Good afternoon, everyone, and welcome to Green Brick Partners earnings call for the first quarter ended March 31, 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.greenbrickpartners.com. From the homepage, please select Reporting and Presentations under Investor Relations, and then navigate to the presentation named First Quarter 2022 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, including its financial and operational expectations for 2022 and 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 3, 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 that 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 Brick's CEO, Jim Brickman. Mr. Brickman, 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 9.4% in Q1 was the second best in our history after the record best 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. 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 Financial Officer. Rick?
Thanks, Jim. Hi, everyone. Let me first reiterate our appreciation for our teams whose efforts have led to outstanding outcomes for our shareholders, and this quarter was no different. We'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. Also, our residential units revenue increased 68% year-over-year to $365 million, driven by higher closing volume and higher ASPs. During the quarter, we delivered 658 homes to homebuyers, 27.5% more compared to last year. Because of strong demand and metered sales, ASPs also went up 32% year-over-year to $552,000.
As of the end of March, we had 1,423 homes in backlog, and the ASP of those backlog homes was up 24% to $609,000 year-over-year. We expect ASP for closings during the balance of 2022 to range each quarter between $552,000, which was the Q1 actuals of closings, and the ASP of our current backlog. During Q1 of 2022, we continued our proactive metering of home sales, as I suggested. We believe that by metering sales and 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, and 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 2021. Our cancellation rate of 8% was in the range of the last two years, which has been between 6% and 12.3%. Thanks to strong pricing power and operating efficiency, SG&A leverage improved by 420 basis points year-over-year to 9.4%, which was our second-best operating leverage, only surpassed by the 8.8% of 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 comparative bar chart versus our midcap 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 the third-largest builder in DFW allows us to better control both costs and cycle times. Further price increases of our homes have continued to be accepted by our buyers. When we combine our unit growth, ASP 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 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 is our diversified product mix. Excluding Challenger Homes, we have seven different brands under 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 to homebuyers 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 Jed will discuss later, our results and our ROE 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 off-balance-sheet financing arrangements. At quarter-end, we have just under 27,000 lots owned and controlled. Most of these home sites are located in “very strong markets” of DFW, 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 were our highest since Q1 of 2015.
Our quarterly SG&A leverage of 9.4% in Q1 was the second best in our history after our record best last quarter in Q4. Last but not least of the factors is our strong balance sheet. The bar graph here demonstrates our commitment of maintaining one of the lowest debt-to-capital ratio amongst midcap 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 seasoned team in place, I'm confident that we're well-positioned to maximize shareholder value as we have done historically. With that, I'll turn it over to Jed Dolson, our COO. Jed?
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 lot growth, two, executing the organic growth of our builders' subsidiaries, and three, expanding to new markets while maintaining our disciplined approach to investment. We do not lower our hurdle rate of 20+% internal rate of return. We do not assume financial leverage or price increases to homes, and we are not aggressive with sales absorption assumptions. Further, we include appropriate cost contingencies in estimating our development and vertical construction costs. This disciplined capital allocation allowed us to identify what we believe are strong opportunities with our announced expansion into Austin. We expect to start home construction in Austin in early 2023.
During 2021, we increased Green Brick'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 or early 2021 at attractive prices. Because our early moves in accessing and underwriting deals, we have an abundant lot position that was funded at better pricing than today to sustain growth while maintaining a low debt-to-capital ratio. During 2022, we are 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 4,300 finished home sites 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 9,000 future home sites for Trophy Signature Homes in six communities that individually exceed 800 lots. These larger, longer life communities are in some markets which we believe have long-term growth potential at very affordable prices. In the case of these Trophy communities, the lots have an average cost of about under $8,000 per undeveloped lot. Additionally, a growing proportion of our horizontal land development is being funded by the low cost of capital municipal development district bonds. During Q1 of 2022, our lot count declined slightly as we started almost 900 homes. This was our highest quarterly start since Q2 of 2021.
