Q2 2020 Green Brick Partners Inc Earnings Call

Ladies and gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time Airlines will again be placed on music cold. Thank you for your patience.

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Hi, Slide show supporting today's presentation is available on Green brick partners website, Www Dot green brick partners Dot Com go to investors and governance, then click on the option that says reporting and then school to the page and do you see the second quarter Investor call presentation.

[music] pick up in your mind you did during this conference call. It may make various forward looking statements within the meaning of the safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including its financial and operational expectations for Twentytwenty and the future.

Investors are cautioned that such forward looking statements with respect to revenues earnings performance strategies, including but not limited to comments related to the anticipated impact cobot 19 on our future operations prospects and other aspects of the business of green brick.

Partners are based on current expectation and are subject to risks and uncertainties.

Those factors that could cause actual results or outcomes to differ materially from those expected are set forth in our press release, which were for lease on Tuesday August 4th Twentytwenty under risk factors described in the company's most recent annual and quarterly filings with the Securities and Exchange Commission.

Green brick partners undertakes no duty to update any forward looking statements that are made during this call.

In addition, our comments will include non-GAAP financial metrics.

A reconciliation of these metrics and the other information required by ready regulation G. Regarding these metrics can be found in the earnings release that green brick issued yesterday.

And the presentation available on the company's website I will now turn the call over to you Green brick CEO Jim Brickman. Please go ahead Sir.

Thank you hi, everyone I hope this call fines, everyone well with me as Rick Costello, our CFO and jet adults are present under the Texas region.

Thanks for joining our call.

As the operator mentioned the presentation that accompanies this earnings call can be found on our web page at Green brick partners Dot com.

At the top the web page click on investors and governance.

Then click on the option that says reporting.

And then scroll down the page until you see the second quarter Investor call presentation.

Good day, everyone is second to do this.

[music], okay. Despite the challenges of operating during the Cold 19 pandemic arc Q2, 2020 results are by far the best in the company's history and continued to demonstrate the remarkable growth trajectory of the company.

Our Q2, 2020 revenues bps and ending backlog for an all time records, we could not be more thrilled with our results.

The 69% year over year growth in pre tax income is especially noteworthy as these results were achieved while reducing our net debt to total capital to 23.7%.

Throughout the current health crisis, we have continued to build and sell and close homes and all of our markets.

After recognizing the increased market activity commencing in may and accelerating into June we re initiated much of the previously planned capital expenditures that we get placed on hold in March.

This activity included construction of unsold units purchase of lots and land.

And development of previously acquired land that we are active busy managing in order to keep pace with the current sales progress.

As we move into the third quarter, we continue to see strong sales growth as evidenced by July 2020, showing a 29% increase in net sales over July 2019.

We have initiated moderate price increases to offset some of the cost input increases like lumber.

And expect to maintain or industry, leading high margins.

We continue to monitor a fixed cost <unk> to position ourselves to read responses to changing market conditions and we have delivered this growth without returning to our prior overhead levels.

We remain optimistic that the pro business markets in which we operate in the wide range of quality homes offered by our team builders will continue to drive future success. Despite the market disruptions caused by covert 19.

This optimism is grounded on the outstanding year over year sales growth. We've witnessed this may and June.

Where each month exceeded the same month in the prior year by 52%.

And 82%.

Please flip to slide slide four of our presentation.

[noise], we are a diversified builder with eight brands and four major markets.

Our diversification includes a wide array of product types and price ranges, including homes priced as low as $200000 to homes priced in excess of 1 million.

We believe the stratification of products will continue to appeal to a broad base of home buyers and expect or entry level segment to continue expanding through the growth of our trophy signature and CPG brands.

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Beginning in the fourth quarter of 2019 Green brick made the decision to increase our equity ownership in most of protections builders.

At the end of Q2, 2020, RCB journey, Normandy and South the team builders are now all wholly owned by Green brick partners and center living hopes is 90% though.

