Q1 2021 Green Brick Partners Inc Earnings Call
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Yeah.
Victor.
[music] operator.
Yes, you may begin.
Thank you I'm going to do the operators Park, we apologize for the delay in commencement the operator had connection issues.
Good afternoon, everyone and welcome to Green bricks.
Partners earnings call for the first quarter ended March 31, 2021. 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.
A slideshow supporting today's presentation is available on green brick partners website.
Green brick partners Dot Com go to investors and governance, then click on the option that says reporting and then scroll down the page and so youll see in the first quarter investor call presentation.
The company reminds you that during this conference call will 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 2021 in the future and anticipated impact of COVID-19 on our future operations prospects and other aspects of our business.
Investors are cautioned that such forward looking statements are based on current expectations and subject to risks and uncertainties and could cause actual results or outcomes to differ materially from those set forth in our forward looking statements. These risks are set forth in our first quarter earnings press release, which was released yesterday Tuesday may four 2021, and the risk factor.
As described in our 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. The reconciliation of these metrics on the other information required by 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 would now like to turn the conference call over to Greenberg CEO, Jim Brickman go ahead Jim.
Hi, everyone.
With me is Rick <unk>, our CFO Jed Dolson, our CLO, thanks for joining the call.
As the operator mentioned.
Rick Prell.
Presentation that accompanies this earnings call can be found on our webpage at green brick partners Dot com at.
At the top of our webpage click on investors and governance, then click on the option that says reporting and scroll down the page until you see the first quarter Investor call presentation, I'll give everybody a quick second to do this.
I'm happy to report that the tremendous demand that we saw last year accelerated throughout the first quarter of 2021.
For years, we have planned diligently to have the best lots and the best housing markets in the nation with a best in class operating structure.
And last quarter, thanks to that positioning combined with the strong fundamentals in today's housing market Green brick has achieved its strongest first quarter results in the company's history.
By design, we were ready to capitalize on favorable market conditions are positive demographic trends, a persistent deficit and for sale housing inventories and sustained low interest rates to continue to accomplish record results.
Highlighting that point net income attributable to green brick over the last 12 months reached $123 7 million. This is a 100% increase over the prior 12 month period I want to thank all of the green brick team on the hard work involved in doubling and already strong net income.
Likewise, our first quarter net orders of 1082 homes.
Ending backlog of $996 million, both represent all time records for the company up 28, and 45% over Q4 2020 record levels.
To meet the unprecedented demand green brick started a record 2043 homes in the last six months and ended the quarter with 2303 homes under construction, a 62% increase from a year ago.
We feel confident that our efforts will produce heightened earnings beginning next quarter and each successive quarter for the rest of this year.
This rapid uptake and sales and starts has not been at the cost of our land pipeline.
We believe that green bricks capability to source highly profitable land without straining our balance sheet will continue to propel our operating and financial results well beyond the bar set this quarter.
During the quarter, we acquired approximately 5600 homesites expanding our total lots owned and controlled by 118% over the past 12 months and 31% in the past three months alone.
This increase was achieved while starting a record number of homes and maintaining a debt to total capital ratio of 26, 4% one of the lowest among public homebuilders.
Our record starts of 1039 homes this quarter.
Despite the severe snowstorm in Texas that impacted construction schedules, leading to the deferral of approximately 40 home closings in the second quarter.
Please flip to slide four of our presentation.
We are a diversified builder with eight brands in four major markets with a wide array of product types and price ranges. We believed the stratification of products will continue to appeal to a broad base of homebuyers and expect that our entry level segment will continue to rapidly expand through growth in our true.
<unk> signature and CB journey brands.
And we as we have discussed in our previous earnings call Green brick operates under a much simpler ownership structure than in prior years, where more than two thirds of our topline revenues are now generated by wholly owned builders.
The markets were green brick operates benefit from significant economic and demographic trends, which we will explore on detail on in the next two slides.
Slide five quantifying the strong population growth over the past decade seen in Texas, Colorado, Florida, and Georgia per the 2020 census data released last week.
All of the 25 largest states in the United States. These four states showed some of the highest percentage increases from their population 10 years ago.
Texas led the nation with its resident population expanding just under 4 million people. This decade.
Colorado, Florida, and Georgia, all show double digit growth over the same period, while the population of the U S grew only seven 3%.
