GREEN BRICK PARTNERS, INC. The following discussion of our financial condition and results of operations should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSecurities and Exchange Commission ("SEC") onMarch 1, 2022 . The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Overview and Outlook
Our key financial and operating metrics are home deliveries, home closings revenue, average sales price of homes delivered, and net new home orders, which refers to sales contracts executed reduced by the number of sales contracts canceled during the relevant period. Our results for each key financial and operating metric, as compared to the same period in 2021, are provided below:
Three Months Ended Nine Months Ended
September 30, 2022 September 30, 2022
Home deliveries Decreased by 11.9% Increased by 8.9%
Home closings revenue Increased by 16.8% Increased by 43.1%
Average sales price of homes delivered Increased by 32.6% Increased by 31.4%
Net new home orders Decreased by 41.4% Decreased by 34.7%
The expansion of our revenues year over year is primarily attributable to the
strong performance of our Trophy division, strong growth in the average selling
price of homes, the impact of macroeconomic factors, and an influx of millennial
first-time home buyers. The significant increase in new home construction in our
markets has, in turn, led to increased demand for labor and the raw materials,
products and appliances for new homes. Due to the increased demand, we have
experienced increases in cost and decreased availability of skilled labor as
well as increases, shortages, and significant extensions to our lead time for
the delivery of key materials and inputs. Additionally, the recent rapid rise in
interest rates as well as the inflationary impact on buying power has impacted
the ability of some buyers to qualify for mortgages in spite of unsatisfied
demand for homes and the continued undersupply of existing and new home
inventory.
Three Months Ended
Residential Units Revenue and New Homes Delivered
The table below represents residential units revenue and new homes delivered for
the three months ended
Three Months Ended September 30,
2022 2021 Change %
Home closings revenue $ 394,731 $ 338,075 $ 56,656 16.8%
Mechanic's lien contracts revenue 2,018 825 1,193 144.6%
Residential units revenue $ 396,749 $ 338,900 $ 57,849 17.1%
New homes delivered 650 738 (88) (11.9)%
Average sales price of homes delivered
32.6%
The $57.8 million increase in residential units revenue was primarily driven by
the 32.6% increase in the average sales price of homes delivered for the three
months ended September 30, 2022 . The decrease in new homes delivered was
primarily due to a lower starts pace in prior quarters and a smaller backlog
entering the quarter because of weakened demand. The 32.6% increase in the
average sales price of homes delivered for the three months ended September 30,
2022 was attributable to overall price increases driven by high demand and low
supply of inventory.
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New Home Orders and Backlog
The table below represents new home orders and backlog related to our builder
operations segments, excluding mechanic's lien contracts (dollars in thousands):
Three Months Ended September 30,
2022 2021 Change %
Net new home orders 404 689 (285) (41.4) %
Revenue from new net home orders $ 251,276 $ 380,945 $ (129,669) (34.0) %
Average selling price of net new home
orders $ 622.0 $ 552.9 $ 69.1 12.5 %
Cancellation rate 17.6 % 6.9 % 10.7 % 155.1 %
Absorption rate per average active
selling community per quarter 5.3 8.2 (2.9) (35.4) %
Average active selling communities 76 84 (8) (9.5) %
Active selling communities at end of
period 74 80 (6) (7.5) %
Backlog $ 564,026 $ 1,017,220 $ (453,194) (44.6) %
Backlog (units) 841 1,827 (986) (54.0) %
Average sales price of backlog $ 670.7 $ 556.8 $ 113.9 20.5 %
Net new home orders decreased 41.4% over the prior year period while our
absorption rate per average active selling communities decreased 35.4% year over
year. The lower levels of buyer traffic to many of our communities reduced the
level of new home orders; we believe that the traffic decline during the quarter
was attributable to the recent rapid rise in interest rates as buyers sought to
reevaluate their buying capacity as well as to inflationary impacts on consumer
buying power. Despite the lower sales pace, our decline in new order revenues
was smaller than the decline in orders at 34.0% as our average sales price on
new orders rose by 12.5%.
Backlog refers to homes under sales contracts that have not yet closed at the
end of the relevant period, and absorption rate refers to the rate at which net
new home orders are contracted per average active selling community during the
relevant period. Upon a cancellation, the escrow deposit may be returned to the
prospective purchaser. Accordingly, backlog may not be indicative of our future
revenue.
