Good afternoon, everyone, and welcome to Green Brick Partners' Earnings Call for the First Quarter ended March 31st, 2020 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 slide show supporting today's presentation is available on Green Brick Partners' website at www.greenbrickpartners.com; go to Investors and Governance, then click on the option that says Reporting, and then scroll down the page until you see the First 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, including but not limited to the comments related to the anticipated impact of COVID-19 on our future operations, prospects and any other aspect of the business of Green Brick Partners are based on current expectations and are subject to risks and uncertainties. Those factors that could cause actual results or outcomes to differ materially from those expected are set forth in our press release, which was released on Monday, May 11th, 2020 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 or update any forward-looking statements that are made during the call. In addition, our comments will include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by Legislation 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 Bricks' CEO Jim Brickman. Please go ahead sir.

Thank you. Hi, everyone. I hope this call finds everybody else safe and healthy. With me is Rick Costello, our CFO and Jed Dolson, our President of the Texas region. Thanks for joining the call. As the operator mentioned, a presentation that accompanies this earnings call can be found on our website at greenbrickpartners.com; at the top of our web page, click on Investors and Governance, then click on the option that says Reporting, and then scroll down the page until you see the First Quarter Investor Call Presentation. I'll give everyone a second to do this. I'm pleased to report that we closed our first quarter of 2020 with yet another record-breaking quarter including; an all-time high basic EPS, a record backlog of $427.3 million and net new home orders up 42%. Under more typical circumstances and absent COVID-19, this would be a cause for celebration. Seeing much of the country come to a stop in a matter of weeks was something even the most seasoned CEO could not anticipate. We feel more confident now than only weeks ago, but we remain cautious about the potential effects of the COVID-19 pandemic will have on Americans, our business, and the economy as a whole. As conditions change, we will continue to evolve our COVID-19 response that was first implemented in the beginning of March to reflect the best interest of our staff, customers and business. Please flip to Slide 4 of your presentation. We are a diversified builder with eight brands in four major markets. Our diversification includes a wide array of home types and price ranges from homes as low as $200,000. As we continue to evaluate the consequences of this pandemic, we remain positive that our diversification efforts have placed us in a position to continue to weather…

Thanks, Jim. Please move to Slide 8. John Burns Real Estate Consulting has published maps of our Atlanta and Dallas metropolitan areas where they have designated grades of submarkets of most desirable being an A market through most affordable an F market. Based on a variety of subjective factors, such as quality of schools, proximity of jobs and the existence of infrastructure for quality of life. We have overlaid the locations of our Green Brick communities with green dots. The preponderance of our communities are in submarkets rated as most desirable. In the current market environment, we believe that superior market positioning of our lot inventory will be key to differentiating our results from our peers. With strong lot positions in some of the most high demand areas of Dallas and Atlanta, we are hopeful that our team builders will be able to bear the impact of the COVID-19 crisis. This position is further strengthened by the lot supply shortages in both northern suburbs of Dallas and Atlanta, which we believe will be a strategic advantage for us as we fix -- as we expect land development activity will slow in the coming months. Moving on to our community count which grew 18% from Q1 of 2019 to 93 active selling communities today. We continue to open more communities geared toward first time buyer. However, this increase on affordability has not been at the cost of increased risk. Based on our Q1 2020 home closings of our unconsolidated mortgage venture, Green Bricks saw an average FICO score of 755 with 85% of our fundings exceeding a FICO score of 700. The credit worthiness of our average buyer profile is a fundamental strength of the A markets where we operate. We believe we will continue to mitigate risk of our business.…

