Green Brick (GRBK) Earnings Call Transcript

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DATE

Thursday, February 26, 2026 at 12 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — James R. Brickman
• President and Chief Operating Officer — Jed Dolson
• Chief Financial Officer — Jeffery Cox

TAKEAWAYS

• Net Income -- $78 million, down 24.5% year over year, with diluted earnings per share at $1.78, a 23% decrease.
• Home Deliveries -- 1,038 units delivered, up 1.9% year over year, representing a record fourth quarter for the company.
• Net Orders -- 883 net orders, a record for any fourth quarter; net new home orders rose 3.1% for the year to 3,795.
• Home Closings Revenue -- $550 million, a 1.3% decline year over year.
• Homebuilding Gross Margin -- 29.4%, down 490 basis points year over year and 170 basis points sequentially, attributed to higher incentives and a change in product mix.
• Average Sales Price -- $530,000, up 1.1% sequentially but down 3.1% year over year.
• Discounts and Incentives -- 9.2% of residential unit revenue versus 5.2% a year ago; incentives on net new orders in the quarter increased to 10.2%.
• SG&A as Percentage of Residential Unit Revenue -- 10.6%, down 30 basis points year over year due to lower personnel costs; homebuilding SG&A excluding financial services was 10.1%.
• Backlog Value -- $354 million, a 28.5% decrease year over year, reflecting a higher proportion of quick move-in sales and changes in mix.
• Backlog Average Sales Price -- $681,000, an 8.2% decrease, due to increased incentives and shifts in product mix.
• Share Repurchases -- 359,000 shares for $23 million in Q4; full year repurchase totaled 1.4 million shares for $83 million; new $150 million share repurchase authorization in December.
• Liquidity and Balance Sheet -- $155 million in cash and $520 million total liquidity, including $365 million undrawn on credit facilities; net debt to total capital at 8.2% and total debt to capital at 14.7%.
• Construction Cycle Time -- Company-wide average reduced by 20 days to 130 days; Trophy brand averaged under 90 days in DFW.
• Active Selling Communities -- Average count of 101 was down 5% year over year; sales pace rose to 2.9 per month from 2.8.
• Units Under Construction -- 2,048 at quarter end, a 12.5% decrease year over year; new starts fell 14% year over year and 7% sequentially to 884 units.
• Backlog Composition -- Trophy accounted for 14% of backlog value but nearly half of closing volume, highlighting faster move-in segment dynamics.
• Land Position and Pipeline -- Total lots owned and under contract increased 10% to approximately 48,800, with 37,000 owned and 11,800 under contract; approximately 70% attributed to Trophy.
• Land and Development Spend -- $267 million spent on land acquisition and $323 million on land development for the year; $36 million and $90 million spent respectively during the quarter before cost share reimbursement.
• Green Brick Mortgage Rollout -- Mortgage operations funded over 380 loans in Q4; average FICO score for borrowers was 746; anticipated roll-out to all key communities by end of 2026 with a projected 75%-85% capture rate.
• Repurchase Authorization -- Board authorized up to $150 million for additional share repurchases to provide capital flexibility.

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RISKS

• Homebuilding gross margin declined 490 basis points year over year and 170 basis points sequentially to 29.4%, primarily due to increased incentives and changing product mix.
• CFO Jeffery Cox stated, "discounts and incentives increased year over year as a percentage of residential unit revenue to 9.2% from 5.2%," indicating higher costs to secure sales.
• Backlog value fell 28.5% year over year, primarily because of a higher proportion of quick move-in sales, including a greater percentage of sales by Trophy.
• Average active selling communities declined 5% year over year, with starts down 14% and units under construction down 12.5%, signaling slower expansion and cautious inventory management.

