Green Brick Partners, Inc. (GRBK) Earnings

Management highlights

• Achieved first quarter results despite affordability challenges and market volatility. • Team's effort led to excellent quarter with 908 homes delivered and 1,037 net new orders. • Aggressive grade balance sheet and low financial leverage provide flexibility. • Industry leading home building gross margins of 28.9% for pricing flexibility. • Disciplined approach to land acquisition and development, 77% of lots owned. • Strong operating cash flows of $56 million for the quarter. • Began reporting financial service operations as separate segment with GreenBrick Mortgage growth. • Focus on maintaining operational excellence, disciplined capital allocation, and growing trophy brand with expansion in DFW, Austin, and Houston. • Team's response to challenging sales environment with low cancellation rate of 7.7%. • Progress of GreenBrick Mortgage with rollout to Texas communities and expected rollout to Atlanta builder. • Reduced construction cycle times, Trophy's average cycle time in DFW under 90 days. • Invested $89 million in land and lot acquisitions and $78 million in land development during quarter.

Guidance

• Expect community count to increase in the second half of the year. • For 2026, expect land and lot acquisitions of approximately $400 million and land development outflows of approximately $420 million, excluding reimbursements. • Anticipate GreenBrick Mortgage's capture rate to range from 70% to 80% by year-end. • Believes well positioned to weather challenging market conditions and deploy capital to maximize shareholder returns and accelerate growth as housing market improves.

Segment performance

Net income attributable to GreenBrick for the first quarter was $61 million or $1.39 per diluted share on total revenues of $465 million. Delivered 908 homes and had 1,037 net new orders. GreenBrick Mortgage revenues increased from $1.3 million to $5.6 million year over year, pre-tax income from financial services segment increased 139% in Q1 to $4.3 million. Home building debt to total capital ratio decreased to 11.5%, net home building debt to total capital ratio to 5.5%. 77% of approximately 49,000 lots are owned, 3,400 lots owned or under contract, 4 joint ventures account for 7% of total lots owned and controlled. Generated strong operating cash flows of $56 million for the quarter. Return on assets 96%, return on equity 13.1%. SG&A as a percentage of residential unit revenue for first quarter was 11.7%, discounts and incentives increased year over year as a percentage of home closing revenue to 10.1%, average sales price down 4.1% sequentially and 6.9% year over year, home closings revenue down 7.1%, home building gross margins decreased 320 basis points year over year and 140 basis points sequentially to 28.9%. Started 979 new homes, units under construction at end of quarter 2,119, ended quarter with 419 completed specs. Traffic down 7.1% year-over-year during quarter, net new homeowners down 6.2% year-over-year, average active selling communities 103, sales pace for first quarter 3.4 per month, backlog at end of first quarter 649 units with backlog revenue of $381 million, backlog ASP down 13%.

Risks & headwinds

• Macroeconomic landscape causing short-term headwinds for the industry. • Adverse weather affecting traffic and sales. • Potential cost increases related to rise in oil prices. • Uncertainty in immigration policies impacting certain price point homes. • Oversupply of housing inventories in markets leading to discounts and incentives.

Analyst Q&A

• Q: Hey guys. I definitely encourage you to hear that, you know, I guess demand improved throughout the quarter. Can you give us an update on how things are looking so far in April in terms of traffic and maybe sales space?

  A: Yeah, Jed, why don't you take that? Yeah, I would say April is looking very similar to March. So we're still in a strong spring season.

• Q: And then just around your commentary around the challenging sales environment, but you're still seeing a consumer response to the incentives that you're offering. I'm just curious, Jim or maybe Jed, if you could maybe expand on, I guess, how long you think this can last or if you expect a weakening labor market to pressure first-time homebuyers. It doesn't seem like that's been the case so far, but just kind of looking ahead what you're thinking.

