Q3 2021 Green Brick Partners Inc Earnings Call
Good afternoon, everyone and welcome to Green brick partners earnings call for the third quarter ended September 30th 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, all accompany today's webcast and is available on green brick partners' website, www dot green brick partners dot com for listeners joining us by teleconference go to investors and governance, then click on the option that says reporting.
And then scroll down the page until you see the third quarter Investor call presentation.
The company reminds you that during this conference call. It 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 <unk>.
Including its financial and operational expectations for 'twenty, 'twenty, one and the future and anticipated impact of COVID-19 on future operations prospects and other aspects of our business.
Investors are cautioned that such forward looking statements are based on current expectations and are 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 third quarter earnings press release, which was released on Tuesday November 2nd 2021.
And the risk factors described in the company's most recent annual 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 and 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 over to Green bricks CEO Jim Brickman. Please go ahead Sir.
Thank you operator, hi, everyone with me is Rick Costello, our CFO and Jed Dolson, our CLO. Thank you for joining the call.
As the operator mentioned if you are joining us by phone today. The presentation that accompanies this earnings call can be found on our webpage at green brick partners dotcom.
At the top of our webpage click on investors and governance then.
Click on the option that says reporting.
And so down the page until you see the third quarter Investor call presentation.
To give everyone a few seconds to do this.
Our third quarter income of $48 5 million was a record for any third quarter and up nearly 40% from the prior year.
Year to date, our net income is up 50% versus the first nine months of 2020. Thanks.
Thanks to a great team effort, we provided our investors some of the best returns in the industry.
Our return on equity was 26, 1% for the quarter, bringing our year to date return on equity to 24%, which compares to 19, 9% year to date 2020.
After we saw the huge upward shift in demand in June 2020, our land teams did a fantastic job of quickly pivoting to acquire well located land.
As a result during the last 12 months, our lot position grew over 100% to 24354 owned and controlled lots.
While these additional 12000 plus lots acquired over the last year did not meaningfully contribute to our bottom line in 2021. These lots will contribute to us.
Growing significantly in the future and our future earnings.
Our gross margin reached 26, 9% this quarter up 580 basis points from two years ago up 210 basis points from the prior year quarter and up 150 basis points from the first quarter of 2021 and up marginally compared to the last quarter as green.
<unk> achieved pricing power in our core markets of Dallas Fort worth and Atlanta.
In order to capitalize on rising prices and demand we have paid sales by limiting our available homes for sale to generally those were the slab is at least port.
We have also achieved price increases in excess.
Of input costs.
We believe this focus on price over pace, we will sustain our industry, leading margins and strong financial performance.
With a record 1 billion backlog, leading margins and superior lot position green brick is extremely well positioned to grow our business in 2022 and beyond.
At the end of the third quarter, we now have a record 830 863 spec homes under construction, which is up nearly 50% year over year included in our record 2555 homes under construction.
Most of our homes under construction should convert to closings over the next three quarters.
The sale and closing of the increased number of spec homes will allow us to capture the most current price increases and to maximize our profitability.
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 believe the stratification of products will continue to appeal to a broad base of homebuyers and expect that our entry level set.
And we will continue to rapidly expand through the growth of our trophy signature and CB journey brands.
We have discussed in our previous earnings call <unk> operates under a much simpler ownership ownership structure than seen in prior years as approximately 70% of our topline revenues are now generated by wholly owned builders and another 10% of our total revenues are generated by subsidiaries.
Was it 10% to 20% minority interest.
Yeah.
If you turn to slide five we highlight some of our financial results.
Since 2015, we are growing our revenues at a compounded annual growth rate of 27, 4% from just under $300 million in 2015 to just over $1 2 billion over the last 12 months.
What would that same period green brick has grown our bottom line pre tax income and an even better.
Annual growth rate of 44, 3% as we have improved margins and financial services instituted national purchasing simplified our unrestricted ownership structure and gained overhead leverage.
Our current quarter.
Residential growth of 28, 4% of pre tax income growth of 39, 3% falls right in line with our historically high compounded annual growth patterns. This current year growth is not surprising since we have sustained this growth since green brick went public in late 2014.
We aim to achieve the best risk adjusted returns possible for our investors for the third quarter and had a 26, 1% return on average equity third quarter gross margin of 26, 9% or some of the best in the industry. While we maintained one of the lowest debt to capitals.
