Good afternoon, everyone, and welcome to the Green Brick Partners' Earnings Call for the Fourth Quarter Ending December 31, 2019. [Operator Instructions] As a reminder, this call is being recorded and will be available for a playback. A slideshow supporting today's presentation is available on Green Brick Partners' website, www.greenbrickpartners.com, go to Investors & Governance and then click on the option that says Reporting and then scroll down the page until you see the fourth 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. 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, 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 Tuesday, March 3rd, and the risk factors described in the company's most recent annual and 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 non-GAAP financial measures. The reconciliation of these metrics and other information required by regulation G regarding these metrics can be found in the earnings release, the Green Brick issued yesterday and the presentation available on the company's website. 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; and Jed Dolson, President of our Texas region. Thanks again for joining our call. As the operator mentioned, the presentation that accompanies this earnings call can be found on our website at greenbrickpartners.com at the top of our webpage click on investors and governance then click on the option that says reporting and then scroll down the page until you see the fourth-quarter investor call presentation. I'll give everybody a few seconds to do this. Our future continues to be bright as we enter 2019 with yet another record-breaking quarter. We are exceedingly proud to report record highs in total revenues, gross profit, earnings per share and the numbers of net new homeowners in our history. We surpassed our goal of active selling communities as of year-end and the communities grew by 27% over just the past two quarters. Combined with our Q4 absorption rate increase of 78% year-over-year, we sold more homes than ever with net to new homeowners more than doubling with a year-over-year increase of a 111%. Entering 2020 with such a strong foundation of excellence has placed us in a position primed for continued success including the largest backlog to date. We continue to approach Green Brick's future with enthusiasm and some optimism but also conservative financial leverage. We look forward to improving upon our record-setting results we saw this past quarter and year. Please flip to Slide 5. Two of the best markets in the country are 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. We also look forward to the potential opportunity presented by our planned expansion into Houston. On Slide 6 you can see…

Thanks Jim. Green Brick is truly one of the best growth stories in the public homebuilder space. Take a look at slide 7 titled growth drivers. Over the last two years annual total revenues from 2017 to 2019 have grown 73%. While this growth is remarkable, we believe that we have positioned ourselves for even stronger growth in the future. Over the last two years our backlog grew 129% to $347 million as of December 31st, 2019, which more than doubles our backlog from two years prior and is an all-time record for the company. During these last 24-months, we also increased our Lots owned and controlled by 44% and grew the average number of selling communities by 59%. Looking at our inventory growth, our units under construction have grown to 1,297 units which are up 76% from the same time two years ago. This growth was made possible through years of rigorous land planning and underwriting, which have fueled a 63% growth in the annual starts over the last 24-months. Thanks to the strong performance of our Team Builders, these past two years Green Brick has the backlog, the construction starts, the level of units under construction and a lot inventory that we believe will sustain further dynamic growth in 2020. On slide 10, we highlight the diversification of our product offerings. Over the last 24-months, we have significantly increased our focus on Townhomes communities thanks to years of planning, land acquisition and development. In fact, we've grown our Townhomes revenue 23% over this period. Our robust single family growth of a 118% in the 24-months from December 31st, 2017 to December 31st, 2019 is highlighted by GHO revenues of $114 million over the last 12-months, which were at a lower average sales price with their more affordable age…

Thanks Jed. Thank you all for joining us today to review our 2019 fourth quarter and annual financial results. Please move on to slide 13 related to our financial highlights. For Q4 of 2019 versus Q4 of 2018 and year-to-date comparisons here some key operational metrics. Net new orders increased by 111% for the quarter and 38% for all of 2019. Home deliveries increased by 35% with residential unit revenues up 30% for the quarter. For the full year, home deliveries increased by 34% with residential unit revenues up by 31%. Year-over-year homes under construction are up 15% with home started on the last 12-months basis up by 24%. The dollar value of units and backlog increased by 31% year-over-year, like Jed said to a new record. Our EPS was a record for any quarter up 23% versus Q4 of 2018. And over the last 12-months, EPS is now 14% higher in 2019 versus 2018. Now for more details. For the fourth quarter the number of net new homeowners was 590 homes, an increase of 111% compared to the fourth quarter of 2018. For a full year 2019 versus 2019, our net new homeowners have grown by 38% from 1,397 to 1,923. We saw a huge improvement in Q4 relative to the prior year with absorption per active selling community that was 78% higher than Q4 of 2018 despite growing our active community count to a record of 95 communities as of 12/31/19. Green Brick delivered a record 514 homes for the quarter, 35% more than the fourth quarter of 2018. For full year 2019 versus 2018 Green Brick delivered 1,719 homes, a 34% increase over 2018. Residential units revenues were a record $223.3 million for the quarter, an increase of 30% over Q4 of 2018. For the full year,…