We believe this increase control will lead to a more adaptable and efficient operation of our Texas region that will empower our experienced management team and local operators to continue to produce superior risk adjusted returns.

In fact, we are already seen the impact of these trends.

[noise], Oh I'm sorry.

Sorry, I jumped ahead of their on slide five we highlight the resilience of our key markets of Dallas Fort worth in Atlanta.

Like every other economy in the country. The cobot 19 pandemic created a major disruption in commercial activity and led to a significant rise in unemployment during the second quarter.

However, as shown on the graph on this page, our DFW and Atlanta markets ended the quarter with the lowest and third lowest unemployment rates out of the 10th largest metro areas in the United States.

Additionally, the Dallas Plano in urban sub market had the second lowest year over year increase in its unemployment rate in the nation.

With 82% over ending active selling communities in these core markets of DFW in Atlanta Green brick is fully prepared to capture new home buyers in these markets as demonstrated in our robust sales growth in the latter half of Q2 2020.

We believe this strong bounced back from the low seen in April 2020 years further proof that our focus on business friendly pro growth markets is that correct choice and we'll continue to rough differentiate us from peers.

Thanks to the superior markets in which we operate green brick is poised to capitalize on what we believe our long term positive shifts in home ownership.

As seen on slide six the national home ownership participation rate has risen since the fed began reducing interest rates in August 2019.

As of June Thirtyth 2020, the national ownership rate now sits at 67.9%. This is a rate not seen since September thirtyth of 2008.

With interest rates expected to remain low for the foreseeable future and an increased depreciation and demand for larger homes with dedicated work from home spaces. We fully expect this trend to continue.

Strikingly this quarter saw the ownership rate of buyers under 35 exceeding 40% for the first time since December 31st 2009, with the ownership freeze increasing 330 basis points from Q1 2022 end it 40.6%.

Millennials can currently represent the fastest growing ownership segment and we believe this age group will continue to drive further increases in homeownership.

Well this trend will be is constrained by the available supply of housing we are of the opinion that this higher ownership rate.

Especially related to younger pull buyers should at a minimum be considered a new normal.

With home ownership of buyers under the third age 35, still 300 basis points below its peak in the mid two thousands we feel that the ship what presents a true secular change in the homebuilding marketplace. The green brick partners is fully prepared to address.

In fact, we are seeing the impact of these trends in our current operating results as discussed on slide seven.

At Center building homes urban single family and townhouse builder in Dallas, we have seen home sales to buyers moving out of apartments, roughly double and of achieve some of the highest sales months in the brands history. This trend is in line with the one third of urban residents that up expressed as desire.

To move out of high density apartments and into less dense single family communities.

At the same time, we have seen the average age of our loan applications through our mortgage joint venture dropped by 5%.

As millennial buyers become more willing to purchase on.

This shift to a younger buyer has resulted from 188% growth in our revenues generated by our trophy signature and CPG brands measured by year over year for the second quarter of 2020.

These team builders have grown to represent 40% of or home closing revenues in the current quarter and are well established to capture future demand in the DFW Mark.

With the median age of the Dallas and Atlanta populations well under the National average, we believe green brick is well positioned to meet the expanding needs of younger homebuyers.

Further as working from home becomes more prominent among employers we believe commute times will become a much smaller consideration for many homebuyers as such we expect buyers to find the larger floor plans dig a dedicated office spaces and minimal maintenance requirements offered in our suburban communities to.

And much higher demand.

Jeff Dolsten, no president or the Texas region will now speak in greater detail to our land position and our gross margins Chad. Thanks, Jim. Please move to slide eight John Burns Real estate consulting has published maps of our Atlanta, and Dallas Metropolitan areas, where they have designated grades on sub markets.

Most desirable being in a market through.

For most affordable being an ETF market based on a variety of subjective factors such as quality of schools proximity of jobs and the existence of infrastructure for quality of life.

We have overlay the locations of our green brick communities with green dots their preponderance of our communities are the Submarkets, where did as most desirable.

