Green Brick Partners, Inc.

Good afternoon and welcome to Greenbrick Partners earnings call for the second quarter ended June 30th, 2022. Following today's remarks, we will hold a question, a Q&A session. As a reminder, this call is being recorded and will be available for playback. In addition, a presentation will accompany today's webcast and is also available on the company's website at investors.greenbrickpartners.com. Joining us on the call today is Jim Brickman, co-founder and chief executive officer, Rick Costello, chief financial officer, and Jed Dolson, chief operating officer. Some of the information discussed on this call is forward-looking, including the company's financial and operational expectations for 2022 and beyond. In yesterday's press release and SEC filings, the company detailed material risks that may cause its future results to differ from its expectations. The company's statements are as of August 3, 2022, and the company has no obligation to update any forward-looking statement it may make. The comments also include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by Regulation G can be found in the earnings release that the company issued yesterday and in the presentation available on the company's website. With that, I will now turn the call over to Jim Brickman.

Thank you. We're pleased to share results of another outstanding quarter. During the second quarter, we delivered a record 881 homes, generated record quarterly total revenues for any quarter of $525 million, and achieved a record home building gross margin of 32.3% despite a challenging supply chain and labor environment. As a result, the company generated a record $101 million in net income, or $2.08 per diluted share, representing a year-over-year growth rate in quarterly EPS of 104%. Greenbrick has a track record of generating some of the best returns among our peers, and this quarter was even better with an annualized return on equity of 45.6%. We encourage you to take the time to compare our results and key operating metrics with any of our home building peers of any size. I'm also excited to share that we officially joined the S&P Small Cap 600 Index in July. This is a milestone that is not possible without a hardworking, talented team. During our call today, I would like to discuss why we believe that GreenBrick is well positioned to succeed in a rapidly changing environment. Rick will discuss our Q2 22 highlights. And lastly, Jed will provide some color on what we are seeing in our housing markets and the supply chain, as well as updates on our capital allocation strategy. While our second quarter performance broke records in many key financial and operational metrics, we began to see moderation on the sales floor in the second half of the quarter. This happened due to multiple aggressive interest rate hikes by the Fed and inflationary pressures. The market is still searching for a new equilibrium after the Fed's rate hikes that accelerated the Fed funds rate by 200 basis points from May 1st to July 27th. Despite what we see as a choppy market over the short term, we continue to believe that demand for single-family homes in our markets is here to stay over the long horizon. Here are a few reasons. First, on slide four of the presentation, over four million millennials between the ages of 35 and 44 are entering their prime home building years. For many of them, buying a house is not a discretionary purchase. In fact, marriage alone doubles their home ownership rate. On top of that, a large amount of institutional capital flooded the built for rent space and created a unique group of homebuyers in the housing ecosystem that did not exist during the housing bubble. We believe the builder rent sector will provide more stability and future buyers for the housing market. Next, per the housing supply chart on slide five, the inventory of new and existing homes today remains near historical lows and is a fraction of the supply compared to the great financial crisis. or even the inventory adjustment seen in 2018 and 2019. For Green Break specifically, we ended the second quarter with only 10 finished spec homes. While the supply of homes for sale will increase over the coming months, we believe that the recent decline and expected future reductions in single family starts should mitigate a buildup of housing inventory in 2023. Lastly, as seen on slide six, Due to the limited housing supply, rental prices in major U.S. cities are seeing double-digit growth, while occupancy remains at high levels. This further complicates the buy versus rent decision among first-time homebuyers, whose urgency to purchase the first house will only grow as they age, marry, and form families. In addition to those long-term tailwinds, we believe that Green Break is strategically positioned to navigate in this evolving environment as shown on slide seven. To begin with, we operate in some of the best markets in the country. Demographic shift and migration will continue translating into housing needs over the long haul. DFW, our biggest market, has experienced tremendous big business activity over the last 18 months. According to the Dallas Chamber of Commerce, over 120 companies have announced office relocations or expansions into the DFW area in 2021 and 2022. We believe our markets will exhibit more resilience in a weak economy and a higher growth rate in a booming economy. Second, within our strong markets, we primarily build in infill locations. Over 80% of our year-to-date 2022 revenues were generated from those infill submarkets. Those submarkets are typically land and lot constrained and face limited competition. Development in those submarkets requires our recognized expertise and local knowledge to address more complicated entitlement, regulatory, and development processes. The mixed-use neighborhood of retail multi-family units and a 450-unit residential lot neighborhood, which we closed in the North Atlanta suburbs upcoming, is an excellent demonstration of our ability to successfully manage and navigate a complicated development pipeline in very supply-constrained locations. Third, since we went public in 2014, we've been focused on maintaining a strong balance sheet despite significant business growth and aggressive stock purchases. Among our peers, we had one of the lowest debt-to-total capital ratios at 28.9%. despite purchasing $102 million of stock year-to-date through July at an average price of under $21 per share. Our repurchases represents almost 10% of total shares outstanding at the end of 2021. Further, 87% of our debt outstanding as of June 30, 2022 is long-term and fixed rate. At the end of the second quarter, our weighted average interest rate was only 3.4%. Fourth, we believe we've always had one of the best lot positions that will support our future growth. Together with a strong balance sheet, we are in a position to stay opportunistic about growth and manage our business in a way that's accretive to shareholder value. Lastly, since inception, we have incrementally improved our back office and home building operations over time. and we'll continue to look for ways to increase our efficiency. With that, I'll now turn it over to Rick.

