Good afternoon, and welcome to Green Brick Partners earnings call for the second quarter ended June 30th, 2022. Following today's remarks, we will hold a question, a Q&A session. As a reminder, this call is being recorded and will be available for playback. In addition, a presentation will accompany today's webcast and is also available on the company's website at investors.greenbrickpartners.com. Joining us on the call today is Jim Brickman, Co-founder and Chief Executive Officer, Rick Costello, Chief Financial Officer, and Jed Dolson, Chief Operating Officer. Some of the information discussed on this call is forward-looking, including the company's financial and operational expectations for 2022 and beyond. In yesterday's press release and SEC filings, the company detailed material risks that may cause its future results to differ from its expectations.
The company's statements are as of August 3rd, 2022 , and the company has no obligation to update any forward-looking statement it may make. The comments also include non-GAAP financial metrics. The reconciliation of these metrics and the other information required by Regulation G can be found in the earnings release that the company issued yesterday and in the presentation available on the company's website. With that, I will now turn the call over to Jim Brickman.
Thank you. We're pleased to share results of another outstanding quarter. During the second quarter, we delivered a record 881 homes, generated record quarterly total revenues for any quarter of $525 million, and achieved a record home building gross margin of 32.3% despite a challenging supply chain and labor environment. As a result, the company generated a record $101 million in net income, or $2.08 per diluted share, representing a year-over-year growth rate in quarterly EPS of 104%. Green Brick has a track record of generating some of the best returns among our peers, and this quarter was even better with an annualized return on equity of 45.6%.
We encourage you to take the time to compare our results and key operating metrics with any of our home-building peers of any size. I'm also excited to share that we officially joined the S&P SmallCap 600 index in July. This is a milestone that is not possible without a hardworking, talented team. During our call today, I would like to discuss why we believe that Green Brick is well-positioned to succeed in a rapidly changing environment. Rick will discuss our Q2 2022 highlights, and lastly, Jed will provide some color on what we are seeing in our housing markets and the supply chain, as well as updates on our capital allocation strategy. While our second quarter performance broke records in many key financial and operational metrics, we began to see moderation on the sales floor in the second half of the quarter.
This happened due to multiple aggressive interest rate hikes by the Fed and inflationary pressures. The market is still searching for a new equilibrium after the Fed's rate hikes that accelerated the Fed funds rate by 200 basis points from May 1st to July 27th. Despite what we see as a choppy market over the short term, we continue to believe that demand for single-family homes in our markets is here to stay over the long horizon. Here are a few reasons. First, on slide four of the presentation, over 4 million millennials between the ages of 35 and 44 are entering their prime homebuilding years. For many of them, buying a house is not a discretionary purchase. In fact, marriage alone doubles their homeownership rate.
On top of that, a large amount of institutional capital flooded the build-to-rent space and created a unique group of home buyers in the housing ecosystem that did not exist during the housing bubble. We believe the build-to-rent sector will provide more stability and future buyers for the housing market. Next, per the housing supply chart on slide five, the inventory of new and existing homes today remains near historical lows and is a fraction of the supply compared to the great financial crisis or even the inventory adjustment seen in 2018 and 2019. For Green Brick specifically, we ended the second quarter with only 10 finished spec homes.
While the supply of homes for sale will increase over the coming months, we believe that the recent decline in expected future reductions in single-family starts should mitigate a buildup of housing inventory in 2023. Lastly, as seen on slide six, due to the limited housing supply, rental prices in major U.S. cities are seeing double-digit growth while occupancy remains at high levels. This further complicates the buy versus rent decision among first-time home buyers whose urgency to purchase their first house will only grow as they age, marry, and form families. In addition to those long-term tailwinds, we believe that Green Brick is strategically positioned to navigate in this evolving environment, as shown on slide seven. To begin with, we operate in some of the best markets in the country. Demographic shift and migration will continue translating into housing needs over the long haul.