Thanks Rick. Our Team Builders did a great job of managing pace versus price to generate the best quarter in our history for net income, total revenues and residential units revenue. Operationally, we are seeing gross margins stabilized and the benefits are standardized operating systems utilized by all of our builders. Our business is now scaled to where we expect our title and mortgage business to expand rapidly and profitably with little risk. With 2020 well underway, we are eager to build upon our many accomplishments of the past year. Additionally, we anticipate further diversification of our business through the continued growth of our Trophy Signatures Brand which will see its first entry level homes closed in Houston sometime later this year. We generally do not comment on monthly sales before quarterly results are filed. However, the reaction of the stock market to recent headlines deserves comment. On a unit basis, we had our best January sales on record which was followed by record February sales. At the same time, we remain adamant that our future growth will not be obtained at the cost of undue risk. With one of the lowest leverage balance sheets in the industry, we continue to believe that our strategy is prudent, organic growth is ability to produce superior risk-adjusted earnings growth. I want to thank the entire Green Brick team for their hard work and great results. I'll now turn the call back over the operator.

[Operator Instructions] And your first question comes from of Michael Rehaut from JP Morgan. Please go ahead.

Hi. This is actually Maggie on for Mike. Congrats on the quarter. First, obviously, sales pace and order growth were extremely strong. Could you comment on if any specific builders were or product lines drove this strength or it was pretty standard across the board? And also if you could comment on pricing covenant, incentives trends that you saw during the quarter. And looking forward, do you have any plans to begin pushing price over pace or do you kind of anticipate this stronger pace to continue.

Okay. This is Jim. Let me take the first part of your question, Maggie. We saw really significant growth in all of our Dallas builders and brands. Southgate is the highest price point build, and that's kind of held its own, but our townhouse business is just gangbusters right now in Dallas. All of our businesses are doing well. Trophy is off to a much better start than we expected. We don't typically break down results by builders, but I can tell you that we're just thrilled with the market reception to the Trophy product and branding that we're doing. The only slow part for any of you that follow weather forecast Atlanta has had record rains again 20 inches of rain in February. That's the only builder that's really off pace and we'll really thinking that the weather had a really significant impact on their results. Jed you want to talk about pace versus price?

Yes. We're seeing that we are raising prices and we're also tightening incentives. So I think as an industry, we're probably going to see some lumber increases and concrete increases in their future. But we think does be more than offset by the lack of and/ or the tightening of incentives and higher prices.

Got it. Thanks. And second you surpassed your goal of the 92 active communities by the end of the quarter. I was wondering if you could give us any sense of how much growth we could expect during 2020 especially given that you are expanding into the Houston market.

We don't forecast. Rick you might want to come in this too really our future community growth. But I think that one important differentiator that we really have a strategic advantage on is it and all the markets we are operating and we've been there or our partners have been there, our team partners and builders have been there 10, 20, 30, 40 years and we've been developing lots and we really are very good at finding lots. And I think that in the next few quarters, you're going to see that the ability to develop Lots is going to become increasingly important for builders. And that's taking it from the entitlement through the land development process and we think we really have a strategic advantage over any peer doing that.

Okay.

Rick, do you want to --

Yes. We're not quite ready at this time to project a profound number like we did last year. We'll let a little bit more of the year but not before we consider that. But generally speaking we'll just let our record stand right now.

Your next question comes from Carl Reichardt with BTIG. Please go ahead.

Thanks. Hi, guys. Hope you're well. I got a couple three for you here. And one was just on you talked, gave a lot of helpful detail on SG&A. Can you talk a little bit about the gross margin outlook? You've got pricing; you think it'll go overcome some input cost increases. Your mix is also shifting slightly more downstream. We know historic counts coming up. So just give me a sense just to as you look at your backlog now and what you're expecting to sell in 2020, sort of how do you feel that margins are likely to trend? Do we've seen the bottom here or is it still likely to be a little more pressure on gross margin?

This is Jim. I'll take that a few parts. First of all, I think investors need to recognize we have some of the highest margins in the industry right now. We don't see degradation in the margins. Trophy Signature Homes which is more key to an entry level builder is having consistent margins with the rest of our builders despite many of their margins taking place on options lots and having faster inventory turns which implies a higher return on capital. So in a sense our gross margins we see keeping the same but we think return on capital could improve. Because of faster inventory turns.