Backlog declined by 44.6% for the quarter with a 54.0% drop in backlog units,
offset by a 20.5% increase in the average sales price of backlog units. The drop
in backlog units is a function of the lower levels of new home orders described
above as well as an increase in our cancellation rate. The increase in average
sales price was attributable to overall price increases driven by high demand
and low supply of inventory.
As a further result of the lower level of sales, increase of units closed, and
decrease in backlog units, the level of our spec units under construction rose
from 30.8% of total units under construction in the third quarter of 2021 to
65.1% of total units as of the end of September 30, 2022 .
Our cancellation rate, which refers to sales contracts canceled divided by sales
contracts executed during the relevant period, was 17.6% for the three months
ended September 30, 2022 , compared to 6.9% for the three months ended
September 30, 2021 and 11.7% for the three months ended September 30, 2020 . Our
cancellation rate increase was driven by rapidly rising interest rates as well
as customer concerns with the macroeconomic environment. Sales contracts
relating to homes in backlog may be canceled by the prospective purchaser for a
number of reasons, such as the prospective purchaser's inability to obtain
suitable mortgage financing. Upon a cancellation, the escrow deposit may be
returned to the prospective purchaser.
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Residential Units Gross Margin
The table below represents the components of residential units gross margin (dollars in thousands):
Three Months Ended
2022 2021
Home closings revenue $ 394,731 100.0 % $ 338,075 100.0 %
Cost of homebuilding units 266,870 67.6 % 247,200 73.1 %
Homebuilding gross margin $ 127,861 32.4 % $ 90,875 26.9 %
Mechanic's lien contracts revenue $ 2,018 100.0 % $ 825 100.0 %
Cost of mechanic's lien contracts 1,666 82.6 % 699 84.7 %
Mechanic's lien contracts gross margin $ 352 17.4 % $ 126 15.3 %
Residential units revenue $ 396,749 100.0 % $ 338,900 100.0 %
Cost of residential units 268,536 67.7 % 247,899 73.1 %
Residential units gross margin $ 128,213 32.3 % $ 91,001 26.9 %
Cost of residential units for the three months ended
Residential units gross margin for the three months endedSeptember 30, 2022 increased to 32.3%, compared to 26.9% for the three months endedSeptember 30, 2021 , primarily due to overall price increases that outpaced the levels of cost input price increases. Land and Lots Revenue The table below represents lots closed and land and lots revenue (dollars in thousands): Three Months Ended September 30, 2022 2021 Change % Lots revenue$ 3,991 $ 2,126 $ 1,865 87.7 % Land revenue 7,204 1,314 5,890 448.2 % Land and lots revenue$ 11,195 $ 3,440 $ 7,755 225.4 % Lots closed 57 31 26 83.9 % Average sales price of lots closed$ 70.0 $ 68.6 $ 1.4 2.0 % Lots revenue increased by 87.7%, primarily driven by a 83.9% increase in the number of lots closed. Land revenue increased by$5.9 million or 448.2% due to the sale of a large tract of land during the three months endedSeptember 30, 2022 .
Selling, General and Administrative Expenses
The table below represents the components of selling, general and administrative expenses (dollars in thousands):
Three Months Ended September 30, As Percentage of Segment Revenue
2022 2021 2022 2021
Builder operations $ 40,890 $ 34,928 10.1 % 10.3 %
Land development 163 128 4.1 % 3.9 %
Corporate, other and unallocated (income)
expense 2,198 (1,347) - -
Total selling, general and administrative
expenses $ 43,251 $ 33,709 10.6 % 9.8 %
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Total selling, general and administrative expenses as a percentage of revenue increased by 0.8% due to an increase in unallocated corporate expenses.
Builder Operations
Selling, general and administrative expenses as a percentage of revenue for builder operations decreased by 0.2% due to an increase in builder operations revenues without a corresponding increase in the level of overhead costs. Builder operations expenditures include salary expenses, sales commissions, and community costs such as advertising and marketing expenses, rent, professional fees, and non-capitalized property taxes.
Selling, general and administrative expenses as a percentage of revenue for land development increased by 0.2% for the three months endedSeptember 30, 2022 , compared to the three months endedSeptember 30, 2021 .
Corporate, Other and Unallocated
Selling, general and administrative expenses for the corporate, other and unallocated non-operating segment for the three months endedSeptember 30, 2022 was$2.2 million , compared to income of$1.3 million for the three months endedSeptember 30, 2021 . The change was driven primarily by a decrease in capitalized overhead adjustments that are not allocated to builder operations and land development segments.