Thanks, Jed, and thank you for joining us today to review our 2020 first quarter financial results. Please move to Slide 13 related to our financial highlights. For Q1 of 2020 versus Q1 of 2019 comparisons, here are some key operational metrics. Net new orders increased by 42.3% for the quarter. That's what Jed just went through on how that broke down by our segments. This increase was a function of a 17.5% increase in absorption rate or net orders per community as well as a 20.5% in average selling communities. Home deliveries increased by 21.7%, with residential unit's revenue up by 18.3% for the quarter. Year-over-year home under construction are up 20% with home started on the last 12-months basis up 24%. The dollar value of units in backlog increased by 39% year-over-year and 23% sequentially. As Jed highlighted, homebuilding gross margins was up 230 basis points over Q1 of '19 and adjusted homebuilder gross margin was up 270 basis points quarter-over-quarter, and sequentially was up 150 basis points over Q4 of '19. And last, and most important, our bottom line Q1 2020 EPS tied our Q4 2019 all-time record EPS of $0.32, which was an increase of 28% over Q1 of '19. Very importantly, please note that in the current quarter, the Company recorded $3.4 million of lot option contract abandonments for reserves for lot deposit impairment for future communities, which had a $0.04 impact on EPS, net of taxes. Without these cost of abandonments/reserves, Q1 EPS would have been $0.36, a new all-time record for the Company by more than 12%, and would have been up 44% over Q1 of 2019. Now please turn to Slide 14. This is a new chart for us. Here we show our year-by-year growth in backlog as measured by adding our…

Okay. Thanks, Rick. In closing, while there remains uncertainty with the ever evolving reality of conducting business during the pandemic, we have seen a significant uptick in sales week by week and we believe that the combination of our COVID-19 response measures and our management team of industry veterans that has successfully navigated business cycles will allow us to continue to conduct our business in a manner consistent with the prudent approach that has historically delivered superior risk-adjusted returns. Because of our record backlog, we have visibility into a decent Q2. Our job is to continue to sell as many homes as possible to build up our backlog for the rest of 2020 and into 2021. By the time we get through the challenges of COVID-19, we will have adapted to a lot of changes. What won't have changed, however, is the strategic and disciplined approach and conservative financial leverage, which we require to running our culture and values that we call home. I'll now turn the call back over to the operator. Operator?

[Operator Instructions] Your first question comes from the line of Michael Rehaut from JPMorgan. Your line is open.

Hi guys. This is Maggie on for Mike. First, I wanted to ask on your gross margins. Obviously reported very strong margins in the first quarter. As you look into 2Q and the rest of the year, I was wondering if you could -- yes, I was wondering if you could talk about what you're seeing in terms of incentive levels and also maybe you degree of confidence that you can continue to deliver those strong margins as the year progresses?

I'll start with the first part and Jed can chime in. Looking at the increased sales that we experienced in the first week of May, we achieved those sales with only moderate increase of incentives, less than a percent. So we are not -- it's been very surprising because of the very low levels of existing homes in all of our markets, and really, the buyers are very intelligent buyers but really not seeing at this point anyway, a lot of margin compression. Jed?

Yes, I don't really have anything to add.

Okay, thanks. And then second, I believe in the past you've talked about how you have the option in August to increase your ownership in Challenger Homes to controlling ownership. So I was wondering if you could talk about how the current environment has changed any plans there or how you're thinking about that opportunity.

Yes, we -- well first of all, Brian Bahr has just been a fantastic partner at Challenger Homes; and Tom Hennessy, his Division President and CEO have just been -- really done just an unbelievable job for us as being a 49% already investor. And the way we left it with Brian is that he did not want to lose control of his business, basically, to us right now where we would go from 49% to about 70% for one simple reason, and that is because his return on capital is running as well or as high as any business we've ever evaluated. So, Brian wants to maintain ownership and we are so delighted just to be a 49% ownership -- owner and partner with him and we're just going to maintain being a 49% partner.

Okay, thank you.

But one of the thing that they are cautiously looking at, and we said we weren't expanding into other markets is, Challenger is either the second or a third depending on quarterly rankings largest builder in the Colorado Springs market that extends north toward Denver. And they are looking at some sites to very cautious expand into Denver right now.

Got it. Okay, and one more on Trophy quickly. You said that you've kind of decided not to expand into Houston for the time being, but as you look forward, is that still an opportunity that you'd evaluate and has the current situation change -- I mean outside of the obvious limiting land spend and development, has the situation changed how you're thinking about Trophy's expansion within the Dallas market?

