Green Brick Partners Inc (GRBK) 2025 Q3 法說會逐字稿

Thank you for standing by. My name is [Lacey] and I will be your conference operator today. At this time, I would like to welcome everyone to the Green Brick Partners Inc. third quarter 2025 earnings call. (Operator Instructions)

Thank you. I would now like to turn the conference over to Jeff Cox, Chief Financial Officer. You may begin.

Good afternoon and welcome to Green Brick Partners earnings call for the third quarter ended September 30, 2025. Following today's remarks, we will hold a question-and-answer session.

As a reminder, this call is being recorded and will be available for playback. 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, 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 2025 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, October 30, 2025, and the company has no obligation to update any forward-looking statement it may make.

The comments also include non-GAAP financial metrics, the reconciliation of these metrics, and the other information required by Regulation G can be found in the earnings relief that the company issued yesterday in the aforementioned presentation.

With that, I'll turn the call over to Jim.

Thank you, Jeff. First, I want to formally recognize Jeff's promotion to Chief Financial Officer effective earlier this month. Jeff joined the company in June 2023 as senior Vice President of Finance with over two decades of home building experience. And he has been instrumental in helping us establish our wholly owned mortgage company along with refining our financial systems and processes.

I am excited to have Jeff join the Senior Leadership team and add his talent to Green Brick's deep under 50-year-old talent bench. With that, I am pleased to announce our third 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 continued to bounce price and pace to maximize returns in each of our communities.

We achieved 898 net orders representing a 2.4% increase year-over-year, which is a record for any third quarter. We also closed 953 homes in the quarter, just three side of beating our record third quarter 2024 results. Net income attributable to Green Brick for the third quarter was $78 million or $1.77 per diluted share.

As Jed will discuss in more detail shortly, driving our sales volume required price concessions and other incentives, as we addressed the affordability challenges faced by home buyers in our markets. As expected, these dynamics put downward pressure on our home building gross margins, which declined 160 basis points year-over-year and 70 basis points sequentially to 31.1%.

Our results also reflect a $4.8 million warranty adjustment, which improved our gross margins by 90 basis points. Our gross margins remain the highest in the public home milling industry and mark the tenth consecutive quarter in which our gross margins exceeded 30%.

While the macroeconomic landscape presents headwinds for the entire industry, 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.

As Jed will discuss in more detail momentarily, we also continue to concentrate on reducing construction costs and cycle times. We believe we are well positioned to sustain our return metrics that rank among the very best in the home building industry and create long-term shareholder value.

We remain focused on growing our business, particularly our Trophy brand. Trophy's growth in DFW in Austin, combined with our planned entry into Houston by the 2026 spring selling season presents significant opportunities for sustained growth over the next few years.

This expansion, we believe, allows us to continue serving the critical first time and move up buyer segments, while further diversifying our revenue base and strengthening our presence in key Texas markets. With our highly diversified brand portfolio, we believe we are well positioned to capitalize on demand from all home buyer segments.

While the overall market conditions remain challenging due to a 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 drive continued success in the quarters to come.

With that, I'm not turn it over to Jeff to provide more detail about our financial results. Jeff?

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 8.1% from 5%. Our average sales price of $524,000 was flat sequentially and down 4.2% year-over-year.

Home closing revenue of $499 million declined 4.6% compared to the third quarter last year, and our home building growth margins decreased 160 basis points year-over-year and 70 basis points sequentially to 31.1%. As Jim mentioned earlier, we reduced our warranty reserve by $4.8 million during the quarter, which improved our gross margins by 90 basis points for the quarter and 30 basis points year-to-date.

This adjustment was based on an analysis of our warranty reserve accruals compared to actual warranty spend, which was less than previously anticipated. This adjustment reflects continued improvements in our construction quality and the strength and stability of our trade partners.

SG&A, the percentage of residential unit revenue for the third quarter was 11.6%, an increase of 60 basis points year-over-year, driven primarily by higher personnel costs and investments in our IT platforms to enhance operational efficiencies. Net income attributable to green brick for the third quarter decreased 13% year-over-year to $78 million, and diluted earnings per share decreased 11% year-over-year to $1.77 per share.

Year-to-date, deliveries increased 5.1% year-over-year to 2,905 homes, and our average sales price declined 3% to 531,000. As a result, we generated home closing revenue of $1.54 billion an increase of 2% year-to-date from the same period in 2024.

Home building growth margin decreased 270 basis points to 30.9%. Year-to-date net income attributable to brick decreased 15% to $235 million and diluted earnings per share declined 13.6% to $5.29. As a reminder, we sold our 49.9% interest in Challenger homes in the first quarter last year, which had the impact of adding $0.21 to our 2024 diluted earnings per share.

Net new [home] orders during the third quarter were up 2.4% year-over-year to 898 and down sequentially only 1%. Year-to-date, net new home orders increased 4% year-over-year to 2,912. Average active selling communities of 103 remained relatively unchanged year-over-year. Our sales price for the third quarter increased marginally to 2.9 per month compared to 2.8 per month in the previous year.