Equity in Income of Unconsolidated Entities
Equity in income of unconsolidated entities increased to$5.7 million , or 2.6%, for the three months endedSeptember 30, 2022 , compared to$5.6 million for the three months endedSeptember 30, 2021 . See Note 3 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a summary ofGreen Brick's share in net earnings by unconsolidated entity.
Other Income, Net
Other income, net, was
Income Tax Expense
Income tax expense was$17.0 million for the three months endedSeptember 30, 2022 compared to a$13.9 million for the three months endedSeptember 30, 2021 . The increase was primarily due to higher taxable income. See Note 10 to our condensed consolidated financials statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion of the effective tax rate for the quarter.
Nine Months Ended
Residential Units Revenue and New Homes Delivered
The table below represents residential units revenue and new homes delivered for
the nine months ended
Nine Months Ended September 30,
2022 2021 Change %
Home closings revenue $ 1,268,329 $ 886,488 $ 381,841 43.1%
Mechanic's lien contracts revenue 5,596 3,148 2,448 77.8%
Residential units revenue $ 1,273,925 $ 889,636 $ 384,289 43.2%
New homes delivered 2,189 2,011 178 8.9%
Average sales price of homes delivered
31.4%
The $384.3 million increase in residential units revenue was driven by the 31.4%
increase in the average sales price of homes delivered and 8.9% increase in new
homes delivered. The 31.4% increase in the average sales price of homes
delivered for the nine months ended September 30, 2022 was attributable to
overall price increases driven by high demand and low supply of inventory.
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New Home Orders
The table below represents new home orders and backlog related to our builder
operations segments, excluding mechanic's lien contracts (dollars in thousands):
Nine Months Ended September 30,
2022 2021 Change %
Net new home orders 1,550 2,375 (825) (34.7) %
Revenue from new net home orders $ 962,497 $ 1,216,845 $ (254,348) (20.9) %
Average selling price of net new home
orders $ 621.0 $ 512.4 $ 108.6 21.2 %
Cancellation rate 11.8 % 6.7 % 5.1 % 76.1 %
Absorption rate per average active
selling community per quarter 6.8 8.8 (2.0) (22.7) %
Average active selling communities 76 90 (14) (15.6) %
Active selling communities at end of
period 74 80 (6) (7.5) %
Net new home orders decreased 34.7% over the prior year period and our
absorption rate decreased 22.7% year over year. The lower levels of buyer
traffic to many of our communities reduced the level of new home orders; we
believe that the traffic decline starting in the middle of the second quarter
was attributable to the recent rapid rise in interest rates as buyers sought to
reevaluate their buying capacity as well as to inflationary impacts on consumer
buying power. Despite the lower sales pace, our decline in new order revenues
was smaller than the decline in orders at 20.9% as our average sales price on
new orders rose by 21.2%.
Our cancellation rate, which refers to sales contracts canceled divided by sales
contracts executed during the relevant period, was 11.8% for the nine months
ended September 30, 2022 , compared to 6.7% for the nine months ended
September 30, 2021 . Our cancellation rate increase was driven by rapidly rising
interest rates as well as customer concerns with the macroeconomic environment.
Sales contracts relating to homes in backlog may be canceled by the prospective
purchaser for a number of reasons, such as the prospective purchaser's inability
to obtain suitable mortgage financing. Upon a cancellation, the escrow deposit
may be returned to the prospective purchaser.
Residential Units Gross Margin
The table below represents the components of residential units gross margin (dollars in thousands):
Nine Months Ended
2022 2021
Home closings revenue $ 1,268,329 100.0 % $ 886,488 100.0 %
Cost of homebuilding units 874,389 68.9 % 651,654 73.5 %
Homebuilding gross margin $ 393,940 31.1 % $ 234,834 26.5 %
Mechanic's lien contracts revenue $ 5,596 100.0 % $ 3,148 100.0 %
Cost of mechanic's lien contracts 4,719 84.3 % 2,482 78.8 %
Mechanic's lien contracts gross margin $ 877 15.7 % $ 666 21.2 %
Residential units revenue $ 1,273,925 100.0 % $ 889,636 100.0 %
Cost of residential units 879,108 69.0 % 654,136 73.5 %
Residential units gross margin $ 394,817 31.0 % $ 235,500 26.5 %
Cost of residential units for the nine months ended September 30, 2022 increased
by $225.0 million , or 34.4%, compared to the nine months ended September 30,
2021 , primarily due to the 8.9% increase in the number of new homes delivered,
increasing levels of cost input prices, and more expensive homes delivered in
the period.