And the current market environment.

Believes that our superior market positioning will be key differentiating our results from peers. This positioning is further strengthened by.

By the lot supply shortage in both northern suburbs of Dallas, and Atlanta, which we believe will be a strategic strategic advantage for us as we expect land development activity will slow in coming months.

Our community Count grew 20% from Q2 29 team to 90 active.

Selling communities as of June Thirtyth 2020.

As we continue to open more communities geared toward first time homebuyers.

However, this increase focus on affordability has not been at the cost of them increased risk.

Based on our Q2 2020 home closings with our unconsolidated mortgage venture Green brick song the average FICO score of 758 with 85% fundings exceeding a FICO score of 700, the creditworthiness of our average buyer profile is a fundamental.

The strength of many of the AG market, a sub markets, where we operate which we believe we'll continue to mitigate risk for our business.

Slide nine of our presentation compares are year over year to date Q2, 2020 gross margins with available pure data or gross margin reported for the six months ending June Thirtyth 2020 was 23.1%. This was 170 basis points.

Over the year to date results for Q2.

2019.

And with and what the second quarter gross margins.

10 basis points over our strong margins reported in Q1 of 2020.

We believe our superior margin experience.

Is evidence that our conservative land underwriting and prudent planning for winning strategy that has left the company well prepared to manage pace and price during the remainder of 2020.

The next two slots demonstrate the significant improvements green brick has made in diversifying our product lines over the past two years.

Let's first look at slide 10.

As Jim mentioned earlier with the addition of Ghl homes in 2018 Trophy signature homes and 29 team. We now offer eight unique brands a robust single family growth.

Year to date revenues.

108% from Q2 2018 to Q2.

2020 is highlighted by GHS net revenue growth of 30.3, 6.8 million and trophies additional revenues of 71.5 million and the current here.

Got it shows and trophies homes sold at lower average sales prices with more affordable age targeted product.

And affordable products, respectively.

As a result.

This product diversification, our ASP has decreased 7% since the end of the second quarter of 28 team.

All while maintaining higher than average industry gross margins and profitability.

This improved affordability will be crucial and preserving and hopefully improving our market share under the current economic condition.

Slide 11 visually demonstrates we've grown our revenues and provide stable earnings by not concentrating on any one homebuyers segment. We now address six distinct customer segments, which all experienced strong revenue growth in sales volumes through June 20.

I am sort of June thirtyth, pointing 20.

This revenue growth is inline with our 35% year over year growth.

And year to date net new orders and demonstrates the health of our markets. Despite the cobot 19 pandemic.

Our net new orders.

New order growth breaks down as follows net new orders of entry level single family homes, and Townhomes were up 341% in Q2, 2021st Q2 2019.

Thanks to the terrific expansion of our trophy signature brand and the successful migration of RCB Janney townhome product to lower average sales price.

Likewise, our net.

Our net orders for first time move up I'm single family homes were up 96% year over year due to the due to the strong reception and our DFW market to trophies value oriented homes and highly desirable suburbs of north Dallas.

Finally, our second time move up a single family homes and urban homes in Q2 2020.

It was up 11% and 77% respectively.

Over Q2 2019. This growth is driven by the move of urban millennials away from dense apartment living as well as the demand for larger more intentional living spaces as Jim mentioned earlier.

Our expectation is for the entry levels like on those.

Those homes priced under 300000.

To grow in size in terms of community count sales orders and closings in that regard during the rest of the calendar year 2020 Trophy signature homes is expected to open eight additional entry level communities up from the current 11 active entry level communities across.

All Greenberg brands.

In total Trivex, but Ics expects to open 15, new selling communities by the end of 2020 with most most of these openings are occurring in the third quarter of 20 Twond.

Next Rick Costello, our CFO will discuss our first quarter and annual results in more detail.

Thanks, Chad.

Thank you all for joining us today to review, our 2022nd quarter financial results.