  A: Yeah, this is Jim. Well, we're seeing strong demand. It's very elastic demand, meaning that the buyers are very educated and a small movement in pricing can really accelerate sales velocity. And really one of the things我们're very encouraged about, because our pre-tax margins are so high, they're running around 17% or just under, that we have tremendous flexibility if we need to get a buyer that wants a slight discount in the home, even from current levels. Pretty much, we're not seeing that happening right now. We think that things may have bottomed, but if you can predict interest rates, I'll tell you what our margins are going to look like because they're highly correlated right now, and we're not getting a lot of relief from the interest rate front. Chad, do you have anything you want to add to that? A: I would just say the past week has been rough on the mortgage rates. and you know that can cause just a little change in mortgage rates can cause a one percent decline in gross margin for us

• Q: hey good afternoon everyone um first question i had what are you seeing in the land market right now land prices still continuing to go up or you've seen some areas where maybe you're getting a little bit of a break or maybe land inflation slowing down a little bit?

  A: That's a good question, Jay. What we're seeing is on C- and D-location lots, builders are wanting to peddle those. Obviously, the only buyer are other builders and If a builder wants to peddle a lot in a C minus or D location, he wants to do it because he's not making margins. So it's really not attractive to another builder to buy. And it's not distressed enough to have us get interested. So that's what's taking place really in the perimeter locations, the further out perimeter locations. Interestingly, and conversely, high margin land in the more infill or employment-centric locations is still in high demand. And one of the things we're very excited about, we bought a large tract yesterday that we had been working on for how long, Jed, two years? Two years. You know, it was complicated. It had a lot of moving parts. We're really excited about it because we have the balance sheet to take this down. Other people don't. We have the management team. to do the entitlement, sewer, water, and all of the other challenges that come with a large master plan property. And we feel really good about that because it's a barrier to entry. All these land like guys just couldn't pull that kind of transaction off.

• Q: Speaking of infill versus trophy and some of your higher end brands versus trophy, I guess which performed better during the quarter? Was it move up? Was it entry level? What were you seeing in terms of demand between the different buyer segments?

  A: It was spotty, I think is the best way to define it. Trophy was a star. We found that, and Jed can elaborate on that, that there is a very large pool of buyers, sub $350,000. And Trophy can meet that price point and still make really nice margins. Florida did good. Atlanta slowed down in its market that we were surprised because Atlanta was traditionally very strong, even in the infield markets. And Jed, what do you want to add to that? A: Yeah, I would just say that some of the kind of not luxury, luxury continued to do well for us. And for us, that's homes priced in the 900 and up range. We saw you know spottiness and say the 500 to 800 range where we had some good months some bad months depending on what sub market. We're really encouraged in Dallas that in March and April we really hit good numbers with that buyer which is typically a cultural buyer. So We're encouraged about that, but so to kind of sum it all up, I'd say we feel really good about luxury and we feel really good about entry level and the stuff in the middle is more challenging.

• Q: yeah jay and some of the stuff in the middle that jed was talking about, this $500,000 to $800,000 price point, one of the reasons why we think it's so much slower are our immigration policies. Many of those homes are sold to um positions uh higher income people and uh the current administration is making it uncertain for those people um and it's impacting housing as a result any and that's that's great color jim thank you any any concerns or issues with other builders maybe having built a little too much at that price point and having to be more aggressive on the discounting there?

  A: I think in some markets, I think it's fairly isolated. Judd and I were talking about it this morning that it can affect some markets. Generally, I'm not worried about it. And again, one of the reasons我'm not worried about it is because if we're making a 17% pre-tax margin and we're competing against a builder that's making a 3% pre-tax margin, down the street that's land-like, those guys have given about all they can give, and we're just kind of waiting and seeing what happens.

• Q: and then just the last one I had, congrats on starting in Houston. I guess over time, how many communities do you think Green Brick can have in that market, and is it always just going to be a trophy market, or are you guys going to look to do some infill properties?

