Green Brick Partners Inc

F:2G1

Earnings Call Transcript 2018-Q3

[Operator]

Good afternoon, everyone, and welcome to Green Brick Partners earnings call for the third quarter ended September 30, 2018. [Operator Instructions] As a reminder, this call is being recorded and will be available for playback.

A slideshow supporting today’s presentation is available on Green Brick Partners website, www.greenbrickpartners.com. Go to Investors & Governance, then click on the option that says Reporting, and then scroll down to the page until you see the third quarter investor call presentation.

The company reminds you that during this conference call, it will make various forward-looking statements within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements with respect to revenues, earnings, performance, strategies, prospects and other aspects of the business of Green Brick Partners are based on current expectations and are subject to risks and uncertainties.

A few factors could cause actual results or outcomes to differ materially from those indicated by such forward-looking statements. Please read the cautionary statement regarding forward-looking statements contained in the company’s press release, which was released on Monday, November 5, and the risk factors described in the company’s most recent annual and quarterly filings with Securities and Exchange Commission.

Green Brick Partners undertakes no duty to update any forward-looking statements that are made during this call. Today, the company will be referring to adjusted EPS and adjusted homebuilding gross margin, which are non-GAAP financial measures.

The reconciliation of adjusted EPS to net income attributable to Green Brick and adjusted homebuilding gross margin to homebuilding gross margins are contained in the earnings release that Green Brick issued yesterday.

I would now like to turn the conference call over to Green Brick’s CEO, Jim Brickman. Please go ahead, sir.

[James Brickman, Co-Founder and Chief Executive Officer]

Hi, everybody. With me is Rick Costello, our CFO; Jed Dolson, our President of the Texas Region; and Summer Loveland, our CAO. Thanks again for joining our call.

As the operator mentioned, the presentation that accompanies this earnings call can be found in our web page at greenbrickpartners.com. At the top of our web page, click on Investors & Governance, then click on the option that says Reporting, and then scroll down the page until you see the third quarter investor call presentation. I’ll give everybody a second to do this.

I’m excited to announce that our quarterly net income attributable to Green Brick of $12.2 million was up over 31% year-over-year. During the quarter, total revenues increased 32% despite the wettest September in Dallas history, and our backlog grew 88% year-over-year despite a more competitive environment.

Having GH [ph] Homes join our family of team builders and our financial statements has been a great positive development. In addition to diversifying our offerings to lower price point, we have recorded $29.8 million in year-to-date homebuilding revenues from GHO since our acquisition in April.

Green Brick’s share of GHO’s pretax income is $3.0 million before the purchase accounting adjustments of $0.6 million, and they’ve also added $74 million to our backlog as of September 30, 2018.

Please flip to Slide four. Two of the best markets in the country are our core markets of Dallas and Atlanta. During the last 12 months, Dallas and Atlanta continued to be two of the largest markets in terms of generating job growth.

On Slide five, you can see that Dallas continues to be the number one new housing market in the nation, adding almost 35,000 starts. Atlanta is the fourth largest market and our Challenger Homes affiliate operating at Colorado Springs is part of the sixth largest market.

Slide six shows that starts and closings in Dallas are still expanding and while the chart doesn’t go far enough, back enough, note that Dallas is still well below the 2000 peak activity of more than 50,000 starts.

Slide seven shows that in Dallas, the lot inventory levels are at a very healthy 19.2 months supply.

Slide eight shows that Atlanta, despite continued strong growth in starts and closings, is still almost 60% below peak. Most of this growth is attributable to the north, where all of Green Brick’s communities are located.

Nine, you can see that Green Brick operates in three of the most supply constrained markets in the country with resale month’s supply of inventory at very low levels, which persist and provide us ample leverage to sell homes at profitable prices and healthy rates of absorption.

On Slide 10, we demonstrate what we mean by A-rated submarkets. John Burns Real Estate Consulting has established maps of our Atlanta and Dallas Metropolitan areas, where they have designated grades on submarkets of A through E, based on a variety of subjective factors such as quality of schools, proximity of jobs, the existence of infrastructure and just basic quality of life.