Rick? Thank you, Jim. Please turn to slide eight of the presentation. Our total revenues in Q2 2022 increased 40% year-over-year to $525 million. Our residential units revenue increased 54% year-over-year to $513 million, driven by record closing volume in ASPs. During the quarter, we delivered 881 homes for a 16% year-over-year increase, and ASPs climbed 32% year-over-year to $579,000. We continue to make good strides on operating efficiency. Our SG&A leverage ratio improved by 200 basis points year-over-year to a record low of 8.2% during the second quarter. And higher residential units revenue led to a 550 basis points improvement in home building gross margin year over year to 32.3%, the highest in our company history. Sequentially, our gross margin increased 450 basis points. As demonstrated on the comparative bar chart on slide nine, we have consistently demonstrated superior margin versus our mid cap and small cap peers, In the second quarter, our gross margin performance tops the chart. Diluted EPS was up 104% year-over-year to $2.08 during the second quarter as a result of growth in revenue and improvement in both gross margin and SG&A leverage. Sequentially, EPS grew 73% on a 33% growth in total revenues. Our year-to-date annualized return on equity was 37.4%, as compared to 23% last year. As Jim mentioned earlier, we started to see a slowdown in traffic, which accelerated in June and continued into July. Record-breaking heat has also discouraged buyers from visiting our model homes in DFW. As a result, net new orders freezed 9.8% year-over-year. However, our absorption rate during the second quarter was up 4.4% year-over-year, to 7.1 homes sold per average active selling community. Our cancellation rate ticked up each month during the quarter, and the overall second quarter cancellation rate increased to 11.4%, which is still lower than many of our peers. During the last eight quarters, our cancellation rate has varied between 6.0% and 12.3%. We believe our lower cancellation rate is based on higher buyer quality and the larger amount of earnest money that we require. To put the topic in perspective, we have consistently stated that a cancellation rate in the range of 15% to 20% is appropriate in a normal environment for the industry prior to COVID. As of the end of June, we had 1,087 homes in backlog with an ASB of $653,000. compared to 1,876 homes in an ASP of $519,000 at the end of June last year. Backlog units decreased 42% year-over-year due to one, closing a record number of homes during the second quarter, and two, moderation of demand in the second half of the second quarter. The decline in backlog units was partially upset by a 25.8% increase in the ASP of backlog units resulting and a total backlog of $710 million. We expect the majority of our current backlog to close by the end of 2022 or Q1 2023. Spec units under construction rose from 45% of total units under construction last year to 57% as of the end of Q2 2022. While this level is slightly higher than our historic range, Our Trophy brand now represents a higher portion of our units under construction. We believe many first-time homebuyers are willing to forego the selection process to buy a spec home that can be delivered within two months after contract where the buyer's mortgage interest rate and delivery date can be known. As a result, Trophy's business model contemplates a higher proportion of spec units than our other brands. One of our many priorities for the remainder of the year is to find a good balance between our backlog and spec units, as well as to manage sales pace, home prices, and start pace, which Jed will expand on shortly. With that, I'll turn it over to Jed. Jed?