Green Brick Partners Stock

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.

Your next question comes from the line of Alex Rygiel with Texas Capital.

Could you speak to average selling price? Is $450,000 sort of the new norm? Or directionally, should we expect that number to tick up or tick down?

Directionally, it's going to tick down. This is Jim, because, again, Trophy is growing much faster than all of our other businesses. Pretty much of our other businesses are not growing. They're flat and Trophy is growing quite rapidly and Trophy's average sales price in many of the new communities that we're opening is $325,000-ish. So you're adding a lot of $325,000 homes and you're at $450,000 now, that number is going to go down.

And I'll just add on, this is Jeff. To Jim's point, as we continue to grow Trophy, especially in these newer markets like Austin and Houston, there is a bigger difference in average sales price in those markets as you compare it to DFW. So mix will certainly be a large impact going forward.

And then any comments on community growth in the second half of the year?

Nothing specific, but as we guided last time that we believe community count will continue to increase towards the end of this year. And we haven't had any reason to believe it will be any different at this point.

Your next question comes from the line of Jay McCanless with Citizens Bank.

Jed, congrats from me as well. Several of your peers on their conference calls have recently talked about underwriting for first move-up, maybe second move-up land coming in more favorably than entry-level lots at this point. Are you guys seeing the same thing for some of the new deals you're looking at? And if not, maybe just talk about why entry-level land is still penciling well versus where it has historically?

Yes. This is Jim. Really, it's a tale of 2 cities. I think you're seeing D location land and C location land actually depreciating. The A location land is still in high demand because it produces higher margins. It's more expensive. And we don't see that stopping really. We would rather pay up for an A location land than buy a C location land that we think we're getting a really good deal on. I think some of our competitors feel the same way. But I think our real strategic advantage versus some of our peers is that we have the ability to entitle, which takes a lot of work and put larger, more complicated land deals together. And these deals can be longer life communities. Land bankers don't go after this asset class because they like 3-year deals. And really, that's kind of our sweet spot. They're complicated. They have a lot of moving parts from entitlement to land development. The land planning requires a lot more work and upfront capital. And really, those are deals we're going to continue to pursue.

One of the things I find really curious is I listened to all of our peers' call and with the exception of one nationally known, well-recognized premier higher-end builder, very few builders ever talk about creating communities that people want to live. And our focus is on creating affordable master planned communities where people want to live today and tomorrow. And you just don't hear that very much. And we are not hesitant at all to spending $8 million on upgraded amenity center, pools, landscaping in a community. And really, a lot of our peers are reluctant to do that because they can't amortize those front-end costs over a great number of lots. So we're going to continue to grow our affordable master planned communities, and I think it's really going to help Jed, as my Co-CEO, really grow the business.

Great. The second question I had, you were talking about Trophy and entry-level demand being very strong. But with several of your peers trying to flex more into move-up housing and to-be-builts, is there an opportunity for some of this land you already have either in-house or under contract for Trophy to maybe pivot some of that to take advantage of what seems to be a little bit better demand in some markets for move-up and to-be-built homes?

Yes, we are doing that in our larger communities and one of the advantages we have is that we can bifurcate the market. And we're looking at a very large land deal right now that we've been working on for a very long time and Centre Living Homes may do 1-acre product. Southgate Homes may do $800,000 product. Trophy Signature Homes may do $400,000 product. So we're going to -- we are going to address all these markets. And fortunately, we can do it with all of our existing brands that have really a good reputation in our markets.

That's great. And then if I could just, on Atlanta, and I think this is the second quarter in a row where you talked about Atlanta maybe being a little softer. Is that a function of H-1B buyers? Or what's going on there? And what do you think -- how do you get that turned around in Atlanta?

Yes. This is Jed. I think it's twofold. I think there's definitely some cultural buyer headwinds there because of the visa issues. And then in Atlanta, we don't provide entry-level housing. So our ASP in Atlanta is in the right around $700,000. And so we're kind of -- we're not luxury, but we're not entry-level either. We're in a second time move-up. And so it's -- that market has been tougher.

Right. And then I guess, but the last one I had with rates moving up for most of July, have you all been able to hold -- I think you said the incentive rate was about 9-and-change on orders for this quarter. Is it still trending that way in July? And if rates continue to move higher from there, do you think it's going to have to flex up?

I'll answer it this way. I don't think the buy -- because rates go up, I don't think the buyer is going to say, okay, I'll go up a quarter rate -- a quarter point on what I think my buydown rate should be. They're going to hold us. And so it's going to be like the cost will be borne by us.

[Operator Instructions] There are no further questions. I will now turn the conference back over to Jim Brickman, CEO, for closing remarks.

Well, thank you for attending our call. If anybody wants additional information, our team is available to talk to you at any time. And even better, we hope you come to Dallas, Atlanta or any of our markets and see what we're doing because I think you'll be able to tell a difference. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Hello, and welcome to the Green Brick Partners, Inc. First Quarter 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions]

I would now like to turn the conference over to Jeff Cox, Chief Financial Officer. Please go ahead.

Good afternoon, and welcome to Green Brick Partners earnings call for the first quarter ended March 31, 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, April 30, 2026, and the company has no obligation to update any forward-looking statements 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 aforementioned presentation.

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

Thank you, Jeff. I'm pleased to announce our first quarter results, particularly given that we achieved these results against the backdrop of ongoing and persistent affordability challenges faced by many consumers in the housing market, as well as increasing uncertainty and volatility for consumers caused by domestic and global events and trends ranging from increasing gas prices to job concerns in this new AI era. Despite these challenges, our team's effort and disciplined approach led to another excellent quarter for our business and our shareholders.

Net income attributable to Green Brick for the first quarter was $61 million or $1.39 per diluted share on total revenues of $465 million. We delivered 908 homes in the quarter, only 2 less than in Q1 2025, and we had 1,037 net new orders. We achieved this despite, as we mentioned on our last call, losing about 7 selling days in January due to inclement weather in DFW, our largest market.

Orders increased sequentially each month of the quarter with March sales outpacing the same period in 2025. This was more in line with a normal spring selling season.

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. At the end of Q1, our homebuilding debt to total capital ratio decreased to 11.5% and our net homebuilding debt to total capital ratio decreased to 5.5%, among the lowest of our public homebuilding peers. We also have $475 million in available liquidity.

Our industry-leading homebuilding gross margins of 28.9% give us the flexibility to profitably adjust the pricing of our homes to respond to market conditions. We believe the foundation of our industry-leading gross margin starts with our commitment to owning and developing land.

We remain highly disciplined in how we control and purchase land. One of the primary differentiators from many of our peers is that we do not engage in off-balance sheet, high interest cost land banking arrangements 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 first quarter, 77% of our approximately 49,000 lots are owned. We have 3,400 lots owned or under contract in 4 joint ventures with other homebuilders or landowners. These joint ventures account for 7% of our total lots owned and controlled and only 2.9% of our total assets. These joint ventures are evaluated with the same underwriting criteria as our other land investments to ensure that we remain focused on attractive risk-adjusted returns and protect shareholder value.