Yes, I'll address Houston. Really, we made the decision internally, not to expand into Houston in late February before COVID-19, just because of oil prices and we didn't really announce that internally until mid-March, because if you were watching that closely, our exit, we made no investment in land lots, etc. So we're monitoring Houston. But we don't expect to be entering Houston anytime soon. And Jed, why don't you talk about where we are with Trophy in Dallas.

Yes, we're still growing Trophy in Dallas. We have great land positions, lot of those that we've previously signed up. So if they're option deposits that money has already have been spent. We're excited to get those opportunities when those lots to deliver based on our recent track record. So we feel like we have top land positions, top operator, and a top team underneath that operator. So we're very bullish on Trophy.

[Operator Instructions] Your next question comes from the line of Carl Reichardt from BTIG. Your line is open.

I had a couple for you. First, just a clean-up. Rick, can you tell me where the option walkaway charges were like what markets.

They were all in the Dallas market. They were basically communities that we had not started up yet and just felt that the competition was not what we wanted to face, without any kind of momentum or more sales presence.

Okay, makes sense. And then just -- that's connected to my next question. So when we look at community count for you, which has been growing fairly rapidly, given the new environment. Is the right way to think about this at, let's say, at current sales basis that you would try to replace communities you've closed out of. So keep your community number of neighborhoods flat or would you attempt to sort of bleed that down, do you think, as you're looking out sort of over the rest of the year? I guess I'm asking how have your community count -- your community opening plans changed for the balance of '20?

Carl that's very fluid, I think is the best way to describe it. If you would have talked to me in April, I would have said we were going to really shrink and I got my sales report last night and I would say, gosh, we shrunk too much and we should be a little bit more aggressive. So I really think it's going to be -- between those, we're probably going to be slightly growing to stable.

Okay, thank you Jim. And then last, historically as a growing company, growing builder, you've been operating cash flow negative most of the time modestly negative. I think '18 was the last time I remember you were OCF positive. Again, sort of given the new environment, given the lots you have on the books, given the importance of liquidity cushion. How are you thinking about cash flow sort of for the rest of the year? Is it right to think about you being positive OCF for the time being for the next few quarters or are we going to see sort of a more of a seasonal trend where you're back end loaded to positive OCF?

Well, I think it's -- we are going to see increasing free cash flows over 2020, but because we had such a large backlog going into the second quarter, we are not going to produce a lot of free cash flow in June or July. It's going to take place after that, because of that huge bulge of backlog that took place. And obviously our goal is to then replace that backlog with as many new sales as we can and we will trade off some cash flow for making home sales at high margin. So -- but I think with that generally our -- we don't predict how much our cash flow is going to be going down. I've met with all of our lenders and we think that it will go down considerably in the third and fourth quarters. And the only reason why it wouldn't is if we just sold a whole bunch of houses in June and July.

And when he is saying go down, Carl, it's -- our cash flow is going to be up and our debt is positioned to go down.

And I think that -- so that's the question then, Jim, just my last one is really as you look at this and you have to be the key part of your -- the key part of our model, mentioned that orders,, I think, net sales [are up 75%] so far in May year-on-year, which seems quite remarkable. Is there a difference in how the consumer is approaching and how you can rates are trending on your to-be-builds relative to the spec that you have?

Yes, it's been really interesting because, first of all, we've seen our specs really decrease. And as we mentioned in our call, we're not unique that we really cut back on our spec building and our -- many of our peers did the same thing. So when the buyer comes out to a neighborhood, typically, they're not seeing a lot of spec inventory. And if they want a home, we're directing them into existing homes because these people want a home right now and we're seeing that. And Jed, do you want to talk about kind of build jobs at Trophy and what they're seeing?

Yes. So, just because of the shortage of spec inventory on the ground, a lot of people are signing up for to-be-builds, but specs are primarily their first choice.

Carl, one of the other things that we did that we're going to continue doing is that even on build jobs, as you -- the entry level buyer has probably the lowest FICO score and most vulnerable buyer when things change and we have increased our lot deposits, I mean our customer deposits, pretty much across the board from Trophy and all of our other builders, because we don't want to start a home and then end up with a cancellation or something else. So we have noticed that our peers have kept their lot deposits very, very low and we've raised ours, and it really hasn't impacted our sales velocity.

