Green Brick Partners, Inc. Price & Performance (GRBK)

Some of the information discussed on this call is forward looking including 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 02/27/2025, and the company has no obligation to update any forward looking statements it may make. These 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 presentation available on the company's website. With that, turn the call over to Jim. Jim? Thank you, Rick. We are extremely pleased to report record fourth quarter and full year 2024 results as we celebrate Green Brick's tenth anniversary as a public company. During the fourth quarter, we closed a record ten nineteen homes, and grew home closing revenue by 24% year over year to the $557,000,000 over 80% of which were once again generated from infill and infill adjacent submarkets. Year over year, net sales orders in the fourth quarter increased 29% while average selling communities grew 19%.

Net income attributable to Green Brick during the fourth quarter grew 42% to $104,000,000 and diluted EPS increased 46% year over year to $2.31 both records for any fourth quarter. In the company's history. 2024 was the best year in company history. As we achieved several milestones despite a challenging mortgage rate environment. Our diluted annual EPS of $8.45 beat last year's record EPS by 38%. Since 2015, Green Brick has been able to achieve substantial growth and expansion Here are some of our achievements. Home closings grew almost six fold from six sixty five units in 2015 to 3,783 in 2024. Generating home closing revenues exceeded 2,000,000,000 the first time.

Full year homebuilding gross margins improved from 20.6% in 2015 to 33.8% in 2024, representing a 64% improvement to a level that is the highest gross margin performance among our public onbuilding peers. Diluted EPS grew from $0.38 in 2015 to $8.45 in 2024 with adjusted diluted EPS of $8.21 after excluding the $0.24 after tax impact of a warranty reserve reversal that we recorded in Q4. Both resulting in a compounded annual growth rate of 41%. We are the third largest homebuilder in DFW in the nation's largest housing market based on annual starts. Trophy Signature Homes, which started in 2018, and closed its first home in 2019, is now in its own the sixth largest builder in DFW. Furthermore, we have significantly strengthened our land and lot position. Total land inventory has grown almost eightfold increasing from approximately 4,700 lots at the end of twenty fifteen to over 37,800 lots the end of twenty twenty four. This expansion was achieved while maintaining a low debt to total capital ratio of 17.2% at the end of twenty twenty four, which was the lowest year end level since 2015. These achievements reflect the strength of our business model, balance sheet, the quality of our product and services and the dedication of our exceptional team.

Our workforce has expanded significantly through Played a crucial role in our success and I would like to express my sincere gratitude for their invaluable contributions. While favorable housing fundamentals have provided general tailwinds for the industry, we believe there are several key factors specific to Green Brick that have driven our success and exceptional performance. Land has always been the cornerstone of our business. And one of our biggest strategic advantages. Over the last several years, we believe we have assembled one of the best land and lot positions in our industry. As with any real estate asset, location matters the most. Our footprints are concentrated in some of the fastest growing residential market in the country. Notably Dallas Fort Worth and Atlanta. Which both benefit from robust demographic trends healthy job markets. Additionally, we have focused primarily on infill and infill adjacent submarkets where supply is more constrained competition is more limited and homes are more desirable. Secondly, we own 86% of our land on our balance sheet, and we self develop over 95% of our lots. The scarcity of land developers with the ability to develop large residential master plan communities in our markets create significant opportunities for Green Brick and our subsidiary builders.

By avoiding retail prices on land, which is often associated with the land light operating model, we have been able to effectively control our lot costs in and development and delivery timelines, which are key drivers our industry leading gross margins and returns. Since the start of 2022, we have generated homebuilding gross margins in excess of 30%. With the exception of only three quarters. Our full year return on equity in 202426.818.2%. Return on equity and return on assets over the last five years averaged 25.716.2% respectively. Lastly, our superior returns have not been achieved at the expense of our community quality. We aspire to be more than just another homebuilder in our submarkets. We allocate significant capital and community development emphasizing superior design, enhanced common area amenities, better landscaping and other aesthetic features that contribute to long term value appreciation. Over the years, our builders have won numerous prestigious awards in the industry earned the reputation of building superior products. This strong reputation is proven invaluable in navigating the competitive lane market and the complexities of entitlement and the development process. It fosters trust among land sellers municipalities and local governments. It establishing Green Brick as a reliable partner and a preferred builder developer.