As many of you who follow our company know, this disciplined approach to land acquisition and development is not a new philosophy for our company. We have always believed that a self-development focused strategy provides us with better capital efficiency and returns, allowing us to make higher margins, lower cost and enhanced inventory control so that we can better determine the pace of land and lot deliveries.

We generated strong operating cash flows of $56 million for the quarter. In the last 12 months, we generated $201 million in operating cash flows and returned $74 million to shareholders through repurchases. Even with our land heavy balance sheet and macroeconomic headwinds, we delivered strong returns during the quarter of 9.6% return on assets and 13.1% return on equity, among the very best of public homebuilding peers. Our disciplined returns-focused approach and our experienced team of operators position us well for future value creation.

This quarter, we began reporting on financial service operations as a separate segment due to the strong growth of our wholly owned mortgage company. Green Brick Mortgage was founded in 2024 and funded its first loan in the first quarter of 2025. During 2025, Green Brick Mortgage grew rapidly and by the end of Q1 2026, was serving all of our tax entities.

For the first quarter, revenues for Green Brick Mortgage increased from $1.3 million to $5.6 million year-over-year as the number of funded loans increased by almost 250%. Pre-tax income from our financial services segment increased year-over-year by 139% in Q1 to $4.3 million.

While the macroeconomic landscape prevents short-term headwinds for the entire industry, we believe the core strengths that have driven Green Brick's success over the past decade will enable us to continue to navigate any challenges with confidence and flexibility.

As always, we will focus on maintaining operational excellence centered on our disciplined approach to land acquisition and development to position us for future growth and ensuring we continue to build out our team of experienced, dedicated employees who drive our growth and provide a quality home and buyer experience for our customers.

We believe we are well positioned to sustain our peer-leading return metrics and provide long-term value to our shareholders. We remain focused on growing our business, particularly our Trophy brand. Trophy's continued growth in DFW in Austin, combined with our first community opening in Houston Q1, presents significant opportunities for sustained growth for 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.

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

Thank you, Jim. I want to take a few minutes to address the Form 8-Ks that were filed yesterday in which we concluded that certain closing cost incentives offered to our buyers have been previously incorrectly classified as cost of residential units rather than as a reduction of the transaction price.

After evaluating these issues under ASC 606, we determined that we will restate our previously issued audited consolidated statements of income for the years ended December 31, 2023, 2024 and 2025 included in the annual report on Form 10-K and the unaudited condensed consolidated statements of income for the quarters ended in 2025 and 2024 to reflect the reclassification of closing cost incentives as a reduction in revenue rather than as a cost of residential units.

This reclassification of closing cost incentives will not impact any prior periods reported gross profits, operating income, net income, earnings per share, cash flow, debt covenant compliance, shareholders' equity or the strong underlying economics of the company's operations and business. The impact will be a reduction in home sales revenues and associated average sales prices and an improvement to our gross margins.

We are currently in the process of completing the restatement of our prior period financial statements and expect to file an amended annual report on Form 10-K. However, our comments today reflect these changes for prior periods referenced.

We have also filed an 8-K that sets forth our preliminary assessments of the impact of this reclassification for the years ended December 31, 2023, 2024 and 2025 as well as each of the quarters in 2025 and 2024. Our first quarter 2026 results are not affected by the pending restatement.

Net income attributable to Green Brick for the first quarter decreased 18.8% year-over-year to $61 million, and diluted earnings per share decreased 16.8% year-over-year to $1.39 per share. SG&A as a percentage of residential unit revenue for the first quarter was 11.7%, an increase of 80 basis points year-over-year, driven primarily by mix and higher discounts and incentives.

Given the challenging economic conditions and oversupply of housing inventories in our markets, discounts and incentives increased year-over-year as a percentage of home closing revenue to 10.1% from 6.8%.

Our average sales price of $493,000 was down 4.1% sequentially and down 6.9% year-over-year. Home closings revenue of $448 million on 908 deliveries declined 7.1% compared to the same period last year, and our homebuilding gross margins decreased 320 basis points year-over-year and 140 basis points sequentially to 28.9%. 63% of our Q1 closings were sold during the quarter, driven largely by our Trophy Signature Homes brand.

We started 979 new homes, an increase of 13% year-over-year and 11% sequentially due to increasing buyer demand in the quarter. Units under construction at the end of the quarter were 2,119, down 7.7% year-over-year, but were up 3.5% sequentially as we increased starts in Q1 to better match our sales pace.

We ended the quarter with 419 completed specs, an average of 4.1 per community, a reduction of 13% from Q4. 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 1.5 months of supply of completed specs in our communities.

Primarily due to adverse weather in January, we saw a 7.1% decline in traffic year-over-year during the quarter. Net new home orders during the first quarter were 1,037, down 6.2% year-over-year. Average active selling communities of 103 were down 1% year-over-year. As a result, our sales pace for the first quarter decreased slightly to 3.4 per month compared to 3.5 per month in the previous year. As noted in our prior call, we still expect community count to increase in the second half of the year.

Our backlog at the end of the first quarter was 649 units with backlog revenue of $381 million, a 35% decrease year-over-year. We experienced a significant shift because Trophy Signature Homes represented 40% of our backlog units compared to 27% in Q1 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, backlog ASP decreased 13% to $587,000.

In Q1, we repurchased 114,000 shares of our common stock for approximately $7 million, with $160 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.

During Q1, we terminated our secured revolving credit facility. And as of quarter end, we had no outstanding borrowings on our $330 million unsecured revolving credit facility. At the end of the quarter, we maintained a robust cash position of $145 million and total liquidity of $475 million. 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'll now turn it over to Jed.

Thank you, Jeff. We continue to see a challenging sales environment within all our consumer segments, but we are encouraged by the positive response we have seen from first-time homebuyers who are most impacted by affordability challenges and a weakening job market.

Our team responded well to these conditions as evidenced by our relatively strong first quarter sales volume and low cancellation rate of 7.7% during the quarter, which continues to be one of the lowest cancellation rates in the public homebuilding industry. We believe it demonstrates the creditworthiness of our buyers, quality of our product and desirability of our communities.

Rate buydowns remain a necessary tool to drive traffic and sales, especially with first-time homebuyers and quick move-in homes. And 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 for net new orders during the quarter were 9.9%, an increase of 320 basis points year-over-year, although a decrease of 30 basis points from the prior quarter.

With our superior infill and infill-adjacent communities and industry-leading gross margins, we believe we are strategically 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 pricing flexibility to compete effectively in a volatile market and drive sales pace when appropriate.

We are also excited about the progress of our wholly owned mortgage company. During the first quarter, Green Brick Mortgage closed and funded over 360 loans. The average FICO score was 742 and the average debt-to-income ratio was just under 40%, consistent with the previous quarter. We completed the rollout of Green Brick Mortgage to all of our Texas communities in the quarter, and we expect to roll out Green Brick Mortgage to the Providence Group, our Atlanta builder, in the latter part of 2026.