We have taken those maps and overlaid the locations of our Green Brick communities with green dots. As you can see, the preponderance of our communities are located at the very best A located submarkets.

What the prior graphs did not tell you is how supply constrained these lots are. Green Brick also controls over 5,000 lots in the Dallas Metroplex and almost 2,300 lots in Atlanta primarily again in A locations.

On Slide 12, our spotlight this quarter is in our recently announced entry into affordable housing with Trophy Signature Homes. I’ll give you a chance to take look at this again, but Slides 13 and 14 from our side show there is demand for over 21,000 new single-family homes in the Dallas Metroplex priced from $200,000 to $350,000.

Trophy Signature Homes was formed to allow us to build in this very attractive marketplace and diversify our product into a marketplace that does not compete with any of our other team builders.

With Trophy, we now offer homes at virtually every price point in Dallas, again, the largest new home market in the country. If we achieve just a 5% share of the market, this platform could become over 1,000 homebuilders in the coming years. And that is just in the Dallas Metroplex. Our goal is to expand this very scalable platform into other markets.

Over the last few months, we have been very busy ramping up Trophy Signature Homes. Trophy has a very seasoned management team in place with decades of experience building entry-level homes and currently owns or controls over 1100 lots in the Dallas Metroplex. Trophy’s first homes should start construction in January of 2019. We project that Trophy will produce high return on capital for investors by early 2020. Jed has been very active in ramping up Trophy, and he can provide more color on it in the Q&A.

Next, Rick Costello, our CFO, will discuss our third quarter results in more detail. Rick?

[Richard Costello, Chief Financial Officer]

Thanks, Jim, and thank you for joining us today to review our 2018 third quarter financial results. First, as shown on Slide 16, our two year growth of 66% in building revenues and two year growth of 111% in pretax income has been accomplished despite keeping one of the lowest net debt-to-capital ratios of any public builder. We’ve been able to grow rapidly while increasing our financial leverage through low interest rate revolving lines of credit.

As of September 30, 2018 we’ve continued that gradual increase to the point where our net debt-to-capital ratio, where net debt is debt minus cash, has increased to 26.9%, which is closing in on the range of our target of 30% to 35%.

Now let’s review Slide 17. I’m going to start with highlights and then move into the details. For Q3 of 2018 versus Q3 of 2017 and year-to-date comparisons, here are some key operational metrics.

Net new orders increased by 23% for the quarter and 40% for year-to-date. Home deliveries increased by 33%, with home sales revenues up by 27% for the quarter. For year-to-date, home deliveries increased by 30% with home sales revenues up by 33%.

Year-over-year homes under construction are up 56%, with homes started on a last 12-month basis up by 41%. The total value of units and backlog increased by 88% year-over-year, and our adjusted pretax income was up 16% for the quarter and 43% for year-to-date.

Now for more details. For the third quarter, the number of net new home owners orders was 297 homes, an increase of 23% compared to Q3 of 2017. For year-to-date 2018 versus 2017, our net new-home orders have grown by 40% from 798 to 1,118.

Green Brick delivered 312 homes for the quarter, 33% more than Q3 of 2017. And for year-to-date 2018 versus 2017, Green Brick delivered 905 homes, a 30% increase over 2017.

Home sales revenues were $137.4 million for the quarter, an increase of 27% over Q3 of 2017. And year-to-date, Green Brick’s home sales revenues grew to $401.6 million, up 33% over the first three quarters of 2017.

The average sales price of homes delivered was $440,000 for the quarter and $444,000 year-to-date, down 5% over Q3 of 2017 and up 3% versus year-to-date 2017. Now most of the decline in the ASP of closed units for the quarter is because of the addition of GHO Homes, whose homes are at lower price points than our other builders.

At the end of the third quarter, Green Brick has a total of 75 active selling communities, a year-over-year increase of 34%. We expect the pace of net community openings to increase modestly during the fourth quarter. Homes under construction increased 56% to 1,113 units as of September 30 compared to 715 units as of September 30, 2017.

