Q1 2022 Green Brick Partners Inc Earnings Call
Good afternoon, everyone and welcome to Green brick partners earnings call for the first quarter ended March 31st 2022.
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 will accompany today's webcast and is also available on green brick partners' website.
Www got green brick partners Dot com from.
From the homepage, please select reporting and presentations under Investor Relations and then navigate to the presentation name first quarter 2022 investor call presentation.
The company reminds you that during this call. 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, including its financial and operational expectations.
For 2022 and in the future.
Investors are cautioned that such forward looking statements are based on current expectations and are subject to risks and uncertainties that 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 on Tuesday may three 2022.
And the 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.
The reconciliation of these metrics and the other information required by regulation G. Regarding these metrics can be found in the earnings release.
Green brick issued yesterday and the presentation available on the company's website.
Now I would like to turn the conference call over to Green bricks CEO , Jim Brickman. Mr. Brookman. Please go ahead.
Okay. Thank you operator, good afternoon, and welcome to our first quarter 2022 earnings call.
With me today are Rick Costello, our Chief Financial Officer, and Jed Dolson, our Chief operating officer.
We're pleased to report yet another outstanding quarter highlighted by 68% year over year total revenue growth and 135% year over year EPS growth.
Our quarterly gross margins of 27, 8% were our highest since the first quarter of 2015, and our quarterly SG&A leverage of nine 4% in Q1 was the second best in our history. After the record bashed in Q4 of last year.
I would like to thank our entire green brick teams for consistently delivering superb results under a challenging supply chain and labor market.
In a moment I'll pass things over to Rick who will go through Q1 2022 highlights Jed will then provide an update on our capital allocation and finally, recognizing a rising interest rate environment I will also share some thoughts on supply and demand fundamentals I'll now turn the call over to Rick Costello, our chief operating.
Waiting officer, Rick Thanks, Jim Hi, everyone.
First reiterate our appreciation for our teams whose efforts have led to outstanding outcomes for our shareholders and this quarter was no different.
I'll start by please turning to page four of the presentation.
Our total revenues in Q1, 2022 increased 68% year over year to 394 million.
And also our residential units revenue increased 68% year over year to 365 million driven by higher closing volume and higher Asp's.
During the quarter, we delivered 658 homes to homebuyers, 27.5% more compared to last year.
And because of strong demand and metered sales ASP also went up 32% year over year to 552000.
As of the end of March we had 1423 homes in backlog and E. S. P. If those backlog homes was up 24% to 609000.
Our year over year.
We expect a S. P for closings during the balance of 2022 to range each quarter between the 552000, which was the Q1 actuals of closings and the E. S. P of our current backlog.
During Q1 of 2022, we continued our proactive metering of pump sales as I said as I suggested we believe that by metering sales in selling homes later in the process, we will improve the mix of specs versus pre sold backlog homes and that will lead to more efficient operations higher gross margins.
Less risk of unmatched construction costs.
Due to that metering process net home orders decreased 45% over the record prior year period, but were up 26% sequentially from Q4 of 'twenty one.
Also our cancellation rate of 8% was in the range of the last two years, which has been between 6% and 12, 3%.
So thanks to strong pricing power and operating efficiency SG&A leverage improved by 420 basis points year over year to nine 4%, which was our second best operating leverage only surpassed by the eight 8% last quarter.
Turning to slide five our gross margins reached 27, 8% again, our highest level since the first quarter of 2015.
Gross margin was up 240 basis points year over year, and up 160 basis points sequentially.
As you can see on the compare comparative bar chart versus our mid cap and small cap peers. We continue to have some of the best gross margins in the industry.
We believe that our focus on price over pace will continue to sustain our gross margins at levels higher than most of our peers.
We also believe that our position as a third largest builder in D. F. W allows us to better control both costs and cycle times.
And further price increases of our homes have get tenure to be accepted by our buyers.
So when we combine our unit growth a S P growth and improvement in both gross margins and SG&A leverage our first quarter bottom line diluted EPS was up 135% year over year, that's approximately double our growth rate in revenues.
Moving on to page six let's take a quick look at the critical measure of return on equity our annualized ROE V. In Q1 was 28, 8% up from 25, 9% in all of 2021, the rest of the slide highlights several key areas, where we are performing exceptionally well to drive our risk adjusted.
Returns on equity.
First as our diversified product mix.
