Earnings Call Transcript - GRBK Q4 2025

Operator, Operator

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Green Brick Partners Fourth Quarter 2025 Earnings Conference Call. I would now like to turn the conference over to Jeff Cox, Chief Financial Officer. Jeff, the floor is yours.

Jeff Cox, CFO

Good afternoon, and welcome to Green Brick Partners Earnings Call for the Fourth Quarter ended December 31, 2025. 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, which is available on the company's Investor Relations 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, Jeff Cox, Chief Financial Officer. Some of the information discussed on this call is forward-looking, including a discussion of the company's financial and operational expectations for 2026 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, February 26, 2026, and the company has no obligation to update any forward-looking statements 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 aforementioned presentation. With that, I'll turn the call over to Jim.

James Brickman, CEO

Thank you, Jeff. I am pleased to announce our fourth quarter results, particularly given that we achieved these results against the backdrop of ongoing and persistent affordability challenges faced by many consumers in this housing market. Our performance remained resilient despite eroding consumer confidence and an increasing supply of housing inventory. Our builders adapted quickly to a volatile housing market as we continue to balance price and pace to maximize returns in each of our communities. Net income attributable to Green Brick for the fourth quarter was $78 million or $1.78 per diluted share. We delivered 1,038 homes in the quarter, a 1.9% increase year-over-year and a record for any fourth quarter in company history. We also achieved 883 net orders, also a record for any fourth quarter. As Jed will discuss in more detail, driving our sales volume in Q4 required additional price concessions and other incentives, which caused our homebuilding gross margin to decline 490 basis points year-over-year and 170 basis points sequentially to 29.4%. The decline was due to higher incentives and changes in product mix. Still, our gross margins remain the highest among public homebuilders. While the macroeconomic landscape presents headwinds for the entire industry in the short term, we believe the core strengths that have driven Green Brick's success over the past decade will enable us to continue to navigate any challenges with confidence and flexibility. As always, we will focus on maintaining operational excellence centered on our disciplined approach to land acquisition and development to position us for future growth. We are laser-focused on maintaining an investment-grade balance sheet to support our targeted expansion in high-volume markets. In 2026, we believe that our financial services platform will generate more pretax income than the interest cost on all of our debt. As Jed will discuss in more detail, we also continue to reduce construction cycle times. We believe we are well positioned to sustain our return metrics over the long term that rank among the very best in the industry, providing long-term value to our shareholders. We remain focused on growing our business, particularly in our Trophy brand. Trophy's growth in DFW in Austin, combined with our first open community in Houston during the spring of 2026 selling season, we believe presents significant opportunities for sustained growth over the next few years. This expansion allows us to continue to serve the critical first-time and move-up buyer segments while further diversifying our revenue base and strengthening our presence in key Texas markets. While the overall market conditions remain challenging due to macroeconomic and political uncertainty, we remain vigilant in monitoring and responding to shifts in buyer preferences. We believe that our experienced team and robust land pipeline and desirable infill and infill adjacent locations will continue to drive our success in the quarters to come. With that, I'll now turn it over to Jeff to provide more detail regarding our financial results.