We believe this positive population growth is evidence that our concentration in Sun belt and Sun belt adjacent states is a winning strategy.
We expect the in migration to these states from California, and the northeastern United States and the strong demographic profiles of the Sunbelt, we will continue to generate positive population growth for many more years and will preserve robust housing demand and our future years.
On slide six we highlight the economic strength of our core markets and present the decline in active listings seen in April 21 from the prior year.
Like every other economy in the country. The COVID-19 pandemic created a major disruption in commercial activity and led to a significant rise in unemployment early last year. However.
However, as shown on the right slide excuse me right side of the graph Atlanta and Dallas Fort Worth have main remained remarkably resilient.
When compared to employment levels as of February 2020, Atlanta, and Dallas Fort worth are down only two 5% and four 1%, respectively, which represents the smallest declines out of the 10 largest metro areas in the United States.
Looking at the left side of the graph you can see the Dallas Fort worth and Atlanta had the largest 12 month decline in active listings as of April 32021 of the 10 largest msas with listings down 70% and 63% respectively.
This remarkable drop in listings as evidenced of the booming demand in our markets and indicative of the pricing power Green brick has in 2021 to capitalize on inventory shortages of existing homes.
We expect this imbalance between housing demand and supply in our markets to persist through 2022, providing green brick with continued pricing power to offset or even more than offset rising costs.
With 87% of our ending active communities in DFW in Atlanta, We believe that green brick is well positioned to succeed in 2021 and beyond.
Additionally, we believe the strong bounce back from the high unemployment seen in April 2020, and the rapid uptick in demand is further proof that our focus on business friendly pro growth markets is the correct and best choice that will continue to differentiate us from peers.
Jed Dolson, our Chief operating officer, and Executive Vice President will now speak in greater detail to our growth drivers and our land position Jed. Thanks, Jim on slide seven we demonstrate how our investment in land has translated into net increased capacity to generate topline growth.
As you can see from the chart on this slide the key driver behind our strong financial and operational results has been our ability to convert investments and land.
To future growth in revenue during the first quarter, our lots owned and controlled increased by 4471 to end debt 18939 blocks total lots and all time high for the company. This is a 31% increase sequentially from the start of the year.
As you review the chart on this slide you May also notice a significant shift in our controlled lot position.
This increase was primarily driven by increase on land under option of over 5000 lots from Q4 2020 to Q1 2021.
More than two thirds of our lots added related to a roughly 1700 acre Master plan community about 35 miles south of downtown Dallas.
The land for diesel lots was placed under contract in Q1 2021 and was acquired on April 2021.
Due to its size and required planning this neighborhood will not start producing revenue until 2024.
We expect a significant portion of the infrastructure costs will be funded by a municipal development bonds that are non recourse to greenberg and at a low cost of capital.
After including land under option on lots of options through joint ventures, we expect nearly 86% of our current inventory of lots owned and controlled will be self developed by the company.
We believe the strong emphasis on land development sure Lon Greenburg margins and returns to remain competitive with our peers as the self developed lots avoid expensive premiums charged by third party land developers.
Slide eight compares our year over year growth in Green bricks total lots owned and controlled.
Against the available data for other public builders as the chart shows our 118% growth in total total lots significantly outpaces our public peers.
Over the past nine months, we have added over 12000 owned and controlled lobster on land pipeline.
Despite the significant ramp up in land acquisition, we actually saw our debt to capital ratio dropped 140 basis points over the same period.
Decreasing from 27, 8% on June 32021, sorry, 2020 to $26 four on March 31 2021.
We believe our ability to source land, while maintaining our low financial leverage will facilitate continued topline and bottom line growth for the next several years.
Slide 10 highlights our ending units under construction.
Our units under construction on our up 69% over the past six months, while we have seen significant well we are seeing growth at virtually all of our brands on price points. Our unit growth was primarily driven by starts on our trophy brand.
<unk> increased its ending units under construction by 236% during the six months ended March 31 two.
2021.
As we go forward, we expect the continued expansion of a trophy brand to establish larger communities with higher absorption rates and unit density.
In fact, because of our continuing to expansion on trophy, our Q1 2021 quarterly sales absorption over.
There were 11 three units per active selling community was the highest on the Companys history.
Additionally, our pivot to these larger communities focused on entry level buyers has not been at the cost of increased risk. Our Q1 2021 home closings saw on average FICO score of 754 with 88% of fundings exceeding a FICO score.