DFW, our biggest market, has experienced tremendous big business activity over the last 18 months. According to the Dallas Regional Chamber, over 120 companies have announced office relocations or expansions into the DFW area in 2021 and 2022. We believe our markets will exhibit more resilience in a weak economy and a higher growth rate in a booming economy. Second, within our strong markets, we primarily build in infill locations. Over 80% of our year-to-date 2022 revenues were generated from those infill submarkets. Those submarkets are typically land and lot constrained and face limited competition. Development in those submarkets requires our recognized expertise and local knowledge to address more complicated entitlement, regulatory, and development processes.
The mixed-use neighborhood of retail multifamily units and a 450-unit residential lot neighborhood, which we closed in the North Atlanta suburbs of Cumming, is an excellent demonstration of our ability to successfully manage and navigate a complicated development pipeline in very supply-constrained locations. Third, since we went public in 2014, we have been focused on maintaining a strong balance sheet despite significant business growth and aggressive stock purchases. Among our peers, we had one of the lowest debt to total capital ratios at 28.9% despite purchasing $102 million of stock year to date through July at an average price of under $21 per share. Our repurchases represents almost 10% of total shares outstanding at the end of 2021.
Further, 87% of our debt outstanding as of June 30th, 2022, is long-term and fixed rate. At the end of the second quarter, our weighted average interest rate was only 3.4%. Fourth, we believe we've always had one of the best lot positions that will support our future growth. Together with a strong balance sheet, we are in a position to stay opportunistic about growth and manage our business in a way that's accretive to shareholder value. Lastly, since inception, we have incrementally improved our back office and home building operations over time and will continue to look for ways to increase our efficiency. With that, I'll now turn it over to Rick. Rick.
Thank you, Jim. Please turn to slide eight of the presentation. Our total revenues in Q2 2022 increased 40% year-over-year to $525 million. Our residential units revenue increased 54% year-over-year to $513 million, driven by record closing volume and ASPs. During the quarter, we delivered 881 homes for a 16% year-over-year increase, and ASPs climbed 32% year-over-year to $579,000. We continue to make good strides on operating efficiency. Our SG&A leverage ratio improved by 200 basis points year-over-year to a record low of 8.2% during the second quarter.
Higher residential units revenue led to a 550 basis points improvement in home building gross margin year-over-year to 32.3%, the highest in our company history. Sequentially, our gross margin increased 450 basis points. As demonstrated on the comparative bar chart on slide nine, we have consistently demonstrated superior margin versus our midcap and small cap peers. In the second quarter, our gross margin performance tops the chart. Diluted EPS was up 104% year-over-year to $2.08 during the second quarter as a result of growth in revenue and improvement in both gross margin and SG&A leverage. Sequentially, EPS grew 73% on a 33% growth in total revenues. Our year-to-date annualized return on equity was 37.4% as compared to 23% last year.
As Jim mentioned earlier, we started to see a slowdown in traffic, which accelerated in June and continued into July. Record-breaking heat has also discouraged buyers from visiting our model homes in DFW. As a result, net new orders increased 9.8% year-over-year. However, our absorption rate during the second quarter was up 4.4% year-over-year to 7.1 homes sold per average active selling community. Our cancellation rate ticked up each month during the quarter, and the overall second quarter cancellation rate increased to 11.4%, which is still lower than many of our peers. During the last eight quarters, our cancellation rate has varied between 6.0% and 12.3%. We believe our lower cancellation rate is based on higher buyer quality and the larger amount of earnest money that we require.
To put the topic in perspective, we have consistently stated that a cancellation rate in the range of 15%-20% is appropriate in a normal environment for the industry prior to COVID. As of the end of June, we had 1,087 homes in backlog with an ASP of $653,000 compared to 1,876 homes at an ASP of $519,000 at the end of June last year.
