Green Brick Partners - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 was resilient operationally with record deliveries (1,042, +5.6% YoY) and net new orders (908, +6.2% YoY), but profitability compressed; diluted EPS of $1.85 declined 20.3% YoY on lower ASPs and higher incentives, while homebuilding gross margin fell 410 bps YoY to 30.4% and 80 bps sequentially.
• Revenue was $549.1M, down 2.0% YoY; versus S&P consensus, revenue beat (+$10.6M), while EPS missed (–$0.09) as mortgage rate buy-downs and mix towards Trophy weighed on margins; estimates were based on two analysts*.
• Balance sheet strength remained a differentiator: debt-to-capital 14.4% and net debt-to-capital 9.4%, lowest since 2015; cash was $112M with total liquidity of ~$477M supporting opportunistic capital deployment and buybacks ($44M in Q2; $40M authorization remaining).
• Management reaffirmed ~$300M land development spend for FY25 and highlighted operational wins (cycle times <5 months; Trophy at 3.5 months), while noting affordability headwinds and higher incentive rates (7.7%) to sustain pace; Houston entry remains on track for fall openings.
• Potential stock catalysts: durable double-digit ROIC profile with margins still >30%, ongoing buybacks, and Texas footprint expansion (dual listing on NYSE Texas; Houston communities) despite macro pressures.

What Went Well and What Went Wrong

What Went Well

• Record operational throughput: 1,042 deliveries (+5.6% YoY) and 908 net new orders (+6.2% YoY), with sales pace ~3.0 per community and absorptions 8.9 per quarter; Trophy orders +9.3% YoY, evidencing resilient demand in focus markets.
• Industry-leading margins sustained: homebuilding gross margin remained above 30% for the ninth consecutive quarter, underpinned by infill/infill-adjacent mix (~80% of revenue) and self-development advantages.
• Execution and balance sheet: cycle times improved to <5 months (Trophy 3.5 months), cash of $112M, no line-of-credit borrowings, and net debt-to-capital of 9.4% with 3.4% weighted average notes rate; continued buybacks with $40M authorization remaining.

What Went Wrong

• Profitability compression: diluted EPS fell to $1.85 (–20.3% YoY) and gross margin to 30.4% (–410 bps YoY, –80 bps QoQ) due to higher incentives and lower ASPs (–5.3% YoY to $525k).
• Backlog deterioration and cancellation rate uptick: backlog revenue fell 20.6% YoY to $516M and cancellation rate rose to 9.9%, reflecting affordability challenges and increased reliance on quick move-ins.
• Mix/incentive headwinds: management cited mortgage rate buy-downs as the primary driver of margin pressure, with some mix effect from Trophy; SG&A rose 40 bps to 10.9% of residential revenue as the company invests for growth.

Transcript

Speaker 0

Good afternoon, and welcome to the Green Brick Partners Second Quarter twenty twenty five Earnings Conference Call. I would now like to turn the call over to Jeff Cox, Interim Chief Financial Officer. Thank you. Please go ahead.

Speaker 1

Good afternoon, and welcome to Green Brick Partners' earnings call for the second quarter ended 06/30/2025. 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 and is also available on the company's website at investors.greenbrickpartners.com. On the call today is Jim Brickman, Co Founder and Chief Executive Officer Jed Dolson, President and Chief Operating Officer and myself, Jeff Cox, Interim 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, 07/31/2025, and the company has no obligation to update any forward looking statement it may make. The comments also include non GAAP financial metrics. A reconciliation of these metrics and the other information required by Regulation G can be found in the earnings release that the company issued yesterday and in the presentation available on the company's website.

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

Speaker 2

Thank you, Jeff. I'm pleased to announce our second quarter results, particularly given the ongoing and persistent affordability challenges faced by many consumers in this housing market. Net income attributable to Green Brick for the second quarter was $82,000,000 or $1.85 per diluted share. As we exited the spring selling season, our performance remained strong despite high interest rates and decreasing consumer confidence. We were focused on balancing price and pace to maximize returns in each of our communities.

Our builders and their sales teams were able to adapt quickly to changing market conditions to drive traffic and sales. As a result, we set several company records during the quarter. For one, we achieved a record for closings by delivering ten forty two homes. And two, we achieved a record for net new orders of nine zero eight, which was the highest for any second quarter in company history. Year over year, both home closings and net new orders increased approximately 6%, though revenue for the quarter was virtually flat year over year at $547,000,000 As Jed will discuss in more detail, maintaining that sales volume required price concessions and other incentives as we address the affordability challenges raised in this high interest rate environment.