Our homebuilding peers at 31, 9%.
Just last week Green brick was given the rank of number 19. Unfortunately fastest growing companies list for 2021. This is up 36 spots from last year. It positions green brick as one of the fastest public builders, we continue to focus on growing our business responsibly with high quality.
The communities and low leverage.
Yeah.
In markets, where green brick operates and we get the benefit of significant economic and demographic trends, which we will discuss in more detail in the next two slides.
Slide six quantifying the strong population growth over the past decades, even in Texas, Colorado, Florida, and Georgia for the 2020 census data.
All of the 25 largest states in the United States. These four states showed some of the highest percentage increases from the population 10 years ago.
Texas led the nation with its Russia that population expanding just under 4 million people in the last decade, Colorado, Florida, and Georgia also double digit growth over the same time period, while the population of the U S grew only seven 3%.
We believe this positive population growth is evidence that our concentration in sunbelt and sunbelt adjacent lower tax state is a winning strategy.
We expect the in migration to these states from California, and the northeastern United States and the very strong demographic profiles of the Sunbelt will continue to generate positive population growth for many more years to come and we will preserve the robust housing market for us in future years.
Yeah.
Slide seven we highlight the economic growth of our core markets and present the decline in active homebuilding listing seen in September 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, as shown on the right side of the graph in this page Atlanta, and Dallas Fort worth have remained remarkably resilient.
With Atlanta, and Dallas Fort worth achieving the lowest unemployment rates in August 2021. It is evident that our core markets should sustain a strong job market and labor force. We believe these economic strength will continue to support the strong demographic trends in our markets and reinforce housing demand.
For years to come.
Okay.
Looking at the left side of the graph you can see the Dallas Fort worth and Atlanta had the second and third largest 12 month declines in active listings as of September 32021 of the 10 largest msas with listings down 34% and 28% respectively.
This remarkable dropped and listings as evidenced the booming demand in our markets and as an indicator of the pricing power Green brick has in 2021 to capitalize on inventory shortage of existing homes.
We believe this imbalance between housing demand and supply in our markets will persist through 2022 and provide green brick with continued pricing power to offset rising input costs.
With 90% of our ending active selling communities in DFW in Atlanta, We believe the green brick is well positioned to succeed in Q4 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 direct differentiate us from our 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 eight we demonstrate how our investment in land has translated into an 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 in land to future growth in revenue year to date, our lots owned and controlled increased by 9886 to <unk> 24000.
354, total logs a new all time high for the company. This is a 68% increase from the start of the year.
After including land under option and lots of options through joint ventures, we expect about 90% of our current inventory of lots owned and controlled will be self developed by the company.
We believe the strong emphasis on land development should allow greenberg's margins.
And returns to continue to represent.
One of the best growth opportunity profiles, among our peers as the self developed plus avoid expensive premiums charged by third party land developers.
For those of you who are interested slide nine provides additional detail on the attractive submarkets in DFW and Atlanta, where our lot supply is located.
Now follow me to slide 10, and you will see that our communities and lots under development hit new highs this quarter.
With 55 communities under development versus 42 last quarter, our land pipeline is well established to meet our continued growth trajectory over the next several years.
Lots under development.
<unk> towards the entry level market with over one third of the lots under development located in more affordable Submarkets.
And the next three months, we expect to complete their release roughly 900 lots to our subsidiary homebuilders for new housing starts.
During fiscal year 2022, we expect to accelerate our delivery of finished lots by finishing 3700 lots during the year.
With both our long term and short term land needs met we have visibility for growth at least through fiscal year 2021.
Slide 11 highlights.
Lights are ending units under construction our units under construction are up 44% over the past nine months and up 88% over the last 12 months.
Well, we have seen growth at virtually all brands and price points. Our unit growth was primarily driven by starts in our trophy brand, where we increased its ending units under construction by 255%. During the 12 months 12 months ended September 32021.
As we go forward, we expect continued expansion of the trophy brand to establish larger communities with higher absorption rates and unit density.
Additionally, our pivot to these larger communities focused on entry level buyers.
Has not been at the cost of increased risks.
Our Q3 2021 home closings, our average FICO score of.
747, with 84% of our fundings.
Exceeding a FICO score of 700 per day different Greenberg.
