Good afternoon, everyone, and welcome to Green Brick Partners earnings call for the third quarter ended September 30, 2018. [Operator Instructions] As a reminder, this call is being recorded and will be available for playback. A slideshow supporting today’s presentation is available on Green Brick Partners website, www.greenbrickpartners.com. Go to Investors & Governance, then click on the option that says Reporting, and then scroll down to 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 Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance, strategies, prospects and other aspects of the business of Green Brick Partners are based on current expectations and are subject to risks and uncertainties. A few factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. Please read the cautionary statement regarding forward-looking statements contained in the company’s press release, which was released on Monday, November 5, and the risk factors described in the company’s most recent annual and quarterly filings with Securities and Exchange Commission. Green Brick Partners undertakes no duty to update any forward-looking statements that are made during this call. Today, the company will be referring to adjusted EPS and adjusted homebuilding gross margin, which are non-GAAP financial measures. The reconciliation of adjusted EPS to net income attributable to Green Brick and adjusted homebuilding gross margin to homebuilding gross margins are contained in the earnings release that Green Brick issued yesterday. I would now like to turn the conference call over to Green Brick’s CEO, Jim Brickman. Please go ahead, sir.

Hi, everybody. With me is Rick Costello, our CFO; Jed Dolson, our President of the Texas Region; and Summer Loveland, our CAO. Thanks again for joining our call. As the operator mentioned, the presentation that accompanies this earnings call can be found in our web page at greenbrickpartners.com. At the top of our web page, click on Investors & Governance, then click on the option that says Reporting, and then scroll down the page until you see the third quarter investor call presentation. I’ll give everybody a second to do this. I’m excited to announce that our quarterly net income attributable to Green Brick of $12.2 million was up over 31% year-over-year. During the quarter, total revenues increased 32% despite the wettest September in Dallas history, and our backlog grew 88% year-over-year despite a more competitive environment. Having GH [ph] Homes join our family of team builders and our financial statements has been a great positive development. In addition to diversifying our offerings to lower price point, we have recorded $29.8 million in year-to-date homebuilding revenues from GHO since our acquisition in April. Green Brick’s share of GHO’s pretax income is $3.0 million before the purchase accounting adjustments of $0.6 million, and they’ve also added $74 million to our backlog as of September 30, 2018. Please flip to Slide four. Two of the best markets in the country are our core markets of Dallas and Atlanta. During the last 12 months, Dallas and Atlanta continued to be two of the largest markets in terms of generating job growth. On Slide five, you can see that Dallas continues to be the number one new housing market in the nation, adding almost 35,000 starts. Atlanta is the fourth largest market and our Challenger Homes affiliate operating at Colorado Springs is part of…

Thanks, Jim, and thank you for joining us today to review our 2018 third quarter financial results. First, as shown on Slide 16, our two year growth of 66% in building revenues and two year growth of 111% in pretax income has been accomplished despite keeping one of the lowest net debt-to-capital ratios of any public builder. We’ve been able to grow rapidly while increasing our financial leverage through low interest rate revolving lines of credit. As of September 30, 2018 we’ve continued that gradual increase to the point where our net debt-to-capital ratio, where net debt is debt minus cash, has increased to 26.9%, which is closing in on the range of our target of 30% to 35%. Now let’s review Slide 17. I’m going to start with highlights and then move into the details. For Q3 of 2018 versus Q3 of 2017 and year-to-date comparisons, here are some key operational metrics. Net new orders increased by 23% for the quarter and 40% for year-to-date. Home deliveries increased by 33%, with home sales revenues up by 27% for the quarter. For year-to-date, home deliveries increased by 30% with home sales revenues up by 33%. Year-over-year homes under construction are up 56%, with homes started on a last 12-month basis up by 41%. The total value of units and backlog increased by 88% year-over-year, and our adjusted pretax income was up 16% for the quarter and 43% for year-to-date. Now for more details. For the third quarter, the number of net new home owners orders was 297 homes, an increase of 23% compared to Q3 of 2017. For year-to-date 2018 versus 2017, our net new-home orders have grown by 40% from 798 to 1,118. Green Brick delivered 312 homes for the quarter, 33% more than Q3 of 2017. And for…