700 per data from green brick mortgages rubric mortgage ventures.
The creditworthiness of our average buyer profile is a fundamental strength of many of our markets, where we operate which we believe will continue to mitigate risk for our business.
I will now outline green bricks growth to illustrate where we stand today and where we expect to be in future quarters.
Let's start by going back two years to Q1 2000 2018, we grew our lots owned and controlled.
About 6300 total lots as of March 31, 2018 to about 9200 lots as of June 32019.
So over the span of five quarters, we grew loss by 45% because of this acquisition and subsequent development activity, we were able to grow our community count by 33%.
From 75 selling communities as of June 32019 to 100 communities as of September 32020.
Over the last three quarters, we have grown our backlog per 123% to $1 billion.
And as I just reviewed with you our units under construction are up 69% over the past six months. The second quarter. We will begin the next phase of our growth story as we will increase our closing pace of our homes.
And by the way our most recent growth in total loss.
With over 12000 lots added over the past.
Nine months provides greenberg excellent visibility to continued and substantial growth in revenues into and beyond 2023.
We expect that our average community size will continue to grow at future price points, So unit growth should exceed community growth.
In summary, we feel we have a very strong land position on some of the best markets in America with strong demand from low risk buyers, all while maintaining a conservative debt to capital ratio.
Next Rick Costello, our CFO will discuss our fourth quarter results and annual results in more detail.
Thanks, Chad.
Thank you for joining US again, thank you for joining us today to review, our 2021 first quarter financial results.
Look at slide 11 of our presentation, which shows the year over year growth in our home closings and home closings revenue for both the quarter and the last 12 months on.
On a last 12 months basis, our closings grew 27% while related revenues grew 22% year over year.
The GAAP between unit revenue growth is primarily due to our shift to the entry level price point during this period.
As seen in the quarterly comparison of our year over year growth in units of revenue have narrowed to 15% versus 14%, respectively, demonstrating the impact of strong price increases starting in Q4 2020.
In fact, and this is interesting we have instituted base house price increases that averaged 19% for our three large team builders in DFW and 9% average in Atlanta on an unweighted basis from the end of November through today.
So over that five month period base prices have increased strongly in a trophy signature homes, our largest builder, it's up by a remarkable 25% on an unweighted average over that period.
While slide 11 looks at our historical revenue slide 12 points pivots to our future closings and shows the year over year increases in net new orders in our current backlog.
With the net new orders up 71% year over year and the dollar value of our ending backlog at quarter end up 133% year over year, we fully expect home closings and home closing revenues to accelerate strongly beginning next quarter and a push green <unk> overall profitability.
Stability considerably higher.
Now moving to slide 13 related to our financial highlights.
Homebuilding gross margin for Q1, 2021 was up 230 basis points over Q1, 2020, and adjusted homebuilding gross margin was similarly up 200 basis points quarter over quarter.
From Q4 to Q1 of this year Q4, 2020 to Q1 2021 gross margin was up.
30 basis points. So we continue to raise prices faster than costs rise. We expect therefore gross margin to continue to rise sequentially during the balance of 2021.
Turning to operating leverage our SG&A expense was flat for Q1 2021 with the prior year quarter at 12, 6%.
Q1, 2021 leverage was impacted negatively by the 40 closings pushed into Q2 due to weather delays.
But with increasing topline revenues expecting during the balance of the year from Q1 levels, we expect quarterly and full year operating leverage to improve as will be reflected in a decline in our SG&A expense from Q1 levels.
Interest coverage of 12, 7% for Q1 2021 represents a 49% growth over Q1, 2020, and clearly demonstrates our capacity to generate positive cash flow well above our needs.
Bottom line, our Q1 2021 diluted EPS of <unk> 51 per the quarter was an increase of 65% over Q1 2020.
Our annualized net income return on average book equity grew from 11, 9% in Q1 2020 to 15, 9%. During Q1 2021, an increase of 400 basis points combined with our low debt leverage our risk adjusted returns are truly remarkable.
Please move to slide 14 of our presentation, where we compare our Q1 gross margins with available peer data.
As you can see our gross margin reported for the quarter was 25, 4% up 230 basis points as I said.
Over Q1 of last year.
This chart demonstrates that our performance is among the best in the industry. We believe our superior margin experiences evidence of our conservative land underwriting and prudent planning.
