Green Brick Partners, Inc.

Good afternoon and welcome to GreenBrick Partners earnings call for the third quarter ended September 30th, 2022. Following today's remarks, we will hold 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 today, November 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'll turn the call over to Jim Brickman. Thank you. During our call today, we are going to discuss the current housing landscape

GreenBrick's overall business strategy, and our land and lot position in much more detail than in past calls. Rick will discuss Q3 2022 financial results in depth, and then Jed will discuss the market dynamics, capital allocation strategy, and our supply chain. We are pleased to report another strong quarter despite multiple challenges the home building industry is facing. Residential revenue for the third quarter of 2022 increased 17.1% year over year to $397 million, based on an increase in our average sales price of 33%. This contributed to a record high home building gross margin of 32.4%. As a result, the company generated $74 million in net income, or $1.57 per diluted share, representing a year-over-year increase of 65%. Year-to-date annualized return on equity was 34.9%, about 1,100 basis points higher than last year. We believe this demonstrates our ability to consistently deliver superior returns to our shareholders. Looking ahead, the U.S. housing market has taken a dramatic shift as mortgage rates have more than doubled from a year ago and hit a 20-year high in October. Consistent inflationary pressure and high mortgage rates have been keeping potential homebuyers on the sidelines. Despite a strong labor market, consumer confidence has been negatively impacted by geopolitical risks, political uncertainty surrounding the upcoming elections, supply chain disruptions, and particularly how aggressively the Fed is hitting the economic brakes to contain inflation. Until the dust settles, we expect the housing inventory and housing market to remain very choppy. While it is difficult to actively predict what will happen in the short term, our long-term view on the immense imbalance of housing supply and demand remains adept. A decade-long underproduction of housing has resulted in a gap of approximately 4 million housing units that will take many years to adjust, if not another decade. Recent and expected future reductions in housing starts are likely to exaggerate the housing shortage. Our markets have one of the best demographics and immigration trends. Many builders have already reported the results. As you have heard on these calls, Dallas and Atlanta, which produce over 90% of our revenues, have fared much better than markets such as California, Denver, Phoenix, and Las Vegas. For example, the DFW Metroplex, our largest market at 70% of our year-to-date revenues, has attracted over 140 companies for office relocations and or expansions in 2021 and 2022. The resulting in-migration means more people and more housing. We believe that job growth, economic diversity, a younger population, climate, tax rates, and relative affordability in our core markets vis-à-vis the rest of the nation will result in our core markets continuing to outperform the nation. Let's take a quick look at slide four of our presentation. Despite the slowdown in sales, on a national scale as shown here, inventory of both existing and new single family homes remains near historic lows. We take a closer look at Dallas on slide five. In DFW, existing home listings represent a 2.2 month supply on the left graph, and finished new home inventory represents a 1.3-month supply on the right graph. Both measures are below pre-pandemic levels. We expect existing inventory to increase in Q4 and into 2023, but also see that builders are quickly responding to decreased demand by lowering starts. The byproduct of lower starts is that we believe construction costs have peaked. Furthermore, as the third largest builder in DFW, We believe that our scale and this slowdown will provide us leverage to produce our construction spend. We believe that existing home inventory growth will continue to be limited due to homeowners leasing rather than selling their homes based on the slowing market. Inventory will be further limited due to homeowners who have purchased or refinanced over the past 10 years and particularly during the last three years because they have very low mortgage rates. which disincentivizes selling their residences. We believe that long-term home demand will continue as millennials now need their first home and are financially ready. And we continue to see a record level of rents rising in our primary markets. We highlight the growth of millennial cohort on page six of our presentation. Please turn to slide seven where we focus on GreenBrick's strategic advantages. First, we have been disciplined and deliberate on maintaining a strong balance sheet. Despite purchasing almost 10% of our stock year to date, our debt-to-total capital ratio fell to 28%, and our net debt-to-total capital was 25.5% at the end of the quarter. About 89% of our outstanding debt is long-term fixed rate with an annual cost of about 3.5%. We issued 50 million of perpetual preferred stock in late 2021 at a 5.75% coupon that would be prohibitively expensive to issue today. Our goal is to always have a superior balance sheet and ample dry powder. Second, as Jed will discuss in more detail later, we have been consistently disciplined with our land investment underwriting, which leads to a superior land pipeline to support our business. Unlike many of our peers who operate under a land life playbook, we do not use land banking to secure lots. We believe this puts us in a strong position relative to these peers for multiple reasons. First, cost of financing. The land bankers who provide financing for land life builders typically charge a high cost of capital. The recent rise in interest rates had made previously expensive land bank capital much more expensive. As noted in peers' earning calls, because these increase costs and slowing demand, some builders are walking away from lot option contracts or land bank deals. These are typically in C locations. We expect land banking capital will contract and become more expensive in the future, and third-party lot development will be more challenging. Second, take down costs. Builders must buy lots from lot developers or land bankers at retail prices instead of wholesale prices. Ringbrick, on the other hand, is the developer, a co-developer on over 90% of our lots owned and controlled, giving us a wholesale pricing advantage on the majority of our lots. Third, price escalation. Many lot contracts, and most on A location neighborhoods, have a 6% price escalator, which means that builders must pay 6% more to purchase a lot the following year. even if the housing market slows further. While there is a lot of renegotiating taking place on option lots, very few renegotiations are taking place on lots in prime A locations. High quality lots in prime A locations are not easily replaceable, and those neighborhoods are performing better than lots in C locations. Lastly, penalty, most high quality option lots demand 15% or more of retail lot price as a first loss earnest money deposit, making it a very expensive proposition for builders to walk away from their lots. At the end of the corner, we own and control approximately 26,000 lots. We have no need to buy land to grow our business and don't plan to buy much or any land in Q4 2022 or well into 2023. Our third strategic advantage is location, location, and location. Not only do you operate in some of the best markets in the country, but you also primarily build in infill submarkets. Over 80% of our year-to-date revenues were generated from those infill markets where supply is constrained, accompanying significant demographic tailwinds. We believe our markets will outperform the rest of the country. Jed will expand this discussion on our land and lot position as well as our preferred locations later on. Fourth, operational efficiency. We have invested significant capital and resources to improve our technology and processes across Greenbrick's brands. These investments have provided us more transparency into our workflow and cost structure. As a result, as the market slows, We believe that we will have the ability to react quickly to improve overhead efficiency and negotiate what we think will be better pricing with vendors and subcontractors. Finally, and most significantly, as shown on slide eight, our industry-leading gross margins at 32.4% gives us a tremendous amount of cushion to manage pace versus price. With that, I'll now turn it over to Rick. Rick? Thank you, Jim.