SUMMARY

Management emphasized that net income and earnings per share declined significantly despite a record number of deliveries and orders in the quarter. The company increased its use of sales incentives and price concessions to maintain sales volumes against affordability pressures and rising inventories, which resulted in margin compression and lower average selling prices. Liquidity was highlighted as a priority, with record cash holdings and renewed credit capacity cited as strategic strengths. The company expects Green Brick Mortgage to become a larger earnings contributor, with anticipated growth in its mortgage capture rate as rollout to all communities proceeds. Leadership referenced ongoing investment in land acquisition and development, but signaled selectivity and patience due to current market volatility and land pricing differences between preferred and less desirable locations.

• The balance sheet remains notably conservative, with management highlighting a net debt to total capital ratio of 8.2%, supporting capital deployment flexibility.
• Construction cycle times have improved, dropping by 20 days to 130 days overall, and Trophy’s cycle time in DFW reached a brand low under 90 days.
• Management stated, "In December, the Board of Directors authorized a repurchase of up to $150 million of the company's outstanding common stock," reinforcing an ongoing commitment to shareholder returns alongside operational investments.
• The new definition of lots controlled expanded the reported pipeline by 10% to approximately 48,800, increasing visibility on future growth potential.

INDUSTRY GLOSSARY

• Trophy: Green Brick Partners, Inc.’s high-volume, primarily spec homebuilder targeting entry-level and move-up buyers.
• Spec Home: A home built without a specific buyer, allowing for quicker move-in upon sale.
• Infill/ Infill-Adjacent: Residential developments sited within or near established urban areas rather than in distant suburbs.
• Capture Rate: Percentage of homebuyers using Green Brick Mortgage compared to total homes sold by the company.

Full Conference Call Transcript

Jeffery Cox: Good afternoon, and welcome to Green Brick Partners, Inc. 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 James R. Brickman, Co-Founder and Chief Executive Officer; Jed Dolson, President and Chief Operating Officer; and myself, Jeffery 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 statement 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. I will now turn the call over to James R. Brickman.

James R. Brickman: Thank you, Jeffery. 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 continued to balance price and pace to maximize returns in each of our communities. Net income attributable to Green Brick Partners, Inc. 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 among 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 Partners, Inc.'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 continued 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 and Austin combined with our first open community in Houston during the 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, robust land pipeline, and desirable infill and infill-adjacent locations will continue to drive our success in the quarters to come. I will now turn it over to Jeffery to provide more detail regarding our financial results.

Jeffery Cox: Thank you, James. 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 Partners, Inc. for the fourth quarter decreased 24.5% year over year to $78 million. 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 Partners, Inc. 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, 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 with 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 a 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. I will now turn it over to Jed.

Jed Dolson: Thank you, Jeffery. 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, the quality of our product, and the desirability of our communities.

We continue to address the affordability challenges faced by consumers by providing our homebuyers with price concessions, interest rate buy downs, and closing cost incentives. Incentives for net new orders during the fourth quarter increased to 10.2%, an increase of 380 basis points year over year and 130 basis points sequentially. Rate buy downs 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 community in Q1 of this year.

We expect to complete the rollout of Green Brick Mortgage to all DFW communities by the end 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 a captive mortgage company. 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 reimbursement, $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 planned opportunities without compromising the ability to grow our business in the near and intermediate term.

As noted in our earnings release and 10-Ks, 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 plan communities, our lot supply is approximately six years. I will now turn it over to James for closing remarks.

James R. Brickman: Thank you, Jed. In short, we remain optimistic about our long-term prospects. 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, hardworking managers that have worked for us a very long time.

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

Operator: Thank you. And if you would like to withdraw that question, again, press 1. Your first question comes from Rohit Seth with B. Riley Securities. Please go ahead.

Rohit Seth: Hey, thanks for taking my question. Jeffery, just on Q2, last quarter you broke out the gross margin decline between buy downs and mix. Can you give us a sense of the puts and takes on the gross margin and the drivers there?

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

Rohit Seth: Okay. Where are you buying down rates to at this point?

Jeffery Cox: We are buying with 3-2-1s on our entry level.

Rohit Seth: Okay. So it is about the same where you were in the prior quarter? You said just in the 5s.