Please move to slide 12 related to our financial highlights for the second quarter 2020 versus the second quarter 2019 and for year to date comparisons.

Here are some key operational metrics.

Net new orders increased by 28.5% for the quarter.

Now this increase was a function of a 6.8% increase in the absorption rate of net orders per community as well as a 19.5% increase in average selling communities.

For the six months ended June Thirtyth, 2020, or 35.2% growth is even more impressive driven by a 22.4% increase in average selling communities and a 10.2% improvement in absorption.

[noise] home deliveries increased by 40.4% with residential units unit revenues up by 30.6% for the quarter.

Year to date residential revenues improved by 24.7% due to 31.4% increase in homes closed.

Our average sales price of homes delivered declined by 6.3% for the quarter and 4.5% year to date versus the comparable periods in 2019.

These declines over that one year period in a in a SP are attributable to the increasing contribution of trophy signature homes and CPG any homes Townhome division to our total revenues.

Both of these builder cell phones at average sales prices that are below the average price for the company and as jet emphasize we believe this improved affordability will serve to preserve and improve our market share.

Year over year homes under construction are up 4.9% with home started on the last 12 month basis up by 20%.

Our pause in construction starts related to the onset of the cobot Cobot pandemic was temporary as we expect home starts to significantly expand over the balance of the year.

The dollar value of units in backlog increased by 34.8% year over year and 4.5% sequentially.

Now with the start shifting from pause to go we expect our year to date growth in backlog in our expanding community count to drive closing growth next year.

As Jeff highlighted homebuilding gross margin was up 130 basis points over Q2, 2019, and adjusted home building gross margin was up 110 basis points quarter over quarter and sequentially was up 10 basis points over Q1 of 20 for the six months ended June Thirtyth 2020 are.

Homebuilding consolidated margin and adjusted homebuilding gross margins were up 170 basis points, and 190 basis points, respectively. So those year to date margins or even higher than our Q2 expansion.

Turning to operating leverage green brick experience, a 120 basis point improvement and quarterly SGN a expense as a percentage of total revenues as a ratio dropped to 11.0% in Q2 2020 from 12.2% in Q2 2019.

Year to date are as DNA expense dropped a similar 110 basis points from 12.9% in 2019 year to date to 11.8%. This year for the six months ended June Thirtyth.

In addition to strong revenue growth in both the quarter and year to date of almost 27%. Each we also benefited from the large reduction in overhead that we implemented at the end of the first quarter now that 18% reduction in employee headcount, which we enacted effective April one is largely still in place.

We have increased headcount from those reduced levels by less than 3% as of the ended the second quarter.

Our interest coverage of 14.3 for Q2 2020 represents a 96% growth over Q2 of 19, and clearly demonstrates our capacity to generate positive cash flow well above our needs.

Year to date, our interest coverage of 11.3 represents a 64% improvement year over year.

And last and most important our bottom line Q2, 2020 bps set a new all time record obliterated of 67 cents for the quarter, an increase of 131% over Q2 of 19.

And even without the benefit of the energy tax credits of $6.7 million, our EPS would approximate 53 cents for the quarter and would still set an all time record with 66% growth over the same prior year quarter. Likewise on a year to date basis, our EPS of 98.

Sense is 85% higher than the same period last year.

Again without the tax credits recognized this quarter year to date EPS would still have been approximately 85 cents a remarkable 60% improvement over Q2 19 year to date, yes.

Now please turn to slide 13.

Here, we have compared our performance versus our small cap in mid cap peers to show that our risk adjusted growth and returns are uniquely strong we've provided five measures on this slide.

I should let you know that you can flip back to slide 20, and our appendix, which includes the calculation of how we equal weighted these measures and want green brick is at the top of the chart.

In the previous slide we already discussed are remarkable 30.6% growth in residential unit revenues during the second quarter, which as Jim mentioned earlier was primarily driven by organic growth at RCB, Jenny and trophy signature brands.