Thanks, Rick. That’s a lot of information, for everyone in the call. We have another record-breaking quarter, despite a very wet September. Going forward, we really expect the market to remain competitive. Going into this, our backlog is up 88% from September 30, 2017, and we still have some of the highest margins and pretax income in the industry. I really want to remind our investors that we received land lot lending profit before our team builders receive any profits that we share with them. Hence, 50% of any house margin compression until breakeven is absorbed by our team builders. In summary, we believe we are in the very best markets, we expect continued growth, and we are far less impacted by the more competitive marketplace than many peers because of our business model. We are very excited about the addition of Trophy Signature Homes to our family of builders and believe this would be a very accretive builder over the coming years. I’ll now turn the call back to the operator for questions. Thank you.

Thank you. [Operator Instructions] Our first question comes from Susan Maklari with Crédit Suisse. Your line is now open.

Thank you. Good morning, everyone or good afternoon I guess here. My first question is just around; you did say that you’re seeing some increased competition in your markets. Can you give us a little more color on that in terms of maybe price points or geographies? Any additional detail there?

Well, generally, our markets, first of all, we locate ourselves typically in A locations, where we have less competition. But that of course doesn’t make us immune from competition. So our first strategic advantage is being in the A locations. That said, we still have to compete with other homebuilders, and they are more aggressive right now in their pricing structure. But as I said earlier, really one of our advantages is that 50% of any margin compression -- we only take 50% of any margin compression at Green Brick’s level. But we expect the market to remain competitive over the coming quarters.

Okay. And so are you seeing this more aggressive pricing tactic though coming through at certain price points? Is it more focused on, say, specs? Is it more focus on move up? Anything around that that you can share?

Well, yes. Obviously, specs are always lower margin than a build job for us and every other builder. And I think one of the things that exaggerated this is in September and really going through to October, it rained literally almost every day in Dallas, which is a good part of our market, and buyers were not buying houses. So those sales got pushed back, and it’s more competitive right now. What we’re trying to figure out, starts have also been pushed back, and we’re trying to figure out how that works out into the spring selling season. But clearly, the terrible weather we had in Dallas influenced that. Did that answer your question? Or would you like more color?

Yes. No, that’s helpful. And then my second question is you talked about the expansion of Trophy. I guess can you give us a little bit more color on that? How should we expect that to come through, just anymore that you can offer there?

Yes. I’m going to start this, and Jed, I will ask to finish it because this has been really a project that he’s been working on for a number of months. But first of all, the idea of Trophy is very complementary to our whole team builder because we work in that price point. And some people might say, why didn’t you do this now and not before? And the reason is because until we got all of our team builders and Challenger Homes into the mix, we couldn’t have the national purchasing department that gives us a lot of the rebates. It would make us much more competitive with some of the larger peers. We now have that in place. And we think with a very efficient organization, we can be cost competitive in these not A location markets. And Jed, why don’t you take her through what you’re doing to get us really ramped up on that quickly.

Yes. So as Jim mentioned we purchased or contracted for over 1,000 lots. We’ll start our first homes in January. We like that price point. We feel that price point is working well across all geographies right now. So we’re eager to get our first sets.

One of the other things, Susan, that we have an advantage, because we are also a lot developer, Jed deals with 5 or 6 other public builders all the time right now. And we get Trophy ramped up, we can trade lots, and we’re working aggressively right now to develop lots. But in the meantime, we’re also working on trading some lots because we have very desirable locations where these other builders want to get into and trading the lots to open up Trophy and other locations quickly.

Got you. Okay. And then I just have one last question. You mentioned in your commentary that you expect modest growth in the community count for the fourth quarter. Are you assuming -- is that year-over-year?

Actually, it was sequentially from Q3 to Q4, continue to compare really well to last year’s numbers. But we do expect the count to go up by a few.