As Green Brick Mortgage continues to expand its service to most of our communities, we anticipate that by year-end, its capture rate will range from 70% to 80%, which should generate additional revenue as we increase the number of loans funded through our mortgage company. We continue to reduce our construction cycle times, which were down 25 days from a year ago to under 130 days. Trophy's average cycle time in Dallas-Fort Worth was under 90 days, the lowest in their history and a testament to the efficiency and quality of our construction teams and trade partner base.

While labor availability remains relatively stable across all our markets, we are monitoring potential cost increases related to the rise in oil prices. We remain engaged with our trade partners to monitor potential cost pressures and will adjust as necessary. As part of our efforts to position ourselves for future growth, during the quarter, we invested approximately $89 million in land and lot acquisitions, and $78 million in land development, excluding reimbursements. For 2026, we expect land and lot acquisitions of approximately $400 million and land development outflows of approximately $420 million, excluding reimbursements.

We believe our superior land position provides a competitive advantage that will be the foundation for strong growth in subsequent years. Approximately 38,000 of our lots are owned with approximately 11,000 lots under option contracts. Approximately 75% of our total lots owned and under contract are allocated to Trophy Signature Homes.

Excluding approximately 25,000 lots in long-term master planned communities, our lot supply is approximately 6 years. With approximately 49,000 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'll 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 continue 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 long 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 a more stable footing and normalization. I believe that 2026 will be a year that we lay a foundation so that 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 we will now open the line for questions. Thank you.

[Operator Instructions] Your first question comes from Ryan Gilbert of BTIG.

Definitely encouraging to hear that, I guess, demand improved throughout the quarter. How -- can you give us an update on how things are looking so far in April in terms of traffic and maybe sales pace?

Yes. Jed, why don't you take that?

Yes. I would say April is looking very similar to March. So we're still in a strong spring season.

Okay. Got it. And then just around your commentary around the challenging sales environment, but you're still seeing 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 do 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.

Yes. This is Jim. While 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 we'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 on the interest rate front.

Jed, do you have anything you want to add to that?

I would just say the past week has been rough on the mortgage rates, and that can cause -- just a little change in mortgage rates can cause a 1% decline in gross margin for us.

Your next question comes from Jay McCanless with Citizens Bank.

First question I had, what are you seeing in the land market right now? Land prices still continuing to go up? Or are you seeing some areas where maybe you're getting a little bit of a break or maybe land inflation slowing down a little bit?

Yeah. That's a good question, Jay. What we're seeing is on C-minus and D location lots, builders are wanting to pedal those. Obviously, the only buyer are other builders. And if a builder wants to pedal a lot in 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 or 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 track yesterday that we have been working on for how long, Jed? Two years.

Two years.

It was complicated, 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 planned property. And we feel really good about that because it's a barrier to entry. All these land-light guys just couldn't pull that kind of transaction off.

That's good to hear. 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?

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 infill markets.

And Jed, what do you want to add to that?

Yes. I would just say that some of the kind of not luxury -- luxury continued to do well for us in that for us, that's homes priced in the $900 and up range. We saw spottiness in, say, the $500 to $800 range, where we had some good months, some bad months depending on what submarket. 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 it's -- we feel really good about luxury, and we feel really good about entry level and the stuff in the middle is more challenging.

Yes, 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 physicians, higher income people and the current administration is making it uncertain for those people, and it's impacting housing as a result.

That's great color, Jim. 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?

I think it's -- in some markets, I think it's fairly isolated. Jed and I were talking about it this morning that it can affect some markets. Generally, I don't -- I'm not worried about it. And again, one of the reasons I'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 light, those guys have given about all they can give, and we're just kind of waiting and seeing what happens.

Okay. Great. 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?

Well, right now, it's -- 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 a land acquisition team that has strategic advantages. So 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.

[Operator Instructions] Your next question comes from Alex Rygiel with Texas Capital.

Given the mix of backlog in Trophy Homes, should we model ASPs declining through 2026?

I think it's a mix issue more than a backlog -- this is Jed. I think it's a mix issue more than a backlog issue. So 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 of the Houston market affect ASPs?

They're going to be -- Houston will continue to bring ASP down. When you look at the -- Zonda put out the biggest markets based on Q1 starts and DFW is the largest, Alex, and Houston was the second, and there was a huge drop-off to Phoenix, which was third. In Dallas, we're the third biggest by units. And we think we'll probably end up being the second biggest this year by revenue, trailing only D.R. Horton.

So those are really big markets, but to have really big markets, you need very affordable housing. So the ASP in Houston will be lower than the Dallas. But those are 2 very strong markets that 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 being able to, 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?

Yes. We've gone and looked at a lot of historical trends recently. And there's -- so much of it correlates with what interest rates were for every April versus every March going forward, but going backwards. But for the most part, yes, 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, the spring season really kind of concludes in May and then you enter the summer season.

Your next question comes from Rohit Seth with B. Riley Securities. Your line is open. Rohit, perhaps

Just on sales pace, 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 Q4 kind of averaged about 3 homes per month.

Yes. 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.

Okay. And can you remind me the spread between Trophy Homes? I know there's a faster sales pace there in the rest of the book.

So Trophy was 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 5 units a month, something like that?

It's really neighborhood dependent. I mean I'll answer it this way. We have some communities that have 2 different lot sizes, where in Q1, we averaged 20 sales a month. So that was as defined by community count, that would be 10 sales. And then we had others where we averaged 3 or 4. So we can pull some better data for you for our next call on that.

Yes. Some of our communities that are particularly in the last phases where we've had success and phasing out, we are melting margin intentionally and maintaining slower sales pace.

Okay. Is there maybe a margin floor where you guys are not willing to breach?

No, we don't look at it that way really. We look at -- basically, we're always modeling internal rate of return on 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 that redeployment of that capital. So it's a little more complicated than just saying we 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 the 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.

This concludes the question-and-answer session. I will turn the call to Jim Brickman for closing remarks.

Well, thank you, everybody, for attending our call. We're always delighted to have anybody call Jeff, Jed or myself with follow-up questions and really would encourage you to do that, and we can get into a little bit more detail about some of the master planned communities we're really excited about. Thank you for the call.

This concludes today's conference call. Thank you for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Green Brick Partners Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jeff Cox, Chief Financial Officer. Jeff, the floor is yours.

Good afternoon, and welcome to Green Brick Partners Earnings Call for the Fourth Quarter ended December 31, 2025. 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 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, February 26, 2026, and the company has no obligation to update any forward-looking statements it may make. The 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 aforementioned presentation. With that, I'll turn the call over to Jim.

Thank you, Jeff. I am pleased to announce our fourth quarter results, particularly given that we achieved these results against the backdrop of ongoing and persistent affordability challenges faced by many consumers in this housing market. Our performance remained resilient despite eroding consumer confidence and an increasing supply of housing inventory. Our builders adapted quickly to a volatile housing market as we continue to balance price and pace to maximize returns in each of our communities. Net income attributable to Green Brick for the fourth quarter was $78 million or $1.78 per diluted share. We delivered 1,038 homes in the quarter, a 1.9% increase year-over-year and a record for any fourth quarter in company history. We also achieved 883 net orders, also a record for any fourth quarter.