For our greenberg's mortgage ventures.
The creditworthiness of our average buyer profile is a fundamental strength of many of the markets where we operate.
Which we will which we believe will continue to mitigate risk for our business.
In summary.
We feel we have a very strong land position in some of the best markets in America.
With strong demand from low risk bloggers, all while maintaining a conservative debt to capital ratio and achieving industry leading margins.
To provide some additional context for the strong results this quarter and take a more detailed look at how our trophy brand is well established for future growth. Please turn to slide 12 of our presentation.
Which gives an in depth look at trophy is share of greenberg's performance metrics through September 32021.
As you can see on the slide Trophy is percentage of home closings has grown by 16%.
From 20% for full year closings in the fiscal year 2020.
236% for the nine months ending September 32021.
However, with 39% of our starts this year and 61% of our law.
Lots owned and control related to trophy. We believe trophy is a clear runway to continue its growth trajectory in Dallas Fort worth.
While our lots owned and controlled allocated a trophy has increased nearly 148% from a year ago. It.
It is important to note that nearly 15000 lot shown us.
15000 lots shown as of September 32021 include two communities.
With more than 1000 lots each have a much longer lifecycle.
Excluding these two communities trophy sure existing loss.
Is 51%, which is still 15% higher than trophy is 36% share of home deliveries.
Past nine months.
One of the main ways, we mitigate risk in these larger longer life communities by buying line of Submarkets at very attractive very affordable prices.
And future phases of our own block deals not included in our 55 communities under development. We have approximately 6600 loss at a basis of under $6300 per pay per lot.
Which is substantially below replacement cost today.
Are these also have mud or pits that further reduce our cost of capital and development for us.
Slide 13 of our presentation explains why we believe the growth of our trophy signature brand has the capacity to scale, our bottom line results, even faster than our top line results.
<unk>.
With the average trophy community you expect it to be double the size of our other subsidiary next year in terms of lot count per community, we're able to increase our absorption pace without requiring growth in community count.
Second.
Hercules business model allows for 100% you do utilization of purchase orders during construction with no changes allowed.
This process reduces our average cycle time by roughly 12% and allows for more efficient inventory turnover on stronger financial results.
Unlike trophy has seen an outsized improvement in its gross margin over the past 12 months.
Increasing by 410 basis points this growth ex <unk>.
Exceeds by 140 basis points, our consolidated margin improvement.
Improvement of 270 basis points for the same period year over year.
This highly this higher profitability is enhanced by trophy look lower SG&A leverage this combination of higher margins shorter cycle times and better SG&A leverage.
Should generate higher returns on invested capital.
All in all we believe the strong fundamentals will continue through 2020 and make a strong case.
Our continued investment in trophy signature homes.
Next Rick Costello, our CFO will discuss our third quarter and annual results in more detail Rick.
Thanks, Chad and thank you all for joining us to review, our 2021 third quarter financial results.
Slide 14 of our presentation shows the continuation of our high levels of year over year growth in our home closings and home closings revenue year.
Year to date, our closings have grown by 24% while related revenues grew 31% year over year.
Order over quarter, our closings grew by 19% and our home closing revenues grew by 29%.
Well slide 14 looks at our historical closings and revenues slide 15 points and pivots to our future closings and shows a year over year increases in net new orders and a record backlog.
While net new orders are up 52% versus the first nine months of 2020, our Q through Q.
Q3, 2021, net orders were down 16% as the company meter sales to better match construction schedules and buyer expectations and improve our ability to capture price increases throughout the construction cycle is.
Interestingly with our average sales price of $542000 in net new orders.
<unk> is up nearly 22% in Q3 on a year over year basis, our sales revenues for net new orders in the quarter was up 2% over last year, despite the 16% drop in order numbers.
Year to date sales revenue is up 34% with orders up 17% and the average sales price up 15%.
The absorption rate per average active selling community per quarter of $8 eight homes. During the nine months ended September 32021 exceeds the six nine net new home orders per quarter. During the nine months ended 930 of 'twenty by 27, 5%.
That said our absorption pace in Q3 of 2021 up eight two net homes per quarter is over 50% higher than Q3 of 2019 two years ago.
By metering sales during the last six months, we've been able to increase our spec homes under construction by nearly 50%, which will enable us to capture ongoing price increases and to maximize profitability.