Excluding challenger homes, we have seven different brands brands that are green brick with price points up to $1.2 million as Jed will discuss a little bit deeper over 80% of our closings in the first quarter were from infill communities, which are targeted at home buyers, who are more financially secure and less sensitive to interest rates.
These communities, which include trophy are located in lot constrained submarkets face lower levels of competition and allow us to charge higher prices as Joe will discuss later our results and our ROE we are higher in these neighborhoods.
Second factor is our disciplined capital allocation prudent underwriting has yielded outsized returns on land and development in the form of higher gross margin as we develop lots rather than paying retail via our off balance sheet financing arrangements.
As of quarter end, we have just under 27000 lots owned and controlled most of these home sites are located in.
Quote unquote very strong markets of D F W. Atlanta, and Austin, Jed will discuss our capital allocation in more detail in a moment.
The third factor is our gross margins as we just mentioned our gross margins of 27, 8% during Q1, where our hires highest since Q1 of 15.
And our quarterly SG&A leverage of nine 4% in Q1 was the second best in our history. After a record best last quarter in Q4.
Last but not least the factors is our strong balance sheet bar graph here demonstrates our commitment of maintaining one of the lowest debt to capital ratio amongst mid cap and small cap peers combined with our healthy liquidity and significant operating cash flows. We believe that we're in a strong and flexible position to grow.
With these strategic initiatives and a season team in place I'm confident that we're well positioned to maximize shareholder value as we have done historically.
And with that I'll turn it over to Jed Dolson, our C O Jeff Thanks.
Thanks, Rick I would like to address our approach to capital allocation. Please turn to slide seven we continue to exercise an approach which includes one investing significantly in Lac rose to.
Executing the organic growth of our builders subsidiaries and three expanding in new markets, while maintaining our disciplined approach to investment we.
We do not lower our hurdle rate of 20 plus percent internal rate of return, we do not assume financial leverage or price increases.
And were not aggressive with sales absorption assumptions further we include appropriate cost contingencies and estimating our development and vertical construction costs. This disciplined capital allocation allowed us to identify what we believe are strong opportunities with her.
<unk> announced expansion into Austin.
We expect to start home construction in Austin in early 2023.
During 2021, we increased greenberg's lots owned and controlled by almost 100%.
Far exceeding the growth of any of our peers. Many of these lots were contracted in 2020 early 2021 at attractive prices.
Because of our early moves in accessing and underwriting deals we have an abundant lot position.
There was funded at better pricing than today, just a self sustained growth, while maintaining a low debt to capital ratio.
During 2022, we're focused on developing land in our high growth Submarkets, we continue to estimate that our total spend on land development will be approximately $285 million for 2022.
In doing so we expect to complete and deliver over 4300 finished homesites in.
41 communities to our builders at an attractive cost basis during the year.
As we have discussed in recent calls we have accumulated almost 9000 future Homesites for trophy signature homes and six communities. They are individually exceed 800 lots.
These larger longer life communities are in Submarkets, which we believe of long term growth potential at very affordable prices.
In the.
In the case of these trophy communities lots of an average cost of under 8000 per undeveloped lot.
Additionally, a growing proportion of our horizontal land development is being funded by low by the low cost of.
Capital Municipal development district bonds.
During Q1.
During Q1 of 2020 to our lot count declined slightly as we started almost 900 homes.
This was our highest quarterly start since Q2 of 2021 where.
We also closed the sale of about 1100, Homesites and a $27 million transaction.
Unfinished loss.
Produced a profit of $6 8 million and an internal rate of return of 162.
As of Q1 2020 to over 80% of our home closing revenue came from infill locations, including many of trophies communities.
Infill locations, our a and B submarkets that are largely built out the.
The classification is based on a variety of subjective subjective factors such as quality of schools proximity of jobs and the existence of infrastructure for quality of life.
These submarkets have a limited supply of both lots of new and existing homes.
Trophy has a strong presence in these infill locations in cities like Frisco, and Allen, Texas as well as in Mckinney, Texas.
This was intentional to get trophy operating at higher volumes than it than if we had focused entirely on the entry level and first time move up locations.
Despite our strong operating results, we continue to see a disconnect between our positive view of the business as compared to our stock price performance.
Consequently during Q1 and April of 2022, we completed a total of 58.
A total of $50 million and stock repurchase at a weighted average price of $20 66 per share. These repurchases have combined to fully utilize the 50 million dollar amount previously authorized and represent the repurchase of four 8%.