As Jed will discuss in more detail, driving our sales volume in Q4 required additional price concessions and other incentives, which caused our homebuilding gross margin to decline 490 basis points year-over-year and 170 basis points sequentially to 29.4%. The decline was due to higher incentives and changes in product mix. Still, our gross margins remain the highest public homebuilders. While the macroeconomic landscape presents headwinds for the entire industry in the short term, we believe the core strengths that have driven Green Brick's success over the past decade will enable us to continue to navigate any challenges with confidence and flexibility. As always, we will focus on maintaining operational excellence centered on our disciplined approach to land acquisition and development to position us for future growth.

We are laser-focused on maintaining an investment-grade balance sheet to support our targeted expansion in high-volume markets. In 2026, we believe that our financial services platform will generate more pretax income than the interest cost on all of our debt. As Jed will discuss in more detail, we also continue to reduce construction cycle times. We believe we are well positioned to sustain our return metrics over the long term that rank among the very best in the industry, providing long-term value to our shareholders. We remain focused on growing our business, particularly in our Trophy brand. Trophy's growth in DFW in Austin, combined with our first open community in Houston during the spring of 2026 selling season, we believe presents significant opportunities for sustained growth over the next few years.

This expansion allows us to continue to serve the critical first-time and move-up buyer segments while further diversifying our revenue base and strengthening our presence in key Texas markets. While the overall market conditions remain challenging due to macroeconomic and political uncertainty, we remain vigilant in monitoring and responding to shifts in buyer preferences. We believe that our experienced team and robust land pipeline and desirable infill and infill adjacent locations will continue to drive our success in the quarters to come. With that, I'll now turn it over to Jeff to provide more detail regarding our financial results.

Thank you, Jim. 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 9.2% from 5.2%. Our average sales price of $530,000 was up 1.1% sequentially and down 3.1% year-over-year. Home closings revenue of $550 million declined 1.3% compared to the same period last year, and our homebuilding gross margins decreased 490 basis points year-over-year and 170 basis points sequentially to 29.4%. SG&A as a percentage of residential unit revenue for the fourth quarter was 10.6%, a decrease of 30 basis points year-over-year, driven primarily by lower personnel costs. Excluding SG&A from our wholly owned mortgage and title companies, our homebuilding SG&A for the fourth quarter was 10.1%.

Net income attributable to Green Brick for the fourth quarter decreased 24.5% year-over-year to $78 million, and diluted earnings per share decreased 23% year-over-year to $1.78 per share. For the full year, deliveries increased 4.2% year-over-year to 3,943 homes, a record for any full year in company history. Our average sales price declined 3.1% to $530,000. We generated home closings revenue of $2.1 billion, an increase of 1% from 2024. Homebuilding gross margin for the year decreased 330 basis points to 30.5% Net income attributable to Green Brick decreased 18% to $313 million, and diluted earnings per share declined 16.3% to $7.07. Excluding the impact of the sale of Challenger, which occurred in the first quarter last year, the diluted earnings per share declined 14.2%.

Net new home orders during the fourth quarter were up slightly year-over-year to 883 and down sequentially only 1.7%. For the full year, net new home orders increased 3.1% year-over-year to 3,795. Average active selling communities of 101 was down 5% year-over-year. Our sales pace for the fourth quarter increased marginally to 2.9 per month compared to 2.8 per month in the previous year. We started 884 new homes, which was down 14% year-over-year and 7% sequentially. Units under construction at the end of the quarter were approximately 2,048, down 12.5% year-over-year. We reduced starts in Q4 to better align with our sales pace to focus on balancing margin and pace. We will continue to monitor market conditions and seasonal trends and align our starts to our sales pace to appropriately manage our investment in spec inventory.

Our backlog value at the end of the fourth quarter was $354 million, a decrease of 28.5% year-over-year due primarily to a higher proportion of quick move-in sales, including greater percentage of our sales being generated by Trophy that as a spec builder, typically has shorter times between contract execution and closing. Backlog ASP decreased 8.2% to $681,000 due to elevated discounts and incentives across all of our brands in addition to product mix. Trophy, our spec homebuilder, represented only 14% of our overall backlog value, but they accounted for nearly half of our closing volume. In Q4, we repurchased 359,000 shares of our common stock for approximately $23 million. And for the full year 2025, we repurchased 1.4 million shares for approximately $83 million.

In December, the Board of Directors authorized a repurchase of up to $150 million of the company's outstanding common stock. This new authorization provides us with the ability to opportunistically return capital to our shareholders when we believe our stock is undervalued while continuing to invest in the long-term growth of the business. We recognize the heightened importance of liquidity in the current period of economic uncertainty and market volatility. We believe our investment-grade balance sheet and low financial leverage provide us with flexibility to navigate and adapt to evolving market conditions, ensuring we have capital available for strategic opportunities as they arise. At the end of the year, our net debt to total capital ratio decreased to 8.2% and our debt to total capital ratio decreased to 14.7%, among the best of our small and mid-cap public homebuilding peers.

Excluding cash and debt from Green Brick Mortgage, our homebuilding debt and net homebuilding debt to total capital ratio at the end of the quarter was 12.8% and 6.3%, respectively. During Q4, we renewed our unsecured revolving credit facility, which extended the facility to December 2028 and provided a meaningful reduction in the interest rate. At the end of the quarter, we maintained a robust cash position of $155 million and total liquidity of $520 million. With $365 million undrawn on our homebuilding credit facilities, we believe we are well positioned to weather the 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 continue to see a challenging sales environment within all our consumer segments, which have been impacted by affordability challenges and a weakening job market. Our team responded well to the challenging market conditions as evidenced by our record fourth quarter sales volume and our low cancellation rate of 7.6% in Q4, which was an improvement from 7.8% in Q4 2024. We continue to have one of the lowest cancellation rates in the public homebuilding industry, and we believe it demonstrates the creditworthiness of our buyers, quality of our product and desirability of our communities. We continue to address the affordability challenges faced by consumers by providing our homebuyers with price concessions, interest rate buydowns and closing cost incentives. Incentives for net new orders during the fourth quarter increased to 10.2%, an increase of 380 bps year-over-year and 130 bps sequentially.

Rate buydowns remain a necessary tool to drive traffic and sales especially with our quick move-in homes. With our superior infill and infill adjacent communities and industry-leading gross margins, we believe we are strategically 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 pricing flexibility to compete effectively in a volatile market. Green Brick Mortgage, our wholly owned mortgage company, closed and funded over 380 loans in the fourth quarter. The average FICO score was 746, and the average debt-to-income ratio was 40%, consistent with previous quarters. Green Brick Mortgage began serving our Austin communities in Q1 of this year.

We expect to complete the rollout of Green Brick Mortgage to all DFW communities by the end of the first quarter of 2026. To Houston when our first community there opens for sale during the spring 2026 selling season and to Atlanta by the middle part of this year. As Green Brick Mortgage continues to expand its service to most of our communities, we anticipate by year-end, this capture rate will range from 75% to 85%, typical of captive mortgage companies. We continue to reduce our construction cycle times, which were down 20 days from a year ago to 130 days. Trophy's average cycle time in DFW was under 90 days, the lowest in their history. 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.