As expected, these dynamics put downward pressure on our homebuilding gross margins, which declined four ten basis points year over year and 80 basis points sequentially to 30.4%. Nonetheless, our gross margins remain the highest in the public homebuilding industry and marked the ninth consecutive quarter in which our gross margins exceeded 30%. Additionally, we returned $60,000,000 of capital to our shareholders in the 2025 through share repurchases, and we still have another $40,000,000 of authorization remaining under our buyback program. Since 2022, we have repurchased approximately 7,900,000.0 shares, reducing our outstanding share count by approximately 16%. Looking ahead, our strategic focus remains on maintaining operational excellence while navigating ongoing market volatility.

We are laser focused on maintaining an investment grade balance sheet with our disciplined approach in land acquisition, while at the same time ensuring that we are well positioned for future growth. Our continued emphasis on efficient cost controls, innovative home offerings and targeted expansion in high volume markets supports our goal of sustaining industry leading profitability metrics and creating long term shareholder value. We are particularly encouraged by the positive reception of our Trophy Signature Homes brand, which continues to outperform expectations and resonates strongly with both first time and move up buyers. The continued expansion of Trophy and DFW in Austin, along with the upcoming entry into the Houston market later this year, presents significant opportunities as we believe it will allow us to further diversify our revenue base, strengthen our presence in key Texas markets and provide a runway for sustained growth over the next few years. As we remain vigilant in monitoring macroeconomic trends and adapting to shifts in buyer preferences, we believe that our experienced team and robust land pipeline in desirable infill and infill adjacent locations will drive continued success in the quarters to come.

With that, I'll now turn it over to Jeff to provide more detail regarding our financial results.

Speaker 1

Thank you, Jim. As Jim mentioned earlier, we achieved a couple of new records this quarter for home closings and net new orders. 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 7.7% from 4.5%. Our average sales price also declined by 5.3% year over year to $525,000 as our affiliated builders adjusted quickly to meet market demand. Home closings revenue was virtually unchanged compared to the same period last year at $547,000,000 and homebuilding gross margins decreased four ten basis points year over year and 80 basis points sequentially to 30.4 due to higher discounts and incentives primarily for mortgage buy downs.

SG and A as a percentage of residential unit revenue for the second quarter increased by 40 basis points year over year to 10.9% as we continue to invest in our future growth. As a result of lower average sales prices and gross margins, net income attributable to Green Brick for the second quarter decreased 22% year over year to $82,000,000 and diluted earnings per share decreased 20% from our record quarterly earnings in the second quarter twenty twenty four to $1.85 per share. Our effective tax rate also increased to 21.9% from 18.5% due in part to a one time benefit last year associated with stock options exercised in the 2024. Year to date, deliveries increased 8% year over year to nineteen fifty two homes and our average sales price declined 2.5% to $534,000 As a result, we generated home closings revenue of just over $1,000,000,000 which increased 5.3 year to date from the same period in 2024. Homebuilding gross margin decreased three twenty basis points to 30.8%.

Year to date net income attributable to Green Brick decreased 16.8% to $157,000,000 and diluted earnings per share declined 15% to $3.52 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 $20.24 diluted earnings per share. Net new home orders during the second quarter moderated from a record level of eleven oh six in the 2025, but were up 6.2% year over year to nine zero eight. Year to date, net new home orders increased 4.6 year over year to twenty fourteen. Our average active selling communities remained relatively unchanged year over year at approximately 102, a third of which were trophy communities and our sales pace for the second quarter increased 4.7% to approximately three homes per month compared to 2.8 homes per month in the previous year. With our continued investment in land and in particular larger master plan communities, our average lot count per owned and controlled community increased 26.3% from the same period last year.

We increased our starts by 10% from the previous quarter to nine fifty to better match our sales pace. The year over year starts still declined by 3.4%. Units under construction at the end of the quarter were down marginally by 1.1% to approximately 2,200 units. We will continue to monitor market conditions and adjust our start space to manage our inventory levels accordingly. Due to a higher proportion of quick move in sales coupled with a thirteen day improvement in our average construction cycle time, our backlog value at the end of the second quarter decreased 21% year over year to $516,000,000 Backlog average sales price decreased 3.3% to $707,000 due primarily to higher discounts and incentives.

Trophy, our spec homebuilder, represented only 15% of our overall backlog value consistent with previous quarters, but they accounted for nearly half of our closing volume. Lastly, we believe our investment grade balance sheet continues to serve as a solid foundation for future growth, providing us with exceptional financial strength to navigate market headwinds and deploy capital opportunistically. At the end of the second quarter, our net debt to total capital ratio declined to 9.4% and our debt to total capital ratio was only 14.4%, the lowest level since 2015 and among the best of our small and mid cap public homebuilding peers. Our long term notes bear interest at a low average fixed rate of 3.4%. At the end of the quarter, we maintained a robust cash position of $112,000,000 with no outstanding borrowings on our syndicated line of credit.