Of outstanding shares as of the start of the year.
We expect these repurchases to be about 5% accretive to earnings per share in all future periods.
We understand that the market wishes wishes to take a dim view of our sector and our stock price.
While we do not believe we can persuade the market to change its view in the near term, we can add substantial long term value to our shareholders by buying shares back at what we believe is a deeply discounted price.
So that and our board of directors, just authorized an additional $100 million for stock for stock buybacks.
Right or a repurchase program our debt to total capital was still will still only at 28, 8% at the end of Q1, and we expect it to remain within our long term targets for the foreseeable future.
We believe this was a great use of capital that further strengthens the income per share and returned capital to our shareholders.
Now I will turn it over to Jim.
Okay. Thanks, Chad.
The strong results Rick discussed earlier are a validation of the excellent execution by the green brick team operating the best markets in the country as well as a strong housing market.
Although we expect higher mortgage rates to have some impact on demand over the long term, we continue to believe that demographic shifts.
In our very strong high growth markets together with record low existing housing inventory will sustain a healthy housing market.
Slide eight is a chart that we brought back into our slide deck to remind everyone of the most important secular change of the current generation.
The graph represents an irreversible demand of over 4 million millennials, who will enter their prime home buying years over the next decade.
After under supply in the market since the end of the great recession.
The homebuilding industry will continue to benefit from the increased desire of this demographic to own a home.
Additionally, specific to green brick are markets continued to experience the strongest demographic inflows and job growth in the country DFW, our largest market wrapped up the largest population game of any U S. Metro area from July 2022 July 21st according to the.
Census Bureau.
Demand continues to be solid in all of our markets in the first quarter and in April .
Despite higher qualification ratios due to rate increases we continue to see well qualified homebuyers searching for homes in our submarkets.
When we released our new home site for sale, our sales agents know they have a large inventory of ready and willing buyers. They select their buyers a little list you have the best ability to go to contract and then qualify for closing.
Average FICO scores of our buyers during the first quarter and April was over 746 with a debt to income ratio of about 34%.
As Jeff discussed clothing revenues from higher priced infill, a and b locations represented more than 80% of October closing dollars in Q1.
Those buyers typically are better credit scores higher incomes and are less susceptible to interest rate increases. They also have a greater ability to one buy down their interest rate to qualify for a jumbo portfolio loan such as a five year or seven year arm and three put more down payment at closing.
To reduce their loan without increasing their monthly payment.
On the other side of the equation the supply of both new homes and existing homes for sale continues its dive to historic lows across the country as shown on page nine.
Homebuilders are capturing a higher portion of total sales then.
Prior periods, you had also facing inability to oversupply the market because of the lack of inventory and the lack of a qualified workforce.
As a result, we believe that the shortage in both resale and new single family homes will likely stay very low.
With these tail winds at our back along with our operating strengths and our strong balance sheet, we remain confident and opportunities excuse me and opportunistic and our ability to grow and enhance shareholder value.
Last but not least I would like to welcome Leila Vanessa Murphy as our newest independent director to Green brick partners Board of directors.
Vanessa Murphy brings more than 25 years of diverse investment management experience as well as a strong background in matters related to sustainability.
Yes, accounting and risk management, we are very fortunate to have her joining our board.
In closing I would like to extend a big Thank you again to the entire green brick team. We are excited about the what the future holds for green brick. This concludes.
Our prepared remarks, we will now begin the Q&A session.
Thank you ladies and gentlemen at this time, we will be conducting a question and answer session.
We'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the Q4.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.
Our first question comes from the line of Mike Rehaut with J P. Morgan. Please proceed with your question.
Hi, Good afternoon, guys got wardlaw on for Mike I was just wondering if you could give a little bit more color on the supply chain and if you view it as getting better or worse than your next few quarters. I know you touched on a little bit and it's getting worse are there any distinct examples of what you've been having more trouble getting supplier.
Yeah, why don't you take that because you really do with our builders on an operating basis. The most.
Sure Jim.
I would say the supply chain is staying about the same I think our suppliers.
Have improved their ability to monitor where shipments are you know the problem is we get so many of our shipments from out of the country and when their container shortages or ports are shut down you know stuff can be going.
Very smoothly for months, and then shut down our afford and we can all of a sudden be out of a particular material. So I do think the ability for these suppliers to track it is greatly.