We also closed the sale of about 1,100 home sites in a $27 million transaction of unfinished lots that produced a profit of $6.8 million and an internal rate of return of 162. As of Q1 2022, over 80% of our home closing revenue came from infill locations, including many of Trophy's communities. Infill locations are A and B submarkets that are largely built out. The classification is based on a variety of subjective factors such as quality of schools, proximity to jobs, and the existence of infrastructure for a quality of life. These submarkets have a limited supply of both lots, new and existing homes. Trophy has a strong presence in these infill locations in cities like Frisco and Allen, Texas, as well as McKinney, Texas.
This was intentional to get Trophy operating at higher volumes than if we had focused entirely on 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 $50 million in stock repurchase at a weighted average price of $20.66 per share. These repurchases have combined to fully utilize the $50 million amount previously authorized and represent the repurchase of 4.8% 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 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. To that end, our board of directors just authorized an additional $100 million for stock buybacks. Despite our repurchase program, our debt to total capital was 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 income per share and returns capital to our shareholders. Now, I will turn it over to Jim.
Okay. Thanks, Jed. 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've 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 undersupplying the market since the end of the Great Recession, the home building industry will continue to benefit from the increased desire of this demographic to own a home. Additionally, specific to Green Brick, our markets continue to experience some of the strongest demographic inflows and job growth in the country. DFW, our largest market, racked up the largest population gain of any U.S. metro area from July 2020 to July 2021, 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 home buyers searching for homes in our submarkets. When we release a new home site for sale, our sales agents know they have a large inventory of ready and willing buyers.
They select their buyers from a list who have the best ability to go to contract and then qualify for closing. Average FICO scores of our buyers during the first quarter in April was over 746, with a debt-to-income ratio of about 34%. As Jed discussed, closing revenues from higher priced infill A and B locations represented more than 80% of our total closing dollars in Q1. Those buyers typically have 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. Two, qualify for a jumbo portfolio loan such as a five-year or seven-year ARM. 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. Home builders are capturing a higher portion of home sales than in prior periods, yet also face the 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 tailwinds at our back, along with our operating strengths and our strong balance sheet, we remain confident and opportunistic in our ability to grow and enhance shareholder value. Last but not least, I would like to welcome Lila Manassa Murphy as our newest independent director to Green Brick Partners Board of Directors. Ms.
Lila Manassa Murphy brings more than 25 years of diverse investment management experience, as well as a strong background in matters related to sustainability, finance, 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 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. If you'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 queue. 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 Michael Rehaut with JP Morgan. Please proceed with your question.
Hi, good afternoon, guys. Doug Ward 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 during the next few quarters. I know you touched on it a little bit. If getting worse, are there any distinct examples of what, you've been having more so trouble getting supply of?
Jed, why don't you take that? Because you really deal 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 there are container shortages or ports are shut down, you know, stuff can be going very smoothly for months and then a shutdown or a port, and we can all of a sudden be out of a particular material. I do think the ability for these suppliers to track it has greatly improved, you know, as COVID's gone on, but we are still seeing some hiccups.
Mike, this is Jim Brickman. One of the things we're doing, particularly at Trophy, is limiting because this housing demand is still very strong. We're limiting the amount of offerings and the SKU numbers to customers to combat that. Basically, we're going to our suppliers frequently and saying, "What four materials can you assure us that we're gonna have?" Rather than trying to get eight in the SKU and having problems with four items.
Right. Thank you. Lastly, if you guys could just touch on kind of the cadence of orders and closings throughout the previous quarter.
You know, we saw orders in Q1 continue 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 fighting 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 pre-sell too many homes.
Got it. Thank you, guys.
Our next question comes from the line of Carl Reichardt with BTIG. Please proceed with your question.
Thanks. Hey, guys, hope you're doing well. Can you talk a little bit about how Trophy performed in the quarter from an orders perspective relative to the more mid and higher end brands? It might be in the queue, and I haven't gone through all the queue yet, so sorry if I'm asking this and it's in there already. I'd just like your thoughts on the different segments.