This is a winning strategy that is well prepared us to manage pace and price during the remainder of 2021 and beyond as I mentioned, we expect gross margin to continue to rise sequentially. During 2021, as we continue to raise prices faster than costs rise.
Slide 15 visually demonstrates that we have grown our revenues and provided stable earnings by concentrating on several home buyer segments.
For the 12 months ended.
March 31, 2019, two years ago too.
Two segments accounted for about 70% of our revenues fast over two years and we now address six distinct and significant customer segments, which all experienced strong revenue growth and sales volumes through March 31 2021.
For the last 12 months ended $331 21, our entry level segment, plus our first time move up segment.
Now combined to represent 36% of home closing revenues, an increase of 9100 basis points over two years ago, when they combined to represent 17% of home closings revenues.
This expansion of our more affordable inventory was created through intentional reallocation of capital to our trophy signature homes brand. We continue to we expect to continue to expand our entry level segment and the remainder of this year, which we believe should position green brick to capture an even greater portion of today's housing demand.
Please turn to slide 16 here, we have compared our performance versus our small and mid cap peers to demonstrate why we believe that our risk adjusted growth and returns are uniquely strong. We've provided six measures here five of the measures cover the last 12 months ended $331 21 or the nearest period.
For other builders.
And those five measures our growth in homebuilding revenues gross margin percentage interest coverage pretax income return on invested capital and growth in lots owned and control and the other measure which is debt to capital is as of a point in time at March 31, 'twenty, one with the strength of Green bricks results for each of these metrics Greenberg continues to.
Perform at or near the top of our peer group.
Our high gross margin and growth in total lots rival even some of the large cap peers as we discussed earlier in our remarks with our expected growth in homebuilding revenues commencing in the second quarter. We expect income returns on capital to Additionally, elevate during the balance of the year.
Lastly, please look at slide 17, which focuses on our lower leverage and as Jim had jet have both stressed we were able to achieve our record setting results, while maintaining one of the lowest debt to capital ratios among public builders.
I will now turn the call back to Jim who will wrap up our part of the call prior to opening things up for Q&A.
Jeff Okay. Thanks, Rick.
Well, thanks, everyone as we move forward in 2021, we expect that our revenues margins and profitability to all improve significantly beginning next quarter as our record sales order growth, we saw last year and again during Q1 converts into higher closing volumes.
At the same time, we have continued increasing prices across all price points to better match, our sales pace with our construction cycle.
Beginning in March 2021 week began limiting our for sale inventory to units that have been completed framing and most of our communities by.
By limiting sales until framing is completed we will reduce our risk by shortening the time between contract and completion, where we are exposed to uncertain and rising input costs.
Further delaying sales will enable us to capture more price increases as pricing continues to steadily rise.
Over the past five years Green brick has established itself as a $1 billion company that can achieve strong risk adjusted returns today. We are announcing that we will have on our inaugural virtual investor day on August six 2021 at that event, we will provide additional insights into our <unk>.
Growth plans operating strategy and our efforts to achieve environmental and social goals over a multiyear period on that.
Ill turn the call back to the operator for questions. Thank you.
At this time, if you would like to ask a question you may do so by pressing Star then the number one on your telephone keypad again that is star one if you would like to ask a question.
Our first question is from Michael Rehaut of JP Morgan.
Hi, Congrats on the quarter. This is Maggie on for Mike.
Sure.
My first question.
Is just around how to think about.
Asps for the year.
You pointed to some debt.
Sounds like very solid price increases across all of the segments.
But at the same time, there is the ongoing faster growth at day entry level segment. So.
Where do you think asps could.
And also separately.
How much more pricing power do you do you think you have.
At the trophy brand well.
Being mindful of maintaining the affordability there.
I'll chime in the first part Ricky can finished parts of it but.
One of the things that some of our Asps. If you take a look at these backlog numbers, it's distorted a little bit on the high end because.
<unk> homes for example, almost built exclusively as a backlog builder in Florida, they have a higher price point.
And.
So the backlog ASP may be higher than the actual closing ASP, which is just kind of anomaly the way on our business operates but Rick do you want to take the rest of the question about ISP.
Sure.
I guess, Maggie one of the things that.
Got it limits our ability to raise it as fast as might be reflected in the price increases that have averaged 19% of Dallas and seven 9% in Atlanta.