Okay. So that's helpful. And then just to clarify, Jim, what you said before Trophy Signature is performing better than you expected. Is that a reference to sales base, your ability to open stores, pricing power? What are the drivers that better than expected for you?

It's really everything with their sales are passionately expected. Their margins are equal or better than we expected. And really one of the most exciting things is at around town we are attracting some of the best talent to join Trophy Signature Homes because everybody in town is just amazed at their rapid and successful start. So at the end of the day, it's a lot about people not just about capital and we think they really are putting a fantastic team in place over there.

Okay. That's helpful. Thank you for that. And then a couple of more if you indulge me. Can you talk little bit about the land market on a go-forward basis? So we figure the option shift on Trophy and you grew Lots 20% over the last couple of years, but your sales pace, your orders themselves grown a lot faster. So when you look, you notice, I noticed in the slides you mentioned a slight increase in debt to cap. So how are you thinking about what the land market looks like now? The focus for potential new markets versus investing in your current markets and what prices look like as we see builders, many builders as you noted scrambling for Lots in a variety of markets.

I'm going to let Jed take a part of the question, but one of the things I want to highlight that investors really don't see because it's not very transparent when they look at Green Brick and other builders in that. We don't do any off-balance sheet land banking transactions where to make our balance sheet look like and land like that we are giving land bankers almost equity returns to bank of our lots. Jed will you take the rest of the question in terms of what our future looks like and keeping a lots of like?

Yes. I mean we are seeing a high demand for lots across all our geographies. We, as you know, Carl, has quite a few lots already under control. So we're in a pretty good position and I think the market for the most part. We're seeing that -- we're seeing kind of a surge in A location lot prices but on the kind of entry level price points, I think we're seeing more modest increases. So we feel good about it, but we can see that others that may not have planned as well would be struggling right now.

Okay. And I understand that. And then two more, just one on Trophy Signature and you mentioned the closings you've got so far. Can you give us a sense of roughly maybe what percentage of your open communities at the end of 2020 Trophy Signature might be?

It was officially 10 out of the 95 at year-end and growing.

So you think that share will grow Rick then in 2021 or 2020? What year is it? 2020.

Yes, absolutely.

Okay. And last question and I'm sorry to have to ask this, but I do have to ask it. Can you give me a sense over the last week obviously there's been an enormous change in the 10-year Treasury yield mortgage rates, a lot of chatter and then of course we have coronavirus scaring people as well. So there's a tension between the two. Can you maybe comment over the last week or so? If you've seen any positive impact from rates or negative impact from coronavirus on just traffic through the community.

Yes. It's been very interesting. It's almost like we're living in an alternative universe from looking at the headline. Obviously, I'm a builder not a doctor, but we constantly look at the data and the context of things matter. First of all, our sales and traffic we just got all of our website analytics; all of our foot traffic results on Sunday. They actually increased year-over-year and over the prior week despite all the headlines. I can't tell you whether it's the historically low interest rates that drove people to get off the sidelines and start looking at homes. But we are not seeing a decline. I can't predict how this is going to play out in the future. But our backlog is continues to grow. We're operating more efficiently. We don't buy a lot of products from China or that part of the world like all of our appliances shifted to whirlpool a few quarters ago to reduce our exposure there. So we feel good about that. In terms of context, Carl, I know you like numbers and I like numbers and I was looking at really what is going on. I'm not a doctor but the American Cancer Society said that there were 1.8 million new cases of cancer last year and 606,000 people will die this year from cancer. 840,000 people die from heart attacks. 45,000 are killed in car wrecks; 40,000 by guns. I think the reaction to this is probably good to be aware of all these problems. But boy it's really been quite a reaction that it will be interesting to see how it really plays out when we look backward at these two years from now.

Hey, Carl, this is Rick. Thanks for joining the call specifically on point to your question, we've had nine weeks this year and if I look at the average weekly sales rate and then compare it to the week that just ended at the end of today Monday, this last week of sales was 35% higher than the entire nine week period. So the people are buying houses. It reminds me of 201 after 9/11 when the Fed was being accommodative and people started to turn to housing and nesting instead of traveling. It's maybe not the same situation, but it's certainly we might be seeing history rhyme. But that was very impressive. We thought that that people were not just taking tires, they're real buyers out there.

Yes. The decline in Treasury rates hasn't been fully reflected in long-term rates. Long-term rates have moved in eighth to a quarter that a 0.5% like short like the Treasury rates and that's still significant when you start at 3.5%, they go down to quarter, you're picking up, you look -- that part of your mortgage payments going down almost 7%. So it's significantly, it's not the same reduction that we've seen a Treasury rates. But we're thankful for it.