James R. Brickman: Yes. This is James R. Brickman. Rates went down just a little bit today. They went sub-6% for the first time in a long time, and basically, every quarter of a point is about one point in incentive cost to us. It will be interesting to see if rates go down, whether we will be able to harvest any more margin from having fewer incentives or not.

Rohit Seth: Okay. Just on your cost, it looks like sequentially the cost per home went up a few points. Maybe give us a sense of that coming in direct cost, land cost?

James R. Brickman: Jed Dolson, why do you talk about direct costs?

Jed Dolson: Yes. We are seeing direct costs continue to go down. As we cycle out of older legacy communities, our new lot prices are higher. Jeffery may have a percentage he can share on that, but as far as directs go, they continue to go down.

Jeffery Cox: Yes. On the lot cost, 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 are 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 is really the biggest driver showing the increase in that number. We touched on this a little bit in previous calls, but starting later this year, we will 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 as opposed to cost of sales.

James R. Brickman: Yes. Let me add to that. We have very low debt, so our debt that 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 do not lot bank, our lots are not increasing in cost based upon the lot banking cost of capital, and we think that is going to be an advantage year after year.

Rohit Seth: 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.

James R. Brickman: Yes. I can give you a little color. We usually do not talk month to month. Anybody that was in Texas in January knows that we had one of the worst weather events in our history. So it is really hard to bench sales January to February because in January we were basically out of business for, what, ten days, Jed?

Jed Dolson: Seven to ten days.

James R. Brickman: Which was almost a third of the month. That said, February looks to be off to a good start for us, and we are quite encouraged.

Rohit Seth: Sounds great. I will pass it on.

Operator: Your next question comes from the line of Alex Rygiel with Texas Capital. Please go ahead. Alex, your line is open.

Alex Rygiel: Thank you very much. Good morning, gentlemen. Can you talk a little bit about your inventory level as well as the broader inventory level across your markets?

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

Jeffery Cox: And, Alex, this is Jeffery. I will just add on to that at the end of the year, we were carrying roughly five finished specs per community. Half of those belong to Trophy. But when you look at their sales pace, in particular based on what James just referred to with February sales, it only equates to about a one to one-and-a-half month supply of finished inventory.

Alex Rygiel: And then as it relates to broader inventory in your geographies across your competitors?

Jed Dolson: We think we are keeping pace or maybe—yes, I would say we are middle of the pack. There are some of our competitors that are carrying more finished inventory than us. There are some that are carrying a little bit less. But typically, as Jeffery mentioned, everybody is carrying at least one month of finished specs on the ground—one month of sales of finished specs.

Alex Rygiel: That is helpful. And then any directional guidance on community count growth in 2026?

Jeffery Cox: Yes. This is Jeffery. We ticked down a little bit this year, 2025 versus where we were in 2024. We have been aggressively adding to our lot pipeline, as you know. We do not 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.

James R. Brickman: One of the things that is a little difficult for analysts or investors to get a grip on with Green Brick Partners, Inc. is that as Trophy becomes a bigger part of our business, as it does quarter to quarter to quarter, Trophy’s sales pace is double, at least, Southgate, which is our high-end builder’s sales pace. So we really do not need community count to grow to have significant growth in either top line or unit growth.

Jed Dolson: Yes. I would just add that it is a little hard to predict what our community count will be at the end of the year, but we can see two to three years out that we will have meaningful acceleration in community count.

James R. Brickman: Yes. We have a number of batch-of-coupled communities that will be coming on stream.

Alex Rygiel: 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?

Jeffery Cox: This is Jeffery, Alex. We have not disclosed a specific spending amount 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 have seen over the last couple of years, we do anticipate that land spend will be higher this year. We are not ready to give a specific number yet.

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

Alex Rygiel: Thank you very much.

Operator: Your next question comes from the line of Ryan Gilbert with BTIG. Please go ahead.