Is the fact that we entered the year with almost $700 million of backlog now all of that backlog is certainly under construction by now.
And most of it is going to close this year so.
The price increases over this five month period that we've talked about are definitely get a raise debt.
Faster than the <unk>.
The increase in the first time Homebuyer segment.
So.
Wouldn't be surprised to see our Asps go up.
30% to $40000 from from where it was.
At the end of last year.
Got it.
Thank you.
And.
Next.
All right.
On community Count.
I mean, obviously you're shifting towards higher.
The higher density Trophy communities.
Fewer larger communities.
You are also.
With the strong demand probably selling out faster. So can you give us any sense of where you see.
Community Count.
I mean, where do you see it going this year on kind of how to think about that number.
Jed.
Rick you on America, Yes, I think we intimated outreach.
Outright said started saying during last quarter's call that.
We really are focused more now on the larger longer lasting higher absorption communities all our trophy.
So we really don't expect to see much in the way it all of community growth, but none of it is is a limiting factor on our sales growth because we are in larger communities, where we do not have to replenish them.
If you really were able to dive into the details you will see that a lot of our older communities had.
Really a low community count in the in.
And those are being replaced with communities that have.
Several hundred lots in them and that serves to give us the staying power, where we also don't have vs. Those situations of having to.
Grow into sales absorption, but rather continue the momentum that you have there and the sales force.
Got it thanks, and if I can just sneak one more and I apologize if I missed this but did you break down the orders by order growth by buyer segment this quarter.
We did not.
Okay.
Yes.
Thank you.
Thanks Maggie.
Your next question is from Karl right Heart of BTG.
Hey, guys how are you.
Great great.
When you look at our model and thinking about cash flow operating cash flow this year.
Got it right, it's going to be pretty substantial relative to what we've seen in the past.
And given that you think you are it seems like you are pretty happy with your leverage ratio can you talk a little bit about.
What your intentions are.
For the cash you will generate in terms of reinvestment in the business shares.
Whatever else.
Sure Hey, Karl.
Thanks for joining and thanks for the questions.
We will produce substantial cash flow because of the significant investments that we have made in prior years. However, because of our growth we're continuing to reinvest in land lots and development in a major way.
Our spend in that regard could approach.
$500 million to $600 million.
Depending on what deals actually actually close on what we underwrite over the balance of the year.
So we may take our leverage up slightly.
Are those acquisitions, but it's still going to be and our comfort range.
Sure.
I really don't want to go much past.
On a on a gross basis, 30% to 35%.
Okay. So the right way of thinking about this as cash goes back into land. So that kind of leads me to my second question, which is.
Based on the comments you made on <unk> on the new deal, which we just heard about.
And some other.
Hence you given my sense is that the reinvestment as you look at it is likely to be in the markets, where you've already got a reasonable presence some size and scale and I'm interested in your in your the potential for you to begin to start to look outside these core markets for additional growth opportunities given the cash.
You're generating and given that your concentration level is pretty high in Dallas and Atlanta among other places.
Yes.
We typically don't announce our plans, but I think it's going to be fairly well known we have on a 49% interest.
In challenger homes, it's just been a wonderful investment and a relationship with.
Everybody yet challenger homes. They are the second largest builder on the Colorado Springs area.
<unk> expanded to Denver.
Recently this year on some small communities and.
We hope to expand trophy into Denver.
Green brick partners would be a land developer for both challenger and trophy homes and two.
2022.
So that would be a very synergistic relationship. The guy that is the CEO of challenger homes ran a large mid cap builder in Denver for 12 years. He has great land relationships there we have.
Good.
Local engineering and other entitlement teams in place there and we're going to start sniffing around that market very diligently this summer.
Great Tim I appreciate that thanks for letting US know and then just last question can you talk.
I may have missed it about.
How trends have looked in April and into early may in terms of traffic in particular.
And also just orders.
Jed.
Yes.
Carl the traffic has been great. We like most builders are eliminated in our sales.
We don't outpace production.
So we're still seeing very strong.
Traffic and sales in April and price.
The price indigo along with it.
Okay. Thanks debt. Thanks, Tien Thanks, Rick.
Thanks Carl.
Your next question is from Alex Rygiel with B Riley.
Thank you I'll follow up on that last question. So since you are limiting your sales are you, suggesting net new order activity in the second quarter could be down a little bit from the first quarter.