That’s about 34% Q3 2018 versus Q3 2017.

Okay, all right. Thank you guys, good luck.

Thanks.

Our next question comes from Scott Schrier with Citi. Your line is now open.

Hi, this is Ken on for Scott. Good morning.

Hey, Ken how are you doing?

Good. How are you? Congratulations on the formation of Trophy Signature Homes. As you stated, it was -- the price point is about 200 to 450 ASP, in that range. Of the 1,100 lots or so, can you share a little bit more about the percentage of homes? Will that be more weighted towards the lower end or higher end of that range?

Jed?

More weighted to lower end.

Got it. Thank you.

And one additional community that’s a little bit more expensive because there were lots on the ground that we’re able to option -- there’s a favorable price. The lots that we have bought, the land that we bought to develop is going to be at the lower price point.

Thank you, yup. That’s kind of in terms of what I was expecting. And also congratulations on the mortgage business becoming operational. With the context of a softer housing backdrop, does that change anything in terms of your expectations for that business?

No. Actually, we’re more excited about it because Trophy is much more the FHA type of buyer, and those are much more profitable mortgages. It’s just going to take -- we’re not going to get a lot of revenues out of Trophy in 2019, but in 2020, that part of the mortgage business is the most profitable part. And we think Trophy is going to be a big contributor to that business.

Got it. And Rick, I think you mentioned there’s a temporary hit in terms of margin due to homes that are sold just built on lots developed by third parties. Can you explain a little bit more about that dynamic and what that should look like going forward?

Sure. Sure. In Q3 for instance, we have an expectation in four communities between CB Jeni Homes and Normandy Homes that they were going to close on 30 additional units back when we did our business plan for instance, that were developed by Green Brick. And those got pushed back due to development delays, etcetera. And those 30 lots would have been $700,000 worth of lot profit at approximately $22,000 to $25,000 per lot. That $700,000 that we didn’t get to record on those closings represents a half a point, 0.5%. So, but it’s something that we have visibility into, and we can see that temporary decline from a percentage standpoint will revert to our more traditional levels sometime during Q2 on a closing house basis. So and it’s something that you actually can see in our numbers on a quarter-by-quarter margin basis. I think Q1 of 2017 and Q4 of 2017 were both slightly lower margin experiences for the same kind of variability. So it’s something that we do see. Does that make sense, Ken?

Yes, it does. And one final question in terms of the national purchase accounting. As you continue to grow in scale directionally, should we continue to benefit in the next quarter and next year?

Yes. Like most things, this is not exactly like a mortgage company. But as you can imagine, we already have models open in all of our communities, and we can’t put, let’s say, I don’t want to name the vendor, but new faucets in every one of our models right now, and that’s going to take a while to phase in. In addition, we get inducements per home as we use a faucet. So yes, it’s going to phase in over 2019 and into 2020.

Great. Thank you. Congrats on the progress and good luck.

Thank you.

Our next question comes from Ryan Gilbert with BTIG. Your line is now open.

Hi, thanks guys. I was wondering about your incentives used in the quarter. Did it change at all relative to the second quarter this year or the third quarter of 2017?

Yes. We’re getting -- obviously the last thing we want to do is discount price or using more incentives to sell homes. And that has had a slight impact on lower gross margin. But again, at this point it’s not been that great. I’ve spent a lot of time reading other CEOs’ conference calls and transcripts of their calls. Going into 2019 we are opening new communities. We expect top line revenue growth, and I wish my crystal ball was as clear as some of my peers, but it’s just not. We’re looking at margins really almost on a daily basis weighing sales velocity against gross margin. And all I can tell you is we’re monitoring that as closely as we can.

Okay. And I guess generally, how have homebuyers responded to the increased use of incentives?

Well, I think that what we’re seeing to a lesser extent than some other people because we’re in better locations is that trees don’t grow to the sky. And the combination of higher interest rates, locked in construction inflation has increased the cost of homes and some buyers have sticker shock and are sitting on the sidelines, and that has made the market more competitive. We are in markets with very strong job growth, so we don’t see this continuing forever. But it’s created a much more competitive market in at least the short term.