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Residential units gross margin for the nine months endedSeptember 30, 2022 increased to 31.0%, compared to 26.5% for the nine months endedSeptember 30, 2021 , primarily due to overall price increases that outpaced the levels of cost input price increases. Land and Lots Revenue The table below represents lots closed and land and lots revenue (dollars in thousands): Nine Months Ended September 30, 2022 2021 Change % Lots revenue$ 18,027 $ 15,184 $ 2,843 18.7 % Land revenue 34,752$ 45,805 (11,053) (24.1) % Land and lots revenue$ 52,779 $ 60,989 $ (8,210) (13.5) % Lots closed 274 173 101 58.4 % Average sales price of lots closed$ 65.8 $ 87.8 $ (22.0) (25.1) % Lots revenue increased by 18.7% during the nine months endedSeptember 30, 2022 , driven by a 58.4% increase in the number of lots closed partially offset by a 25.1% decrease in the average lot price due to a higher number of entry level lots sold. Land revenue represents sales of tracts of land during the nine months endedSeptember 30, 2022 andSeptember 30, 2021 . Such sales are opportunistic but are not generally in the ordinary course of business.
Selling, General and Administrative Expenses
The table below represents the components of selling, general and administrative expenses (dollars in thousands):
Nine Months Ended September 30, As Percentage of Segment Revenue
2022 2021 2022 2021
Builder operations $ 121,510 $ 97,616 9.5 % 10.6 %
Land development 405 373 0.9 % 1.1 %
Corporate, other and unallocated (income)
expense (2,601) (807) - -
Total selling, general and administrative
expenses $ 119,314 $ 97,182 9.0 % 10.2 %
The 1.2% decrease of total selling, general and administrative expenses as a
percentage of revenue was primarily driven by the leverage of higher revenues
without a corresponding increase in the level of overhead costs.
Builder Operations
The 1.1% decrease in selling, general and administrative expenses as a percentage of revenue for builder operations from 10.6% to 9.5% was primarily attributable to an increase in builder operations revenues without a corresponding increase in the level of overhead costs. Builder operations expenditures include salary expenses, sales commissions, and community costs such as advertising and marketing expenses, rent, professional fees, and non-capitalized property taxes.
Selling, general and administrative expenses as a percentage of revenue for land
development decreased by 0.2% for the nine months ended
Corporate, Other and Unallocated
Selling, general and administrative expenses for the corporate, other and unallocated non-operating segment for the nine months endedSeptember 30, 2022 was income of$2.6 million , compared to$0.8 million for the nine months endedSeptember 30, 2021 . The change was driven primarily by an increase in capitalized overhead adjustments that are not allocated to builder operations and land development segments.
Equity in Income of Unconsolidated Entities
Equity in income of unconsolidated entities increased to
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financial statements included in Part I, Item 1 of this Quarterly Report on Form
10-Q for a summary of
Other Income, Net
Other income, net, increased to$7.3 million for the nine months endedSeptember 30, 2022 , compared to$6.2 million for the nine months endedSeptember 30, 2021 . The change is primarily due to an increase in title closing and settlement services of$1.1 million arising from higher volume of closings during the period.
Income Tax Expense
Income tax expense was$65.7 million for the nine months endedSeptember 30, 2022 compared to$37.1 million for the nine months endedSeptember 30, 2021 . The increase was primarily due to higher taxable income.
Lots Owned and Controlled
The following table presents the lots we owned or controlled, including lot option contracts, as ofSeptember 30, 2022 andDecember 31, 2021 . Owned lots are those for which we hold title, while controlled lots are those for which we have the contractual right to acquire title but we do not currently own. September 30, 2022 December 31, 2021 Lots owned (1) Central 18,998 17,767 Southeast 2,583 2,472 Total lots owned 21,581 20,239 Lots controlled (1) Central 3,691 7,321 Southeast 618 1,061 Total lots controlled 4,309 8,382 Total lots owned and controlled (1) 25,890 28,621 Percentage of lots owned 83.4 % 70.7 %
(1) Total lots excludes lots with homes under construction.