Yeah, I can answer that, Carl.
Hey, Jed.
This is Jed. Trophy Signature Homes in its A and B market location performed exceptionally well, probably even or for sure even better than our.
Sister companies, subsidiaries. In the, you know, far out locations, we for the quarter oftentimes saw double-digit sales per month per community.
There's no alteration in the trajectory of Trophy demand-wise, except the fact that you've slowed sales across the board. Can you talk, Jed, about what you feel like you'd need to see in order to take the governors off of the incoming order volume? Is it a catch-up in starts relative to, you know, when you can close, maybe have a better knowledge of costs, or are there some other elements that would enable you to remove those governors on Trophy or the other brands?
Well, we've really caught up with starts, which Jed can speak to.
Okay
Carl. If you take a look at that, our start pace is great, and we think you're gonna see stronger order growth. One of the things that really skewed the year-over-year comps was we sold almost 1,000 homes or right around 1,000 homes in Q1 of 2021. 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 sale quarter would generate, we probably would have behaved differently a year ago. In terms of start, we're back ramped up to a much greater start pace. What's our start pace now, Rick?
We did just under 900 this quarter, which we haven't done that since Q2 of last year. That's a much preferred start pace for us, and that's pretty much normalized, Carl. You know, it's really the houses getting to the stage of construction that is governing when we can release those to the sales floor. I mean, we are seeing no catch-up, if you will, in the existing home inventory or the 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 folks that they have to call, but they know who to call because they know who can qualify and who has a good debt-to-income ratio.
Being in the higher price points for so much of our inventory really insulates us in that regard as well. There's just nothing on the existing home market.
We kind of had that Q1 of 2021 again, that we have seen now and strong sales after that we finally have pushed kind of the pig through the python, and the cadence of our starts and sales pace are gonna be much more normalized, which is gonna help operate our business more efficiently.
That's great. That is very helpful. Thanks, guys. If you don't mind me asking one more. Jed, you walked through a number of elements that sort of get to land underwriting and how you're thinking about new transactions. You talked about no price increases, talked about contingency budgeting, sales pace. Can you talk a little bit about what you're thinking on just core gross margin from these communities? I'd just be interested if you could compare to what you're underwriting today versus maybe what you looked at three or four or five years ago.
It's just a circular way of asking, do you think that relatively high margins, maybe not peak margins, but high margins are sort of the future of Green Brick relative to the margins you may have earned three or four or five years ago or relative to the margins that we think of as more typical for the home building industry?
Yeah. We are very, you know, we are just now bringing to market some communities where we bought in the, you know, summer of 2020, Carl. It's taking almost two years to bring those communities to market. We're seeing margins that far exceed what we just announced as our margins for Q1. I guess I'd answer that by saying we feel good overall about margins and relative to five years ago or four y ears ago, we think they will continue to be high.
I appreciate that, Jed. Thanks very much, fellas.
Thanks.
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 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 some time to come?
Yeah. This is Jim. I think that it's a neighborhood by neighborhood situation. In our A location markets, which is the predominance of our income right now, which we'll slowly be phasing out over time as we expand Trophy, these cities or municipalities are 85%-90% built out. When I started my career, you know, competing against existing homes was a big part of the equation that you underwrote as a builder. Basically, in these big chunk of our revenues, we have very little existing home or almost no existing home to compete against. We think margins are gonna remain very, very high in these select infill locations that dominate our balance sheet because, let's use you as an example, Alex.
If you just bought a home in the last three years in any of these infill markets, you probably got a 3% interest rate. If interest rates are 5% and house prices are up 20%, you're not going anywhere. We see existing inventory continuing to decline and even less of a factor going forward. In these markets, we have very restricted competition from other builders, so we feel good about it. As Trophy grows its business, you know, that's gonna be more of a wild card. Again, we bought this land very attractively. We have a low basis in it. We have an abundant 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. As interest rates rise, there could be a tendency for existing homeowners to stay put. Can you talk about that a little bit more? Is that a big reason why you have less concern about sort of the new construction market rolling over in a rising rate environment?
