Thank you for standing by. My name is Angela and I will be your conference operator today. At this time, I would like to welcome everyone to the Green Brick Partners, Inc. Second Quarter Conference Earnings Call. [Operator Instructions]. I would now like to turn the conference over to Rick Costello, Chief Financial Officer. Please go ahead.

Good afternoon and welcome to the Green Brick Partners earnings call for the second quarter ended June 30th, 2024. 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. On the call today is Jim Brickman, Co-Founder and Chief Executive Officer; Jed Dolson, President and Chief Operating Officer; and myself, Rick Costello, Chief Financial Officer. Some of the information discussed on this call is forward-looking, including the company's financial and operational expectations for 2024 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, August 1st, 2024, 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. Jim?

Thank you, Rick. I'm extremely proud of our record performance in the second quarter. During the second quarter, we achieved another set of record-breaking results for the company. First, we delivered a record 987 homes and join underrated record home closing revenue of $547 million, an increase of 20% year-over-year. Second, our Homebuilding gross margin soared to a record 34.5%, which is the highest among public homebuilding peers as shown on Slide 4. Year-to-date, the net income attributable to Green Brick grew 35.3% and earnings for share increased 38% year over year to $4.14. This performance was highlighted by a record quarterly EPS of $2.32, up 42.3% year over year. Thanks to the collective effort of our team, we have consistently generated some of the best returns in the industry. We believe that our unique business model will continue to demonstrate its strength and position us for sustainable growth. With our record results, Green Brick's annualized return on equity for the first half of 2024 was 28.3%. Our book value at the end of the quarter increased 26% year-over-year, but $31.21 per share. Equally important, our growth was created on one of the least leveraged balance sheets and one of the lowest costs of debt among our small and mid-cap peers. At the end of the second quarter, our total debt to total capital ratio was 17.7%, while our net debt to total capital ratio was only 10.9% with a weighted average pay rate of 3.4%. As shown on Slide 5. Since 2022, we have consistently generated exceptional homebuilding gross margins, achieving margins of more than 30% in all three quarters. Our extraordinary performance is a result for superior locations in high-growth markets. Our investment grade balance sheet, our self-development strategy, and the commitment and expertise of our team. The…

Thank you, Jim. Please turn to Slide 9 of the presentation. As Jim mentioned earlier, the second quarter was a record for Green Brick on multiple fronts. We achieved record home closings revenue of $547 million up 20.4% year over year on a record 987 homes closed an increase of 26%. The increase in deliveries is attributable to limited competition in our infill and infill adjacent communities. Reduce cycle times and increase starts leading to higher levels of available spec inventorying. As discussed during our past earnings calls, our shift in community mix from closing out infill communities to opening new communities in surrounding infill adjacent areas, especially under our trophy brand, has moderately lowered our ASP from a year ago. In the second quarter, ASP declined slightly by 4.4% year over year to $554,000. This was our smallest decline in ASP in the past four quarters. We continue to expect ASP to be in the range of $540,000 to $560,000 for the second half of the year, subject to changes in product mix and business conditions. Another record that we broke this quarter was homebuilding gross margins, which reached 34.5% Gross margins were up 320 basis points year-over-year in 110 basis points higher than our previous record of 33.4% achieved last quarter. More importantly, homebuilding margins were strong across all builder brands, including trophy that primarily built entry-level and first-time move-up homes. As shown on Slide 4, we continue to lead our peers in gross margin performance. The gains in gross margins were due to lower incentives on closed homes year over year as a result of our infill and infill adjacent communities, and favorable construction and average lot cost. Green Brick expects that over the two years from calendar year 2023 to calendar year 2025, our average developed…

Thank you, Rick. Demand was healthy during the second quarter. Net new orders moderated from a near record level in first quarter of 2024, but grew slightly year over year to 855 sales, representing our best Q2 order level in company history. Our sales pace for the second quarter was 8.5 homes per average active selling community down from 11.4 in Q1, when our backlog grew 31% sequentially. In the latter part of the second quarter, we saw sales pace slightly moderate as we exited the spring selling season returning, we believe to the normal pre-pandemic seasonality that we have traditionally experienced. Increased mortgage rates during the quarter and metering of sales in certain infill communities also contributed to moderated orders. However, incentives for new orders picked up only modestly in the second quarter to 4.5% from 3.8% in March. We were still able to raise base prices moderately in approximately a third of our communities due to our footprint of infill and infill adjacent submarkets were supplies limited from both new homes and existing homes. Incentives were only targeted in select communities where traffic and orders were below desired levels and or respect homes at later stages of construction. We continued to offer many of our buyers the flexibility to use their incentive package for closing costs, partial rate buy-downs or both. Buyers who close using our affiliated mortgage company, continued to demonstrate strong qualifying profiles with an average FICO score of 741, and a debt-to-income ratio of 38% during the second quarter. With homebuilding gross margins, be it at an all-time high of 34.5%, we possess an abundance of flexibility and price adjustments if the market shifts. We remain optimistic that with our focus on infill and infill adjacent locations, we are well-positioned to capitalize on long-term secular…

Thank you, Jed. In closing, I would like to give another round of applause, and thanks to our incredible team. Our record-breaking quarter is a direct result of the hard work of our people and years of meticulous planning and execution. These results are just the beginning for Green Brick. With the cooperative economy, our superior investments in land and lot inventory, and constantly improving building operations have created a long runway for sustained growth, particularly through trophy. This concludes our prepare remarks and we will now open the line for questions.