The following table presents additional information on the lots we controlled as
of
September 30, 2022 December 31, 2021
Lots under third party option contracts 2,284 2,740
Land under option for future acquisition and development 307 3,826
Lots under option through unconsolidated development joint
ventures 1,718 1,816
Total lots controlled 4,309 8,382
The following table presents additional information on the lots we owned as of
September 30, 2022 December 31, 2021
Total lots owned 21,581 20,239
Land under option for future acquisition and development 307 3,826
Lots under option through unconsolidated development joint ventures
1,718 1,816
Total lots self-developed 23,606 25,881
Self-developed lots as a percentage of total lots owned and
controlled 91.2 % 90.4 %
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Liquidity and Capital Resources Overview
As ofSeptember 30, 2022 andDecember 31, 2021 , we had$48.2 million and$77.2 million of unrestricted cash and cash equivalents, respectively. Our historical cash management strategy includes redeploying net cash from the sale of home inventory to acquire and develop land and lots that represent opportunities to generate desired margins and using cash to make additional investments in business acquisitions, joint ventures, or other strategic activities. Our principal uses of capital for the nine months endedSeptember 30, 2022 were home construction, land purchases, land development, repayments of lines of credit, operating expenses, payment of routine liabilities and stock repurchases. We used funds generated by operations and available borrowings to meet our short-term working capital requirements. We remain focused on generating positive margins in our builder operations segments and acquiring desirable land positions in order to maintain a strong balance sheet and remain poised for continued growth. Cash flows for each of our communities depend on the community's stage in the development cycle and can differ substantially from reported earnings. Early stages of development or expansion require significant cash outlays for land acquisitions, entitlements and other approvals, roads, utilities, general landscaping and other amenities. These costs are a component of our inventory and are not recognized in our statement of income until a home closes. In the later stages of community life cycle, cash inflows may significantly exceed earnings reported for financial statement purposes, as the cash outflows associated with home construction and land development previously occurred. Our debt to total capitalization ratio, which is calculated as the sum of borrowings on lines of credit, the senior unsecured notes, and notes payable, net of debt issuance costs divided by the total capitalization, which equals the sum ofGreen Brick Partners, Inc. stockholders' equity and total debt, was approximately 28.0% as ofSeptember 30, 2022 . In addition, as ofSeptember 30, 2022 , our net debt to total capitalization ratio, which is a non-GAAP financial measure, remained low at 25.5%. It is our intent to prudently employ leverage to continue to invest in our land acquisition, development and homebuilding businesses. We target a debt to total capitalization ratio of approximately 30% to 35%, which we expect will provide us with significant additional growth capital.
Reconciliation of a Non-GAAP Financial Measure
In this Quarterly Report on Form 10-Q, we utilize a financial measure of net debt to total capitalization ratio that is a non-GAAP financial measure as defined by theSecurities and Exchange Commission . Net debt to total capitalization is calculated as the total debt less cash and cash equivalents, divided by the sum of totalGreen Brick Partners, Inc. stockholders' equity and total debt less cash and cash equivalents. We present this measure because we believe it is useful to management and investors in evaluating the Company's financing structure. We also believe this measure facilitates the comparison of our financing structure with other companies in our industry. Because this measure is not calculated in accordance withU.S. Generally Accepted Accounting Principles ("GAAP"), it may not be comparable to other similarly titled measures of other companies and should not be considered in isolation or as a substitute for, or superior to, financial measures prepared in accordance with GAAP. The closest GAAP financial measure to the net debt to total capitalization ratio is the debt to total capitalization ratio. The following table represents a reconciliation of the net debt to total capitalization ratio to the closest GAAP financial measure as ofSeptember 30, 2022 : Cash