Now let’s review some of these key metrics on a last 12 months basis.

Regarding construction, in the last 12 months, we started 1,441 homes versus 1,023 homes as of September 30, 2017, an increase of 41%.

Regarding sales, net new orders for the last 12 months stand at 1,383 homes, up 39% from 995 homes as of the end of Q3 of 2017.

Regarding closings. Units closed for the last 12 months total 1,197 homes, up 23% from the 12 months ended September 30, 2017. Homebuilding revenues are up 28% over this period on a last 12 month basis.

Regarding the lot inventory. The number of lots owned and controlled has grown to just over 8,100 lots, up from about 5,700 lots from the year-ago period, for an increase of 42% as of September 30, 2018. This was accomplished despite starting almost 1,450 homes in the last 12 months. And significantly, our backlog is at 88% year-over-year.

Our year-to-date homebuilding gross margin is 21.4%, down only 0.1% year-over-year from 21.5% through September 30, 2017. Now during Q3, our homebuilding gross margin declined to 20.8% for the third quarter of this year from 21.8% for Q3 of 2017. Half of this decline is due to purchase accounting adjustments related to our purchase of GHO Homes. The other portion of our Q3 gross margin decline was a temporary increase in homes sold on lots developed by third parties. This variability is a natural part of our business model.

By the end of Q2 of 2019, our homebuilder partners will be back to closing more homes where the lots are developed by Green Brick. Our homebuilding gross margins are higher when Green Brick is the developer of the lots because of land development profits in our cost structure.

Slide 18 demonstrates our performance as measured by pretax income as a percentage of homebuilding revenues or our pretax margin. Pretax margin takes into consideration building margin as well as operating expenses and has improved on a last 12 months basis from 12.0% to 13.0% from Q3 of 2017 to Q3 of 2018.

On Slide 19 is an important chart. We provide more perspective on this pretax margin of 13.0% on a last 12-month basis. And as you can see, this measure of profitability links us as one of the very best in the industry of all building companies.

At September 30, 2018 our builder operations segment had a backlog of 685 sold but unclosed homes with a total value of approximately $309 million, an increase of 88% from September 30, 2017. Even if we exclude the addition of the $74 million of backlog dollars from GHO Homes, our year-over-year increase in backlog would still be up by a robust 43%.

In short, we made a conscious decision to increase sales by only slightly reducing margin, and this worked to our advantage. At September 30, the average sales price of homes and backlog was approximately $451,000, a decrease of 8% compared to the prior year. Again, this change in ASAP is primarily a function of the acquisition of GHO Homes, which sells its homes at lower price points.

Perhaps most importantly is the bottom line. Adjusted income before taxes attributable to Green Brick was $16.9 million for the third quarter of 2018 compared to $14.6 million for Q3 of 2017, an increase of 16%.

Adjusted EPS was $0.33 per share for the third quarter versus $0.29 for the third quarter of 2017, an increase of 14%. Year-to-date, Green Brick’s adjusted income before taxes is up 43% to $52.3 million, and adjusted EPS is up 39% to $1.03.

Earnings per share is up 26% for the quarter and 62% year-to-date.

Finally, to put our performance in perspective, year-to-date with homebuilding revenue up 33%, our adjusted pretax income is up 43% as our earnings performance is expanding faster than our revenue growth rate.

Combined with our purposeful and affordable increase in financial leverage, our earnings growth is resulting in markedly improved return on average equity. And in that regard, our year-to-date annualized EBITDA return on average equity has risen from 13% in 2017 to 17.5% in 2018.

To fund the robust increase in our backlog year-to-date, with homebuilding up -- I’m sorry, to fund the robust increase in our backlog, expected 2019 organic growth and new platform Trophy Signature Homes, subsequent to the end of the quarter, Inwood National Bank extended the maturity on our $75 million secured loan facility by two years to May of 2022.

