Green Brick Partners, Inc. (GRBK) Earnings Call Transcript & Summary

Good afternoon, and welcome to Green Brick Partners Earnings Call for the second quarter ended June 30, 2026. 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, the company detailed material risks that may cause its future results to differ from its expectations. The company's statements are as of today, July 30, 2026, and the company has no obligation to update any forward-looking statements it may make. Our comments today 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 will turn the call over to Jim.

Thank you, Jeff. Before I talk about second quarter results, I wanted to speak to the press release that was issued this morning announcing the promotion of Jed Dolson to Co-CEO to take place this October. One of the most important responsibilities of a Co-Founder and CEO is attracting, developing and retaining outstanding leaders. One of the greatest joys I have is recognizing talented people and sharing the credit for Green Brick's success. At Green Brick, we use acronym HOME to describe the values we expect from all employees; honest, objective, mature and efficient. Our current President, Jed Dolson, has been with us since before we became a public company and has been a primary driver of our success. Jed has consistently demonstrated the leadership, judgment and values that have helped shape Green Brick into the company it is today. It is my profound pleasure to announce that effective October 15, Jed will join me as Co-CEO. Jed, thank you for your partnership, leadership and commitment to Green Brick. Congratulations on this well-deserved promotion. I am confident that Jed will help drive Green Brick's continued growth and will contribute to even greater success in the years ahead. Now turning to the second quarter. I am very pleased with the strong second quarter results achieved by the Green Brick team even as affordability pressures and economic uncertainty continue to weigh on buyers. Interest rates remained elevated in the second quarter with concerns about employment growth and the cost of living dampening consumer confidence. Despite these challenges, we achieved a 19% increase in net new orders year-over-year. Our average selling community count grew 6% year-over-year to 108, and our monthly sales pace increased 10% year-over-year to 3.3. The growth in orders was driven primarily by Trophy Signature Homes as we continue to see strong demand for affordable homes targeting the first-time buyer, particularly in the DFW market, where Trophy is now the third largest builder by volume. Sales for each month for the quarter were higher than in the same month in 2025. With this sales velocity, we were still able to attain homebuilding gross margins of 29.8%, the highest reported among our homebuilding peers. Net income attributed to Green Brick for the second quarter was $74 million or $1.70 per diluted share on total revenues of $494 million. We delivered 1,047 homes during the quarter, including our first deliveries in the Riviera Pines community in Houston. We believe our investment-grade balance sheet and low financial leverage provide us with the flexibility to navigate and take advantage of evolving market conditions and seize on opportunities when prudent. At the end of Q2, our homebuilding debt to total capital ratio was 11.2%, and our net homebuilding debt to total capital ratio was 6.1%, among the lowest of our homebuilding peers. We grew book value 16% year-over-year to $44.82. We remain highly disciplined in how we control and purchase land, which remains the primary driver of our industry-leading margins. One of the primary differentiators from many of our peers is that we do not engage in high interest cost land banking relationships that can distort a builder's economic leverage and risk and that can give a land banker indirect control over a builder's lot purchase timing. At the end of the second quarter, 76% of our approximately 52,000 lots are owned. We currently have 3,300 lots owned or under contract and 4 joint ventures with other homebuilders or landowners. These joint ventures account for 6% of our total lots owned and under contract and only 3% of our total assets. These joint venture arrangements are evaluated with the same underwriting criteria as our other land investments to ensure that we remain focused on attractive risk-adjusted returns and improving shareholder value. We have always believed that a self-development focused strategy provides us with better control in determining the pace of land and lot deliveries and higher margins and returns. We generated operating cash flows of $117 million over the last 12 months while continuing to invest significantly in land acquisition and development to position us for future growth. We also returned $39 million to shareholders through stock repurchases. Even with our land-heavy balance sheet and macroeconomic headwinds, our return on assets for the second quarter was 11.8%, while the median return on assets of our homebuilding peers was 4.7%. Our return on equity for the quarter was 16% as our returns remain among the very best of our public homebuilding peers. Our disciplined return-focused approach and our experienced team of operators position us well for value creation. Green Brick Mortgage continues to grow rapidly with funded loans up 257% year-over-year and 43% sequentially. 65% of Green Brick Mortgage loans in the second quarter were to first-time homebuyers. Second quarter revenues in our financial services segment increased to $12 million compared to $6.3 million in the second quarter of 2025. And pretax income from our financial services segment increased year-over-year by 91% in Q2 to $5.7 million. One of our most important growth drivers remains Trophy Signature Homes. Trophy continues to strengthen its position in DFW while building momentum in Houston and Austin. Trophy's ability to deliver affordably priced homes, supported by an efficient land and construction platform, provides us with a runway for growth over the next few years. This expansion allows us to continue serving the critical first-time and first move-up buyer segments while further diversifying our revenue base and strengthening our presence in key Texas markets. Our strategy is built around disciplined capital allocation, local market expertise, operational excellence and a long-term focus on returns. Our builders manage each community with discipline and diligence to ensure pace, price and inventory levels meet our buyers' demand and maximize returns for our shareholders. Although current market conditions remain challenging, those principles continue to guide our decision-making, generating sustainable returns and position us to capitalize on opportunities as they emerge. While near-term housing conditions present headwinds for the entire industry, we are encouraged by the resilience of demand in many of our communities and by the strength of our operating platform and land and lot positions in high-demand markets. Our focus remains unchanged; growing book value, generating attractive returns and prudently investing capital where we see the greatest long-term opportunity. With this approach and our underlying financial strength, we also believe we remain able to pivot and adjust to market conditions as they evolve. With that, I now turn it over to Jeff to provide more detail regarding our financial results.