Greatly improved it you know as as Covid.
Going on but we are still seeing some hiccups. Mike. This is Jim one of the things, we're doing particularly a trophy.
We're limiting because this housing demand is still is very strong we're limiting the amount of offerings in the SKU numbers to customers to combat that so basically we're going to our suppliers frequently and saying what for materials can you assure us that we're gonna have rather than trying to get aid and ski.
You and having problems with four items.
Right. Thank you and then lastly, if you guys could just touch on kind of the cadence of orders and closings throughout the previous quarter.
Oh, we saw order we saw orders in Q1, continuing to be very strong as we mentioned.
80% of our revenue for the quarter came in a and B locations, where we continue to meter sales.
We were also finding increasing lumber costs throughout Q1.
We still don't have visibility on how that looks for the year. So we're very cautious not to <unk>.
Pre sell too many homes.
Got it thank you guys.
Yeah.
Our next question comes from the line of Carl Reichardt with B T. I G. Please proceed with your question.
Thanks, Hey, guys hope you're doing well.
Can you talk a little bit about how a trophy are performed in the quarter from an orders perspective relative to the more mid and higher end brands. It.
It might be in the queue and I didn't I haven't gone through all the Q, yet so sorry, if I'm asking this in its in there already but I just like your thoughts on on the different segments.
Yeah.
To answer that Carl.
This is jed.
Trophy.
And it's a and b market location.
Performed exceptionally well, probably even error for sure or even better than our.
Sister companies subsidiaries.
And in the you know four out locations, we for the quarter oftentimes saw double digit sales per month per community.
And so so there's no alteration in the trajectory of trophy.
Demand wise ex the fact that you've you've slowed details across the board.
Can you talked yet about what you'd feel like you'd need to see in order to take the governors off.
The incoming order volume.
Is it a catch up in and starts relative to when you can close them you have a better knowledge of Kosten at where are there are some other elements that would that would enable you to remove those governors on trophy or the other or the other we've caught up with starts which jenkins okay.
If you take a look at that our stock base is great and we think youre going to see stronger order growth.
One of the things that really skewed the year over year comps was we sold almost 1000 homes are right around 1000 homes in Q1.
2021.
So that was a very tough comp to follow up on in hindsight. If we had any idea of the supply chain bottlenecks that that gigantic.
<unk> quarter would generate we probably would've behaved differently a year ago, but in terms of start where we're back ramped up to a much greater.
Greater start pace, what's your start pace now Rick.
I would get just under 900 this quarter, which we haven't done that since Q2 of last year. So that's a much preferred start pace for us and that's pretty much normalized Carl.
You know it is.
It's really the house is getting to the stage of construction that is governing when we can.
Really says to the sales floor I mean, we are seeing no.
[laughter] no catch up if you will in the existing home inventory or they are builder inventory, it's just not happening in any of our markets, it's still incredibly low.
You know the interest rates means that the salespeople might have to go deeper into their pile of our folks that they have to call, but they know who to call because they know who can qualify and who I say are good.
Debt to income ratio so.
Being in the higher <unk>.
Price points for so much of our inventory really insulates us in that regard as well.
Nothing on the existing home market.
Is it kind of the Q1, 2020, one again that we have seen now in a strong sales effort at.
That we finally have pushed to kind of the pig through the Python and the cadence of our starts and sales pace, they're going to be much more normal normalized which is.
Kind of help operate our business more efficiently.
That's great. That's very helpful. Thanks, guys and it if you don't mind me asking one more I'm Jed you walked.
Walked through a number of elements that sort of get our land underwriting and how youre thinking about new transactions.
When you talked about no price increases you talked about contingency budgeting, our sales pace can you talk a little bit about what youre thinking on just core gross margin from these communities and I'd just be interested if you could compare to what what you're underwriting today versus maybe what you looked at three or four or five years ago. It's just the circular way of asking.
Do you think that.
Relatively high margins, maybe not peak margins, but high margins are sort of the future of our green brick relative to the margins you may have earned three or four or five years ago relative to the margins that we think of it as more typical for the homebuilding industry.
Yeah. So we are very.
We're just now bringing to market.
Some communities, where we bought.
In the.
Summer of 2020 car also taken almost two years to bring those communities to market.
And we're seeing margins that far exceed what we just announced as our margins for Q1 so.