With both team builders focused on increasing our offerings of affordable product. This growth is expected to bring further diversification and reductions in our overall average sales price that dynamic growth rate can be seen in the first datacom, where our growth rate rates very high amongst our peers.

And as we demonstrated again this quarter our industry, leading gross margins drove excellent returns on revenues again this quarter.

Also included US on Slide 13 is our year to date interest coverage of 11.3 times EBITDA, which is a function of great earnings combined with conservative lower levels of financial leverage and lower price debt.

This lower leverage is reflected in Europe is also reflected in our low net debt to capital the fourth metric.

Which indicates our reliance on organic growth rather than leverage to maintain strong operating cash flows.

And finally, the last column. We include pre tax return on average invested capital to measure each builders return disregarding capitalization the difference in leverage.

And tax rates.

Lastly, please look at slide 14, which focuses on our lower leverage which I just discussed in it and as Jim stress at the start of the call. We were able to achieve our record setting Q2 20 results. While also decreasing our net debt to capital by 420 basis points.

Our net debt to capital remains one of the lowest in the industry, which positions green brick to continue limited risk while preserving profitability.

I'll now turn the call back to Jim who will wrap up our part of the call prior to opening things up for queuing day chip. Thanks.

Thanks, Rick.

With over four decades in home building.

I can say with certainty that the last few months.

I've been really historic by nearly every manager of economic performance.

The challenges and opportunities our company is phased have been unprecedented and in large part still remain as we enter the latter half of the year.

The past few months of truly vindicated the green bricks core operating principles are winning strategy.

Our goal is and always has been to provide the best risk adjusted returns to our investors by focusing on consistent growth.

While maintaining a conservative balance sheet.

Our operations are executed by a highly experienced management team with deep roots in some of the best markets in the country.

Through a foundation built on strong relationships with employees.

Contractors land sellers and developers.

Each of our team builders has been successful and establishing an organization that embodies.

Core values that are set forth in an accident, we call home, which are honesty objectivity maturity and efficiency.

This success has allowed green brick and continued to achieve record breaking results and will be instrumental to our future accomplishments.

Despite the uncertainty surrounding the cobot 19 pandemic I believe green brick has a very bright future with our core markets of Dallas, and Atlanta, leading national electric National economic recovery and are uniquely structured team builder model designed in part to quickly adapt to shifting consumer.

Trends, we are well poised and easily prepare to capitalized on the new demand for quality homes across all price points and product points.

I'll now turn the call back to the operator for questions.

At this time, if he would like to ask a question. Please press Star then the number one on your telephone keypad that star one.

Your first question comes from the line of Michael the halt where the JP Morgan.

Hi, guys. This is maggie on certain Mike Congrats on the quarter.

First I was hoping you could talk about the died demand dynamics as you've moved from June into July.

Obviously, you said July orders were up 29%, which is a very impressive number but still a bit of a stepped down from June. So could you talk about some of the factors in the difference there was that mostly a function of the spiking called the cases across your markets or are there. Some other factors that you could call out touches maybe.

The release of pent up demand that you work through in June.

Or something like that.

Yeah, Matt you. This is Jim and everybody else can chime in but I think you hit the nail and had I think part of we had a bit well first of all do was unbelievable in terms of the growth over the prior gen, but you're correct in some of that was pent up demand.

And.

So it would be almost impossible to replicate what happened in June.

For us in any month going forward and we were just thrilled yeah, 29% growth in July as the year over year account.

Yeah, I think it was pent up demand.

This is not repeatable and that we're really thrilled about.

Trajectory so far.

In July that we've seen really starting to continue into August.

Okay.

Thank you.

And next I appreciate the color around the expectation for trophy beauty openings through the rest of the year.

Obviously trophy is gonna be the main.

Gross vehicle kind of over the near to medium term, but it is you look out over the next year or two how are you thinking about gross among your other builders and as it maybe as a percentage of the overall business, where do you think trophy.

Might land.