Thank you, Jim. Net income attributable to Green Brick for the second quarter decreased 9.5% year-over-year to $74 million and diluted earnings per share decreased 8% year-over-year to $1.70 per share. We delivered 1,047 homes during the quarter and generated home closings revenue of $472 million, resulting in an average sales price of $450,000. While deliveries were essentially unchanged from the same period last year, home closings revenue declined 11.4% due primarily to a higher mix of deliveries from our Trophy Signature Homes brand. Notably, 55% of our Q2 closings were sold during the quarter, driven largely by the growth of Trophy. Discounts and incentives as a percentage of home closings revenue increased year-over-year by 180 basis points to 8.8% from 7%. As a result, our homebuilding gross margins decreased 150 basis points year-over-year, but increased 90 basis points sequentially to 29.8%. During the quarter, we reduced our warranty reserve by $2.7 million, which improved gross margins by 60 basis points for the quarter. Our actual warranty spend was less than expected due to a continued focus on improving construction quality and maintaining a stable base of quality trade partners. Net new home orders during the quarter were 1,079, up 19% year-over-year. Order growth was driven by both higher community count and improved sales pace. Average active selling communities of 108 were up 6% year-over-year, and our sales pace for the second quarter increased by 10% to 3.3 per month compared to 3 per month in the previous year. Backlog at the end of the quarter was 681 units with backlog revenue of $387 million, a 24% decrease year-over-year. Trophy Signature Homes continued to gain backlog share in the quarter, representing 44% of our backlog units compared to 26% in Q2 of 2025. As a result of the increased mix of Trophy orders in our backlog, along with continued elevated discounts and incentives across all of our brands, the average sales price of our backlog decreased 18% to $569,000. Due to strong sales in the quarter, we started 1,133 new homes, an increase of 19% year-over-year and 16% sequentially. Units under construction at the end of the quarter were 2,205, flat year-over-year and up 4.1% sequentially as we increased starts to align with our sales pace. We ended the quarter with 410 completed specs, an average of 3.8 per community. 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. Our goal is to maintain approximately 1 to 2 months of supply of completed specs in our communities. Our SG&A expenses declined 5% year-over-year during the quarter. However, as a percentage of residential units revenue, SG&A increased 60 basis points to 11.3%, primarily due to lower home closings revenue. We repurchased approximately 143,000 shares of our common stock for $9.4 million during the quarter. With $151 million remaining in authorized share repurchases, we will continue to repurchase shares opportunistically as part of our disciplined capital allocation strategy and efforts to return value to our shareholders. At June 30, we had total liquidity of $462 million, including cash of $132 million with no outstanding borrowings on our $330 million unsecured revolving credit facility. Total debt, excluding our warehouse facilities, was $252 million with $75 million of senior notes maturing in the next 12 months. Our low homebuilding debt to capital of 11.2% and net homebuilding debt to capital of 6.1% remain among the lowest of public homebuilders. We believe we are well positioned to weather the challenging market conditions and ongoing volatility to opportunistically deploy capital to maximize shareholder returns and to accelerate growth as the housing market improves. With that, I will now turn it over to Jed.