I guess I'd answer that by saying, we feel good overall about margins and relative to five years ago or four years ago. We think they will continue to be high.
Yeah.
I appreciate that Chad thanks, very much fellows.
Okay.
Our next question comes from the line of Alex Rygiel with B Riley. Please proceed with your question.
Thank you and congratulations on a very nice quarter here.
You know with interest rates rising and gross margins being very strong for a number of years here.
Can you talk and you touched upon a number of them on your conference on your prepared remarks, but can you go back through and sort of defend or talk to sort of.
Why you think margins can be maintained at a fairly high level for.
For some time to come.
Yeah. This is Jim I think that.
It's a neighborhood by neighborhood situation.
And our.
Hey location.
Markets, which is the predominance of our income right now, which will slowly be phasing out over time as we expand trophy.
These these.
Cities or municipalities or 80, 590% built out.
And when I started my career, you know competing against existing homes was a big part of the equation that you underwrote as a builder.
And basically in these big.
Big chunk of our revenues, we have very little existing home or almost no existing home to compete against.
We think margins are going to remain very very high in these select infill locations that dominate our balance sheet because.
Let's use an example, Alex if you just bought a home in the last three years any of these infill markets, you've probably got a 3% interest rate.
And if interest rates were 5% in house prices are up 20%, you're not going anywhere so we see existing inventory continuing to decline and b.
Even less of a factor going forward and in these markets. We have a very restricted competition from other builders. So we feel good about it.
As trophy grows its business, that's going to be more of a wildcard, but again, we bought this land very attractively, we have a low basis in it we have an.
It is a.
Our supply of future lots that are very attractively priced and we think we can maintain very nice margins in those areas also.
You mentioned something very interesting there.
Interest rates rise there could be a tendency for existing homeowners to steep put.
Can you talk about that a little bit more and is that a big reason why you have less concerned about sort of the new construction market rolling over in a rising rate environment.
Well, it's it's even more complicated than that because.
You compound the facts there.
Apartments in all of our markets are basically as full as they've ever been replacement cost of apartments is as high as it's ever been.
So that's not a viable alternative for a lot of consumers and they just don't have a lot of good choices. Unfortunately, and I that we think that's going to maintain you know.
High margins in our industry.
Just on the flip side of it is just not a real good time to be a consumer buying a house or a lot of other things right now and then.
Alex was peculiar to green brick is the fact that we're in such strong high growth markets, the population and job growth in our markets.
Our leading the country and in these situations with so many people coming in and it.
Taking whatever supply there is.
Then you've got those people that have to move because they want to get their kids and the right school or they need a bigger house. So many people still need to get a house. It has two offices because they are both if they're not working from home. They're now doing a lot more work from home. So there are many factors that just naturally caused that attrition and.
Turnover in the home inventory and we see it in great numbers, specifically, because we're in DFW in Atlanta, and challengers in Colorado Springs I here you just see the demand is very unique we have more pricing.
Pricing power because of that.
Very helpful. Thank you very much.
Our next question comes from the line of Jay Mccanless with Wedbush. Please proceed with your question.
Hi, good morning.
So my first question is if we look at the closing growth in the quarter versus last year could you break out for.
For trophy versus the other brands, what the growth rate in closings was versus last year.
Well, we don't provide brand.
Closings by brand.
If we look at your backlog.
And.
Thinking about rate locks in this environment. Some of the builders have talked about what percentage of their buyers in backlog have blocked do you guys have that.
Data and maybe give us an idea of what customers are doing around the rate lock issue and higher rates and what if anything your mortgage partner has been able to provide.
Yeah.
About 40% of our buyers have rate locks.
We have the ability to push that up one of our lending partners today came up with a 150 day late run rate lock and you know that we're continuing to monitor where they have to be you know.
Almost on a daily basis.
Yeah, and J the other part of that too is.
Again, we have more wealth healed customers because of our submarkets being a lot of infill.
As we suggested they can do and have been and we have seen a lot of them starting to move into a five year and seven year arm products, where instead of paying five point X percent, they're paying for and a quarter percent for five or seven years.
Got it.
And then I guess, if if you.
If you think about pricing power in the quarter and then also I think maybe in the press release, there was some commentary about.
Our improved results moving into the next quarter.
Should we expect unit closings to be in line to maybe higher than what we saw in the first quarter just given that your spec starts have ramped back up now.