While we believe tariffs will have a minimal impact on earnings next year, we are still assessing the Supreme Court's ruling against the Trump administration's tariffs and the administration's potential response to the ruling. As we navigate through various macro challenges, we are carefully recalibrating our capital allocation plan to align both our long-term growth objectives and to respond to changing market conditions. During the quarter, we spent $36 million on land and lot acquisition and excluding cost share reimbursements, $90 million on land development. This brings spend for 2025 to $267 million for land acquisition and $323 million for land development, respectively. Many of our land development projects involve special financing districts that provide reimbursement for public infrastructure costs.

As work is completed, we are able to recoup a portion of these costs, which reduces our net development spend. We believe our superior land position provides a competitive advantage that will be the foundation for strong growth in subsequent years. Given the strength of our existing land and lot pipeline, we remain patient and selective with future land opportunities without compromising the ability to grow our business in the near and intermediate term. As noted in our earnings release and 10-K, we changed the definition of lots controlled to lots under contract, which includes all land or lot parcels that we have a contractual right to acquire pursuant to a fully executed option contract or purchase and sale agreement.

We previously referred to lots controlled, which included only lots past feasibility studies for which we did not hold title but had contractual rights to acquire. Under the new definition, our total lots owned and under contract at the end of the year increased by 10% year-over-year to approximately 48,800, of which 37,000 lots were owned on our balance sheet and approximately 11,800 lots were under contract. Trophy comprises approximately 70% of our total lots owned and under contract. Excluding approximately 25,000 lots in long-term master planned communities, our lot supply is approximately 6 years. With that, I'll turn it over to Jim for closing remarks.

Thank you, Jed. In short, we remain optimistic about our long-term prospects, and we believe we are well positioned to continue to produce strong results. We believe our strategic land position, high-quality and diverse product offerings that appeal to multiple segments of the homebuyer market and our investment-grade balance sheet will lay the path to future growth and industry-leading returns for our shareholders. Being consistent matters, we are very pleased that we had no turnover at the divisional president level in 2025. So we entered 2026 with experienced, hard-working managers that have worked for us a very long time. I also want to thank the entire Green Brick team for their passion and dedication to delivering exceptional results in the face of a challenging market. This concludes our prepared remarks, and we will now open the line for questions.

[Operator Instructions] Your first question comes from Rohit Seth with B. Riley Securities.

Jeff, just on Q2, can you -- last quarter, you broke out the gross margin decline between buydowns and mix. Can you give us a sense of the puts and takes on the gross margin and the drivers there?

Yes. We looked at the mix ratio. And I would say that while there's certainly some mix components there, most of it is really just driven through higher incentives and discounts. We're seeing compression really kind of across the board and in all of our regions. In some cases, we've got a couple of anomalies within some of our smaller builders, but that's mostly due to community mix more so than anything else.

Okay. Where are you guys buying down rates to at this point?

So we're buying...

4.99% with 321s on our entry level.

Okay. So it's about the same where you were in the prior quarter? You said just in the 5%.

Yes. This is Jim Brickman. So rates ran down, I guess, just a little bit today. The went sub-6% for the first time in a long time. And basically, every 0.25 point is about in the buy down 1 point in incentive cost to us. So it will be interesting to see if rates go down, whether we'll be able to harvest any more margin from having less incentives or not.

Okay. Just on your costs, it looks like sequentially, the cost per home went up a few points. Can you just give us a sense of is that coming in direct costs, land costs?

Jed, why don't you talking about direct costs?

Yes. We're seeing direct costs continue to go down. We are -- as we cycle out of older legacy communities, our new lot prices are higher. Jeff may have a percentage he can share on that. But as far as direct go, they continue to go down.

Yes. On the lot costs they are relatively stable, looking year-over-year, whether for the full year or quarter-over-quarter, but maybe $1,000 or $2,000 a lot. No big movement there. The biggest thing that you're seeing, Rohit, is the increase in our selling and closing costs, which still ran through cost of sales at the end of last year. That's really the biggest driver showing the increase in that number. We've touched on this a little bit in previous calls, but starting later this year, we'll start doing segment reporting as the mortgage company becomes a more material part of our business. And as we do that, those selling and closing costs will become contra revenue as opposed to cost of sales.

Yes. Let me add to that. We have very low debt. So our debt is capitalized into all of our inventory and our land is very low because our debt is very low. one of the other differentiators for us versus many peers is that because we don't lot bank, our lots are not increasing in cost based upon the lot banking cost of capital. And we think that's going to be an advantage year after year.

Interesting. Okay. And if I could squeeze one in. Do you mind commenting on how the spring selling season has been going on traffic or orders? Any color would be helpful.

Yes, I can give you a little color. We usually don't talk month-to-month. Anybody that was in Texas in January knows that we had one of the worst weather events really in our history. So it's really hard to bench sales January to February because January, we were basically out of business for what, 10 days, Jed?

Yes, 7 to 10 days.

Which was almost 1/3 of the month. That said, February looks to be off to a good start for us, and we're really quite encouraged.

Your next question comes from the line of Alex Rygiel with Texas Capital.

Can you talk a little bit about your inventory level as well as the broader inventory level across your markets?

Yes. This is Jed. I can answer that, Alex. We are seeing across all of our brands a really a very high desire for finished specs. So we are carrying higher inventory levels, especially on the spec and finished spec side that we did. And that goes all the way from our $250,000 price point to our $1.2 million price point.

And Alex, this is Jeff. I'll just add on to that, that at the end of the year, we were carrying roughly 5 finished specs per community. Half of those belong to Trophy. But when you look at their sales pace, in particular based on what Jim just referred to with February sales, it only equates about a month to maybe 1.5 months supply.

Of finished inventory.

Correct.

Yes.

And then as it relates to sort of broader inventory in your geographies across your competitors?

We think we're keeping pace or maybe -- I'd say we're middle of the pack. There's some of our competitors that are carrying more finished inventory than us. There's some that are carrying a little bit less. But typically, as Jeff mentioned, everybody is carrying at least 1 month of finished specs on the ground, 1 month of sales of finished specs.

That's helpful. And then any directional guidance on community count growth in 2026?

Yes. This is Jeff. We ticked down a little bit this year in 2025 versus where we were in 2024, and we've been aggressively adding to our lot pipeline, as you know. We don't usually give guidance on community count because it can take us somewhere between 18 to 24 months to bring new deals to market. But certainly, our goal is to continue to increase our community count by the end of this year.

Yes. One of the things that's a little difficult for analysts or really investors to get a grip on with Green Brick is that as Trophy becomes a bigger part of the business as it does quarter-to-quarter to quarter, Trophy sales pace is double, at least Southgate's, which is our high-end builders sales pace. So we really don't need community count to grow to have a significant growth in either top line or unit growth.

I would just add that it's -- as Jeff mentioned, it's a little hard to predict what our community count will be at the end of the year, but we can see 2 to 3 years out that we will have meaningful acceleration in community count.

