investors some of the best returns in the industry. Our return on equity was 26.1% for the quarter, bringing our year-to-date return on equity to 24%, which compares to 19.9% year-to-date 2020. After we saw the huge upward shift in demand in June 2020, our land teams did a fantastic job of quickly pivoting to acquire well-located land. As a result, during the last 12 months, our lot position grew over 100% to 24,354 owned and controlled lots. While these additional 12,000 plus lots acquired over the last year did not meaningfully contribute to our bottom line in 2021, these lots will contribute to us growing significantly in the future and our future earnings. Our gross margin reached 26.9% this quarter, up 580 basis points from two years ago, up 210 basis points from the prior year quarter, and up 150 basis points from the first quarter of 2021, and up marginally compared to the last quarter as Greenbrick achieved pricing power in our core markets of Dallas-Fort Worth and Atlanta. In order to capitalize on rising prices and demand, we have paced sales by limiting our available homes for sale to generally those where the slab is at least poured. We have also achieved price increases in excess of input costs. We believe this focus on price over pace will sustain our industry-leading margins and strong financial performance. With our record $1 billion backlog, leading margins, and superior lot position, GreenBrick is extremely well positioned to grow our business in 2022 and beyond. At the end of the third quarter, we now have a record 863 spec homes under construction, which is up nearly 50% year over year, included in our record 2,555 homes under construction. Most of our homes under construction should convert to closings over the next three quarters. The sale and closing of the increased number of spec homes will allow us to capture the most current price increases and to maximize our profitability. 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 the 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 the growth of our trophy signature and CB Jenny brands. As we have discussed in our previous earnings call, GreenBic operates under a much simpler ownership structure than seen in prior years as approximately 70% of our top-line revenues are now generated by wholly owned builders and another 10% of our total revenues are generated by subsidiaries with a 10 to 20% minority interest. If you turn to slide five, we highlight some of our financial results. Since 2015, we have grown our revenues at a compounded annual growth rate of 27.4% from just under 300 million in 2015 to just over $1.2 billion over the last 12 months. Over that same period, Greenbrick has grown our bottom line pre-tax income at an even better compounded annual growth rate of 44.3% as we have improved margins, added financial services, instituted national purchasing, simplified our ownership structure, and gained overhead leverage. Our current quarter Our residential growth of 28.4% and pre-tech income growth of 39.3% falls right in line with our historically high compounded annual growth patterns. This current year growth is not surprising since we have sustained this growth since Green Brick went public in late 2014. We aim to achieve the best risk-adjusted returns possible for investors for the third quarter and had a 26.1% return on equity. Our third quarter gross margin of 26.9% are some of the best in the industry, while we maintained one of the lowest debt to capitals of home building peers at 31.9%. Just last week, Greenbrick was given the rank of number 19 on Fortune's fastest growing companies list for 2021. This is up 36 spots from last year and positions Greenbrick as one of the fastest public builders. We continue to focus on growing our business responsibly with high quality communities and low leverage. In markets where GreenBrick operates and we get the benefit of significant economic and demographic trends which we will discuss in more detail in the next two slides. Slide 6 quantifies the strong population growth over the past decade seen in Texas, Colorado, Florida, and Georgia per the 2020 census date. Out of the 25 largest states in the United States, these four states showed some of the highest percentage increases from the population 10 years ago. Texas led the nation with its resident population expanding just under 4 million people in the last decade. Colorado, Florida, and Georgia all showed double-digit growth over the same time period, while the population of the U.S. grew only 7.3%. We believe this positive population growth is evidence that our concentration in Sunbelt and Sunbelt-adjacent lower-tax states is a winning strategy. We expect that in-migration to these states from California and the northeastern United States and the very strong demographic profiles of the Sunbelt will continue to generate positive population growth for many more years to come and will preserve the robust housing market for us in future years. Slide seven, we highlight the economic growth of our core markets and present the decline in active home building listings seen in September 21 from the prior year. Like every other economy in the country, the COVID-19 pandemic created a major disruption in commercial activity and led to a significant rise in unemployment early last year. However, as shown on the right side of the graph in this page, Atlanta and Dallas-Fort Worth have remained remarkably resilient. With Atlanta and Dallas-Fort Worth achieving the lowest unemployment rates in August 2021, it is evident that our core markets should sustain a strong job market and labor force. We believe these economic strengths will continue to support the strong demographic trends in our markets and reinforce housing demand for years to come. Looking at the left side of the graph, you can see that Dallas-Fort Worth and Atlanta had the second and third largest 12-month declines in active listings as of September 30th, 2021, of the 10 largest MSAs with listings down 34% and 28% respectively. This remarkable drop in listings has evidenced the booming demand in our markets and is an indicator of the pricing power Greenbrick has in 2021 to capitalize on inventory shortage of existing homes. We believe this imbalance between housing demand and supply in our markets will persist through 2022 and provide Greenbrick with continued pricing power to offset rising input costs. With 90% of our ending active selling communities in DFW and Atlanta, we believe that Greenbrick is well-positioned to succeed in Q4 2021 and beyond. Additionally, we believe the strong bounce back from the high unemployment scene in April 2020 and the rapid uptick in demand 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 our peers. Jed Dolson, our Chief Operating Officer and Executive Vice President, will now speak in greater detail to our growth drivers and our land position.