  A: Well, right now, let's talk strategically. Basically, what we want to do is enter any market that really has to be a top 10 to 12 city market because Trophy is going to be our scalable brand that goes into that market. To be effective, we're still going to self-develop, and we want to have a really experienced land team and land acquisition team that has strategic advantages. if that's going to make us really enter larger markets. We're looking at San Antonio right now. And I think the probability of us bringing other brands there is probably unlikely at this point, but you never should say never.

• Q: Given the mix of backlog and trophy homes, should we model ASPs declining through 2026?

  A: I think it's a mixed issue more than a backlog issue. this is Jed. I think it's a mixed issue more than a backlog issue. you know, like we mentioned, we're seeing very strong demand at the entry level. If that becomes a bigger percentage of our sales, then the ASP would go down. And how do sales in the Houston market affect ASPs? They're going to be, Houston will continue to bring ASP down. You know, when you look at the, you know, Zonda put out the biggest markets based on q1 starts and you know DFW is the largest Alex and Houston was the second and there was a huge drop-off to Phoenix which was third and Dallas were the third biggest by units and we think we'll probably end up being the second biggest this year by revenue trailing only DR Horton so those are really big markets but to have really big markets you need you know, very affordable housing. So the ASP in Houston will be lower than the Dallas. But those are two very strong markets that, you know, we're going to continue to grow our market share in Dallas and we're excited about the early success in Houston and we look forward to, you know, being able to, you know, in the near future be a more dominant player there. And then as it relates to your comments about April being sort of in line with March, is that typical historically? A: Yeah, we've gone and looked at a lot of historical trends recently. And, you know, there's so much of it correlates with, you know, what interest rates were for every April versus every March going forward. going backwards but for the most part um yes the what we typically see is april is just a little bit weaker than march and then may is because of graduations and so forth and the beginning of summer uh you know the spring season really kind of concludes in may and then you enter the summer season

• Q: just on sales space, you had a good turnout in the first quarter. It looks like you have some levers with your strong margins. Do you think you can maintain sort of the sales pace that you had in the prior year from 2Q to Q4s, kind of average about three homes per month?

  A: Yeah. Seth, this is Jeff. I think that's very doable when we look at the historical trends that Jed mentioned earlier. We were about 2.97 last year in Q2 and 2.91 in Q3. When we look at how we performed this quarter compared to last year, we're down a little bit. But keep in mind, we did have that weather event that Jim referenced earlier in his remarks. So we tend to be trending generally with the same pace as last year.

• Q: and can you remind me the spread between Trophy Homes? There's a faster sales pace there in the rest of the book. So Trophy was 50%, 51%, 52% of our sales in Q1. And we expect them to continue to increase that pace as we continue to grow the brand and expand in Houston and Austin. 75%, I believe, of our lots owned and controlled are allocated towards Trophy. So that will continue to increase over time. Is Trophy moving something like five units a month, something like that?

  A: It's really neighborhood dependent. I mean, I'll answer it this way. We have some communities that have two different lot sizes, where in Q1 we averaged 20 sales a month. So that was, you know, as defined by community count, that'd be 10 sales. And then we had others where, you know, we averaged three or four. So we can pull some better data for you for our next call on that. Yeah, some of our communities, you know, that are particularly in the last phases where we've had success and phasing out, we are milking margin. intentionally and maintaining slower sales pace.

• Q: Is there maybe a margin floor where you guys are not willing to breach?

  A: No, we don't look at it that way, really. We look at, basically, we're always modeling internal rate of return and sales pace and price. So it's a little bit more complex than that because we also want to get our capital returned on our lots and looking at, you know, that redeployment of that capital. It's a little more complicated than just saying我们 will sell houses based upon margin. It's the sales pace that comes with the margin and the capital that comes in from that lot sale into calculus. But obviously, when we're reporting 28.9% gross margins and we have peers that are reporting 15, 16, we feel excited about the coming months and we feel excited about our ability to adjust prices as needed.