Yes.
That would be a good takeaway.
$1 billion of backlog and we've started a ton of houses.
So we really have to pace pace down.
Had a lot of price increases that we were able to get what we were doing all of those sales in Q1, but we are definitely wanted to catch up to our backlog yes.
Great.
In the first quarter was it was in terms of accounts. It was really kind of an outrageously high comp was over 1000 home sales.
And we intentionally could never may.
To maintain that on a consistent basis, because I think it was 1082 actually in the first quarter. So the second quarter is going to be down sequentially from that on purpose.
Understandable and then how is your build cycle time changed over the past three months and where does it add today.
It's extended about a month, Jed, one or two kind of and it varies a little bit by product type.
But generally our operating guidance you answer yes.
Companywide, we're it's about seven months right now.
We are seeing trophy built significantly faster, we're seeing are and as you see trophy would become more of a.
Larger share of our closings that debt.
Cycle time should be going down so.
It really hasn't gotten that much worse in the past three months, we had a little hiccup.
Like everybody did with the Texas weather storms in February where we had snow for quite some time, but.
It Hasnt changed measurably from January one.
Very helpful. Thank you.
Thanks, Alex question.
Your next question is from Alex Barron of housing Research Center.
Yes, thanks gentlemen.
My question was similar to the last one just wanted to confirm that the.
The cycle time, Hasnt changed that much on that the deliveries were mainly impacted because of Texas.
Are you guys pretty much.
Caught up on delivering any.
Any of those homes and our discipline issues supply chain issues back back to normal or are you guys still kind of feeling the effects of that <unk>.
Supply chain issues are not back to normal.
We're just getting more accustomed to managing that process, where.
We really now expect to have some bottleneck occur on our business and it's a different model net get any different point in time, but in the aggregate as we said, it's extending our cycle time of about a month and we think thats.
For the foreseeable future looks like.
Yes.
We still have some manufacturers.
On dealing with material shortages and or ramping back up.
Some of the Texas suppliers from the from.
The winter freezes, but yes.
For the most part.
We're just doing a better job of ordering our materials way in advance so.
Yeah.
Jim said, it's about 30 days, but it's on catastrophic.
Okay and then.
Second question. When you guys were talking about 20% price increases was that meant versus a year ago right and it wasn't versus last quarter and then our.
Two is are you guys as a result of expecting margins to continue trending higher in the back half of the year because of those price increases.
Alright.
Rice increase the relative price increases were from price lifts.
As of November 30th.
Two today, so basically a five month period is covered by that price increase.
So it is it is quite recent.
And the second question.
We referred to that we do expect to see increasing gross margins.
Based on the fact that we've been able to increase prices, which is on 100% including <unk>.
Land cost, which is fixed and gross margin versus <unk>.
Cost increases which are occurring on.
Sticks and bricks being about 50% of your house price. So it's our crystal ball is only as good as it can be but.
What we're seeing so far suggests that we should be able to maintain an increased gross margin.
Got it. Thank you I'll ask one last one what should we model in per tax rate as you guys see it for the remainder of the year.
That's a really great question.
I don't know really what's between Washington, DC and other things so I would model right now.
Like we are until we know different but obviously there is.
Okay.
The potential to have higher corporate taxes, but I don't know whether it can be retroactive or how thats, what thats going to look like.
The tax rate that we experienced in Q1 as representative of what we should have because it's after the benefit of the energy tax credits, which were extended into this year.
But it's obviously like Jim saying that's on current.
Federal rates.
Okay. Thank you gentlemen, best of luck. Thank you.
Your next question is from Tom Bishop of Bi research.
Alright.
You mentioned a couple of times at the gross would accelerate.
Next quarter.
Sure.
And do I take that to mean Q3.
Q2.
So thats this quarter.
You meant while we're reporting on Q1, so yeah, it's somatic but yes.
Sure.
In the period ending June 30.
Good I just wanted to clarify that.
So the.
This.
I'm amazed that the stock's off 11% today and I'm wondering if you have I'm sure you thought on wondered why.
You have any thoughts on that and what investors are getting wrong.
As you know I see a good report here and good prospects and I'm really confused by that.
Well I was confused by it too I think the builders are kind of down 2% overall and seeing your own stock down 11, 5% figure wall.
Did I say something bad on the earnings call or whatever but.