As we enter our second decade, we remain optimistic about the long term housing demand despite the current challenges posed by elevated mortgage rates. We expect that the entry of millennials and Gen Z into their prime home buying years will continue to fuel significant demand. Furthermore, the housing market remains undersupplied by an estimated 4,000,000 to 7,000,000 units. While the existing home market inventory levels remain at historic lows. We are well positioned to further capitalize on this incremental demand. Leveraging our superior land positions, particularly through our Trophy brand that specializes in more affordable housing options that cater to the largest segment of the potential home buyer market. With that, I'll now turn it over to Rick, who will provide more detail regarding our financial [indiscernible] Thank you, Jim. Home closings revenue for the fourth quarter increased 24% year over year to $557,000,000 a company record. Record revenues were driven by the highest volume of closings in company history of ten nineteen units up 23.5% year over year. Closing ASP was essentially flat in Q4 versus Q4 twenty twenty three at $547,000 as Trophy represented 51% of Green Brick's total closings in 4Q 'twenty four. Trophy sales reflected an ASP below the company average as Trophy sells more first time buyer and first time move up buyer inventory in perimeter locations.

We continue to generate strong gross margins during the fourth quarter of 34.3%, up two ninety basis points year over year. During the fourth quarter, we reduced our estimated warranty reserve which resulted in a positive impact of $13,200,000 or two thirty basis points to our quarterly homebuilding gross margin. This adjustment was based on an analysis of our warranty reserve accruals compared to actual warranty spend was less than previously anticipated. This adjustment also reflects reductions in our risk exposures due to various [indiscernible] Including a reduction of our structural warranty periods due to legislative changes and enhancements to our insurance compliance program with their subcontractors. Even after these adjustments, our warranty reserves remain at the high end of our peers based on estimated reserves versus actual warranty spend levels. The positive impact of the warranty adjustment was partially offset by slightly higher incentives in Q4 due to elevated mortgage rates. SG and A as a percentage of residential unit revenue for the fourth quarter improved 50 basis points year over year to 10.9%. Net income attributable to Green Brick increased 42% year over year to $104,000,000 and diluted earnings per share for the quarter grew 46% to $2.31 per share, both company records for any fourth quarter.

For the full year, we delivered 3,783 homes, which was 21.1% more units than 2023, generating home closings revenues of $2,070,000,000 a record for the company and representing growth of 17.1% year over year. Homebuilding gross margin increased two ninety basis points to 33.8% for the full year which was also a record. Net income attributable to Green Brick increased 34.1% year over year to $382,000,000 Net new home orders during the fourth quarter grew 29.3% year over year to eight seventy eight, one of highest growth rates among public homebuilders. For the full year 2024, our net new home sales totaled 3,681, an increase of 9.7 Backlog revenue at the end of the fourth quarter decreased 10.7% year over year to $496,000,000 Trophy continued to represent a low percentage of overall backlog revenue at less than 14% as SCROPHIE has continued to increase the percentage of spec homes it builds to meet the needs of its buyers. As a result, backlog ASP of $742,000 remains higher than our average sales price on delivered homes. Our community count at the end of twenty twenty four increased 17% year over year to 106 active selling communities. 35% of which were trophy communities.

Sales pace for the fourth quarter was 8.3 homes per average active selling community, which was up 9.2% over Q4 of 'twenty three. Our cancellation rate for the fourth quarter remained low at 7.8%, one of the lowest among public homebuilding peers. We started 22% more homes in 2024 than the previous year, with 4,067 total starts in 2024. Total units under construction increased 14% at year end. To 2,341 homes. At the end of the fourth quarter, our net debt to total capital ratio was 10.7% and our total debt to total capital ratio was only 17.2% which was down three ninety basis points year over year to the lowest year end level since 2015. This was among the lowest leverage ratios of our small and mid cap public homebuilding peers. As of 12/31/2024, 93% of our outstanding debt is fixed rate with an interest rate of 3.3%. With that, I'll now turn it over to Jed. Jed? Thank you, Rick. Our fourth quarter net new orders increased 29% year over year to eight seventy eight a record for any fourth quarter in company history. In December due to both seasonality and the impact of rising mortgage rates. We responded to the softening of demand with more aggressive and incentives in December.