Jeff Cox, CFO

Thank you, Jim. Given the challenging economic conditions and increased supply of housing inventory in our markets, discounts and incentives increased year-over-year as a percentage of residential unit revenue to 9.2% from 5.2%. Our average sales price of $530,000 was up 1.1% sequentially and down 3.1% year-over-year. Home closings revenue of $550 million declined 1.3% compared to the same period last year, and our homebuilding gross margins decreased 490 basis points year-over-year and 170 basis points sequentially to 29.4%. SG&A as a percentage of residential unit revenue for the fourth quarter was 10.6%, a decrease of 30 basis points year-over-year, driven primarily by lower personnel costs. Excluding SG&A from our wholly owned mortgage and title companies, our homebuilding SG&A for the fourth quarter was 10.1%. Net income attributable to Green Brick for the fourth quarter decreased 24.5% year-over-year to $78 million, and diluted earnings per share decreased 23% year-over-year to $1.78 per share. For the full year, deliveries increased 4.2% year-over-year to 3,943 homes, a record for any full year in company history. Our average sales price declined 3.1% to $530,000. We generated home closings revenue of $2.1 billion, an increase of 1% from 2024. Homebuilding gross margin for the year decreased 330 basis points to 30.5%. Net income attributable to Green Brick decreased 18% to $313 million, and diluted earnings per share declined 16.3% to $7.07. Excluding the impact of the sale of Challenger, which occurred in the first quarter last year, the diluted earnings per share declined 14.2%. Net new home orders during the fourth quarter were up slightly year-over-year to 883 and down sequentially only 1.7%. For the full year, net new home orders increased 3.1% year-over-year to 3,795. Average active selling communities of 101 was down 5% year-over-year. Our sales pace for the fourth quarter increased marginally to 2.9 per month compared to 2.8 per month in the previous year. We started 884 new homes, which was down 14% year-over-year and 7% sequentially. Units under construction at the end of the quarter were approximately 2,048, down 12.5% year-over-year. We reduced starts in Q4 to better align with our sales pace to focus on balancing margin and pace. We will continue to monitor market conditions and seasonal trends and align our starts to our sales pace to appropriately manage our investment in spec inventory. Our backlog value at the end of the fourth quarter was $354 million, a decrease of 28.5% year-over-year due primarily to a higher proportion of quick move-in sales, including a greater percentage of our sales being generated by Trophy, which as a spec builder, typically has shorter times between contract execution and closing. Backlog ASP decreased 8.2% to $681,000 due to elevated discounts and incentives across all of our brands, in addition to product mix. Trophy, our spec homebuilder, represented only 14% of our overall backlog value, but they accounted for nearly half of our closing volume. In Q4, we repurchased 359,000 shares of our common stock for approximately $23 million. For the full year 2025, we repurchased 1.4 million shares for approximately $83 million. In December, the Board of Directors authorized a repurchase of up to $150 million of the company's outstanding common stock. This new authorization provides us with the ability to opportunistically return capital to our shareholders when we believe our stock is undervalued while continuing to invest in the long-term growth of the business. We recognize the heightened importance of liquidity in the current period of economic uncertainty and market volatility. We believe our investment-grade balance sheet and low financial leverage provide us with flexibility to navigate and adapt to evolving market conditions, ensuring we have capital available for strategic opportunities as they arise. At the end of the year, our net debt to total capital ratio decreased to 8.2% and our debt to total capital ratio decreased to 14.7%, among the best of our small and mid-cap public homebuilding peers. Excluding cash and debt from Green Brick Mortgage, our homebuilding debt and net homebuilding debt to total capital ratio at the end of the quarter was 12.8% and 6.3%, respectively. During Q4, we renewed our unsecured revolving credit facility, which extended the facility to December 2028 and provided a meaningful reduction in the interest rate. At the end of the quarter, we maintained a robust cash position of $155 million and total liquidity of $520 million. With $365 million undrawn on our homebuilding credit facilities, we believe we are well positioned to weather the challenging market conditions to opportunistically deploy capital to maximize shareholder returns and to accelerate growth as the housing market improves. With that, I'll now turn it over to Jed.