We do have a question from our Aaron Hecht with JMP Securities. Please go ahead.

Hey, guys. Thanks for having me on today. Appreciate it. Couple questions here starting with the return on equity profile. You guys talked about peers having higher leverage and that being a benefit on that metric. I think you said you'd take your leverage up to around 35% and obviously the peers are still higher. So how did you come to that 35% level? And do you think you may take it up higher if you don't get the desired results out of moving up to 35%?

This is Jim. No, we're taking it above 35% because I think as we grow our business; we're going to get increased return on equities from SG&A leverage. We hope to get about 1% there. 1% from titled and mortgage business and 1% from our increased efficiency at our builder level and 35% was picked as we started this for a long time before we even went into business. We saw that every company that had a favorable capital structure like this and a downturn came out stronger on the backside. And we always want to be able to come out stronger on the back side of any kind of market with corrections. So we're going to maintain our discipline. We think we can make really nice returns with that discipline and that's not changing.

Got you. And then in terms of the increased operating efficiencies at the builder level. What does that really mean or entail? Any kind of clarity you can give me there.

Jed?

Yes. So obviously, a lot of our builders have reached a kind of targeted growth rate as far as how many homes that are produced in a year and so that SG&A is now stabilized. We're not having to hire up to produce future results. Now with Trophy growing like it is we are but our other builders have had more modest growth over the past 12-months.

Aaron, I think Jed saying is we've right-sized our builders organizations to match the revenues now for the most part with the induction of Trophy that's rapidly growing.

Okay. And no change in terms of how you finance lots or anything likes that? Change in option profile to get that ROE. It's more just ramping the size of the individual organization.

Well, we're looking at all kinds of alternatives all the time whether it's side by side even partner in buying land with us. But right now we're just doing what we've always done.

Aaron, think if you've looked at lots owned and controlled as a measure of that one thing that's a little quirky in our numbers right now is we're showing a lower percentage owned, but there's a land joint venture that's disclosed in the footnotes to our financial statements where we don't consolidate it. It's called the East Jones Bridge in Atlanta and in that deal we have options for about 560 Lots. So those are counted in loss controlled under an option deal that we are really a 50/50 JV partner on and for all intents and purposes there in parentheses own. So if it wasn't for that you'd be seeing that number more like around 75% or so. And it really is not a function of any change in strategy. We have picked up additional option lots for Trophy. But in many cases that's the existing phase where the second phase were going to be the developer of our second and third phase in some of those communities.

Your next question comes from Matt Dane with Titan Capital Management. Please go ahead.

Thank you. I was hoping to press a little deeper into the financial services. I was curious how much room for growth and profitability contribution you see from that segment of your business you're going forward? And how long the runway is? Is there going to be for a real contributor to earnings growth.

This is Jed. I'll take that question. So on our title business we only started -- Dallas was -- for 2019, Dallas was on title all year. We got Atlanta started in late Q4. So you'll see a lot of title business in Atlanta flowing through the 2020 numbers that wasn't there in 2019. On the mortgage front, with kind of deal Atlanta or Dallas was on our mortgage platform all last year, Atlanta was on it for part -- for only part of the year. Additionally, we think we'll see 30 different improvements in our margins on our mortgage business. So we think that once we do that we are kind of stabilized for a while.

In terms of profit, we're looking titled and mortgage in the $4 million to $5 million range. And that's a nice number. It's a very low-risk business and just taking a look at our total interest cost, it's just the financial services platform that's an ongoing revenue stream contributes about a third of our interest costs. And we like that too.

And does the financial services piece of the business, does that also play a role with the GHO and Challenger and is there a strategy to roll that out with those partners as well?

It doesn't in Challenge. Challenger has its own mortgage joint venture. Our results are and an equity return on our income statement where it's not broken out in terms of revenues. In terms of GHO about half of their buyers are cash buyers to move down or last home purchase and so a mortgage operation is not as profitable there because there are so many other buyers with cash. The good news is so many buyers with cash; they're low-risk contracts.

Great. That's helpful. Thank you.

Yes. And I would just add that as we grow Trophy and we start issuing more financial services starts issuing more mortgages that are government backed as opposed to conventional, we should also see more profitability off of those mortgages. End of Q&A There are currently no further questions at this time. I'll turn the call back to management for closing remarks.

Thank everybody today for joining the call. And we hope to report positive Q1 results in a couple months. Have a good day.

This concludes today's conference call. Thank you for joining. You may now disconnect.