We started 950 new homes, which was approximately the same as the prior quarter and down 10% year-over-year. Units under construction at the end of the quarter were approximately 2,200, down 5.5% year-over-year.

We will continue to monitor market conditions and seasonal trends and align our starts with our sales [pace] to appropriately manage our investment in spec inventory. Due to a higher proportion of quick move-in sales, coupled with a nine-day improvement in our average construction cycle time, our backlog value at the end of the third quarter was $466 million a decrease of 20% year-over-year.

Backlog average sales price decreased 4.1% to $690,000 due primarily to higher discounts and incentives. Trophy, our spec home builder, represented only 14% of our overall backlog value down slightly from the previous quarter, but they accounted for nearly half of our closing volume.

We recognize the heightened importance of liquidity in the current period of economic uncertainty and market volatility. Our investment grade balance sheets and low financial leverage, we believe, provide us with the 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 third quarter, our net debt to total capital ratio was 9.8%, and our debt to total capital ratio was 15.8%. Among the dept of our small and mid-cap public combo and peers. Excluding cash and debt from Green Brick mortgage, our home building debt and net debt to capital ratio at the end of the quarter was 15.3% and 9.5% respectively.

At the end of the quarter, we maintained a robust cash position of $142 million and total liquidity of $457 million. With $315 million undrawn on our home building 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.

Thank you, Jeff. We continue to see a challenging sales environment within all consumer segments, which have been impacted by affordability challenges and a weakening job market. While we were encouraged to see mortgage rates decline, approximately 60 bps during the quarter, demand remained steady during each of the months during the quarter, even as interest rates remained above 6% throughout the quarter.

Our team responded well to the evolving market conditions as evidenced by our record third quarter sales volume and our low cancellation rate of 6.7% in Q3, which was an improvement from 9.9% in Q2, and 8.5% in Q3 of 2024.

We continue to have one of the lowest cancellation rates in the public home building 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 home buyers with price concessions, interest rate buy downs and closing cost incentives. Incentives for net new orders during the third quarter were higher by 280 bps year-over-year and 100 bps sequentially increasing to 8.9%.

Incentives moderated during the quarter from a peak in July as the average 30-year mortgage rate declined during the quarter, reducing the cost of interest rate buy downs. Rate buy downs remained 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 well 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 efficiently in a volatile market.

Green Brick Mortgage, our wholly owned mortgage company, closed and funded over 350 loans in the third quarter compared to 140 loans in Q2. The average FICO score was 740 and the average debt to income ratio was 40%, consistent with the previous quarter. We are excited about the future prospects of Green Brick Mortgage as we are preparing to expand into Austin, Atlanta, and Houston. Later this year and early next year.

Green Brick Mortgage continued to increase its capture rate, while providing top tier service to our home buyers. Operationally, we continue to make meaningful strides in reducing our direct construction costs and enhancing our operational efficiency.

The cost for labor and materials for homes closed this quarter was down approximately $2250 per home compared to the same period last year. We also continue to reduce our construction cycle times, which were down nine days from a year ago. Trophy's average cycle time in DFW was under 100 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. We believe tariffs will have a minimal impact on our earnings next year. Although we acknowledge the lack of certainty with respect to final tariff timing, scope, or percentages makes it impossible to analyze potential tariff impact with precision.

As we navigate through various macro challenges, we are carefully recalibrating our capital allocation plan to align both our long-term growth objectives and respond to changing market conditions. During the quarter we spent $121 million on land and lot acquisition, excluding cost share reimbursements and $73 million on land development.

This brings the year-to-date spend to $231 million for land acquisition and $233 million for land development. Respectively, many of our land development projects involve special financing districts that provide for reimbursement of public infrastructure costs.

As work is completed, we're able to recoup a portion of these costs which reduce our net land development spend. We continue to project approximately $300 million in land development spending for the full year of 2025, which will be partially offset by these reimbursements. 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. At the end of the third quarter, our total lots owned and controlled increased by 11% year-over-year to approximately 41,200 lots, of which over 36,000 lots were owned on our balance sheet and approximately 4,500 were controlled lots.

Trophy comprises approximately 70% of our total lots owned and controlled, excluding approximately 25,000 lots in long-term master plan communities. Our lot supply is approximately five years. Finally, we are on schedule to open our first community in Houston.

The construction of our first model home began in October, and we anticipate opening for sales in time for the spring selling season. We're excited about expanding Trophy's footprint in one of the largest home building markets in the US.

With that, I'll turn it over to Jim for closing remarks.

Thank you, Jed. In short, we remain optimistic about our long-term prospects and believe we are well positioned to continue producing strong results. We believe our strategic land position, high-quality and diverse product offerings that appeal to multiple segments of the home buyer market, and strong balance sheet will lay the path to future growth and industry leading returns for our shareholders.

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 want to open the line for questions.

(Operator Instructions) Alex Rygiel, Texas Capital.

Thank you, gentlemen, nice quarter. Incentives were up in the in the third quarter for your new orders. Can you talk a little bit about directionally how we should think about gross margins in the fourth quarter versus the third quarter?