Well the the starts that have just ramped up now are going to be obvious to obviously benefiting future quarters, but in Q2. If you look back in time, you'll see the large number of starts that we did have.
In Q2 of 'twenty, one because of all of the.
Sales growth that we had in Q1 of 'twenty one so it's a it's just coming around it's good yeah. I know, we're typically in our industry see Q4 being the biggest quarter.
But we have so many starts back then that are rolling into the closing Q now.
Jay we really needed.
In a perfect World, we would have started more homes in the third and fourth quarter of 2021.
We didn't have the capacity.
To do that.
We got those homes started and I think youre going to start to see that benefit in the second quarter.
Got it.
And then just on pricing power.
Where you have you been able to raise prices across most of your brands and products or if you have a percentage of communities, where you raised prices during the quarter that'd be great.
Yeah.
Our pricing power.
Been consistently able to more than offset the.
Input costs.
Trees don't grow to the Sky and that's going to hit a peak, but it hasn't hit that peak for us yet and we're keeping our fingers crossed.
Okay sounds good thanks for taking my questions.
Thanks, Chad.
Our next question comes from the line of build to sell them with Titan Capital Management. Please proceed with your question.
Thank you I appreciate that let me just make sure that we are that we are hearing things correctly that essentially how are you.
You, you're saying that things are different this time.
In in part because of the low inventory of both existing homes and and new homes being built but in part because this low inventory is taking place at a time, where we had a big jump in mortgage rates.
And so that that issue will not be able to be corrected.
And layer on top of that that you are looking at.
High high growth markets, where.
Where you have lots of population inflow is that it.
Is it basically the long and short of it.
That was so good I think youre going to have to do my job in the next call.
[laughter] I probably couldn't repeat it.
I always really good mill.
But that that is the net of what you're saying yeah. There is a net and I think you're really the other.
Factors that we're seeing is that.
The homes are less of a discretionary purchase because you're also facing 15% rent increases in many.
Markets.
Good.
This may be a completely unanswerable and maybe it doesn't matter question, but are rents going up because home prices are going up and so they have that pricing umbrella or home prices going up because rents are going up and home prices are using the apartment wrenches as the pre.
<unk> umbrella.
Well I think it's kind of a circular reference, but it all gets down to demand at the end of the day and.
You know, it's this millennial growth that we addressed in the in the demographic the growing workforce.
And that's pushing house the ability for the housing market and do well and the router market didn't really do well at the same point in time.
Other factor there Bill too if you got the leading edge of the Gen Z coming in and you know, whereas the millennials are 70 172 million strong the gen six or 67 million strong so almost as big of an age cohort and in the first half of them are let's say.
Our or so are starting to come out into the I need a house market or I need an apartment market. So that's a it's just household formation is being driven by demographics and.
You just you just have these these title waves coming at us.
And the industry has not corrected to higher production levels.
Okay. Two more questions. Please the first one is between your markets do you see a discernible difference and the level of of demand versus supply imbalance and then secondarily, Jim I think that you mentioned Ah just to the prior questioner.
In a perfect World you would've started more homes in Q3 and Q4, but you you just didn't have the capacity.
Would you for those of US who are who are not homebuilders would you help us understand what that what you mean, when you say you didn't have the capacity.
Yeah. It's just there are no more bricklayers.
I don't know if sheet rockers theres not enough framers.
And you know ordinarily you can say well I'm going to offer this guy more money, but that's not creating more workers.
And I think a lot of builders decided they can't chase that and theyre going to limit supply.
Her sales and do what's going on in the industry.
This is really the first time in my career that when you're in this kind of market that builders Didnt overproduce.
And I would like to say, we're all geniuses and of course Cory for everything we do a better job, but the reality is nobody could overproduce. This time, if they wanted to.
That's part of that it's different this time relative into discernible differences between supply and demand.
Between your various markets for some stronger than others not quite as extreme.
Well, it's it's it's.
Kind of an apples and oranges comparison.
Do about 600 homes in Atlanta is roughly a 300 million dollar a year business. They are exclusively AAA location.
Builder, so that would equate much more to our builders.
Builders and operate in Frisco in Mckinney and AAA markets in Dallas is very similar to the infill markets in Dallas and we.
Sure.
We don't have any perimeter locations in any of them or other markets Challenger does.
In their markets, but.
Fortunately, our Brian Barr and Tom Hennessy Ryan.
Partner in time runs the business they have absolutely the best land book in Colorado Springs.