That's really interesting. Okay, all right, well guys, thanks again for all the detail. Appreciate it. Best of luck.

Your next question comes from the line of Bill Dezellem from Tieton Capital. Your line is open.

Yes, thank you. So I'd actually like to pick up with the May sales trends first of all. Did we hear correctly that sales May-to-date are up 25%, after April was down 42% in both of those comparing to the same month a year ago.

Yes, you're comparing April to April of the year-ago and May to May of a year ago. So -- but if you take the rate of the first 11 days in May and compare it to May last year, we are up 25%. And yes, we were down to exceedingly low numbers in April compared to last year of 42% down. So it really took a pause there. The cancellation rate was higher. But every single week, we've seen that the gross sales go up and we've seen the net sales go up. And the last two -- last two weeks have just been pretty remarkable in terms of, gosh, maybe we don't have enough specs. So it's been -- and actually among multiple product lines as well.

So kind of playing off of that, what's your view as to why the consumer is -- I mean it seems like coming out in droves to buy homes from you. Does this has to do with low interest rates? It have to do with apartment dwellers deciding that they want to have a home because they just simply need more space, so they don't kill each other while everyone is staying at home? Or is this like some concept of social distancing and just wanting to have a little more space away from the neighbors? Can you -- can you share any human or qualitative insights there.

I'm going to start and Jed can finish and Rick can chime in. But at Trophy, on our entry-level product, we are clearly seeing, and we looked at, I think it was not this week, the week before, we had a very low price point neighborhood that was $200,000, $225,000, wasn't it Jed?

$250,000.

And the preponderance of those buyers were people leaving B-minus apartment that wanted to get out of an apartment and own a house. We are evaluating really how deep that pond is right now. There are about 500,000 apartment units in Dallas. We're trying to figure out really what that buyer is doing and how many incremental buyers now have really decided that what looks like an attractive lifestyle is no longer nearly as attractive to them and we think we're going to see that continue and we're just monitoring that as closely as we can. Jed, what are your comments on that?

Yes. I think starting three or four weeks ago, we started seeing the renters really come out of the woodwork. They were renters either of single-family homes or of apartments and they were filling up our mortgage pipeline. We've seen that shift -- well, that has continued to stay strong. But in the past couple of weeks we've also sold quite a few homes over $500,000. So I think it's kind of a combination of all the factors you mentioned that people are needing a little bit more space.

The other thing we're trying to evaluate is this, even on our own business, which I never thought I would do this, but we're going to allow some people, we are seeing them actually operate more efficiently working from home and we're evaluating that on a person by person basis in our -- in our business. We're seeing a lot of the other businesses, particularly in the accounting law type firm service business is doing the same thing. And to be able to have a home office in a separate area, living in a house is something that you really can't do living in a four-storey common home mid-rise and we're seeing that trend, I think will continue going forward.

Thank you, Jim. And then one additional question please. So have you seen any early signs of land and/or lot prices declining? And this question probably was a lot more applicable in April maybe than it is today, but is that something that you anticipate or is this recent strength basically implying that the housing industry may have already crossed through the -- through the COVID Valley?

Well we're seeing one thing for sure. On any downturn, a master-plan large community typically does better than another community. Almost all master-plan communities are held by very strong owners. So we're not seeing -- obviously, they want to make as many sales as they can. We're not seeing that master plan community seller making discounts on lot prices or other things. They have been cooperative and extending lot purchases, but not reducing lot price. We always have, I think in both Dallas we've been -- I've been in this market for over 40 years buying land. Our builder in Atlanta has been there for more than 40 years, Bill Handler has been there more than 40 years, and Brian Bahr has been in Colorado Springs since 1999 buying land. We think we see most deals first and we're really not seeing a lot of distress out there from land sellers at this time.

We're seeing a little bit softer terms on new deals because of the uncertainty. I think our sales numbers speak for that uncertainty where -- are we going to sell like we did in March -- or sorry in April? Are we going to sell like we have so far in May? So we're seeing a little bit softer terms but prices are not going down.

Thank you all.

There are no further questions. This concludes today’s conference call. You may now disconnect.