Also subsequent to September 30, we significantly expanded and extended our unsecured loan facility as follows: Chemical Bank joined that facility with a total of $30 million commitment; while Flagstar, our admin agent and lead arranger, extended its participation another $10 million, bringing our total commitments on the unsecured line to $215 million.

The accordion feature of our unsecured facility was expanded to $275 million, and we extended the maturity date of the facility another year to December 2021. Between both credit facilities, we now have $290 million of commitments under our credit facilities, with the earliest maturity of December 2021 and with the ability to expand those commitments another $60 million.

I will now turn the call back to Jim, who will wrap up our part of the call before opening things up for Q&A. Jim?

[James Brickman, Co-Founder and Chief Executive Officer]

Thanks, Rick. That’s a lot of information, for everyone in the call. We have another record-breaking quarter, despite a very wet September. Going forward, we really expect the market to remain competitive. Going into this, our backlog is up 88% from September 30, 2017, and we still have some of the highest margins and pretax income in the industry.

I really want to remind our investors that we received land lot lending profit before our team builders receive any profits that we share with them. Hence, 50% of any house margin compression until breakeven is absorbed by our team builders.

In summary, we believe we are in the very best markets, we expect continued growth, and we are far less impacted by the more competitive marketplace than many peers because of our business model. We are very excited about the addition of Trophy Signature Homes to our family of builders and believe this would be a very accretive builder over the coming years.

I’ll now turn the call back to the operator for questions. Thank you.

[Operator]

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

[Susan Maklari, Crédit Suisse]

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

[James Brickman, Co-Founder and Chief Executive Officer]

Well, generally, our markets, first of all, we locate ourselves typically in A locations, where we have less competition. But that of course doesn’t make us immune from competition. So our first strategic advantage is being in the A locations. That said, we still have to compete with other homebuilders, and they are more aggressive right now in their pricing structure.

But as I said earlier, really one of our advantages is that 50% of any margin compression -- we only take 50% of any margin compression at Green Brick’s level. But we expect the market to remain competitive over the coming quarters.

[Susan Maklari, Crédit Suisse]

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

[James Brickman, Co-Founder and Chief Executive Officer]

Well, yes. Obviously, specs are always lower margin than a build job for us and every other builder. And I think one of the things that exaggerated this is in September and really going through to October, it rained literally almost every day in Dallas, which is a good part of our market, and buyers were not buying houses. So those sales got pushed back, and it’s more competitive right now.

What we’re trying to figure out, starts have also been pushed back, and we’re trying to figure out how that works out into the spring selling season. But clearly, the terrible weather we had in Dallas influenced that. Did that answer your question? Or would you like more color?

[Susan Maklari, Crédit Suisse]

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

[James Brickman, Co-Founder and Chief Executive Officer]

Yes. I’m going to start this, and Jed, I will ask to finish it because this has been really a project that he’s been working on for a number of months. But first of all, the idea of Trophy is very complementary to our whole team builder because we work in that price point. And some people might say, why didn’t you do this now and not before?

And the reason is because until we got all of our team builders and Challenger Homes into the mix, we couldn’t have the national purchasing department that gives us a lot of the rebates. It would make us much more competitive with some of the larger peers. We now have that in place.

And we think with a very efficient organization, we can be cost competitive in these not A location markets. And Jed, why don’t you take her through what you’re doing to get us really ramped up on that quickly.

[Jed Dolson, President of Texas Region]

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

[James Brickman, Co-Founder and Chief Executive Officer]

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

[Susan Maklari, Crédit Suisse]

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

[Richard Costello, Chief Financial Officer]

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

[James Brickman, Co-Founder and Chief Executive Officer]

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

[Susan Maklari, Crédit Suisse]

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

[James Brickman, Co-Founder and Chief Executive Officer]

Thanks.

[Operator]

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

[Unidentified Analyst]

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

[James Brickman, Co-Founder and Chief Executive Officer]

Hey, Ken how are you doing?

[Unidentified Analyst]

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

[James Brickman, Co-Founder and Chief Executive Officer]

Jed?