Jed Dolson, President and COO

Thank you, Jeff. We continue to see a challenging sales environment within all our consumer segments, which have been impacted by affordability challenges and a weakening job market. Our team responded well to the challenging market conditions as evidenced by our record fourth quarter sales volume and our low cancellation rate of 7.6% in Q4, which was an improvement from 7.8% in Q4 2024. We continue to have one of the lowest cancellation rates in the public homebuilding industry, and we believe it demonstrates the creditworthiness of our buyers, quality of our product and desirability of our communities. We continue to address the affordability challenges faced by consumers by providing our homebuyers with price concessions, interest rate buydowns and closing cost incentives. Incentives for net new orders during the fourth quarter increased to 10.2%, an increase of 380 basis points year-over-year and 130 basis points sequentially. Rate buydowns remain a necessary tool to drive traffic and sales, especially with our quick move-in homes. With our superior infill and infill adjacent communities and industry-leading gross margins, we believe we are strategically positioned to adjust pricing as needed to meet market demand and maintain our sales pace. While we recognize the importance of preserving our margins, we also recognize that our industry-leading margins provide us with significant pricing flexibility to compete effectively in a volatile market. Green Brick Mortgage, our wholly owned mortgage company, closed and funded over 380 loans in the fourth quarter. The average FICO score was 746, and the average debt-to-income ratio was 40%, consistent with previous quarters. Green Brick Mortgage began serving our Austin communities in Q1 of this year. We expect to complete the rollout of Green Brick Mortgage to all DFW communities by the end of the first quarter of 2026, to Houston when our first community there opens for sale during the spring 2026 selling season and to Atlanta by the middle part of this year. As Green Brick Mortgage continues to expand its service to most of our communities, we anticipate by year-end, this capture rate will range from 75% to 85%, typical of captive mortgage companies. We continue to reduce our construction cycle times, which were down 20 days from a year ago to 130 days. Trophy's average cycle time in DFW was under 90 days, the lowest in their history. Labor availability remains relatively stable across all of our markets. We recognize the concerns surrounding tariffs and continue to work closely with our vendors and suppliers to mitigate any potential impact. While we believe tariffs will have a minimal impact on earnings next year, we are still assessing the Supreme Court's ruling against the Trump administration's tariffs and the administration's potential response to the ruling. As we navigate through various macro challenges, we are carefully recalibrating our capital allocation plan to align both our long-term growth objectives and to respond to changing market conditions. During the quarter, we spent $36 million on land and lot acquisition and excluding cost share reimbursements, $90 million on land development. This brings spend for 2025 to $267 million for land acquisition and $323 million for land development, respectively. Many of our land development projects involve special financing districts that provide reimbursement for public infrastructure costs. As work is completed, we are able to recoup a portion of these costs, which reduces our net development spend. We believe our superior land position provides a competitive advantage that will be the foundation for strong growth in subsequent years. Given the strength of our existing land and lot pipeline, we remain patient and selective with future land opportunities without compromising the ability to grow our business in the near and intermediate term. As noted in our earnings release and 10-K, we changed the definition of lots controlled to lots under contract, which includes all land or lot parcels that we have a contractual right to acquire pursuant to a fully executed option contract or purchase and sale agreement. We previously referred to lots controlled, which included only lots past feasibility studies for which we did not hold title but had contractual rights to acquire. Under the new definition, our total lots owned and under contract at the end of the year increased by 10% year-over-year to approximately 48,800, of which 37,000 lots were owned on our balance sheet and approximately 11,800 lots were under contract. Trophy comprises approximately 70% of our total lots owned and under contract. Excluding approximately 25,000 lots in long-term master planned communities, our lot supply is approximately six years. With that, I'll turn it over to Jim for closing remarks.

James Brickman, CEO

Thank you, Jed. In short, we remain optimistic about our long-term prospects, and we believe we are well positioned to continue to produce strong results. We believe our strategic land position, high-quality and diverse product offerings that appeal to multiple segments of the homebuyer market, and our investment-grade balance sheet will lay the path to future growth and industry-leading returns for our shareholders. Being consistent matters, we are very pleased that we had no turnover at the divisional president level in 2025. So we entered 2026 with experienced, hardworking managers that have worked for us a very long time. I also want to thank the entire Green Brick team for their passion and dedication to delivering exceptional results in the face of a challenging market. This concludes our prepared remarks, and we will now open the line for questions.

Operator, Operator

Your first question comes from Rohit Seth with B. Riley Securities.

Rohit Seth, Analyst

Jeff, regarding the second quarter, can you provide an update on the factors affecting the gross margin, including the impacts from buydowns and product mix?