Yes, we have a number of active couple of communities that will be coming on stream.

And then lastly, it kind of sounded as if your commentary would suggest that your spend on land in 2026 will be down from 2025. Is that fair?

This is Jeff, Alex. We haven't disclosed specific spending amounts for this year yet. We wanted to get through the spring selling season before we gave any kind of guidance on that. But given the increase in lot supply that you've seen over the last couple of years, we do anticipate that land spend will be higher this year, but we're not ready to give a specific number yet.

And Alex, this is Jed. I would mention that we are adding a lot of horizontal development dollars to previous year's land acquisition with the goal of getting our community count up much higher in the coming years.

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

First question is on deliveries, and I guess, the trajectory of deliveries in 2026. I've generally thought about delivery growth kind of tracking growth in starts or homes under construction, and we've seen certainly outperformance this quarter, but then also the past few quarters as well. I'm just wondering if that relationship between delivery growth and starts should -- we should think about that reasserting itself in 2026? Or if you think you could still have deliveries outpace starts and homes under construction here?

This is Jeff. I think that you've seen us pull back on starts here, in particular, in Q4 as we try to rightsize our inventory. And our goal is to make sure that we're starting roughly the same number of homes that we sell each period. But given kind of the prior comment on increasing community count here towards the end of the year, certainly, we would expect to see an increase in starts. We may not necessarily benefit from all the deliveries of those starts depending on when we get those in the ground this year. But certainly, in the future years, we're looking to grow community count and closings.

Okay. Got it. And then I wanted to ask about spec strategy as well. It sounds like as Trophy Signature continues to grow, your spec mix should also continue to increase. We've heard from some of your competitors about shifting back to build-to-order sales. And I'm just wondering how you're thinking about specs versus build-to-order in 2026.

To expand on this, but really, at Trophy, we're seeing really great success in that buyer profile that wants a house, they want the certainty of a mortgage rate. They have an immediate need, and we're finding really a great number of buyers that are out there that want that product at that price and can move in quickly. Jed?

Yes. I think we, as an industry, are doing a very good job of putting the product on the ground that the consumer wants with the right packages. And we've seen that even go into our -- we've seen the spec desire even go into our $600,000, $700,000 even or $1 million price point. So we are going to continue to put a lot of specs on the ground because that's what we think the buyer is telling us that they desire. On paper, theoretically, it sounds great that some of our competitors are wanting to be more build job oriented. We have yet to see that in any of our marketplaces really play out other than, say, at the $1 million-plus price point.

Yes. Let me chime on one other point that I think is important to understand, and that is that, first of all, we never want to give up any incentive that we don't have to give up. But when you're making a 29% or a 30% margin, demand is very elastic, meaning that an incentive, you can really harvest an incremental an incremental amount of buyers out there. So we can pull levers if we ever want to on specs that really -- they will impact our profitability. But when you're making 29% or 30% margins and you take a 2% or 3% hit, it's not the same as when you're making a 15% margin. We haven't had to do that, but we can view our spec inventory a lot differently than I think some of our low-margin peers do.

Your next question comes from the line of Jay McCanless with Citizens.

So the first one I had, could you talk about what type of pricing power you had during the quarter and maybe what you've seen into the spring? What percentage of your communities were you able to raise prices?

Yes, sure. This is Jed. I can take that. Very few communities have we've been able to raise prices. So the good news is we're seeing that the quantity of buyers are a lot stronger in the spring so far. We have been able to raise prices in some communities. But by and large, we are still, as an industry, working through inventory. We're still competing with big publics and big privates that are still trying to make their business plan and not shrink units dramatically. So it's still a competitive landscape out there.

Yes. I think one of the other differentiators in our company, particularly some of our peers is our quality of our backlog. And when we sell a spec -- when we sell a home is much better. We only had about a 7% cancellation rate. So people that buy our specs close.

Great. So -- and thank you for the comments on traffic, Jed. Is that both foot traffic, web traffic, all the above? What are you seeing on those?

Yes. We're seeing it on all of the above. So February weather has been good in the regions that we operate in. We're not in the Northeast. So we missed out on that big storm. But the -- yes, so February has been off to a record start.

That's great. Okay. So the second question I had, -- and thank you for the commentary you gave around build-to-order. But I was just wondering, when you look at new deals that are coming to market and maybe some stuff that's being retraded, are you all seeing some better pricing on land in the markets you all want to acquire land? Or how is that trending for new deal activity from a pricing perspective?

This is Jim. On land that we don't want or lots that we don't want, we're seeing weak demand and lower prices. on land that produces high margins that we do want. Prices have been very sticky. We expect them to remain very sticky because for the very reasons that those type of properties can produce high margins at much lower risk. So it's a tale of 2 cities right now. The inferior locations, there's lots of trading going on, but we really have no interest in those deals.

Okay. And then just my last question, just asking on incentives, and thank you for the color on backlog where you talked about Trophy only being 14% of the backlog. If you look at that other 86%, I guess, how -- what is the incentive load on that now versus maybe where it was a year ago? And essentially, what I'm asking is for those higher priced maybe to-be-built, a little more customization homes, are you having to throw in more incentives on those right now? Or is the all-in incentive load pretty similar to where it was at this point last year?

Yes. I -- this is Jed. I'll answer that, and then Jeff can add some numbers to it. So we are having to -- on, say, $1 million-plus build job, we're having to give higher design center monies than we were a year ago. On a $600,000, $700,000 house, we've mentioned that we're shifting the buyers are more interested in the finished specs than the build to orders for those. So we are having to do closing cost incentives, rate buydowns, things we weren't having to do a year ago.

Yes. This is Jeff. So I'll just add that when we looked at incentives on closings during the quarter, we were 9.2%, up from 5.2% a year ago. And looking at incentives on new orders during the quarter, they did tick up a little bit to 10.2%. But so far, we've, again, had a tremendous month of February here. If we can pull back on incentives and maintain momentum, we'll certainly take a look at doing that.

That concludes our question-and-answer session. I will now turn the conference back over to Jim Brickman for closing comments.

Thank you for participating in our call today. If anyone has any questions, we're available to enhance what we discussed today and just give us a call. We appreciate your interest in our company.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.

Thank you for standing by. My name is Lacey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Green Brick Partners, Inc. Third Quarter 2020 Earnings Call. [Operator Instructions]

Thank you. I would now like to turn the conference over to Jeff Cox, Chief Financial Officer. You may begin.

Good afternoon. And welcome to Green Brick Partners' earnings call for the third quarter ended September 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, 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 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, October 30, 2025, and the company has no obligation to update any forward-looking statements it may make. The 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 the aforementioned presentation.

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

Thank you, Jeff. First, I want to formally recognize Jeff's promotion to Chief Financial Officer, effective earlier this month. Jeff joined the company in June 2023 as Senior Vice President of Finance with over 2 decades of homebuilding experience, and he has been instrumental in helping us establish our wholly owned mortgage company, along with refining our financial systems and processes. I am excited to have Jeff join the senior leadership team and add his talent to Green Brick's deep under 50-year-old talent bench.