and cash
Gross equivalents Net
Total debt, net of debt issuance costs
(48,203)$ 345,066 Total Green Brick Partners, Inc. stockholders' equity 1,009,240 - 1,009,240 Total capitalization$ 1,402,509 $
(48,203)
Debt to total capitalization ratio 28.0 %
Net debt to total capitalization ratio 25.5 %
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Key Sources of Liquidity
The Company's key sources of liquidity were funds generated by operations and
borrowings during the nine months ended
Debt Instruments
Secured Revolving Credit Facility - As ofSeptember 30, 2022 , we had no amounts outstanding under our Secured Revolving Credit facility, down from$2.0 million as ofDecember 31, 2021 . Borrowings on the Secured Revolving Credit Facility have a maturity date ofMay 1, 2025 and bear interest at a floating rate per annum equal to the rate announced byBank of America, N.A . as its "Prime Rate" less 0.25%, subject to a minimum rate. Unsecured Revolving Credit Facility - As ofSeptember 30, 2022 , our$300.0 million Unsecured Revolving Credit Facility had a$45.0 million outstanding balance, an increase from no outstanding borrowings as ofDecember 31, 2021 . The borrowings on the Unsecured Revolving Credit Facility bear interest at a floating rate equal to either (a) for base rate advances, the highest of (1) the lender's base rate, (2) the federal funds rate plus 0.5% and (3) the one-month LIBOR plus 1.0%, in each case plus 1.5%; or (b) in the case of Eurodollar rate advances, the reserve adjusted LIBOR plus 2.5%. As ofSeptember 30, 2022 , the interest rates on outstanding borrowings under the Unsecured Revolving Credit Facility ranged from 5.29% to 5.50% per annum during the three months endedSeptember 30, 2022 , an increase from the rate in the prior quarter of 3.76% to 4.01% per annum. As amended, the aggregate principal amount of the revolving credit commitments under the Credit Agreement is$300.0 million throughDecember 14, 2024 . In addition, the Unsecured Revolving Credit Agreement, as amended, permits us, without the consent of the other lenders, to request that one or more lenders increase their revolving credit commitments to provide an aggregate of$325.0 million of revolving credit commitments subject to compliance with customary conditions set forth in the Credit Agreement including compliance, on a pro forma basis, with the financial covenants set forth therein. Senior Unsecured Notes - As ofSeptember 30, 2022 , we had four series of senior unsecured notes outstanding which were each issued pursuant to a note purchase agreement. The aggregate principal amount of senior unsecured notes outstanding was$337.5 million atSeptember 30, 2022 andDecember 31, 2021 , and$335.7 million as ofSeptember 30, 2022 up from$335.4 million as ofDecember 31, 2021 , respectively, net of issuance costs. •InAugust 2019 , we issued$75 million of senior unsecured notes (the "2026 Notes"). Interest accrues at an annual rate of 4.0% and is payable quarterly. Principal on the 2026 Notes is required to be paid in increments of$12.5 million onAugust 8, 2024 and$12.5 million onAugust 8, 2025 with a final principal payment of$50.0 million onAugust 8, 2026 . •InAugust 2020 , we issued$37.5 million of senior unsecured notes (the "2027 Notes"). Interest accrues at an annual rate of 3.35% and is payable quarterly. Principal on the 2027 Notes is due onAugust 26, 2027 . •InFebruary 2021 , we issued$125 million of senior unsecured notes (the "2028 Notes"). Interest accrues at an annual rate of 3.25% and is payable quarterly. Principal on the 2028 Notes is due in increments of$25.0 million annually onFebruary 25 in each of 2024, 2025, 2026, 2027, and 2028. •InDecember 2021 , we issued$100.0 million of senior unsecured notes (the "2029 Notes"). Interest accrues at an annual rate of 3.25% and is payable quarterly. A required principal prepayment of$30.0 million is due onDecember 28, 2028 . The remaining unpaid principal balance is due onDecember 28, 2029 .
Optional prepayment is allowed with payment of a "make-whole" premium which fluctuates depending on market interest rates. Interest is payable quarterly in arrears.