Okay, got you. And just given that the market’s getting more competitive, are you offering incentives to your homebuyers that are currently sitting in your backlog?

We aren’t changing incentives in our backlog at all. But obviously if a new buyer comes in the door and we’re closing on a community, incentives will go come into play.

Okay. And then just more broadly on capital allocation priorities, can you talk a little bit about how you’re thinking allocating capital between organic growth such as your expansion at entry-level through Trophy, entering new markets through mergers and acquisitions, funding your working capital requirements or even share repurchases given where the stock is currently trading?

Yes. Well, I think at the highest level, stock buybacks or an acquisition, anything will be continually weighed against the opportunity cost of using the same capital to grow our business. So it’s a very fluid process. For example, we were looking at a high return on capital builder, a smaller builder in another market, a GHO kind of size builder. The builder said he really was interested in talking to us because we’ve been very prudent about how we’ve grown our business and required high returns on capital. A peer who’s going to buy it, that peer went away, and now we’re talking to them. So in this case we would be weighing the long term benefits of looking at that builder versus a stock buyback and other opportunities. Our goal of stock buyback is always really nice because it uses your short term EPS right away, but that may not produce the best long term returns for our investors. So I know that this ain’t probably the answer that you want, but it’s a very fluid process. And all I can tell you is we’re weighing everything against everything all the time.

Yes, I think that makes a lot of sense. Thanks all for your time.

Thanks, Ryan.

Our next question comes from the line of Bill Dezellem with Tieton Capital Management. Your line is now open.

Thank you. I wanted to have you explore for us the range impact not only further on the third quarter but how you anticipate that, that will increase or impact future quarters, please.

Jed or Rick, do you want to do that?

Yes. I mean I can talk for Dallas and Atlanta. Atlanta’s not had as much rain as Dallas in the past 90 days. So there’s, we feel like there’s more impact to the starts for maybe Q1 and Q2 than there is for finishing houses in Q4 given that when it rains, you can still work inside and sheetrock a house.

From a sales standpoint, there’s certainly been an impact as in Dallas, a lot of folks don’t venture out when it’s raining as much as it’s been raining often an inch per day. So in that regard, there were some, I think, four different communities that were impacted from an opening standpoint. So it does have some orders impact on a current basis, but that’s -- that goes away as soon as the rain goes away.

Yes. And we’re working on our 2019 business plans with all of our builders right now, and we were meeting with one yesterday and not only at the house side, but the land development has been even more impacted because, obviously you can’t move dirt in mud. And it’s been a very muddy fall. And in 2019 we were saying that two or three communities that we were hoping to get opened and produce revenues in 2019 probably got pushed back to 2020 now.

That is helpful. And help me understand the one thing; I apologize for being a slow pony here. The rains impacting starts in the first and second quarter, is that a function of just not being able to move dirt to get the community set? Or was there something else that is leading to that?

No, the rain’s impacting our available inventory to sell in Q1 and early Q2. So homes that would be finished, yes, in Q1 may slide to Q2.

Understood. Thank you very much.

And really just to add one other comment, when it rains almost every day, obviously buyers are not looking at homes like they used to.

[Operator Instructions] Our next question comes from Chase Basta with AWH Capital. Your line is now open.

Hey good morning, guys. Most of my questions have already been asked. But I just wanted to follow up on the mortgage business. You mentioned in the press release that it’s now operational, is that a contributor in the quarter? Or is that more of a Q4, Q1 kind of ramp?

It wasn’t a contributor at all. I think it actually lost about $20,000. It’s going to lose a little bit money in November, breakeven in December. And then as we open up in Atlanta in January and have Dallas more operational, it’ll start contributing to earnings as we grow into 2019.

Okay. Thanks.

And there are no further questions in queue at this time. This concludes our question-and-answer session. We thank you for your participation. You may now disconnect.