With total liquidity of four seventy seven million dollars we believe we are well positioned to weather more 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 believe a combination of high interest rates, seasonality and weakened consumer confidence contributed to a more challenging quarter compared to the prior year. Demand was impacted across all of our markets, but especially within our Trophy brand as interest rates ticked up over 7% for portions of April and May.

However, our builders were quick to adapt to the evolving market conditions and regained traction in sales volumes in the latter part of the quarter. Trophy, in particular, which represented 52% of net new orders by volume saw its orders grow by 9.3% year over year. While our cancellation rate for the second quarter increased sequentially to 9.9% from 9.2% in the previous year. It continued to remain among the lowest in the public homebuilding industry and we believe demonstrates the creditworthiness of our buyers, quality of our product and desirability of the land and lot positions where we build. We continue to address the affordability challenges faced by consumers by providing our homebuyers with price concessions and allowances towards interest rate buy downs and closing costs.

Incentives for net new orders during the second quarter were higher by three twenty bps year over year and 100 bps sequentially, increasing to 7.7%. These tools proved effective in driving traffic and sales velocity, 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 additional pricing flexibility to compete effectively in a volatile market. Green Brick Mortgage, which launched in the 2024, continued to roll out its operations within our DFW community and planned expansion into Austin, Atlanta, and Houston later this year and early next year.

Rembrandt Mortgage closed and funded over 140 loans during the second quarter with an average FICO score of seven forty five and an average debt to income ratio of 38% consistent with the previous quarter. We are excited about the future prospects of our wholly owned mortgage company as it continues to increase its capture rate, provide top tier service to our home buyers, and gives us increased visibility into our backlog. Operationally, we continue to make meaningful strides in reducing costs and enhancing our operational efficiency. The cost for labor and materials for homes closed this quarter was down approximately 4,000 homes compared to the same period last year. Furthermore, we achieved a major milestone by reducing our average construction cycle times to just under five months.

This is an improvement of thirteen days from a year ago. In particular, Trocy's average cycle time in DFW was only three point five months. 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 closings and earnings this year, although we acknowledge that the lack of certainty with respect to final tariff timing scope or percentages make 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 challenging market conditions. During the quarter, we spent $49,000,000 on land and lot acquisition and another $85,000,000 on land development, bringing our year to date spend to $109,000,000 and $139,000,000 respectively. We continue to project approximately $300,000,000 in land development spending for the full year of 2025, which we believe is laying the foundation for strong growth in subsequent years. Given the strength of our existing land 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 second quarter, we grew our total lots owned and controlled by 21% year over year to $40,200 of which over $35,000 were owned on our balance sheet and approximately 5,000 were controlled.

Trophy comprises approximately 70% of our total lots under and controlled. Excluding approximately 25,000 lots in long term master plan communities, our lot supply is approximately five years. Lastly, we are on schedule to open our first community in Houston. The construction of our first model home will begin in August with our grand opening plan this fall. We are excited about expanding Trophy's footprint into one of the largest homebuilding markets in The US.

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

Speaker 2

Thank you, Jed. As the housing market continues to evolve, we believe we are well positioned to navigate these market dynamics more effectively than our peers and strategically position ourselves for future growth. I also want to thank our dedicated employees for their hard work and contributions. Their tireless efforts, expertise and dedication have been instrumental in driving our company's success even in the face of challenging market conditions. This concludes our prepared remarks, and we will now open the line for questions.

Speaker 0

Our first question comes from Rohit Seth from B. Riley Securities. Please go ahead. Your line is open.

Speaker 3

Hey, thanks for taking my question. My question first was on the incentive trajectory. Just keep your incentives up to close to 8%. Just to see what the incentive run rate is so far in July and do you expect do you expect further further increases as we go through the year?

Speaker 2

Yeah. Hi. This is Jim. We don't forward look July. We're just trying to explain June right now.

But, generally, we're seeing things level out, but things are still very spotty by neighborhood. We look at our sales report every morning and try Jed's more active than this than anyone else in our business. But talk to me one week. We're really excited. We think things are picking up.

Incentives are going down. And the next week, it's a it's a total change in the neighborhood.

Speaker 3

Yeah. Understood. Alright. And second question on gross margins. Can you give us a sense of how much the, the gross margin decline was just pure price incentives versus mix with more sales of Trophy?

Speaker 4

Sure. Yes. This is Jeff. Most of it was just due to mortgage rate buy downs. That seems to be the most effective tool that we have right now Of the overall, roughly 5% decline in average sales price, I would say that a little under 2% was related to mix.

Trophy's closing volume did increase year over year by about 4%. So that is having a small impact there. But most of it, like I said, towards the increased incentives for the mortgage rate buy downs.

Speaker 3

All right. Thank you. That's all I got.