Yeah, I can, we can all handle that a little bit. Thanks for your question. This is Jim Brickman. We don't give guidance on gross margins quarter to quarter. But I think your question does give me a really good opportunity to talk about Green Brick's strategic advantages as we look at our business not only next quarter but many quarters going forward.

And I think there are really two components to that. First, we have a very long runway of low-price lots and infill adjacent locations. And no matter what's happening, we believe that our lot price advantage in these lots is going to give us industry-leading margins compared to peers. So that's the first point.

And it's really interesting what's happening from my second point is that because we self-develop 90% of our lots. We can deploy capital based upon market demand rather than a land banker's or a land developer's contract terms, and we think that will help us maintain margins in our communities, where we're not faced with having to produce excess inventory.

It's helpful. And then you mentioned that incentives moderated through the third quarter. Has that continued in October?

Yeah, this is Jeff -- Alex. Those incentives moderating during the quarter are really primarily a function of the rates coming down over the last couple of months. We're still utilizing the rate buy downs as an effective tool to drive traffic and get sales. We haven't really gotten a lot more aggressive in terms of the target rate that we've been advertising, which has really helped us be able to reduce our incentives and improve margins at this point.

Jed can [chime in], Alex, we haven't seen the market get a lot better or a lot worse. It's pretty much pretty steady, yeah.

Rohit Seth, B. Riley Securities.

Hey, good morning. Thanks for taking my question. Just on the incentives, where are you today in terms of your mortgage rate buy down? What is your advertise rate you guys are offering?

Right, just under 5%.

On the targeted rate?

[On our] financed target rates.

Okay, and it sounds like with the rates coming down a little bit. It is lessen cost for your -- for you guys -- for you're not necessarily buying down rates further, is that correct? From where you were saying.

But by down to 4% we have been chased them down that low to generate the sales that we just reported.

Okay. And in our incentives, levels, is there much difference between, DFW and Atlanta?

I'd say DFW there's, the ability to produce more homes because it's not as (multiple speaker).

Yeah, there's a difference because our average price point in Atlanta is $3,000 or $400,000 greater, so it's a very different buyer.

I would just add on to that -- well, we do a lot of spec sales here, primarily with Trophy, so they don't have a big backlog of homes that they're necessarily trying to protect Atlanta -- they do a lot of to be built there, so I think we're seeing some higher incentives there generally speaking, relative to our Texas markets.

Understood. Okay. And then it seems like Trophy, the expansion into Houston will be a key driver for you, I guess from my seat, looking at the community count, I'm not sure how to size this as they look to 2026, so if you get any help there.

Well, community count is tough for any analyst right now to look at with this because the new communities are adding are high velocity, lower price communities. So and that's many of the communities we're adding this year. So, community growth isn't that great, but the sales velocity is coming on the new communities are adding, should be favourable.

Yeah, I would just say that we expect Austin to be to basically double from where it was this year and then Houston will really be -- we'll get [some] 100 closings next year and that'll grow meaningfully the year after that in 2027.

Okay, fantastic. And then, on the Mortgage business, there's a pretty nice uptick sequentially, you're growing the business obviously -- I mean, do you think this level of sustainable as a go forward run rate for you guys? Where you're at today or --

Yeah, this is Jeff. Yeah, we've been really happy with the progress that the Mortgage company has made so far. We're trying to take a measured approach and how we roll this out tomorrow. Texas builders and communities, but the goal, as you mentioned earlier, is to really have that rolled out to the balance of Texas by the end of this year, targeting Houston and Atlanta. At least by the first part of next year.

We've got, people and systems in place to be able to really leverage and scale that business at this point, and so we're excited about where we think we can take them.

Yeah. I think the other thing we do from this financial perspective is that next year, we'll be breaking out financial services separately. And by doing that we'll be pulling SG&A or G&A out of our line, putting it in financial services line that will slightly help our SG&A.

Okay. And then I guess the last one is maybe you could just comment on the cost [buckets], where, are you seeing any direct cost savings and in your labor, your land costs --

Yeah, this is Jed. I'll take that. We've definitely seeing land and loss, either stabilize or slightly come down in price. Lumber continues to be at a yearlong low every new month that occurs, so that has just fallen every single month this year.

Labor is readily available when we talk to our subs. A lot of them are running at 65% to 70% capacity, so they've been able to negotiate reductions with their staff. So yeah, everything on the vertical side is coming down.

All right, fantastic. I guess to do the last one, just 4% ASP decline in the quarter. How much of that was, this product mix, plan size and Trophy share versus maybe base pricing.

Trophy share didn't really change year-over-year, but there was some mix that was impacting the average sales price of the 4.3% decline in ASP. I calculate roughly a little less than half of that was related to just the mix of closings across our builders.

If there are no further questions at this time, I would now like to turn the call back over to Jim Brickman for closing remarks.

Well, we're always available if anybody wants to visit with any of the speakers, Jeff, myself or Jed. So send us an email, give us a call, and we'll be happy to add more color to anything we talked about today. Thank you.

This concludes today's conference call. You may disconnect.