Overall, for the fourth quarter, incentives averaged 6.4%, up from 5.9% the previous quarter. During the fourth quarter, Trophy continued to exhibit strong performance. Contributing 54% of net new orders by volume. The cancellation rate for Trophy was only 6.7%, slightly lower than the company average. The DFW housing market continued to perform well incentive levels for Southgate and Normandy homes, which cater to higher end move up buyers decreased sequentially reflecting the persistent mortgage lock in effect on the existing home market, in infill submarkets. Trophy, which primarily targets entry level and first time move up homebuyers experienced a more pronounced impact from the rising mortgage rates. Necessitating an increase in incentives and rate buy down programs in most of its communities. Similar trends were observed in the Austin market where Trophy currently sells homes priced to entry level home buyers. Atlanta remained healthy with strong orders and a modest incentive increases. As we enter the spring selling season, we're diligent incentive levels and starts. We believe our industry leading gross margins will provide us with greater flexibility to adjust home prices and incentives as needed. Our buyers' financial profiles remained healthy. Applicants that closed using our prior mortgage joint venture which ceased accepting new applications in the fourth quarter had an average FICO score of seven forty two and a debt to income ratio of of 37% during the fourth quarter.

New applications through our new wholly owned mortgage subsidiary with anticipated closings in the first quarter of twenty twenty five demonstrate comparable financial resilience. Turning to capital allocation. Full year spend on land acquisition finished lot was over $375,000,000 with over $200,000,000 spent on land development. In 2025, we plan to increase our spend on land development by 46% to approximately 300,000,000 As Jim mentioned earlier, we entered 2025 with a strong land position. Year over year, we have added 13,000 new lots on a gross basis. On a net basis, total lots to own and controlled at the end of the year increased by 32% to over 37,800 lots. With approximately 92% of those in Texas 5% in Georgia and 3% in Florida. Trophy, our primary growth engine, owns approximately 70% of total lots. Excluding our 21,600 lots in long term communities, our current pipeline provides approximately five years of lot supply based on start pace and non master communities over the last twelve months. Additionally, over 97% of our current inventory of lots owned and controlled are expected to be self developed. At the end of the year, we had approximately 4,800 finished lots, over 80 With our existing land and lot position, we're taking a more opportunistic and competitive land market land prices have remained sticky.

We will continue to evaluate our capital allocation strategy with the objective of maximizing shareholder value. Commensurate with the strategy. Our Board recently authorized a new share repurchase plan to buy back up to $100,000,000 of common shares. We also continue to expand our geographic footprint through the Trophy brand. In 2024, Trophy closed over 100 homes in Austin. We currently have two active selling communities in the market. Furthermore, we're making substantial progress in our newest market, Houston. We anticipate completing the first phase of lot this summer and Trophy is expected to open for sales in its inaugural Houston community this fall. We are excited about expanding the Trophy brand's presence in one of the largest homebuilding markets in The United Lastly, we are pleased with the progress on the construction side. With housing starts declining in many of our markets we are still seeing bargaining power on labor and materials in certain trades and in some markets. Not only are overall construction costs stable, but cycle times for homes completed in the fourth quarter averaged approximately five point three months, Trophy cycle time was only three point four months in Dallas about two weeks shorter than at the beginning of the year.

With that, I'll turn it over to Jim for closing remarks. Thank you, Jed. Let me conclude by saying that I'm incredibly proud of our team's hard work that has resulted in this record breaking year despite operating an elevated mortgage rate environment creates affordability challenges for many homebuyers. Our success in the past decade as a public company provides us with a strong foundation for future growth. To deliver exceptional value to our shareholders. Thank you for your continued support. This concludes our prepared remarks and we now open the line for questions. Thank you.

Ladies and gentlemen, we will now begin the question and answer session. That your hand has been raised. Our question comes from the line of Karl from b d I g. Sir, please go ahead.

Thanks. Hey guys, nice to talk to you. Thanks for taking the questions. I am curious first of all, Jed or Jim or Rick, how trends in January and February have been on the sales perspective, particularly related to incentives we had peer this morning who talked a little bit about incentives beginning to come in. Some of that seasonal, some of that builders having worked through specs, So how are you guys seeing things shape up order wise so far in the first quarter? [indiscernible] I'd say we're off to a very similar start from last year on the sales front.