Well, it's even more complicated than that because, you know, you compound the fact that 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. We think that's gonna maintain, you know, high margins in our industry. It's just on the flip side of it's just not a real good time to be a consumer buying a house or a lot of other things right now.
Alex, what's peculiar to Green Brick is the fact that we're in such strong high growth markets. The population and job growth in our markets are leading the country. In these situations, with so many people coming in and taking whatever supply there is, then you've got those people that have to move because they want to get their kids in the right school, or they need a bigger house. So many people still need to get a house that has two offices because they're both. If they're not working from home, they're now doing a lot more work from home. You know, so there are many factors that just naturally cause attrition and turnover in the home inventory. We see it in great numbers, specifically because we're in DFW and Atlanta and Challenger's in Colorado Springs.
You just see the demand is very unique. We have more 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.
Hey, good morning. My first question is, if we look at the closing growth in the quarter versus last year, could you break out, you know, for Trophy versus the other brands, what the growth rate in closings was versus last year?
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 and backlog have locked. 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?
We've 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 longer rate lock. You know, that we're continuing to monitor that, you know, almost on a daily basis.
Yeah. Jay, the other part of that too is, again, we have more well-heeled 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 five-year and seven-year ARM products, where instead of paying 5.x%, they're paying 4.25% for five or seven years.
Got it. I guess if you think about pricing power in the quarter, also, I think maybe in the press release, there was some commentary about 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?
The starts that have just ramped up now are gonna be obviously benefiting future quarters. In Q2, if you look back in time, you'll see the large number of starts that we did have in Q2 of 2021 because of all of the sales growth that we had in Q1 of 2021. It's just coming around. It's gonna, you know. I know we're typically in our industry see Q4 being the biggest quarter. You know, we had so many starts back then that are rolling into the closings 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 you're gonna start to see that benefit in the second quarter.
Got it. Just on pricing power, 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, we've been consistently able to more than offset the input costs. Obviously, trees don't go to the sky, and that's gonna 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, Jay.
Our next question comes from the line of Bill Dezellem with Tieton Capital Management. Please proceed with your question.
Thank you. I appreciate that. Let me just make sure that we are hearing things correctly, that essentially, you're saying that things are different this time, in part because of the low inventory of both existing homes 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 issue will not be able to be corrected. Layer on top of that you are looking at high growth markets where you have lots of population inflow. Is that basically the long and short of it?
Bill, that was so good. I think you're gonna have to do my job in the next call.
I probably couldn't repeat it.
That was really good, Bill.
That is the net of what you're saying.
Yeah, that is the net, and I think you're really the other factor that we're seeing is that if the homes are less of a discretionary purchase because you're also facing 15% rent increases in many markets.
This may be a completely unanswerable and maybe doesn't matter question, but are rents going up because home prices are going up, and so they have that pricing umbrella? Or are home prices going up because rents are going up and home prices are using the apartment rents as the pricing umbrella?
Well, I think it's kind of a circular reference, but it all gets down to demand at the end of the day. You know, it's this millennial growth that we addressed in the demographic, the growing workforce, and that's pushing housing, the ability for the, you know, the housing market to do well and the rental market to really do well at the same point in time.
Another factor there, Bill, too, is if you've got the leading edge of the Gen Z coming in and, you know, whereas the millennials are 71, 72 million strong, the Gen Zs are 67 million strong, so almost as big of an age cohort. The first half of them are starting to come out into the I need a house market or I need an apartment market. That's just household formation is being driven by demographics. You know, you just have these tidal waves coming at us.
Okay.
The industry has not corrected to higher production levels.
Right. Okay. Two more questions, please. The first one is, between your markets, do you see a discernible difference in the level of demand versus supply imbalance? Secondarily, Jim, I think that you mentioned, just to the prior questioner that in a perfect world, you would have started more homes in Q3 and Q4, but you just didn't have the capacity. Would you, for those of us who are not home builders, would you help us understand what you mean when you say you didn't have the capacity?