Once you've expanded it a bit more to kind of a more normalized level.

Well, Jeff can chime in after me since trophy is really.

His of.

Ill here in Dallas, much more than mine with steward Parker that runs that.

Brand for us so successfully but.

Trophy is going to be our growth engines.

For many reasons one of the most important is I think we have standardize our processes procedures and where we can export that model. It's a simpler model. It is a higher return on capital model, where we can export that into other markets right now, we're really not focusing on that.

Jed.

Talking about 900 closings.

With trophy next year again to remind our listeners Dallas is such a huge market. We're doing about 40000 housing starts in Dallas over 25000 of those starts are entry level first time move up that we view trophy being a very significant player in Dallas, So trophy can grow.

It is 7%.

Its target market in Dallas is still be 1500, 700 homes, which is what we're going to focus on for the next 12 months, but I'm also looking at acquisition opportunities and other markets and within Texas to expand the trophy brand. There. When we think it's the right time Jeju everything you want to add to that no I think Jim pretty much covered it.

And if I could sneak one more and you said you're looking at possible acquisition targets in other markets could you tell us what those mark which markets you're potentially looking at.

We don't discuss particular markets and let me just preface that in that.

I'm always looking at.

Builders to buy because we can learn every time, we look and we see what fits and doesn't fit but we don't have any specific markets.

I have a conversation tomorrow typically these deals don't work.

Generally we're much more interested in growing organically for cultural reasons and because in most instances when we really go through the underwriting process.

Most of the private builders don't mean, a return on invested capital hurdle rates, but.

We did make to wonderful acquisitions, one with bill handler, and Ghl and Florida. This performing marvelously and the other is a minority investor with Brian Bar, and Tom Hennessy, who runs that platform, where we have and 49% ownership and challenger and those have been great deals for us both through just few and far between.

Okay. Thank you.

Your next question comes from the line of Carl Reichardt with BT I G.

Hey, guys Super well, thanks for taking my questions as always.

Hi, Jed I just wanted to have one clarification question, you mentioned I think a slowdown or moderation in lot development activity in Dallas referred to that.

Compared to your lot position, which is is quite solid can you just expand on and.

What you meant by that and what you're seeing right now in terms of developers getting back into the market or builders doing more self development.

Yes, Carl Thanks, a Wi.

Currently the a metro study and our aside in Dallas or projected that we have an 18 month supply of loss given the uptick in starts.

So to 24 months is typically standard lots and lots of were under supplied today as we speak.

We're just saying you know.

Very you know, we're seeing a lot of difficulties with the municipality has been able to hold public hearings with the.

Staff being able review plan. So we're very confident that there's going to be a lot shortage in at least Dallas and possibly Atlanta.

Carl one of the things we've done we don't generally talk about prospectively deals that we put under contract, but I can tell you that in.

May when we started seeing things turned around.

Some sellers that we've been working with for very long time, we had talked two and half.

Were first we usually get first looks are certainly among the first looks if any deals in the market and we've been very aggressive in tying up some really nice properties to fund trophy and our other builders growth into 2021 and beyond.

Thank you Jim appreciate that thanks debt.

And then back to trophy signature for a second and making sure I understand I know trophy is not just.

Pure entry level. There is that there's a first time move up element to it and some of the very first communities, where you'd maybe even slightly higher in that as you look at trophy signature sort of now and versus the ended the year, what do you sort of the mix between what you'd consider chew entry level versus a higher spec entry level.

So Carl I'll answer it. This way this is Jeff Jed again trophy cells currently from 225000 to 575000.

Price points so.

We like the diversification, we look at it Opportunistically based on lot position, we feel like we have and that price range we have.

Plethora of product to meet consumer demand.

And so really event they were working backwards to do we liked a lot position because we feel like we can deliver the vertical component.

That makes sense that being said, we're seeing more opportunities in the pure entry level spectrum.

Carl This is Rick.

As we said on one of our charts and I think briefly during the call.