We're now limiting sales to homes that have at least a slab port.
Our mix of homes under construction is now at 34% spec homes at 930 21.
Just up from only 28% as of March 31st of this year, but still far below the 44% spec level as of the end of last year.
Likewise, our Q3 2021, ending backlog is up 84% from a year prior with our backlog average sales price of 21%.
We will continue to limit our sales pace begin to reduce our backlog and increase our level of spec inventory in the coming periods.
Bottom line, we're holding back homes for sale. So we have a better mix of pre sold backlog homes versus specs.
We believe that any noted decline in new orders reflects these efforts rather than changes in demand, which remains very strong.
We think improving our mix will lead to more efficient operations higher margins and returns and less risk of construction costs.
Rice's are rising every month, so selling somehow says two or three months before completion, we'll get a better margin than selling all the houses seven months ahead of completion.
The expected return to a higher level of spec units under construction should position us to capture increased sales prices managing this type of flow as a corporate strength in making decisions like this contribute to our superior gross margins and return on capital.
Let's move to slide 16 related to our financial highlights.
Homebuilding gross margin for Q3, 2021 was up 210 basis points over the same quarter in 2020, and adjusted gross margin was up 160 basis points quarter over quarter.
For the nine months ended September 32021, homebuilding gross margin and adjusted gross margins were up by 270 basis points and 230 basis points, respectively from the same year prior period.
We believe that our focus on price over pace will continue to sustain our industry leading gross margins.
Turning to operating leverage our SG&A expense improved by 80 basis points at nine 8% for Q3 2021 with the prior year quarter at 10, 6%.
Our year to date Q3 ratio of SG&A expenses to total revenues of 10, 2% improved by 110 basis points from 11, 3% for the prior year.
With increasing top line revenues expected in Q4, 2021, we expect quarterly and full year operating leverage to continue to improve.
Our interest coverage of $17 nine times year to date was 22% higher than the same prior year period.
Our strong interest coverage clearly demonstrates our capacity to generate positive cash flow well above our needs.
Our bottom line Q3, 2021 diluted EPS of <unk> 95 was a record for any third quarter and represents a 40% increase over Q3 of 2020 far outpacing our total revenue growth of 24%.
For the nine months ended 930 of 'twenty, one our diluted EPS of $2 48.
It was up 49% from the prior year period.
As you will recall during Q2 of 2020, we benefited from a $6 $7 million tax benefit from energy tax credit related to open prior tax years, so to get a better sense of our improvement and our operational income performance, we need to look at pretax income.
Which has grown 61% year to date over the first nine months of 2020.
And finally, our annualized net income return on average book equity is strong this quarter at 26, 1% and for the year increased an additional 100 basis points to reach 24.0% year to date.
So combined with our low debt leverage our risk adjusted returns are truly remarkable.
Our focus on high quality communities that drive our industry, leading gross margins and impressive returns to shareholders is even more evident in our performance over the last two years as we show on slide 17.
This is a new chart that shows since Q3 of 2019, our gross margins have improved 580 basis points to 26, 9% with eight consecutive quarters of increase.
That's a 27, 5% increase from 21, 1% in Q3 of 19 and has driven remarkable earnings growth during that time.
Last 12 month basis net income has grown 66, 8% annually over the last two years from $56 1 million in Q3 of 19 $256 million in Q3 of 'twenty one.
We've achieved this growth while maintaining a conservative balance sheet.
We've redeployed our earnings into a robust land pipeline that has grown our lots owned or controlled by 100% over the last year, which positions green brick for growth in 2022 and beyond.
Please move to slide 18 of our presentation, where we compare our Q3 21 gross margins with available peer data.
Our gross margin reported for the quarter was 26, 9% and 26, 5% year to date. This chart demonstrates that this performance is among the best in the industry.
We believe our superior margin experiences evidence of a conservative land underwriting operating efficiencies as we scale, our business and prudent planning.
This is a winning strategy that has well prepared us to manage pace and price during the remainder of 2021 and beyond we expect our gross margins to remain among the best in the industry as we folks focus on maximizing profitability by limiting pre sales and increasing spec homes.
Slide 19 visually demonstrates that we have grown our revenues and provided stable earnings by concentrating our several home buyer segments.