Thank you, Jeff. Before discussing our operational results, I want to take a moment to express my sincere appreciation to our Board for the confidence reflected in my upcoming appointment as Co-CEO. I would also specifically like to thank Jim for the opportunity to join Green Brick and for the mentorship, partnership and guidance provided by him over the past several years. Green Brick's success is built on the strength and commitment of an exceptional team and a disciplined long-term vision. I am honored to work alongside Jim and the entire Green Brick team as we continue to build on this strong foundation and create lasting value for our shareholders, homebuyers and employees in the years to come. We continue to see a challenging sales environment within all our consumer segments, but we are encouraged by the positive response we've seen from first-time homebuyers who are most impacted by the affordability challenges. Our team responded well to these conditions as evidenced by our strong second quarter sales volume and low cancelation rates of 7.8% during the quarter, which continue to be one of the lowest cancelation rates among our public homebuilding peers. We believe it demonstrates the quality of our product, desirability of our communities and creditworthiness of our buyers. Rate buydowns remained a necessary tool to drive traffic and sales, especially with the first-time homebuyers and quick move-in homes. We helped address the affordability challenges faced by many consumers by providing our homebuyers with price concessions, interest rate buydowns and closing cost incentives. Incentives were 9.1% on net new orders during the quarter, an increase of 120 basis points year-over-year, although a decrease of 20 basis points from the prior quarter. We remained focused on maximizing community level returns by balancing pace, pricing, product mix and inventory levels. The strength of our margins provides flexibility, but pricing decisions remain grounded in expected returns. We are also excited about the progress of our wholly owned mortgage company. During the second quarter, Green Brick Mortgage closed and funded 521 loans. The average FICO score for the quarter was 736, and the average debt-to-income ratio was 40%, consistent with the previous quarter. Our capture rate was 66% for the quarter. We are focused on increasing our capture rate in our Texas communities, and we continue to expect to roll out Green Brick Mortgage to the Providence Group, our Atlanta builder in the latter part of 2026. Our mortgage team continues to focus on maturing the platform with new technology initiatives to improve efficiency and enhance customer service. As Green Brick Mortgage continues to expand its service, we anticipate by year-end, its capture rate will exceed 70%, which should generate additional revenue as we increase the number of loans funded through our mortgage company. We continue to reduce our average construction cycle times, which are down 29 days from a year ago to 124 days. Trophy cycle time in Dallas-Fort Worth was 84 days compared to 103 days a year ago, the lowest in their history and a testament to the efficiency and quality of our construction teams and trade partner base. While we continue to monitor potential impacts from recently announced Canadian tariffs and other trade actions, we have not experienced a material impact on our construction cost to date. We continue to invest our land book to position ourselves for future growth. Year-to-date, our investments in land, lots and development totaled $363 million, including $197 million for land development, excluding reimbursements and $166 million for land and lot acquisition. For 2026, we expect land and lot acquisitions of approximately $400 million and land development outflows of approximately $450 million, excluding reimbursements. We believe our superior land position provides a competitive advantage that will be the foundation for strong growth in future years. Approximately 40,000 more lots are owned with approximately 12,000 under contract. Approximately 80% of our total lots owned and under contract are allocated to Trophy Signature Homes. Excluding approximately 30,000 lots expected in future phases within our long-term master planned communities, our lot supply is approximately 5 years. With approximately 52,000 lots owned and under contract, we remain patient and selective with future land opportunities without compromising the ability to grow our business in the near and intermediate term. With that, I will turn it over to Jim for closing remarks.

Thank you, Jed. In closing, we remain confident in our long-term outlook and our ability to deliver excellent operational and financial results. Our land strategy, diversified product portfolio and strong balance sheet continue to differentiate Green Brick from our peers and support attractive returns for our shareholders over the longer term. Like the rest of our industry, we continue to navigate a challenging environment, but I am hopeful that the market is starting to find more stable footing and normalization. I believe that 2026 will be a year that we lay a foundation so we can execute our strategy and accelerate our growth in the coming years. With all of these challenges, I would like to recognize our team for their disciplined execution and resilience successfully navigating this market. Our results would not be possible without their focus, leadership and commitment. This concludes our prepared remarks, and I'll now open the line for questions.