If trophies opening 15, new communities by the end of the year eight of those 15 are going to be in the entry.

And so.

That's.

That's their increment at least for this portion of the year, but you know jets mentioning what's coming up in 2021.

Okay. Thanks, Rick and then less just on the starts numbers that you got I think you're up 4% on on starts as it sits here.

With the backlog, having inflated some rick.

How are you thinking about ramping vertical activity over the course of the next sorta two to three months.

To to get that backlog delivered can we expect your cycle times to mix mix. Adjusted can we expect your cycle times to extend are you going to the to rush to get through that a number of builders are sitting with very heavy backlogs and they're like contractors right. Now. So I'm just trying to think about what your plans are to ramp starts to get those those backlog units delivered.

Great question, we definitely are going to ramp up in the second half of the year.

But on a community by community basis, there is nothing excessive about it at the individual level.

It matches the demand that we have seen.

It.

It was going to push push revenues into next year.

But you'll see some higher than sustainable lover levels and total during Q3 and Q4, it's not just the next two or three months, but it through the rest of the year that will will spread this across.

We'll see it throughout our markets, including in Atlanta.

But most most predominantly in the Dallas market so the backlog.

And the you typically we don't look at backlog conversion rates, but what you can look at is the units under construction and typically what closes in the next from two quarters.

Passed to the to the current quarter that you're looking at it's about 75% to 80% and that seems to be a reasonable on a going forward basis.

But we are going to see that.

It is levels increased through through the end of the year to what you would have expected our year over year growth and ending units under construction would be to match the growth in demand.

Carl This is Jim.

Your question about cycle times, where we're seeing or cycle times improve.

There are a lot more starts right now I think.

As we look at all of our builders in Dallas in particular, we're building how many homes.

You're right now we're on pace for 2000 Adele's.

And.

By combining basically purchasing.

We move some key vendors relationships, we're seeing cycle times improve we have seen some cost input pressure on some materials, particularly lumber that's always hard to guess, how that's going to play out throughout the year, but we're able to pass through basically the input costs in the materials and.

Higher prices on our houses right now so it's really kind of a goldilocks situation there so.

We're very pleased with cycle times and.

Input costs, which is why I think when we talked earlier, we think we're going to maintain really nice margins.

Thank you Jim Thanks, everybody.

Thanks Carl.

Your next question comes from the line as Matt gain with Titan Capital management.

Well. Thank you I was curious I know in the past workforce availability has been a real challenge with growing the starts I was curious with the the changed unemployment situation. What are you seeing today are you seeing people that are moving to the construction industry as a workforce in making that a little less daunting for you folks.

Yeah, Matt This is Jeff.

Thanks for the question, Yes, we are seeing a migration for example, the restaurant workers we are announcing.

Get hired on by painting and top and tile lame companies. The other thing that you know.

Kind of gets lost in the start numbers is most of these homes been started our simpler and smaller square footage homes than.

Were previously built in the past two years to even five years ago. So.

The simplicity that of our we have really done a good job of simplifying our product to make it easier on our vendors. Our plans are better today, they can get through the.

As Jim mentioned, they can build the houses faster, we're using larger subs.

More with more availability of workforce personnel so.

Yes, we are seeing some migration and but we're also building.

Smaller square footage homes.

Great. Thank you Jay.

Your next question comes on the line of Aaron hike with G. M P Securities.

Hey, guys. Thanks for taking my questions.

Like the insight who is provided on the buyer profile mix and obviously moving towards millennials getting younger but wondering if you're also seeing more single people buying homes and our people from out of state, becoming a higher percentage of the mix yet.

Aaron's jet I'll take that in our most recent mortgage data we are seeing the preponderance preponderance of our buyers being renters today and a little bit younger than they have historically been no just because they're renter doesn't mean, they're running.

And then an apartment, but for example, our Intown division, we see that all of our buyers are apartment renters than that division as we work our way to the suburbs some are renters and.

Standalone house and what the mortgage rates are seen.