Yes, I'm surprised because our backlog is unbelievably strong our margins are improving.
Our business has never been better but.
The only thing I can figure out is debt.
Our stock did go up quite a bit.
In the last three weeks and maybe that's just an adjustment but.
My job is to run a homebuilding company if I can figure out stock prices would probably have a different job title.
Well, that's my job and I can't figure it out because I really our backlog has never been better on our prospects have never been better. Our FICO scores are the best day I've ever been our deposits in terms of risk on the homes has never been larger so when we do sell our homes the likelihood of its closing has never been.
Better and really it's.
Everything seems to be good today until I look at.
The stock share.
Tom That's it's an interesting question I think we would all say that we're a buy right now a strong buy but that we're also very prejudice in that regard but okay.
I think Jed really put the story very well when he spoke about hey, first we got the lots under contract and then develop them and then opened a bunch of communities and then we sold just a ton of houses and built our backlog and then we started a bunch of houses over $1000 per quarter for the last two quarters.
<unk>.
And you see us with.
516 closings in Q1, and it's just not what a lot of other builders showed.
And they're in their numbers in terms of what they closed in Q1.
Just wait till next quarter is really what we've what we can say and that that's what we've been trying to say that's what we messaged ahead of time, but I guess so.
So the news I guess, yes, it's very hard when you take a look we have about $1 billion backlog and the only thing that.
That must be implied is then we say that we don't see degradation in our gross margin that some people are not believing that.
Bottom line things that I saw also was the.
Closings were.
A little so the growth was 14, 15% do I recall and that definitely lagged others, but now it is going to accelerate next quarter. So maybe investors should be looking ahead instead of in the rearview mirror.
I think we would agree with you we lost about 40 closings to weather.
Yeah.
Okay, well. Thank you hopefully will bounce back from here. Thanks.
Thanks for your interesting to see the insider buying as well.
Yeah.
As a reminder, if you would like to ask a question you may do so by pressing Star then the number one on your telephone keypad again that is star one if you would like to ask a question.
Your next question comes from Bill <unk> of Teton capital.
Thank you I wanted to start with the delayed closings.
Would it be the correct math that.
40 delayed closings using the average share price of 400 plus.
<unk> thousand gets you roughly $16 5 million of revenue that was pushed into the second quarter and then we would simply take the the average gross margin or is there an incremental gross margin, it's higher that we should be using so the so the benefit to the bottom line what would have been even.
Later, then there is an incremental gross margin because a lot of our SG&A costs are fixed so those incremental sales drop more to the bottom line than typically if you just take a look at our gross margin.
And.
So yes, there should be more incremental benefit on those additional closings that would.
Produce more income Kim.
Tim what do you consider your incremental gross margin to a to b.
While we cant say because we don't know it's variable depending on what debt on what debt income level is.
<unk>.
If it was $40 million it would be even more than $20 million, because we have fixed costs that are being spread over a bigger numbers. So.
I am not trying to avoid the question, but it just gets on to operating leverage.
Understood but.
Either way there was five to 10 cents, probably closer to 10 cents of earnings that were pushed from the first quarter into the second quarter.
Yes, we agree with your assessment.
Great. Thank you.
And then.
You've talked about the coming quarters seen.
It sounds like a pop in.
In earnings do you see that sequential improvement to be larger in the second quarter versus the first quarter or is there even a further acceleration in Q3 versus Q2, two you'd expect that the sequential increase there to be even larger.
Good question.
We're hopeful that it'll be larger Q3s and Q2, we won't we don't want to go out on a limb and say that obviously the risk as you get further in the time year is you take more input cost risk and determining that profitability as you stretch the model out.
But.
Yes, we think that Q3 can be better than Q2 as long as input costs don't go up more than were expecting.
And Jim are you answering that question in the sense of the rate of growth of.
Sequential growth being greater in Q3, or simply the third quarter being absolute better quarter than Q2.
Absolute absolute better.
So we think we will do extremely well with our Q2 results and then we think we will.
Exceed those as we.
March towards the end of the year.
On an absolute basis.
Great. Thank you and last question.
The share repurchases.
Did you have any in the first quarter and if so what was the level.
We had none in Q1.
Great. Thank you all green.
Thank you.
We have no further questions. Thank you ladies and gentlemen, thank you for your participation. This concludes today's conference call you may now disconnect.
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