[Jed Dolson, President of Texas Region]

More weighted to lower end.

[Unidentified Analyst]

Got it. Thank you.

[James Brickman, Co-Founder and Chief Executive Officer]

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

[Unidentified Analyst]

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

[James Brickman, Co-Founder and Chief Executive Officer]

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

[Unidentified Analyst]

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

[Richard Costello, Chief Financial Officer]

Sure. Sure. In Q3 for instance, we have an expectation in four communities between CB Jeni Homes and Normandy Homes that they were going to close on 30 additional units back when we did our business plan for instance, that were developed by Green Brick. And those got pushed back due to development delays, etcetera.

And those 30 lots would have been $700,000 worth of lot profit at approximately $22,000 to $25,000 per lot. That $700,000 that we didn’t get to record on those closings represents a half a point, 0.5%.

So, but it’s something that we have visibility into, and we can see that temporary decline from a percentage standpoint will revert to our more traditional levels sometime during Q2 on a closing house basis. So and it’s something that you actually can see in our numbers on a quarter-by-quarter margin basis. I think Q1 of 2017 and Q4 of 2017 were both slightly lower margin experiences for the same kind of variability. So it’s something that we do see. Does that make sense, Ken?

[Unidentified Analyst]

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

[James Brickman, Co-Founder and Chief Executive Officer]

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

[Unidentified Analyst]

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

[James Brickman, Co-Founder and Chief Executive Officer]

Thank you.

[Operator]

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

[Ryan Gilbert, BTIG]

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

[James Brickman, Co-Founder and Chief Executive Officer]

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

[Ryan Gilbert, BTIG]

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

[James Brickman, Co-Founder and Chief Executive Officer]

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

[Ryan Gilbert, BTIG]

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

[James Brickman, Co-Founder and Chief Executive Officer]

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

[Ryan Gilbert, BTIG]

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

[James Brickman, Co-Founder and Chief Executive Officer]

Yes. Well, I think at the highest level, stock buybacks or an acquisition, anything will be continually weighed against the opportunity cost of using the same capital to grow our business. So it’s a very fluid process.

For example, we were looking at a high return on capital builder, a smaller builder in another market, a GHO kind of size builder. The builder said he really was interested in talking to us because we’ve been very prudent about how we’ve grown our business and required high returns on capital. A peer who’s going to buy it, that peer went away, and now we’re talking to them.

So in this case we would be weighing the long term benefits of looking at that builder versus a stock buyback and other opportunities. Our goal of stock buyback is always really nice because it uses your short term EPS right away, but that may not produce the best long term returns for our investors.

So I know that this ain’t probably the answer that you want, but it’s a very fluid process. And all I can tell you is we’re weighing everything against everything all the time.

[Ryan Gilbert, BTIG]

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

[James Brickman, Co-Founder and Chief Executive Officer]

Thanks, Ryan.

[Operator]

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

[Bill Dezellem, Tieton Capital Management]

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

[James Brickman, Co-Founder and Chief Executive Officer]

Jed or Rick, do you want to do that?

[Jed Dolson, President of Texas Region]

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

[Richard Costello, Chief Financial Officer]

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

[James Brickman, Co-Founder and Chief Executive Officer]

Yes. And we’re working on our 2019 business plans with all of our builders right now, and we were meeting with one yesterday and not only at the house side, but the land development has been even more impacted because, obviously you can’t move dirt in mud.

And it’s been a very muddy fall. And in 2019 we were saying that two or three communities that we were hoping to get opened and produce revenues in 2019 probably got pushed back to 2020 now.

[Bill Dezellem, Tieton Capital Management]

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

[Jed Dolson, President of Texas Region]

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

[Bill Dezellem, Tieton Capital Management]

Understood. Thank you very much.

[James Brickman, Co-Founder and Chief Executive Officer]

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

[Operator]

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

[Chase Basta, AWH Capital]

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

[James Brickman, Co-Founder and Chief Executive Officer]

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

[Chase Basta, AWH Capital]

Okay. Thanks.

[Operator]

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