Jeff Cox, CFO

Yes. We looked at the mix ratio. And I would say that while there's certainly some mix components there, most of it is really just driven through higher incentives and discounts. We're seeing compression really kind of across the board and in all of our regions. In some cases, we've got a couple of anomalies within some of our smaller builders, but that's mostly due to community mix more so than anything else.

Rohit Seth, Analyst

Okay. Where are you guys buying down rates to at this point?

Jeff Cox, CFO

So we're buying...

Jed Dolson, President and COO

4.99% with 321s on our entry level.

Rohit Seth, Analyst

Okay. So it's about the same as where you were in the prior quarter? You said just in the 5%.

James Brickman, CEO

Yes. This is Jim Brickman. So rates ran down, I guess, just a little bit today. They went sub-6% for the first time in a long time. And basically, every 0.25 point is about a 1 point in incentive cost to us. So it will be interesting to see if rates go down, whether we'll be able to harvest any more margin from having fewer incentives or not.

Rohit Seth, Analyst

Okay. Just on your costs, it looks like sequentially, the cost per home went up a few points. Can you just give us a sense of is that coming in direct costs, land costs?

James Brickman, CEO

Jed, why don't you talk about direct costs?

Jed Dolson, President and COO

Yes. We're seeing direct costs continue to decline. As we move on from older legacy communities, our new lot prices are higher. Jeff may have a percentage to share on that. However, direct costs continue to decrease.

Jeff Cox, CFO

Yes. On the lot costs they are relatively stable, looking year-over-year, whether for the full year or quarter-over-quarter, but maybe $1,000 or $2,000 a lot. No big movement there. The biggest thing that you're seeing, Rohit, is the increase in our selling and closing costs, which still ran through cost of sales at the end of last year. That's really the biggest driver showing the increase in that number. We've touched on this a little bit in previous calls, but starting later this year, we'll start doing segment reporting as the mortgage company becomes a more material part of our business. And as we do that, those selling and closing costs will become contra revenue as opposed to cost of sales.

James Brickman, CEO

Yes. Let me add to that. We have very low debt. So our debt is capitalized into all of our inventory, and our land is very low because our debt is very low. One of the other differentiators for us versus many peers is that because we don't lot bank, our lots are not increasing in cost based upon the lot banking cost of capital. And we think that's going to be an advantage year after year.

Rohit Seth, Analyst

Interesting. Okay. And if I could squeeze one in. Do you mind commenting on how the spring selling season has been going on traffic or orders? Any color would be helpful.

James Brickman, CEO

Yes, I can give you a little color. We usually don't talk month-to-month. Anybody that was in Texas in January knows that we had one of the worst weather events really in our history. So it's really hard to benchmark sales January to February because January, we were basically out of business for what, 10 days, Jed?

Jed Dolson, President and COO

Yes, 7 to 10 days.

James Brickman, CEO

That said, February looks to be off to a good start for us, and we're really quite encouraged.

Operator, Operator

Your next question comes from the line of Alex Rygiel with Texas Capital.

Alexander Rygiel, Analyst

Can you talk a little bit about your inventory level as well as the broader inventory level across your markets?

Jed Dolson, President and COO

Yes. This is Jed. I can answer that, Alex. We are seeing across all of our brands a really a very high desire for finished specs. So we are carrying higher inventory levels, especially on the spec and finished spec side than we did. And that goes all the way from our $250,000 price point to our $1.2 million price point.

Jeff Cox, CFO

And Alex, this is Jeff. I'll just add on to that, that at the end of the year, we were carrying roughly five finished specs per community. Half of those belong to Trophy. But when you look at their sales pace, in particular based on what Jim just referred to with February sales, it only equates to about a month to maybe 1.5 months of supply.

Jed Dolson, President and COO

Of finished inventory.

Jeff Cox, CFO

Correct.

Alexander Rygiel, Analyst

And then as it relates to sort of broader inventory in your geographies across your competitors?