With that, I am pleased to announce our third quarter results particularly given that we achieved these results against the backdrop of ongoing and persistent affordability challenges faced by many consumers in this housing market. Our performance remained resilient despite eroding consumer confidence and an increasing supply of housing inventory. Our builders adapted quickly to a volatile housing market as we continue to balance price and pace to maximize returns in each of our communities.

We achieved 898 net orders, representing a 2.4% increase year-over-year, which is a record for any third quarter. We also closed 953 homes in the quarter, just 3 shied of beating our record third quarter 2024 results. Net income attributable to Green Brick for the third quarter was $78 million or $1.77 per diluted share. As Jed will discuss in more detail shortly, driving our sales volume required price concessions and other incentives as we address the affordability challenges faced by home buyers in our markets.

As expected, these dynamics put downward pressure on our homebuilding gross margins, which declined 160 basis points year-over-year and 70 basis points sequentially and to 31.1%. Our results also reflect a $4.8 million warranty adjustment, which improved our gross margins by 90 basis points. Our gross margins remain the highest in the public home building industry and marked the tenth consecutive quarter in which our gross margins exceeded 30%.

While the macroeconomic landscape presents headwinds for the entire industry, we believe the core strengths that have driven Green Brick's success over the past decade will enable us to continue to navigate any challenges with confidence and flexibility. As always, we will focus on maintaining operational excellence centered on our disciplined approach to land acquisition and development to position us for future growth.

We are laser-focused on maintaining an investment-grade balance sheet to support our targeted expansion in high-volume markets. As Jed will discuss in more detail momentarily, we also continue to concentrate on reducing construction costs and cycle times. We believe we are well positioned to sustain our return metrics that we rank among the very best in the homebuilding industry and create long-term shareholder value.

We remain focused on growing our business. particularly our prophy brand. Trophy's growth in DFW in Austin, combined with our planned entering into Houston by the 2026 spring selling season presents significant opportunities for sustained growth over the next few years. This expansion, we believe, allows us to continue serving the critical first time and move up buyer segments, while further diversifying our revenue base and strengthening our presence in key Texas markets.

With our highly diversified brand portfolio, we believe we are well positioned to capitalize on demand from all homebuyer segments. While the overall market conditions remain challenging due to macroeconomic and political uncertainty, we remain vigilant in monitoring and responding to shifts and buyer preferences. We believe that our experienced team and a robust land pipeline and 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. about our financial results. Jeff?

Thank you, Jim. 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 8.1% from 5%. Our average sales price of $524,000 was flat sequentially and down 4.2% year-over-year. Home closings revenue of $499 million declined 4.6% compared to the third quarter last year, and our homebuilding gross margins decreased 160 basis points year-over-year and 70 basis points sequentially to 31.1%.

As Jim mentioned earlier, we reduced our warranty reserve by $4.8 million during the quarter, which improved our gross margins by 90 basis points for the quarter and 30 basis points year-to-date. This adjustment was based on an analysis of our warranty reserve accruals compared to actual warranty spend, which was less than previously anticipated. This adjustment reflects continued improvements in our construction quality and the strength and stability of our trade partners. SG&A as a percentage of residential unit revenue for the third quarter was 11.6%, an increase of 60 basis points year-over-year, driven primarily by higher personnel costs and investments in our IT platforms to enhance operational efficiencies.

Net income attributable to Green Brick for the third quarter decreased 13% year-over-year to $78 million and diluted earnings per share decreased 11% year-over-year to $1.77 per share. Year-to-date, deliveries increased 5.1% year-over-year to 2,905 homes, and our average sales price declined 3% to $531,000.

As a result, we generated home closings revenue of $1.54 billion, an increase of 2% year-to-date from the same period in 2024. Homebuilding gross margin decreased 270 basis points to 30.9%. Year-to-date net income attributable to Green Brick decreased 15% to $235 million and diluted earnings per share declined 13.6% to $5.29. As a reminder, we sold our 49.9% interest in Challenger Homes in the first quarter of last year, which had the impact of adding $0.21 to our 2024 diluted earnings per share.

Net new home orders during the third quarter were up 2.4% year-over-year to $898 and down sequentially only 1%. Year-to-date, net new home orders increased 4% year-over-year to 2,912. Average active selling communities of 103 remained relatively unchanged year-over-year. Our sales pace for the third quarter increased marginally to 2.9 per month compared to 2.8 per month in the previous year. We started 950 new homes, which was approximately the same as the prior quarter and down 10% year-over-year. Units under construction at the end of the quarter were approximately 2,200 down 5.5% year-over-year.

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. Due to a higher proportion of quick move-in sales, coupled with a 9-day improvement in our average construction cycle time, our backlog value at the end of the third quarter was $466 million, a decrease of 20% year-over-year.

Backlog average sales price decreased 4.1% to $690,000 due primarily to higher discounts and incentives. Trophy, our spec home builder represented only 14% of our overall backlog value, down slightly from the previous quarter, but they accounted for nearly half of our closing volume. We recognize the heightened importance of liquidity in the current period of economic uncertainty and market volatility. Our investment-grade balance sheet and low financial leverage, we believe, provide us with flexibility to navigate and adapt to evolving market conditions, ensuring we have capital available for strategic opportunities as they arise.

At the end of the third quarter, our net debt to total capital ratio was 9.8% and our debt to total capital ratio was 15.8%, among the best of our small and mid-cap public homebuilding peers. Excluding cash and debt from Green Brick Mortgage, our homebuilding debt and net debt to capital ratio at the end of the quarter was 15.3% and 9.5%, respectively.

At the end of the quarter, we maintained a robust cash position of $142 million and total liquidity of $457 million, with $315 million undrawn on our homebuilding credit facilities we believe we are well positioned to weather the 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 continue to see a challenging sales environment within all consumer segments, which have been impacted by affordability challenges and a weakening job market. While we were encouraged to see mortgage rates decline approximately 60 bps during the quarter, demand remained steady during each of the months during the quarter, even as interest rates remained above 6% throughout the quarter.

Our team responded well to the evolving market conditions as evidenced by our record third quarter sales volume and our low cancellation rate of 6.7% in Q3, which was an improvement from 9.9% in Q2 and 8.5% in Q3 of 2024. We continue to have one of the lowest cancellation rates in the public homebuilding industry, and we believe it demonstrates the creditworthiness of our buyers, quality of our product and desirability of our communities. We continue to address the affordability challenges faced by consumers by providing our homebuyers with price concessions, interest rate buydowns and closing cost incentives.

Incentives for net new orders during the third quarter were higher by 280 bps year-over-year and 100 bps sequentially, increasing to 8.9%. Incentives moderated during the quarter from a peak in July as the average 30-year mortgage rate declined during the quarter reducing the cost of interest rate buydowns. Rate buydowns remained a necessary tool to drive traffic and sales, 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 base. While we recognize the importance of preserving our margins, we also recognize that our industry-leading margins provide us with the significant pricing flexibility to compete efficiently in a volatile market.