[Operator Instructions]. Your first question comes from the line of Carl Reichardt with BTIG. Please go ahead.

Rick, historically, we've talked about your starts pace and that being a driver to delivery volume six months out, and you've been running 952, I think was the average, is what you said. So now trophy's growing, supply chain's more normal, lost count is up. Can we expect that sort of 950, maybe a 1000 start pace to start picking up as we look quarters out? Or is your anticipation that it'll stay kind of flat from there as we move into ‘25 based on what you know now?

It is certainly going to be a function of what happens on the sales floor. We're obviously developing a lot of communities and a lot of lots, but we’re not really going to suggest forward beyond what you see. I mean, you’re talking about the best indicator but we're not -- directionally, eventually it's going to go up, but from the timing standpoint, we’re going to remain silent.

But the relationship, the six-month relationship, you intend -- you expect that that will continue on a go-forward basis. It won't shorten to five months or go to seven or something like that based on the mix that you plan.

Five months or seven months of --

Are you talking about cycle time?

So, what I mean is, if I look at your starts six months ago, two quarters ago, and I model that as deliveries six months, hence, that relationship has held pretty tight, pretty consistently over a long period of time. So, I'm wondering if cycle times are improving, if trophies more a bigger portion of your mix going forward, does that shrink down to like a five-month lead as opposed to a six?

Over time, it will certainly shorten because trophies delivering houses in 3.8 months versus 5.3 months overall. So, I mean certainly that is a dynamic and it's a positive one.

And then can you guys, do you mind at all, Jim, talking a little bit about July and as I sort of look at rate movements have come down a lot, there seems to be a lot of elasticity in the marketplace for demand based on how rates are going. Is your sense that that's still the critical driver to how sales roll? Or are you seeing any sort of softening related to the consumer being concerned about their job or the election or sort of macro things beyond just sort of the mathematics of home ownership?

Good question, Carl. Let me do a segue on this and that. One of the things CEOs just don't talk about very much anymore, because everybody's talking about financial engineering and doing a lot of other stuff, is, our goal is to create value entitling developing larger, longer duration neighborhoods that people want to live in, today and tomorrow, for some reason, that whole message of creating neighborhoods that people want to live in is absent from so many investor calls that I read transcripts of. That's our really, our primary goal. July sales have maintained at a pace that we expected we didn't have to incentivize sales any more than we expected to achieve those sales, and we aren't seeing really any diminished demand in any of our businesses other than one or two neighborhoods in Florida are soft right now.

Your next question comes from the line of Alex Rygiel with B. Riley. Please go ahead.

Alex, are you on mute?

I am sorry about that, gentlemen. With incentives up in, with incentives up a bit sequentially, does that suggest some modest headwind to gross margins in the third quarter and where were or are incentives in July relative to 2Q?

I really don't want to talk about that. In specificity, we're focusing on the current quarter, but certainly, what's happening on the sales floor translates more quickly with as much spec concentration that we have, particularly in trophy, where 70%, 80% of their homes that they close in a quarter were sold the same quarter. So, if interest rates are going up incentives go up, interest rates are going down, incentives come down subject to changes in seasonality, which we really saw a lot of people take vacations in June and traffic was down. So, I mean -- the direct answer is, it will be more variable, but it runs both directions good and bad.

And then as we think about monthly absorption clearly the last few years or so, been a notable step up in that absorption and understanding your mix shift and all. But is that sort of kind of the new norm of let's call it three per month for community?

That's a very comfortable level and really when you look at it from a year-to-date standpoint. Q1 was a lot quicker from an absorption standpoint, but we also grew backlog sequentially 31%. And as a predominantly a spec builder that is not necessarily where we're taking the organization. So, the fact that we're up sequential, I'm sorry, year-to-date still, like 17% is a strong dynamic. But which tells you that the year-to-date numbers are very pleasing to us because we have that equality between sales starts and closings.

[Operator Instructions]. And your next question comes from the line of Jay McCanless with Wedbush. Please go ahead.

The first one I had, I think, Jed, you may have talked about pricing only being able to raise prices in roughly a third of communities during the quarter. I would've thought with the infill -- the heavier weight of infill, you'd have been able to push a little more price. So maybe what was going on with that?

I think just some seasonality that we exited toward the later part of the quarter.

And then I guess with trophy selling and closing 70% to 80% of their homes in a given quarter, I guess what's plan B if things start to slow down, if we start to see some job losses, et cetera. Do you think those homes go into the SFR BTR market? what's the business plan for those if things do slow down from the economy standpoint?

Jay, this is Jim Brickman. No, we don't sell into the build-for-rent market. We focus on creating nicer, longer-duration communities. And the people that are moving in those communities are not expecting to move into a rental community. We don't -- one of the really huge benefits of making 34.5% margins is that we can take a 10% margin hit and still have margins that are typical to our peers. And if our peers take a 10% margin hit, they go negative income. So, I don't lose sleep over a few jobs. We're in this business for the long run and we have plenty of cushion and margin to maintain sales velocity.

Jay, this is Rick. One more -- I mean that was the answer. A and B. But also, in that environment where there are job losses, obviously the fed is going to respond with more aggressive rate cuts and the number of people who will qualify with those rate cuts exceed the number of people who will be without jobs. So, I think that the numbers work pretty well for us especially being in stronger job markets like Dallas and Atlanta.

[Operator Instructions]. There are no further questions, and that concludes today's call. Thank you all for joining. You may now disconnect.