For the nine months ended 930, <unk> 19, two segments accounted for about 60% of our revenues.
Fast forward two years, and we now address six distinct and significant customer segments, which all experienced strong revenue growth in the first nine months of this year.
For the nine months ending September 30 of 'twenty, one our entry level segment, plus our first time move up segment now combined to represent 35% of home closings revenues, an increase of 600 basis points over two years ago. When they combined represent just 19% of homes.
Closings revenue.
The expansion of our more affordable inventory was created through intentional reallocation of more capital to our trophy signature homes brand. We expect to continue to expand our entry level segment, which we believe should position green brick to captioned capture an even greater portion of today's housing demand.
Please turn to slide 20 here.
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 have provided six measures five of the measures cover. The 12 months ended 930, <unk> 'twenty one our nearest period growth in homebuilding revenues gross margin percentage.
Interest coverage pretax income return on invested capital and growth in lots owned and controlled and the other measure which is debt to capital is as of a point in time 930 of 'twenty one.
With the strength of <unk> results for each of these metrics green brick continues to perform at or near the top of our peer group in fact, our high gross margins exceed even some large cap peers as we discussed earlier in our remarks.
Our returns on capital are even more impressive when you consider our peer leading growth in lot supply as most of these lots will not produced income until 2022 and beyond.
Lastly, please look at slide 21, which focuses on our lower leverage we were able to achieve our record setting results, while maintaining one of the lowest debt to cap ratios amongst small cap and mid cap builders and growing our land and lot positions by 100% over the last 12 months.
I'll now turn the call back to Jim who will wrap up our part of the call prior to opening things up for Q&A Jim.
Great. Thanks, Rick.
Really great results. This quarter are the culmination of years of diligent planning and hard work by our subsidiary builders and our corporate team.
We believe that the results achieved this quarter or just the next step in green bricks remarkable growth story as the company swiftly moves to materially exceed $1 billion in revenues this year.
We believe green <unk> prospects for continued topline and Bottomline growth are truly unrivaled in our industry I'll now turn the call back over to the operator for your questions. Thank you.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to take if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment it may be necessary.
Sorry to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Okay.
Our first question comes from the line of Michael Rehaut with J P. Morgan. Please proceed with your question.
Hi, This is Maggie on for Mike Thanks for taking my questions.
You talked about your focus on price over pace and also pointed to continued pricing power that you're seeing.
Could you talk about this.
This quarter, the pace and magnitude of price increases.
Compared to earlier this year and looking forward, how youre thinking about the potential for further price increases, particularly.
Being mindful of affordability is you can continue.
Continue that pivot.
The entry level segment.
Sure. This is Jim Brickman.
Obviously this is a major topic that everybody wants to discuss.
Jed Dolson, our Chief operating officer is probably best prepared to really answered that in.
In detail because he deals with this question.
Most a daily basis with our builders. So Jed do you want to talk about price versus pace and pricing strategy.
Yes, Matthew we were very aggressive in our price increases this quarter.
In Q3, more so than in Q2, and we think those results will show up later.
In further quarters.
Hey, Maggie it's Rick Thanks for your question.
Also just in terms of magnitude.
Our backlog ASP grew by 7% from quarter to quarter and that was largely driven by the ASP on our new orders, which was up by 10% from Q2 to Q3.
Got it. Thank you and then the second question is on.
On your gross margin.
Margin outlook over the next couple of quarters.
Can you remind us when you expect to see peak lumber costs flowing through the P&L and then also talk about how youre thinking about other inflation into 2022.
Lastly at your Investor Day, you highlighted some of your programs and operational efficiency initiatives that are helping you manage through the current environment. So could you talk about how those are also factoring into your outlook over the next couple of quarters.
Sure Maggie this is Jim Brickman.
Most of the lumber cost the big lumber price increases are going to run through the income statement.
By the end of the fourth quarter.
Really the challenge right now is what's happening how are we going to give up some of those lumber cross benefits, whereas lumber prices. They retreat slower than they may go up but are we going to give some of those.
Increases back next year and.
And we're watching that very closely we think we've reached prices nicely, where we can still have margin growth.
Next week for example, jet and I are talking to ever all of our division presidents.
And each one of our purchasing departments and operating managers and we are we have basically nine stages of construction, we're going through each stage of the construction and reviewing.
