Green Brick Partners' Q3 2025: Contradictions Emerge on Incentives, Margins, and Buydowns

Date of Call: October 30, 2025

Financials Results

• Revenue: $499.0M home closings revenue in Q3, down 4.6% YOY
• EPS: $1.77 per diluted share (net income attributable $78M), down 11% YOY
• Gross Margin: 31.1% homebuilding gross margin, down 160 bps YOY and 70 bps sequentially (Q3); a $4.8M warranty reserve reduction improved Q3 margin by ~90 bps

Guidance:

• Land development spending for full-year 2025 expected to be approximately $300M, partially offset by reimbursements.
• Trophy to enter Houston with first community opening for the 2026 spring selling season.
• Green Brick Mortgage expanding into Austin, Atlanta and Houston late 2025 / early 2026 and will be scaled and reported separately next year.
• Will align starts with sales pace and preserve liquidity to opportunistically deploy capital.

Business Commentary:

* Strong Sales Performance: - Green Brick Partners reported 898 net orders in Q3 2025, representing a 2.4% year-over-year increase, marking a record for any third quarter. - The growth was driven by resilient demand despite affordability challenges and increased housing inventory.

• Gross Margin Trends:
• Homebuilding gross margins decreased by 160 basis points year-over-year and 70 basis points sequentially to 31.1%.

• This decline was due to pricing concessions and other incentives offered to address affordability challenges faced by homebuyers.

• Financial Stability and Liquidity:

• At the end of Q3, Green Brick maintained a robust cash position of $142 million and total liquidity of $457 million.

• This financial strength allows the company to navigate market uncertainties and opportunistically deploy capital.

• Expansion and Strategic Growth:

• The company is expanding its Trophy brand into Houston by the 2026 spring selling season, presenting significant growth opportunities.

• This strategic expansion aims to serve the critical first-time and move-up buyer segments while diversifying the revenue base.

• Mortgage Business Expansion:

• Green Brick Mortgage, the company's wholly-owned mortgage company, closed and funded over 350 loans in Q3, showing strong growth.
• The expansion into Austin, Atlanta, and Houston is expected to further enhance the mortgage business's capture rate and service offerings.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized resilience and optimism: 'we remain optimistic about our long-term prospects'; highlighted record Q3 net orders (898, +2.4% YOY), industry-leading gross margins (>30% for 10 consecutive quarters) and a strong balance sheet (net debt to capital 9.8%, $142M cash, $457M total liquidity).

Q&A:

• Question from Alex Rygiel (Texas Capital): Nice quarter. Incentives were up 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?
  Response: Management declined to provide quarter-to-quarter gross margin guidance; emphasized structural advantages—low-priced infill lots and 90% self-developed lots—that support industry-leading margins and flexibility in timing starts.

• Question from Alex Rygiel (Texas Capital): That's helpful. And then you mentioned that incentives moderated through the third quarter. Has that continued in October?
  Response: Yes— incentives moderated in October as mortgage rates fell; rate buydowns remain used to drive sales but they haven't lowered their advertised target rate further.

• Question from Rohit Seth (B. Riley Securities, Inc., Research Division): Just on the incentives, where are you today in terms of your mortgage rate buydown? What's your average rise rate you guys are offering?
  Response: Targeted buydown rate is just under 5%.

• Question from Rohit Seth (B. Riley Securities, Inc., Research Division): Okay. And it sounds like with the rates coming down a little bit, it just lessens cost for your -- for you guys, you're not necessarily buying down rates further. Is that correct?
  Response: They haven't chased buydowns down to 4%; avoided aggressively lowering buydowns to chase sales.

• Question from Rohit Seth (B. Riley Securities, Inc., Research Division): And our incentive levels -- is there much difference between DFW and Atlanta?
  Response: Yes—Atlanta generally shows higher incentives versus Texas; Atlanta has higher average price points and more to‑be‑built product, while Texas/Trophy has more spec sales and lower incentives.

• Question from Rohit Seth (B. Riley Securities, Inc., Research Division): 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 we look to 2026. So if you any help there?
  Response: Community count growth may understate impact because new communities are high‑velocity, lower‑priced; expect Austin to roughly double and Houston to have sub‑100 closings in 2026 with meaningful growth in 2027.

• Question from Rohit Seth (B. Riley Securities, Inc., Research Division): And on the mortgage business, there's pretty nice uptick sequentially. Do you think this level is sustainable as a go-forward run rate for you guys?
  Response: Mortgage business is being scaled deliberately; rollout across Texas by year‑end and into Houston/Atlanta early next year with people and systems in place to scale; financial services will be reported separately next year.

• Question from Rohit Seth (B. Riley Securities, Inc., Research Division): And then I guess last one is maybe you could just comment on the cost buckets, where -- are you seeing any direct cost savings in your labor, your land costs?
  Response: Yes—land and lot prices stabilizing or slightly down, lumber prices falling month-to-month, and labor/subcontractor costs easing as subs run below capacity, driving vertical cost declines (about $2,250 per home lower YoY).

• Question from Rohit Seth (B. Riley Securities, Inc., Research Division): I guess I do have a last one, just a 4% ASP decline in the quarter. How much of that was just product mix, plan size and Trophy share versus maybe base pricing?
  Response: Mix accounted for slightly less than half of the ~4.3% ASP decline; Trophy share was largely unchanged year‑over‑year.

Contradiction Point 1

Incentive Levels and Market Conditions

It involves the interpretation of incentive levels and market conditions, which directly impact sales strategies and financial performance.

Has the moderation of incentives continued in October? - Alex Rygiel (Texas Capital)

2025Q3: Incentives moderated due to declining mortgage rates, with rate buydowns remaining effective for driving sales. Market conditions have been steady, showing no significant improvement or deterioration. - Jeffery Cox(CFO)

What is the incentive trajectory for the remainder of the year, and will there be further increases? - Rohit Seth (B. Riley Securities)

2025Q2: We're seeing things level out, but they're very spotty by neighborhood. Sales reports show varying market conditions week to week. - James R. Brickman(CEO)

Contradiction Point 2

Gross Margin Decline and Product Mix

It involves the explanation of gross margin decline and the role of product mix in this decline, which are critical for understanding financial trends and strategic positioning.

How much of the 4% ASP decline - Rohit Seth (B. Riley Securities)

2025Q3: The gross margin decline was mainly due to mortgage rate buydowns, approximately 5% of the 5.3% decline in average sales price. Mix accounted for a smaller part, with Trophy's closing volume up 4% year-over-year. - Jeffery Cox(CFO)

How much of the gross margin decline was due to price incentives versus the mix shift from increased Trophy sales? - Rohit Seth (B. Riley Securities)

2025Q2: The gross margin decline was mainly due to mortgage rate buydowns, approximately 5% of the 5.3% decline in average sales price. Mix accounted for a smaller part, with Trophy's closing volume up 4% year-over-year. - Jeffery Cox(CFO)

Contradiction Point 3

Mortgage Rate Buydown Average

It involves the average targeted mortgage rate buydown, which impacts sales strategies and financial projections.

What is your current average mortgage buydown rate? - Rohit Seth (B. Riley Securities)

2025Q3: The average targeted mortgage rate buydown is just under 5%. - James Brickman(CEO)

Will incentives increase further this year? - Rohit Seth (B. Riley Securities)

2025Q2: Incentives are currently at 7.7%. - James R. Brickman(CEO)