Ryan Gilbert: Hi. Thanks, guys. First question is on deliveries and the trajectory of deliveries in 2026. I have generally thought about delivery growth tracking growth in starts or homes under construction, and we have seen outperformance this quarter, but then also the past few quarters as well. Just wondering if that relationship between delivery growth and starts should reassert itself in 2026, or if you think you could still have deliveries outpace starts and homes under construction here?

Jeffery Cox: This is Jeffery. I think that you have seen us pull back on starts here, in particular in Q4. We tried to right-size our inventory. Our goal is to make sure that we are starting roughly the same number of homes that we sell each period. But given the prior comment on increasing community count here towards the end of the year, we would certainly 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 are looking to grow community count and closings.

Ryan Gilbert: 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 have heard from some of your competitors about shifting back to build-to-order sales. How are you thinking about specs versus build-to-order in 2026?

James R. Brickman: Jeffery can expand on this, but at Trophy we are seeing really great success in that buyer profile that wants a house, that wants the certainty of a mortgage rate, they have an immediate need, and we are finding a great number of buyers that are out there that want that product at that price and can move in quickly.

Jed Dolson: 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. We have seen that even go into our $600,000 to $700,000, even our $1 million price point. So we are going to continue to put a lot of specs on the ground because that is 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.

James R. Brickman: Let me chime in 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 do not have to give up. But when you are making a 29% or a 30% margin, demand is very elastic, meaning that an incentive can really harvest an incremental amount of buyers out there. So we can pull levers if we ever want to on specs that will impact our profitability, but if you are making 29% or 30% margins and you take a 2% or 3% hit, it is not the same as when you are making a 15% margin.

We have not had to do that, but we can view our spec inventory a lot differently than I think some of our low-margin peers do.

Ryan Gilbert: Got it. That makes sense. Appreciate it. Thanks, guys.

Operator: Your next question comes from the line of Jay McCanless with Citizens. Please go ahead.

Jay McCanless: Good morning everyone. Thanks for taking my questions. The first one I have: could you talk about what type of pricing power you had during the quarter and maybe what you have seen into the spring? What percentage of your communities were you able to raise prices?

Jed Dolson: Yes, sure. This is Jed. I can take that. In very few communities have we been able to raise prices. The good news is we are seeing that the quantity of buyers is 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 are still competing with big publics and big privates that are still trying to make their business plan and not shrink units dramatically. So it is still a competitive landscape out there.

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

Jay McCanless: That is great. And thank you for the comments on traffic, Jed. Is that both foot traffic, web traffic, all of the above? What are you seeing on those?

Jed Dolson: Yes. We are seeing it on all of the above. February weather has been good in the regions that we operate in. We are not in the Northeast, so we missed out on that big storm. February has been off to a record start.

Jay McCanless: Okay. Thank you. The second question I had, and thank you for the commentary you gave around build-to-order, when you look at new deals that are coming to market and maybe some stuff that is being retraded, are you seeing better pricing on land in the markets where you want to acquire land? How is that trending for new deal activity from a pricing perspective?

James R. Brickman: This is James. On land that we do not want or lots we do not want, we are 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 types of properties can produce high margins at much lower risk. So it is a tale of two cities right now. The inferior locations—there is lots of trading going on, but we really have no interest in those deals.

Jay McCanless: Okay. And then just my last question, 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%, what is the incentive load on that now versus maybe where it was a year ago? 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?

Jed Dolson: I will answer that, and then Jeffery can add some numbers to it. We are having to, on a $1 million-plus build job, give higher Design Center monies than we were a year ago. On a $600,000 to $700,000 house, we mentioned that 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 buy downs—things we were not having to do a year ago.

Jeffery Cox: This is Jeffery. I will 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 have had a tremendous month of February here. If we can pull back on incentives and maintain momentum, we will certainly take a look at doing that.

Jay McCanless: Okay. That sounds great. Thanks, guys. Thank you.

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

James R. Brickman: Thank you for participating in our call today. If anyone has any questions, we are available to enhance what we discussed today. Just give us a call. We appreciate your interest in our company.

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

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