Input cost today, and projections tomorrow and really it's just an ongoing process, we feel good about it but it's very volatile.
Got it thank you.
Our next question comes from the line of Susan <unk> with Goldman Sachs. Please proceed with your question.
Hey, everyone. This is Charles Perron for Susan Thanks for taking my questions.
First I would like to talk about the land market, what youre seeing in there. It seems like you were able to secure further.
Your line position this quarter to support growth for the coming years, but can you talk about the competition that youre seeing seeing for dos lots, both from the public and the private builders and how does this impact the margin trajectory in the coming years.
Okay. Charles this is Jim Brickman, I'm going to take that at a high level and then try to answer it a little bit more on a granular level.
First of all my job as CEO is to manage risk and create a culture that manages risk and I think we've done a really good job of doing that and we're going to continue to do that at the same time.
We recognize that profit starts with land and the greatest risk is in land.
And.
I'd like to leave kind of our audience with two points about off balance sheet land banking risk margin and return.
One is that land banking comes at a very high cost of capital.
Two we is that land bankers are some of the smartest people in the homebuilding space.
And three I had been really perplexed by this and that is that the idea that to please wall Street land risk can be magically shifted land bankers that are some of the smartest people in the room I think is a little disingenuous.
Lobster and very low supply in all of our markets. There are very few developers in our markets. We have been the biggest land developer in our markets.
For a very long time, and we're going to use our strong balance sheet.
Low lot supply to continue to develop lots because generally we think these lots are going to provide at least a 5%.
Margin advantage over option lots.
So does that answer your question kind of a broad basis.
On a margin basis.
Yeah, Yeah. It does I appreciate the color on that Jim and then my follow up I was wondering if you can talk a little bit more about the supply chain dynamics that you've seen over the quarter, obviously a lot of your competitors.
We reported a very challenging supply chain environment right now, but I would be curious to know how it has impacted your business over the course of the quarter and where do you see the most pressure right now.
Jed why don't you take that.
Yes Charles.
The biggest problem.
Problem with the supply chain right now is the lack of predictability about what is going to be the next shortage, whether it be labor or materials. So just the uncertainty about what is around the band after we finish the next stage of construction.
We are ordering materials way in advance now where labor lined up way in advance but.
Frankly labor is having to touch the homes more frequently they are having to come back on return trips because they don't have all of the materials.
That are needed when they make the first trip out so.
Yes.
And material very shortly.
Material shortages vary market by market for example, in Atlanta, we are having cabinet and window issues.
In Dallas, we're having less of that but we're having more brick shortages here. So it's really a submarket by submarket issue.
I appreciate the color thanks for the time and good luck.
Thank you.
Our next question comes from the line of call Carl Reichardt with <unk>. Please proceed with your question. Thanks, Hey, Jim Rick Jed, you're all well and I had a couple for you guys one on deliveries.
Was there if you look at your internal budget for <unk> did you have some deliveries that shifted out of <unk> into <unk> due to the delays Jed and then second.
You mentioned of the 2500 plus homes that you have under construction he thought and most of those would close.
In the next three quarters.
Just trying to get a definition of most is is 90% kind of the the the right numeric attached to most.
Yes.
This is Jed Carl yet to answer your last question first yes, you could assume 90% of the 2500 will close in the next three quarters.
And.
And then yes, we did have several of them.
The last.
Last minute materials shortages, we had a lot of flooring.
Issues in Dallas and the.
In Q3 that did push some closings into Q4.
Okay. Thank you.
And then on an orders could you talk about the maybe the percentage of communities.
That you're metering sales in still and it seemed to me that your orders actually from an absorption for community perspective.
Pretty good.
I mean, they're up and sort of anti seasonally in <unk>. We've heard obviously, we've seen other builders, whose numbers had been sort of off anti seasonally I'm just kind of curious your thinking on whether or not the orders surprise you to the upside given the metering given the price increases and given the relatively flat communities sequential.
Lee.
Well, let me kind of answer that a backwards way in that.
Q3, we were a little disappointed with our cycle time, we thought with the dryer weather. We would have finished more homes like we just alluded to but we had labor and material shortages that prevented that so.
As you look forward.
In Q4, I think youll see us tap the brakes, a little bit on sales compared to Q3.
As you mentioned, we sold more homes in Q3 than we did in Q2 of this year. So.