Yes, we are seeing this is the time to abide given the low mortgage rates, we're seeing a little bit of Emma and migration from out of me, but I think given the travel restrictions and as you know everybody's hesitancy to fly we're not seeing that is strong.

Along as we have in years past right here on this and give him let me add one thing to that and then it was so interesting about three weeks ago.

We had a buyer via home from us that was.

Relocating from.

A major northeastern city.

The buyer.

Hired.

A national from Compass, we have a strong relationship with compass here in Dallas.

The buyer contract for the house never seeing the house.

The buyer made all of the selections carpet paint colors, all that over zoom.

The buyer closed the home never having visited the house, we're seeing the neighborhood before.

Now, that's probably an anomaly, but but technology is made all as possible.

Our title companies really on top of how to close homes.

With Cobot 19, and I think these kind of trends I don't want to say this is going to be a universal thing, but I think our industry, we're going to see a lot more of these type of transactions possible that we never thought would have been possible five years ago.

Right.

Yeah, the technologies playing out.

Your space today.

Are you seeing a similar demographic dynamic going on with the buyers looking at attached product versus detached obviously the detached.

Demand way up but still attached is up year over year.

Despite people wanting to be and less dense environment. So any thoughts around the demand profiles, there and how you see in holding up we're seeing.

And we're seeing an equally strong.

Across our kind of across our a attached and detached I think you know, obviously, a attached you're going to being a little bit more urban environment.

So I think the buyer profile as she is really they're choosing do they do they want the amenities and as I think the amenities of kind of Oh.

Yeah, a live work environment are coming back or <unk>.

Did I think they're going to be working from home for the next five years than you know they want to get a dog and move out some place where they have a yard.

Right.

And then obviously you guys got you know as much demand is kind of wanted.

Got it later into the quarter, but was wondering your thoughts on.

Relationships with single family rental companies.

The drive volumes in the future seems like more renters want to alone or begin a single family home percentage of that might be renters. So any thoughts there.

We've been contacted by a number of rental housing companies ask we would be interested in being that either joint venture some kind of partner and let me address that right off the bat in that.

We're return on capital driven business, we've been little over 14% return on capital and were never seeing.

Our rental we've never seen a rental for sale community provide anywhere near that kind of opportunity. So I doubt, whether we're going to get into that space.

And we really haven't seen because the rental for home can be do we really haven't seen that buyer show up and want to by many of our homes, whether it's a trophy home.

Entry level or one of our townhouses. So we haven't seen a lot of.

Transferring from the rental home buyer to our single family buyer or time elsewhere.

Aaron This is Rick specifically on the married versus single just barely flat on that particular statistic year over year for Q2.

We're up maybe from 42% to 45% along those ranges.

Okay I appreciate those insights guys nice quarter GAAP.

Thank you good here in Premier and thank you.

Yes.

Again, if he would like to ask your question. Please press Star then the number one on your telephone keypad, we have a follow up question from Carl Reichardt it'd be T. G.

Thanks, Sorry, I've one other question for you Rick actually.

The the valuation allowance reversal for for a lot options, which we saw this quarter.

Im anticipating.

Essentially anymore of those in Q3.

No.

I think we're we're where we need to be in.

We have.

Like Jim said, we're talking about we've got lots of new.

New deals under ally that were evaluating so.

We're don't expect to see anymore allowance changes.

Thank you at the opposite we have builders, Carl calling us all the time wanting our lots.

I I figured as much I think the question really is the allowed us the significant alteration in thought process and strategy that happened over the course of like basically four or five weeks impacted the decision to reverse devaluation lots of so I just wanted to make sure. Thanks guys.

You bet.

Again, if you would like to ask your question. Please press Star then the number one on your telephone keypad well pause for just a moment.

At this time there are no additional questions in the Q.

Okay, well that concludes our call. So thank you everybody for joining us.

And we'll look forward to hearing from you this coming quarter.

Thank you thanks.

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