Jed Dolson, President and COO

We believe we are keeping up with our competitors, perhaps placing in the middle. Some competitors have more finished inventory while others have a bit less. Generally, as Jeff mentioned, everyone has at least one month of finished specs available, which reflects one month of sales of those finished specs.

Alexander Rygiel, Analyst

That's helpful. And then any directional guidance on community count growth in 2026?

Jeff Cox, CFO

Yes. This is Jeff. We ticked down a little bit this year in 2025 versus where we were in 2024, and we've been aggressively adding to our lot pipeline, as you know. We don't usually give guidance on community count because it can take us somewhere between 18 to 24 months to bring new deals to market. But certainly, our goal is to continue to increase our community count by the end of this year.

James Brickman, CEO

Yes. One of the things that's a little difficult for analysts or really investors to get a grip on with Green Brick is that as Trophy becomes a bigger part of the business as it does quarter-to-quarter, Trophy's sales pace is double, at least Southgate's, which is our high-end builders' sales pace. So we really don't need community count to grow to have a significant growth in either top line or unit growth.

Jed Dolson, President and COO

I would just add that, as Jeff mentioned, it's a little hard to predict what our community count will be at the end of the year, but we can see two to three years out that we will have meaningful acceleration in community count.

James Brickman, CEO

Yes, we have a number of active couple of communities that will be coming on stream.

Alexander Rygiel, Analyst

And then lastly, it kind of sounded as if your commentary would suggest that your spend on land in 2026 will be down from 2025. Is that fair?

Jeff Cox, CFO

This is Jeff, Alex. We haven't disclosed specific spending amounts for this year yet. We wanted to get through the spring selling season before we gave any kind of guidance on that. But given the increase in lot supply that you've seen over the last couple of years, we do anticipate that land spend will be higher this year, but we're not ready to give a specific number yet.

Jed Dolson, President and COO

And Alex, this is Jed. I would mention that we are adding a lot of horizontal development dollars to previous year's land acquisition with the goal of getting our community count up much higher in the coming years.

Operator, Operator

Your next question comes from the line of Ryan Gilbert with BTIG.

Ryan Gilbert, Analyst

My first question is about deliveries and the expected trend of deliveries in 2026. I have typically viewed delivery growth as being linked to the growth in starts or homes under construction. We have certainly seen strong performance this quarter, as well as in the past few quarters. I'm curious if we should expect that relationship between delivery growth and starts to become more pronounced in 2026, or do you think deliveries could continue to exceed starts and homes under construction?

Jeff Cox, CFO

This is Jeff. I think that you've seen us pull back on starts here, in particular, in Q4 as we try to rightsize our inventory. Our goal is to make sure that we're starting roughly the same number of homes that we sell each period. But given kind of the prior comment on increasing community count here towards the end of the year, certainly, we would expect to see an increase in starts. We may not necessarily benefit from all the deliveries of those starts depending on when we get those in the ground this year. But certainly, in the future years, we're looking to grow community count and closings.

Ryan Gilbert, Analyst

Okay, got it. And then I wanted to ask about spec strategy as well. It sounds like as Trophy Signature continues to grow, your spec mix should also continue to increase. We've heard from some of your competitors about shifting back to build-to-order sales. And I'm just wondering how you're thinking about specs versus build-to-order in 2026.

James Brickman, CEO

To expand on this, but really, at Trophy, we're seeing really great success in that buyer profile that wants a house, they want the certainty of a mortgage rate. They have an immediate need, and we're finding really a great number of buyers that are out there that want that product at that price and can move in quickly. Jed?

Jed Dolson, President and COO

I believe we, as an industry, are effectively delivering the products that consumers desire with the appropriate features. We've observed this trend even in higher price ranges, like $600,000 to $1 million. We will continue to focus on offering a variety of features because it's clear that's what buyers are looking for. Although some competitors are moving towards a build-job approach, we have not seen this significantly impact our markets, except perhaps at the $1 million-plus level.