Q4, we're not tap the brakes a little.
The demand is off the charts strong.
We're metering sales in 80% plus of our communities and again, we have a lot more spec inventory that is going to be available to sell the first and second quarter of 2022.
Great, Thanks, Jan and Jim and then last.
On pricing.
Noting your sense, Jim you kind of alluded to this in terms of specs, but is your sense that your pricing power in trophy signature right now is greater than it is in the remainder of the brands and products and then like I ask almost every quarter any sense as to whether or not you're looking at expanding trophy signature more aggressively.
And the market outside Dallas.
No our greatest pricing power is.
In the very supply constrained markets like Frisco, Alpharetta, Frisco, Texas, Alpharetta, Georgia, where we are the largest builder in those sub markets and there's very limited competition from other builders and unbelievably low existing.
Now supply so that's where really we have unbelievable pricing power.
Trophy is still very good Jed can talk more about limiting sales, but what we did when many trophy communities as well say well, we're going to only take four or five sales and just limit sales after that totally but take those four sales obviously the highest margins. We can we can harvest.
Other markets.
Our other markets.
Unbelievably strong Colorado Springs.
Jason.
Pardon me expansion of trophy.
David since you deal with that.
On the expansion of trophy. We are we continue to really keep our eye on two markets.
And we.
We think we're making good progress in those two markets.
Okay. Thanks, guys I appreciate the time as always.
Well thank you Karl.
Our next question comes from the line of Alex <unk> with B Riley. Please proceed with your question.
Thank you for taking my question.
As it relates to average selling price if we look out over the next few quarters.
Even the product shift how should we model that.
Yeah.
Okay.
Alex This is Jed was the question how should we model average sales price over the next few quarters.
Yes.
Average selling price for the total company understanding that theres going be some mix shift in there overtime.
Yes.
Yes, I think it will be pretty consistent with what we're seeing right now in our new orders I mean.
You can really take a lot out of the overall trend in the backlog.
Which is.
On an ASP basis is up.
Year over year now 21%.
And that's that's for that for the near term, we see the general direction that you should see our prices traveling.
I mean, it's not to suggest.
Just that it's got a fully go up at that distance because it's come a long way, so far but directionally, it's been pretty pretty smooth on that basis.
Alright, just modeling questions.
Alex just to put some numbers to that I would just say that.
In Q1, our ASP was.
Approximately $4 20, and we will.
We see a pathway for that getting to around 500.
That's helpful and then as we think about an effective tax rate for 2022.
Assume it could be slightly higher than this year, but any broader thoughts on that.
Well it certainly depends on if anything happens coming out of Washington.
But absent that we should continue on.
If the tax credits are the same it would be at the 23, 5%.
The tax credits are certainly a moving target right now in Washington.
Thank you.
Thanks, Alex.
Our next question comes from the line of David Paterson with CDT Capital. Please proceed with your question.
Hi, and good afternoon, everyone.
Hi, My question regarding the guidance for finished landmark.
For 2022 looks like it's come down quite substantially quarter over quarter that expectation there's.
There is about a 900 lot delta.
Just kind of curious what's kind of causing that.
Is it really just supply chain lowes and labor.
It would be helpful.
Yeah.
Well our <unk>.
David our communities that we do deliver they are as we mentioned they are continuing to increase the number of lots we did.
We're seeing development delays just like we're seeing homebuilding delays. So we have from a community count perspective, we did see community count just dip a little bit.
But those communities are higher velocity higher.
<unk> number a lot communities, which we had forecasted so we as I think we gave some pretty good numbers during our.
During the call about what we how many last winter.
Anticipate delivering over the next three to four quarters.
Yeah, David that Delta certainly was a function of the <unk>.
Communities.
Going from the end of Q4 of two.
2022 to the beginning of Q3 'twenty three so it wasn't a big Delta was one community basically.
Alright, that's helpful.
And then just going forward.
I guess more broadly is the company more.
In terms of growth.
Acquiring new land is it is the company more in growth mode is it an ability mode in the kind of in harvesting mode now that the.
The number of lots in inventory doubled any guidance around.
What we should expect for land acquisition going forward, maybe not specific numbers, but.
Incremental numbers might be helpful.
This is Jim well first of all I think we pivoted very quickly.