Yeah. It's just there are no more bricklayers, not enough sheetrockers, there's not enough framers. You know, ordinarily, you could say, "Well, I'm gonna offer this guy more money," but that's not creating more workers. I think a lot of builders decided, you know, that they can't chase that. They're gonna limit supply, meter 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 didn't overproduce. I would like to say we're all geniuses, and of course, Green Brick would think we'd do a better job. The reality is nobody could overproduce this time if they wanted to.
That's part of that it's different this time. Relative then to the, you know, discernible differences between supply and demand, between your, the various markets. Are some stronger and others not quite as extreme?
Well, it's kind of an apples and oranges comparison. We do about 600 homes in Atlanta. It's roughly a $300 million a year business. They are exclusively AAA location builder. So that would equate much more to our builders that operate in Frisco and McKinney and AAA markets in Dallas. It's very similar to the infill markets in Dallas. We don't have any perimeter locations in any of our other markets. Challenger does in their markets. But
Fortunately, Brian Bahr and Tom Hennessy, Brian is our owner partner, and Tom 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 their lot position.
Great. Thank you for taking the questions, and congratulations on a great quarter.
Thanks, Bill.
Our next question comes from the line of Alex Barron with Housing Research Center. Please proceed with your question.
Thank you for taking my questions. I heard you say you started 900 homes, but for frame of reference, could you tell us how many you started last year and a year ago quarter?
I think I can. We started around 939 homes in Q2 of 2021. This quarter, I believe the number was 896, so very comparable.
What about first quarter of last year?
First quarter was 1,038.
Got it.
Again, you should not just look at the starts because the ASP is up 20%+ on those starts.
Right. It's 'cause I'm just trying to get a sense, since your orders have been down, you know, 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 you're gonna see us sell more evenly throughout the year than we did last year.
Got it. My second question has to do with gross margins. I guess historically, you guys have had some of the top gross margins in the group, and other builders seem to be catching up. 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 kind of enjoying these margins because of the pricing power everybody's seeing?
I think so. I think the whole industry is benefiting from better margins. I think that we are uniquely at this position relative to many peers to maintain margins because of our lot position. We are seeing some peers have great lot position, other peers have burned through their hard margin lots, and they're having great difficulty in replacing those. It's a mixed bag.
Yeah.
I think our margins would have been higher in Q1 had we not sold so many homes early last year. You know, early last year, lumber prices were lower, labor prices were lower, material prices were lower. Some of the more complicated homes that take nine months to a year to build really saw margin erosion a lot because we frankly sold too early, and that's why we have been so diligent at metering our sales. The volatility of lumber prices has been 3%-4% of margin, and that's almost impossible to predict.
Right. 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 the sustained momentum and 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 priced state to a lower priced state, how much that is contributing to the strong sales momentum that, you know, 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 state 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 we take a look at where their residence was when they applied for a mortgage. When we talk to all the economic development groups, whether it's the Dallas Regional Chamber or whatever, the relocation activity and the interest from California, Chicago and New York is just as high as it's ever been.
Okay, great. All right. 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 a 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 feel you're 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?
This is Jed. We're approaching it, you know, sub-market by sub-market, neighborhood by neighborhood. You know, in the infill locations, we think it's, you know, we think pricing power is still very strong. We think in the perimeter locations, we were very aggressive in Q1, and we're probably gonna be more moderate the remainder of the year in our price increases.
Great. Last one on the build time, have you guys seen an increase in build time this quarter versus last quarter? If so, what was it and what is it versus a year ago? Just understanding, you know, there's obviously more supply chain issues today than there were a year ago.
It varies by product type and neighborhood and municipality so much. I would say, as I've kind of said the past few calls, things are not really getting much better. They're getting better on the material front, probably worse on the labor front. 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. Thank you for your participation. This does conclude our call. You may disconnect your lines at this time, and have a wonderful day.