James Brickman, CEO

Yes, I would like to highlight another important point. First and foremost, we never want to give up any incentive unnecessarily. However, when margins are at 29% or 30%, demand is very elastic, meaning we can attract a significant number of additional buyers by offering an incentive. We can adjust certain factors if we choose to, and these changes would affect our profitability. That said, taking a 2% or 3% hit when margins are at 29% or 30% is quite different from doing so at a 15% margin. While we haven't needed to make such adjustments, we view our inventory of specifications quite differently than some of our low-margin competitors.

Operator, Operator

Your next question comes from the line of Jay McCanless with Citizens.

Jay McCanless, Analyst

So the first one I had, could you talk about what type of pricing power you had during the quarter and maybe what you've seen into the spring? What percentage of your communities were you able to raise prices?

Jed Dolson, President and COO

Yes, sure. This is Jed. I can take that. Very few communities have we've been able to raise prices. So the good news is we're seeing that the quantity of buyers are a lot stronger in the spring so far. We have been able to raise prices in some communities. But by and large, we are still, as an industry, working through inventory. We're still competing with big public and big private builders that are still trying to make their business plan and not shrink units dramatically. So it's still a competitive landscape out there.

James Brickman, CEO

I think one of the key differentiators for our company, especially compared to some of our peers, is the quality of our backlog. When we sell a home, the performance is significantly better, as our cancellation rate is only about 7%. This means that those who purchase our homes proceed to close.

Jay McCanless, Analyst

Great. Thank you for the comments on traffic, Jed. Is that referring to both foot traffic and web traffic? What are you observing in those areas?

Jed Dolson, President and COO

Yes. We're seeing it on all of the above. So February weather has been good in the regions that we operate in. We're not in the Northeast, so we missed out on that big storm. But yes, February has been off to a record start.

Jay McCanless, Analyst

That's great. So the second question I had, thank you for the commentary you gave around build-to-order. I was wondering, when you look at new deals coming to market and maybe some things being retraded, are you seeing better pricing on land in the markets where you want to acquire? How is that trending for new deal activity from a pricing perspective?

James Brickman, CEO

This is Jim. On land that we don't want or lots that we don't want, we're seeing weak demand and lower prices. On land that produces high margins that we do want, prices have been very sticky. We expect them to remain very sticky because for the very reasons that those type of properties can produce high margins at much lower risk. So it's a tale of two cities right now. The inferior locations, there's lots of trading going on, but we really have no interest in those deals.

Jay McCanless, Analyst

Okay. For my last question, I'm curious about incentives and appreciate the insight on the backlog, noting that Trophy comprises only 14% of it. Regarding the remaining 86%, what is the current incentive load compared to a year ago? Specifically, are you offering more incentives for the higher-priced, custom homes being built, or is the overall incentive load about the same as it was at this time last year?

Jed Dolson, President and COO

Yes, this is Jed. I'll address that, and then Jeff can provide some numbers. For a build job exceeding $1 million, we are offering higher design center credits than we did a year ago. For homes priced around $600,000 to $700,000, we have observed that buyers are showing a greater preference for finished specifications rather than build-to-order options. As a result, we are now providing closing cost incentives and rate buydowns, which were not necessary a year ago.

Jeff Cox, CFO

Yes. This is Jeff. So I'll just add that when we looked at incentives on closings during the quarter, we were 9.2%, up from 5.2% a year ago. And looking at incentives on new orders during the quarter, they did tick up a little bit to 10.2%. But so far, we've, again, had a tremendous month of February here. If we can pull back on incentives and maintain momentum, we'll certainly take a look at doing that.

Operator, Operator

That concludes our question-and-answer session. I will now turn the conference back over to Jim Brickman for closing comments.

James Brickman, CEO

Thank you for participating in our call today. If anyone has any questions, we're available to enhance what we discussed today and just give us a call. We appreciate your interest in our company.

Operator, Operator

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.