Speaker 0

Our next question comes from Alex Rygiel from Texas Capital. Please go ahead. Your line is open.

Speaker 5

Thanks, gentlemen. Nice quarter. Your starts in the second quarter increased from the first quarter. How do you think about your starts in the second half of the year? And I know you don't project things like that, but given last year's kind of seasonality of pretty meaningful strength in the quantity of communities and whatnot that you're opening, Any any direction there would be helpful.

Speaker 1

Yeah. This is Jed. Thanks, Alex. We're we're gonna match starts to sales. So sales have been fairly consistent throughout the year, and we, you know, think our start cadence will be will mirror that.

Speaker 5

That's helpful. And then another way to maybe ask the gross margin question. So homebuilding gross margins were down four ten basis points year over year. Incentives obviously rose three twenty basis points, so that's probably the majority of the gross margin weakness. What was the remaining sort of 90 basis points of margin headwind?

It sounds like Building Materials were lower. So was the remaining margin headwind due to a shift in mix of more product more Trophy product or something else?

Speaker 4

Yes, Alex, is Jeff again. The balance is primarily due to mix. Trophy's margins are still relatively in line with the rest of our brands in the company, but their mix did increase. And as you know, Trophy targets primarily the first time, first move up buyer. And when rates were over 7% last quarter, we really had to continue to incentivize our homes to get some traction and get those sold and closed.

Great news is we were very effective in doing so. The number of quick move in homes that we had this year that both sold and closed in the quarter was around 50% versus in the prior year, it was around 40%. So we're seeing a lot of buyers taking advantage of the mortgage rate buy downs to close quickly.

Speaker 3

And then last question. How do you

Speaker 5

think about your inventory level today?

Speaker 1

Yeah. This is Jed out. We are seeing the buyer, and this changes, you know, month to month, but currently, we're seeing the buyer really focused on finished homes across all of our brands with the exception of our Florida division. So we wanna we wanna have plenty of finished homes. The buyers wanting that to take out the uncertainty of the mortgage rates and and not frankly, you know, for reasons we don't completely understand, not go through the build process.

So we are still selling some build jobs, especially at our upper end line, but, you know, entry level is predominantly all specs right now. Helpful. Thank you very much.

Speaker 5

We have I'd

Speaker 4

like to add

Speaker 2

something excuse me. I'd like to add one thing to that, Alex. You know, one of the things we are seeing and one of the advantages of having an investment grade balance sheet in some of our public peers that are very strong financially is that we think that, many of the more leveraged, extended private builders or even some of the weaker public builders are not gonna be, building as many specs going forward. We we do see the lending environment really getting much more restrictive there.

Speaker 0

We have another question from Alex Rygiel from Texas Capital. Please go ahead. Your line is open.

Speaker 5

Thanks, Jim. That was really helpful. I have another question. I was on a pretty significant building materials distributor call earlier today. And there was sort of maybe a suggestion out there that inventory levels might be a little high across the industry itself.

So I was wondering if you could maybe comment on inventory levels amongst maybe some of your competitors or in your unique geographies they happen to be in.

Speaker 1

Hey, Alex. This is Jed. I'll take that. So at the entry level, you know, I'd say a typical trophy community, we have two lot sizes per community. Yeah.

We're running, say, you know, 14 to 15 finished specs at any one time in that community, which is two lot sizes. And that that averaging typically what our monthly sales are in that community. What so I I I think the way we're looking at is we wanna have, you know, one to two months of finished inventory for the buyer to move in. And and something that's interesting that we're seeing is we're spending a lot of time out in the field looking at our competitors and and also our own neighborhoods is we're seeing very little resale activity within the communities. And, yeah, I think people are the existing residents are happy with their mortgage rates, and so, you know, we're we are, you know, really able to buy down the rates into the 4.99 range, and that's you know, we continue to do that, and we continue to have success doing that and fighting very little retail activity.

Speaker 2

One of the other differentiators that we see is that when we go in our neighborhoods is we've never really sold to investors, and our cancellation rate is, you know, single digit. Yeah. We think our backlog even, you know, when we do sign up a buyer, we think it's a a higher quality. And what was our cancellation rate? 9%, Jeff?

Speaker 3

Just under yeah.

Speaker 4

Just under 10%.

Speaker 2

So I think we can even be more aggressive in writing deals.

Speaker 4

Yeah. And this is Jeff. And the the credit quality, to Jim's point, of our buyers has continued to be very strong. Average FICO scores on closings last quarter was 7 45 and the debt to income ratio was 38%. So we haven't seen a lot of movement there.

And our mortgage company has done a great job of prequalifying buyers so that we know that they can close quickly.

Speaker 1

Very helpful. Thank you.

Speaker 0

We have no further questions in queue. This will conclude today's conference call. Thank you for your participation. You may now disconnect.