[Operator Instructions] And your first question comes from the line of Rohit Seth with B. Riley Securities.

Jeff, in prior quarters, you broke out the ASP and margin move between the rate buydowns and Trophy. Gross margin was up about 90 bps sequentially. And if you can give us the puts and takes on that improvement.

Seth, this is Jeff. We -- as far as average sales pace goes between the brands, Trophy did a tremendous job of executing this last quarter. Our average, as you know, was 3.3 during the quarter sales per month, and Trophy was about double that. So they were just over 6, in particular, in the DFW market. We're still getting some traction in Houston having had our first deliveries there this quarter. And Austin is really starting to find its traction as well. So we're really encouraged by what we're seeing with Trophy there. As far as the margin goes, I would say Trophy is right in line with the company average. They pretty much kind of define our average at this point. Collectively, across the 3 markets where we offer Trophy, they made up 60% of our deliveries. And so they're really just kind of the driving force behind margins.

Okay. And then on the capture rate, you're rolling out the financial services, it looks like in the Q2, the capture rate is about 66% and you want to get to 70% to 80%. Is that all coming through the Providence Group? Or is Texas fully penetrated? Just any color there.

Yes. We were still in the process of rolling the mortgage company out to the rest of our Texas markets. our plan is to still enter Atlanta here by the end of the year, and we're tracking with that. But we're encouraged by the capture rate that we've got. We do think that there's some opportunity to improve it, especially as we enter into some of these newer markets. The thing that's really helped us out in particular, is really just the builder forward commitments that we've been able to offer there to help buy the rates down, especially with Trophy and our first-time homebuyer product. And I think that will continue to hold here as long as rates continue to be elevated.

Okay. And if I could squeeze in the last one. Rates have moved up here in July. Can you provide us some color on maybe how traffic has responded so far?

Yes, I can take this. This is Jim Brickman. It's spotty and it's really surprising. I'll be candid with you, Florida, Riviera Beach market is usually in the doldrums this time of year, and we really had a great month of sales in July there. On the other side of the coin, Atlanta, which has usually been pretty steady month-to-month, quarter-to-quarter relative to our other markets has been very slow in July. And so I think the best word is spotty, and we're watching it closely. But overall, we're still seeing that there's -- particularly in the Trophy brand that there is tremendous buyer demand as long as we can provide a favorable pricing and product.

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

Jed, congrats on the promotion, very well deserved.

Thank you.

First question is on homes under construction. It looks like it was flat year-over-year despite a pretty nice pickup in absorption pace in the quarter. So I'm wondering if you guys could just talk about what you would need to see in the market to move homes under construction higher, accelerate starts pace even more than what you saw in the quarter?

Yes. This is Jed. Jeff mentioned, I believe I mentioned as well in my comments that cycle times have come down. So we feel like we're keeping -- it's not taking long to build these houses. So we're keeping the inventory levels, especially the finished inventory levels where we want them.

Okay. Got it. And then second question on gross margin, up 80 bps sequentially, but it sounds like your incentives were down 130 bps sequentially, and maybe there was some warranty benefit in the quarter as well. So I'm hoping you could talk about some of the offsets that led to the 80 bps improvement in gross margin relative to what you were able to do in incentives. Was it direct costs, land cost inflation? Any color would be helpful.

Yes. I would say the biggest driver in gross -- everybody wants to look at gross margin like it's static. Well, if you overlay what the interest rate was that quarter or that month and then what the buydowns were that that's not static. And so on FHA, we began the year around 6%, and we're at 6.4-ish today. So that's a much bigger buydown cost for us there. As far as just general sticks and bricks, we continue to see sticks and bricks come down, labor come down in costs with the exception of lumber, which has risen this year. On the lot cost, land cost question, one of the things that we're I think, going to get tailwinds from, particularly relative to our peers is that our land and lot cost is pretty flat, might go up slightly. There's 2 reasons for that. One is we don't land bank. We don't have a high cost of capital being capitalized or borrowed into our land and lot costs. And the other is that just the way that we underwrite our larger land development deals, we assume our undeveloped lot cost doesn't inflate even on some communities that are 8- and 10-year large communities. So hopefully, in the future, we could still see some margin lift because of our low amount of capitalized interest and our lot cost basis is very favorable going forward.