Green Brick Mortgage, our wholly owned mortgage company closed and funded over 350 loans in the third quarter compared to 140 loans in Q2, the average FICO score was 740, and the average debt-to-income ratio was 40%, consistent with the previous quarter. We are excited about the future prospects of Green Brick mortgage as we are preparing to expand into Austin, Atlanta and Houston later this year and early next year. Green Brick Mortgage continued to increase its capture rate while providing top-tier service to our homebuyers.

Operationally, we continue to make meaningful strides in reducing our direct construction costs and enhancing our operational efficiency. The cost for labor and materials for homes closed this quarter was down approximately $2,250 per home compared to the same period last year. We also continued to reduce our construction cycle times, which were down 9 days from a year ago. Trophy's average cycle ton in DFW was under 100 days, the lowest in their history.

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 earnings next year, although we acknowledge the lack of certainty with respect to final tariff timing, scope or percentages makes 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 changing market conditions.

During the quarter, we spent $121 million on land and lot acquisition, excluding cost share reimbursement and $73 million on land development. This brings the year-to-date spend to $231 million for land acquisition and $233 million for land development. respectively. Many of our land development projects involve special financing districts that provide for reimbursement of public infrastructure costs.

As work is completed, we're able to recoup a portion of these costs, which reduced our net land development spend. We continue to project approximately $300 million in land development spending for the full year of 2025, which will be partially offset by these reimbursements. We believe our superior land position provides a competitive advantage that will be the foundation for strong growth in subsequent years. Given the strength of our existing land and lot 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 third quarter, our total lots owned and controlled increased by 11% year-over-year to approximately 41,200 lots, of which over 36,000 lots were owned on our balance sheet and approximately 4,500 were controlled lots. Trophy comprises approximately 70% of our total lots owned and controlled. Excluding approximately 25,000 lots in long-term master plan communities our lot supply is approximately 5 years.

Finally, we are on schedule to open our first community in Houston. The construction of our first model home began in October and we anticipate opening for sales in time for the spring selling season. We're excited about expanding Trophy's footprint in one of the largest homebuilding markets in the U.S.

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

Thank you, Jed. In short, we remain optimistic about our long-term prospects and believe we are well positioned to continue producing strong results. We believe our strategic land position, high-quality and diverse product offerings that appeal to multiple segments of the homebuyer market and strong balance sheet will lay the path to future growth and industry-leading returns for our shareholders.

I also want to thank the entire Green Brick team for their passion and dedication to delivering exceptional results in the face of a challenging market. This concludes our prepared remarks, and we will now open the line for questions.

[Operator Instructions] Your first question comes from the line of Alex Rygiel with Texas Capital.

Thank you, Jim. 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?

Yes, we can all handle that a little bit. Thanks for your question. This is Jim Brickman. We don't give guidance on gross margins quarter-to-quarter. But I think your question does give me a really good opportunity to talk about Green Brick's strategic advantages as we look at our business not only next quarter but many quarters going forward.

And I think there are really 2 components to that. First, we have a very long runway of low-priced lots and infill adjacent locations. And no matter what's happening, we believe that our lot price advantage in these lots is going to give us industry-leading margins compared to peers. So that's the first point. And it's really interesting what's happening for my second point is that because we self-develop 90% of our lots, we can deploy capital based upon market demand rather than a land bankers or a land developers contract terms. And we think that will help us maintain margins in our communities where we're not faced with having to produce excess inventory.

That's helpful. And then you mentioned that incentives moderated through the third quarter. Has that continued in October?

Yes. This is Jeff Alex. Those incentives moderating during the quarter are really primarily a function of the rates coming down over the last couple of months. we're still utilizing the rate buydowns as an effective tool to drive traffic and get sales. We haven't really gotten a lot more aggressive in terms of the target rate that we've been advertising which has really helped us be able to reduce our incentives and improve margins at this point.

Jed can chime in, Alex. We haven't seen the market get a lot better or a lot worse. It's pretty much pretty steady.

Your next question comes from the line of Rohit Seth with B. Riley Securities.

Just on the incentives, where are you today in terms of your mortgage rate buydown, what's your advertiser rate you guys are offering?

Right, just under 5%, buydown targeted rate.

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? From where we were say...

And by down to 4%, we haven't chased them down that low to generate the sales that we just reported.

And our incentive levels -- is there much difference between DFW and Alan?

I'd say there's the ability to produce more homes because it's not as...

Yes, there's a difference because our average price point in that land is $300,000 or $400,000 greater. So it's a very different buyer.

I would just add on to that as well. We do a lot of spec sales here, primarily with trophy. So they don't have a big backlog of homes that they're necessarily trying to protect. Atlanta, they do a lot of 2B built there. So I think we're seeing some higher incentives there, generally speaking, relative to our Texas markets.

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?

Well, community count is tough for any analyst right now to look at with us because the new communities are adding are high-velocity lower-priced communities. So -- and that's many of the communities that we're adding this year. So community growth isn't that great, but the sales velocity that's coming on the new communities that we're adding should be favorable.

Yes. I would just say that we expect Austin to be -- to basically double from where it was this year and then Houston will really be -- we'll get sub-100 closings next year, and that will grow meaningfully the year after that in 2027.

Okay. Fantastic. And then on the mortgage business, there's pretty nice uptick sequentially. You're growing the business obviously. I mean, do you think this level is sustainable as a go-forward run rate for you guys? Where you're at today or Yes.

This is Jeff. Yes, we've been really happy with the progress that the mortgage company has made so far. We're trying to take a measured approach in how we roll this out to our Texas builders and communities. But the goal, as Jed mentioned earlier, is to really have that rolled out to the balance of Texas by the end of this year, targeting Houston and Atlanta at least by the first part of next year. We've got people and systems in place to be able to really leverage and scale that business at this point. And so we're excited about where we think we can take that.

Yes. I think the other thing we do from this financial perspective is that next year, we'll be breaking out financial services separately. And by doing that, we'll be pulling SG&A or G&A out of our line, putting it in financial services line that will slightly help our SG&A.

And then I guess last one is maybe you could just comment on the cost buckets were -- are you seeing any direct cost savings in your labor, your land costs?

Yes. This is Jed. I'll take that. We're definitely seeing land and lots either stabilize or slightly come down in price. Lumber continues to be a year-long low every new month that occurs. So that has just fallen every single month this year. Labor is readily available. When we talk to our subs a lot of them are running at 65% to 70% capacity so they've been able to negotiate reductions with their staff. So, yes, everything on the vertical side is coming down.

All right, fantastic. I guess I do have a last one, just a 4% ASP decline in the quarter. How much of that was just product mix, plant size and trophy share versus maybe base pricing?

Yes. Trophy share didn't really change year-over-year, but there was some mix that was impacting the average sales price of the 4.3% decline in ASP, I calculate roughly little less than half of that was related to just the mix of closings across our builders.

There are no further questions at this time. I would now like to turn the call back over to Jim Brickman for closing remarks.

Well, we're always available if anybody who wants to visit with any of the speakers, Jeff, myself or Jed. So send us an e-mail, give us a call, and we'll be happy to do add more color to anything we talked about today. Thank you.

This concludes today's conference call. You may disconnect.