Jed? Thanks, Jim. On slide 8, we demonstrate how our investment in land has translated into an increased capacity to generate top-line growth. As you can see from the chart on this slide, a key driver behind our strong financial and operational results has been our ability to convert investments in land to future growth and revenue. Year-to-date, our lots owned and controlled increased by 9,886 to end at 24,354 total lots, a new all-time high for the company. This is a 68% increase from the start of the year. After including land under option and lots optioned through joint ventures, we expect about 90% of our current inventory of lots owned and controlled will be self-developed by the company. We believe the strong emphasis on land development should allow Greenbrick's margins and returns to continue to represent one of the best growth opportunity profiles among our peers as these self-developed developed plots avoid expensive premiums charged by third-party land developers. For those of you who are interested, slide 9 provides additional detail on the attractive submarkets in DFW and Atlanta, where our lot supply is located. Now, follow me to slide 10, and you will see that our communities and lots under development hit new highs this quarter, with 55 communities under development versus 42 last quarter, our land pipeline is well established to meet our continued growth trajectory over the next several years. These lots under development will shift towards the entry-level markets with over one-third of the lots under development located in more affordable sub-markets. In the next three months, we expect to complete and release roughly 900 lots to our subsidiary home builders for new housing starts. During fiscal year 2022, we expect to accelerate our delivery of finished lots by finishing 3,700 lots during the year. With both our long-term and short-term land needs met, we have visibility for growth at least through fiscal year 2023. Slide 11 highlights our ending units under construction. Our units under construction are up 44% over the past nine months and up 88% over the last 12 months. While we have seen growth at virtually all brands and price points, our unit growth is primarily driven by starts in our trophy brand, where we increased its ending units under construction by 255% during the 12 months ended September 30th, 2021. As we go forward, we expect continued expansion of the Trophy brand to establish larger communities with higher absorption rates and unit density. Additionally, our pivot to these larger communities focused on entry-level buyers has not been at the cost of increased risk. Our Q3 2021 home closing saw an average FICO score of 747, with 84% of our funding exceeding a FICO score of 700 per data from Greenbrick's Mortgage Ventures. 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. In summary, we feel we have a very strong land position in some of the best markets in America, with strong demand from low-risk buyers, all while maintaining a conservative debt-to-capital ratio and achieving industry-leading margins. To provide some additional context for the strong results this quarter and take a more detailed look at how our trophy brand is well-established for future growth, please turn to slide 12 of our presentation, which gives an in-depth look at Trophy's share of GreenBrick's performance metrics through September 30th, 2021. As you can see on the slide, Trophy's percentage of home closings has grown by 16% from 20% for full-year closings in the fiscal year 2020 to 36% for the nine months ending September 30th, 2021. However, with 39% of closings or starts this year and 61% are lots owned and controlled related to TROPHY, we believe TROPHY has a clear runway to continue its growth trajectory in Dallas, Fort Worth. While our lots owned and controlled allocated to TROPHY has increased nearly 148% from a year ago, it is important to note that nearly 15,000 lots shown as 15,000 lots shown as of September 30, 2021, include two communities with more than 1,000 lots each that have a much longer life cycle. Excluding these two communities, Trophy's shared existing loss is 51%, which is still 15% higher than Trophy's 36% share of home deliveries these past nine months. One of the main ways we mitigate risk in these larger, longer-life communities is by buying land in submarkets at very affordable prices. In future phases of our owned lot deals, not included in our 55 communities under development, we have approximately 6,600 lots at a basis of under $6,300 per paper lot. which is substantially below replacement costs today. Most of these also have MUDs or PIDs that further reduce our cost of capital and development risk. Slide 13 of our presentation explains why we believe the growth of our trophy signature brand has the capacity to scale our bottom line results even faster than our top line results. First, With the average Trophy community expected to be double the size of our other subsidiaries next year in terms of lot count per community, we're able to increase our absorption pace without requiring growth in community count. Second, Trophy's business model allows for 100% utilization of purchase orders during construction with no changes allowed. This process reduces our average cycle time by roughly 12%, and allows for more efficient inventory turnover and stronger financial results. Finally, Trophy has seen an outsized improvement in its gross margin over the past 12 months, increasing by 410 basis points. This growth exceeds by 140 basis points our consolidated margin improvement of 270 basis points, for the same period year over year. This higher profitability is enhanced by TROPHY's lower SG&A leverage. This combination of higher margins, shorter cycle times, and better SG&A leverage should generate higher returns of invested capital. All in all, we believe these strong fundamentals will continue through 2020 and make a strong case of our continued investment in trophy signature homes. Next, Rick Costello, our CFO, will discuss our third quarter and annual results in more detail.