So far. Mortgage rates have dropped in February, so incentives have actually ticked down because it's not costing as much to buy down the rate currently But yes, we're seeing a spring fairly similar to last year.

Okay. I appreciate that. That's helpful. [indiscernible] If you drew a circle around all of our markets, it's The inner circle of AAA location incentives are still very low.

If you move into a B or B plus market, the next circle there could be 5%, 6% And if you go into a C location, it could be 10% or 12%. [indiscernible] Okay. Thank you, Jim. I appreciate that. And then I wanted to to ask a little bit about the development spend. So 46% is a really big increase for you all. And I assume that's not 46% more lots and I assume that's not the same number of lots, but 46% cost inflation. So could you break down that $100,000,000 increase a little bit Does that mean a substantial number of lot deliveries late in the year, which could lead to community count growth? Or is this sort of in process land that we'll see in 2026? It's a really big increase for you guys in it does certainly seem to indicate some substantial growth coming for you. But I just don't know if it's going to be late this year or into '26, twenty seven?

That's a really good question, Carl. And I think at the highest level, investors have a difficult time understanding how long it takes from contracting a lot to getting revenues from a lot. So unfortunately for an analyst, it doesn't create a linear progression of our business and how things grow It's lumpy and it takes about three years from when we contract a lot land getting revenues from that and our prior investments in land, the reason our land spend is so high [indiscernible] That's all coming to fruition right now. We're spending a lot of dollars in land development. Jed, do you want to add color to that? Yes. We bought a lot of land in 'twenty three and in 2024, Carl. The development dollars on that land [indiscernible] That will flow a little bit into next year or two. And you're right that we will at some point in the very near future, start seeing community count go up. But it's a lagging investment. Yes, that makes sense. All right. I'll get back in queue. Thanks a lot, Phoebe.

Thank you.

Again, Our question comes from the line of Carl Sir, please go ahead.

No, I wasn't expecting that. Okay. I'll do one more then.

So on the SG or maybe three more. On the SG and A side, I'm curious as to whether or not you guys think that into 2025, you might begin to get a little bit better leverage there. Knowing the store count grew a lot, still able to get some leverage off of revenue this year. How are you thinking about you talked about headcount, how are you thinking about headcount moving into '25 and into '26 and how much leverage you might anticipate getting there That's it for Rick, I guess, is probably the person to ask. [indiscernible] It's kind of a tale of two different situations. Going to probably continue with more predominance in our numbers trophy which means that there's such an efficient operation that as a percentage of the total as they grow certainly over time see that improvement. We're not in a high growth mode from a personnel standpoint. Right at this time. But it's kind of related to the land story that Jim and Jed were just describing. There's going to be a delayed impact of when those increase in houses and closings will happen. So, a little bit of modest increase there. And really, the unanswerable is, on the interest rate side is that move to being more trophy, which can have a more interest rate sensitive buyer.

Have to create higher incentives or are we going to see the rates continue to come and we have lower incentives. So will there be an offset in margin? No idea. Carl, the other thing really excuse me, Carl, when you look at the question one of the things that we have never really pointed out in prior calls is that we're developing close to 90% of the lots that we're building on right now. And a lot of those costs are embedded in SG and A. So when you compare us we're still having 10.4% SG and A. Some of those costs are capitalized, but our SG and A includes a big land development group that some other companies are not having, particularly as they And one other impact here, is on the financial services side, Carl. If you look at the range of peers who have full on financial services with both title and mortgage companies, The average is probably about 1% of of revenues, but the we're just in the nascent stages of opening up our mortgage company. And so we're going to get some positive impact from that going forward. That's not part of the SG and A, but it is something that as we particularly move into 2026, you'll see an additional revenue source that really wasn't there.

Okay. Thank you, Rick. And then just on that sort of idea of Trophy, is $25,000,000 likely to be sort of a similar fifty-fifty mix split between core Green Brick and Trophy? Because I know Houston is coming on and let's assume that incentives are similar throughout the course of the year. Would you project a similar sort of half and half mix split between the two for 25 as you sit here today? [indiscernible] Yes, we're projecting similar volumes at Trophy this year compared to Okay, all right. You very much guys. I appreciate it. Thanks, Carl.

Thank you. That concludes or by the way, again, if you have any question, There are no questions at this [indiscernible]