They bought this land years ago, they have a lot of land on their books and they have just a tremendous competitive advantage.
In their market.
Because of the lot position.
Great. Thank you for taking the questions and congratulations on a great quarter. Thanks.
Thanks Bill.
Our next question comes from the line of Alex Barron with housing Research Center. Please proceed with your question.
Okay.
Thank you for thank you for taking my questions.
I heard you say you started 900 homes, but for a frame of reference could you tell us how many you started last year and the year ago quarter.
I think I can.
We started around 939 homes in Q2 of 'twenty, one and this quarter I believe the number was 896, so very comparable.
What about it first quarter of last year.
First quarter.
First quarter was 1038.
But again this should not just look at the starts because they a S. P is up 20% plus on those storms.
Okay.
Right.
Trying to get a sense since your orders have been down for three quarters fairly significantly I would think this 900 starts should allow you to bump up.
Your orders going forward quite a bit.
I think youre going to see us sell more evenly throughout the year than we did last year.
Got it.
And my second question has to do with.
<unk> gross margin.
Historically, you guys have had.
Some of the top gross margins in the group and the other builders seem to be had.
So does that suggest.
That you guys have you know further upside from here or do you think they're just the whole industry is just.
Enjoying these margins because of the pricing power everybody's seen.
I think so I think the whole industry is benefiting from.
Better margins.
<unk> that we are uniquely positioned relative to many peers to maintain margins because of our lot position.
And we are seeing our peers.
They have had.
Some peers have great lot position to other peers have burned through their our margin loss and they're having a great difficulty in replacing those so it's a mixed bag.
Yeah, and I think our margins would've been higher in Q1 and had we not sold so many homes early last year. So yeah early last year, we got you.
Lumber prices are lower but labor prices were lower material prices were lower.
And some of the more complicated homes to take nine months to a year to build.
Really saw a margin erosion.
Oh, because we frankly sold too early and that's why we've been so diligent at metering ourselves the volatility of lumber prices.
The 3% to 4% of margin and that's almost impossible.
Right.
And if I could ask one last one do you guys track.
Activity buyer activity in terms of out of state buyers you know trying to get a sense of how much are the sustained momentum in sales is coming from the fact that you know.
Let's say people are moving from California to Texas or from New York or you know some higher price stay to the lower priced state how much that is.
Contributing to the cause of strong sales momentum that continues to today do you guys track that in any way.
Yeah, we do track it it can be a little bit misleading because when people leave a high tax states like New York or California, They often rent before they buy so they're gonna have a local address that makes it appear like they were a resident of Texas, where if you take a look at where their residents was when they apply for a mortgage.
But when we talk to all the economic development groups.
Dallas Chamber of commerce or whatever they are.
Relocation activity and the interest from California.
Chicago and New York is just as high as it's ever been.
Okay, Great Alright.
I'll get back in the queue. Thank you.
Ladies and gentlemen, this does conclude our question and answer session.
We do have a follow up question from the line of Alex Barron.
Please proceed with your question.
I wanted to give somebody else's shot, but I guess maybe not.
One last one.
In terms of.
Pricing power, you know versus rising rates do you feel that the pricing power remains intact at this point or do you guys see more careful.
You know given that affordability, obviously is getting impacted by daily.
Interest rate increases how are you approaching the pricing.
As you release houses.
Yeah. This is Jed we're approaching a submarket by Submarket neighborhood by neighborhood.
<unk>.
Yeah, Oh in the upper and the infill locations, we think it's.
Yeah, we think pricing power is still very strong.
We think in the perimeter locations, we were very aggressive in Q1, and we're probably going to be more moderate the remainder of the year and our price increases.
Great and then last one on the build time have you guys seen an increasing and built on this quarter versus last quarter and if so what was it and what is it versus a year ago. Just understanding you know, there's obviously more supply chain nations today than they were a year ago.
It varies by product type and neighborhood and municipality, so much but I would say as I've kind of said in the past few calls things.
Things are.
Not really getting much better.
They're getting better on the material front, probably worse on the labor front and so as a whole we continue to see elongated cycle times.
Okay, gentlemen, well best of luck for this year and thank you.
Thank you.
Ladies and gentlemen, this does conclude our question and answer session.
And thank you for your participation. This does conclude our call you may disconnect. Your lines at this time and have a wonderful day.
Thank you.
<unk>.
Yeah.