And alert Lee after as we said in the call in May and June of 2020.
And.
Move down a lot of land positions ahead of the pack.
So we are in a really good position in terms of lots in 2022 and beyond so we don't need to be aggressive on the land side to allow significant growth in our homebuilding revenues, we don't predict what that growth is going to be but we have the lot position and the price position on those lots that were bought.
Opportunistically to grow our business and we're just going to continue to manage that the best we can.
That's helpful. Thank you for taking my question.
Okay.
Our next question comes from the line of Bill the Zelem with Titan Capital. Please proceed with your question.
Thank you.
Wanted to start out just by asking you to repeat what you said about the fourth quarter revenues versus the third quarter revenues. If you would please any any additional color you'd like to put around it.
Well, Hey, Bill it's Rick.
Really.
Just said that we expect sequential revenue growth from Q3 to Q4, we really didn't provide any incremental color.
Than that.
And you don't want to take this opportunity now to do that.
[laughter] Alright fair enough I thought I'd give you the opportunity anyhow sure. So let me jumped to home price and spend really you'd answered. The question I think a very early on in the Q&A, but I wanted to make sure that what we're seeing in terms of the backlog price.
Being up or higher than the the homes delivered price that is really a function of of pricing in the market rather than the mix of homes, meaning fewer starter homes more second time move up et cetera, or anything like that as it did we understand that correctly.
Yes.
It's Rick again Bill.
Our backlog ASP is up 22%.
You know, which is which is greater than the units are up.
The.
That's a trend indicator if you will it's not that the ASP is going to get to that level level, because if you look at our history.
It's indicative of the actual homes that are in backlog not the entirety of our mix because you will always have backlog.
With.
Some of the more custom homes.
Populating your backlog.
Build to suit jobs et cetera, Southgate homes et cetera.
And Bill this is Jim really at.
We don't expect people to track community by community by neighborhoods, but really if we think for the next 90 days. If you tracked some of our physical communities with trophy.
Our alpharetta communities with TPG, you can actually just watch those prices increase.
Pretty significantly in those neighborhoods.
Yes.
So so bottom line is.
The.
Part of what we are seeing with the.
With the backlog prices being above homes delivered prices is price.
Part of it is.
<unk> is also a function of of well and I presume even will be more of a function going forward of the number of spec homes, which will influence that price of.
Homes delivered relative to backlog also.
Yes.
Okay. That's that's helpful and then lastly.
What are you anticipating that your your start will begin to ramp again I'm just looking at the at the chart, where you're showing your lots purchased.
Or excuse me lots owned and controlled.
And that's been increasing for a while but in the past you have said theres a couple of year lag, but I think you've done some things to accelerate that which would you put all those pieces of the puzzle together for us and help us understand when you.
When youre anticipating that to start to curve to turn up.
So while we don't predict starts in the future, but I can tell you that.
The backlog is huge as kind of a pig through the Python until we get.
The backlog starting to reduce materially in closings, just because of our capacities internally with our own builders and externally with our subs and vendors, we don't want to start more homes because were.
We're just competing against ourselves.
Okay.
Thank you all for the perspective.
Our final question comes from Alex Barron with Hessling Research Center. Please proceed with your question.
Thanks, gentlemen.
Just wanted to ask in terms of.
Limiting sales.
To picks the backlog is that something you think is just going to go through the end of this year or do you think that will extend into.
The early part of next year as well.
I think thats, a great question and I wish I could give a good answer this is Jim.
I really think what we are monitoring very closely is.
The capacity.
Of our sub base and our trade base.
And that's going to really dictate.
The answer to your question, we just don't know that yet.
Got it and.
I'm not sure if I missed it but did you guys give a number as far as how many homes you guys started this quarter and just trying to get a sense of.
How many.
How much you're trying to start ahead of sales versus sales.
Yes.
Okay.
Yes, we are pulling that for you right now.
You can usually define that when you see our ending units under construction you.
What to add the starts and subtract the closings since you know the beginning and ending in the closings you can kind of.
Induce it.
The starts in Q3 were 807.
Got it thanks and best of luck.
Thank you I appreciate it.
Okay.
Ladies and gentlemen, we have reached the end of the question and answer session and this concludes today's conference you may disconnect. Your lines at this time. Thank you all for your participation.
Okay.
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