Our debt instruments require us to maintain specific financial covenants, each of which we were in compliance with as ofSeptember 30, 2022 . Specifically, under the most restrictive covenants, we are required to maintain (1) a minimum interest coverage (consolidated EBITDA to interest incurred) of no less than 2.0 to 1.0 and, as ofSeptember 30, 2022 , our interest coverage on a last 12 months' basis was 25.4 to 1.0, (2) a Consolidated TangibleNet Worth of no less than approximately$651.1 million and, as ofSeptember 30, 2022 , we had$1,008.1 million and (3) maximum debt to total capitalization rolling average ratio of no more than 40.0% and, as ofSeptember 30, 2022 , we had a rolling average ratio of 29.0%. As ofSeptember 30, 2022 , we believe that our cash on hand, capacity available under our lines of credit and cash flows from operations for the next twelve months will be sufficient to service our outstanding debt during the next twelve months. For additional information on our lines of credit and senior unsecured notes, refer to Note 4 to the condensed consolidated financial statements located in Part I, Item 1 of this Quarterly Report on Form 10-Q. 31
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Preferred Equity
As ofSeptember 30, 2022 andDecember 31, 2021 we had issued and outstanding 2,000,000 Depositary Shares, each representing 1/1000 of a share of our 5.75% Series A Cumulative Perpetual Preferred Stock (the "Series A Preferred Stock"). We will pay cumulative cash dividends on the Series A Preferred Stock, when and as declared by the Board, at the rate of 5.75% of the$25,000 liquidation preference per share. Dividends will be payable quarterly in arrears. During the nine months endedSeptember 30, 2022 , we paid dividends of$2.1 million on the Series A Preferred Stock. OnOctober 27, 2022 , the Board declared a quarterly cash dividend of$0.359 per depositary share on the Series A Preferred Stock. The dividend is payable onDecember 15, 2022 to stockholders of record as ofDecember 1, 2022 . Cash Flows
The following summarizes our primary sources and uses of cash during the nine
months ended
•Operating activities. Net cash provided by operating activities for the nine months endedSeptember 30, 2022 was$31.3 million , compared to$114.5 million cash used during the nine months endedSeptember 30, 2021 . The net cash inflows for the nine months endedSeptember 30, 2022 were primarily from cash generated from business operations of$248.3 million and the deferral of expense payments through a$38.2 million increase in accrued expenses, partially offset by an increase in inventory of$248.3 million . •Investing activities. Net cash used in investing activities for the nine months endedSeptember 30, 2022 increased to$4.9 million , compared to$1.8 million for the nine months endedSeptember 30, 2021 . •Financing activities. Net cash used for financing activities for the nine months endedSeptember 30, 2022 was$53.0 million , compared to$135.7 million cash provided by financing activities during the nine months endedSeptember 30, 2021 . The cash outflows for the nine months endedSeptember 30, 2022 were primarily from our stock repurchases of$101.5 million , partially offset by our net borrowings from lines of credit of$43.0 million .
Off-Balance Sheet Arrangements and Contractual Obligations
Land and Lot Option Contracts
In the ordinary course of business, we enter into land purchase contracts with third-party developers in order to procure lots for the construction of our homes in the future. We are subject to customary obligations associated with such contracts. These purchase contracts typically require an earnest money deposit, and the purchase of properties under these contracts is generally contingent upon satisfaction of certain requirements, including obtaining applicable property and development entitlements. We also utilize option contracts with lot sellers as a method of acquiring lots in staged takedowns, which are the schedules that dictate when lots must be purchased to help manage the financial and market risk associated with land holdings, and to reduce the use of funds from our corporate financing sources. Lot option contracts generally require us to pay a non-refundable deposit for the right to acquire lots over a specified period of time at pre-determined prices which typically include escalations in lot prices over time. Our utilization of lot option contracts is dependent on, among other things, the availability of land sellers willing to enter into these arrangements, the availability of capital to finance the development of optioned lots, general housing market conditions and local market dynamics. Options may be more difficult to procure from land sellers in strong housing markets and are more prevalent in certain geographic regions. We generally have the right, at our discretion, to terminate our obligations under both purchase contracts and option contracts by forfeiting the earnest money deposit with no further financial responsibility to the land seller.
As of
Guarantee
Refer to Note 5 in the Notes to the consolidated financial statements included
in our Annual Report on Form 10-K for the year ended
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Seasonality
The homebuilding industry experiences seasonal fluctuations in quarterly operating results and capital requirements. We have historically experienced the highest new home order activity in spring and summer, although this activity is highly dependent on the number of active selling communities, timing of new community openings and other market factors. Since it typically takes five to nine months to construct a new home, we have typically delivered more homes in the second half of the year as spring and summer home orders are delivered. Because of this seasonality, home starts, construction costs and related cash outflows have historically been highest in the second and third quarters, and the majority of cash receipts from home deliveries occur during the second half of the year. We expect this seasonal pattern to continue over the long term, although it may be affected by current the macroeconomic environment, including the impact of rising interest rates on the homebuilding industry.
Critical Accounting Policies
Our critical accounting policies are described in Part II, Item 7 "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in our Annual Report on Form 10-K for the year ended
Recent Accounting Pronouncements
See Note 1 to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for recent accounting pronouncements.
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