Backlog units decreased 42% year-over-year due to, one, closing a record number of homes during the second quarter, and two, moderation of demand in the second half of the second quarter. The decline in backlog units was partially offset by a 25.8% increase in the ASP of backlog units, resulting in a total backlog of $710 million. We expect the majority of our current backlog to close by the end of 2022 or Q1 2023. Spec units under construction rose from 45% of total units under construction last year to 57% as of the end of Q2 2022. While this level is slightly higher than our historic range, our Trophy brand now represents a higher portion of our units under construction.
We believe many first-time home buyers are willing to forego the selection process to buy a spec home that can be delivered within two months after contract, where the buyer's mortgage interest rate and delivery date can be known. As a result, Trophy's business model contemplates a higher proportion of spec units than our other brands. One of our many priorities for the remainder of the year is to find a good balance between our backlog and spec units, as well as to manage sales pace, home prices, and start pace, which Jed will expand on shortly. With that, I'll turn it over to Jed. Jed.
Thank you, Rick. With high inflation, volatile rates, and lumpy demand, we are closely monitoring our operation and are laser-focused on several key priorities that we believe will drive better performance for Green Brick. These priorities are summarized on slide 10. First, we will continue to manage closings in our backlog. During the second quarter, our buyers, through mortgage company partners, had an average credit score of 750 and a debt-to-income ratio of 34.9%. Approximately 30% of our buyers year to date are first-time home buyers. We expect our buyer quality to remain consistently high. When necessary, we are assisting our buyers in securing financing with our mortgage companies through rate locks or rate buyouts. Currently, over 50% of our buyers who are utilizing our mortgage companies and are scheduled to close in the third quarter have locked their rates.
As Rick mentioned earlier, our cancellation rate went up to 11.4% during the second quarter, primarily due to more mortgage disqualifications. In some instances, we were able to transfer the buyers to other more affordable homes featuring less square footage in order for them to secure financing and close. Second, we will continue to manage our sales pace and starts as we seek to get an even flow. To counter a slowdown in foot traffic, we offer incentives on a community-by-community basis for new orders signed in June and July, which averaged approximately 2%. These incentives included a combination of moderate price cuts, credits towards closing costs, and rate buyouts. Additionally, in some communities, we're selling at earlier stages of construction to allow personalization of optional features.
Given our industry-leading gross margin position, we believe we have the flexibility to be more aggressive on incentives if our markets require it. That said, we do not intend to lead the market downward. Third, we continue to focus on managing capital allocation prudently. We are fortunate to have a great land book today that allows us to be opportunistic. We believe it will also give us an edge on margin due to attractive cost basis relative to the current market. Additionally, we self-develop most of our lots, which has provided us an advantage in achieving an exceptional level of margins versus peers and controlling our own destiny and delivery dates. We have been conservative with underwriting, and we are being even more diligent and cautious when we look at land opportunities now.
We want to ensure we are capital efficient and only invest capital that we believe will generate long-term value for the company and shareholders. Our expansion into Austin has been an excellent example. We remain bullish in its long-term fundamental backdrops and are on track to start construction in early 2023. Last, we intend to continue strengthening our balance sheet. We have a strong balance sheet today, providing us more flexibility to manage our business in a changing environment. Let's switch gears to labor markets and supply chain. As new starts slow down, we're seeing some signs of relief in the labor and trade markets. For example, during the last several weeks, we have seen an increased number of inquiries from subcontractors for more work as they have more available crews. We are seeing this primarily with the subcontractors used at the front end of the construction process.
The labor market remains tight for finding well-trained professionals, but we believe we will see more pricing power shift in the coming months if housing starts decelerate as we expect. The supply chain remains disrupted and lumpy, but we believe we are also at or close to an inflection point with cycle times. As to lumber costs, we will start to see a tailwind from decreased prices reflected in our margin late this year and into 2023 as the lower prices pass through those future home closings. With our position as the third-largest builder in Dallas-Fort Worth and improved technology and processes in place, we believe that we are in a great position to manage costs and cycle times.
With that, I will turn it over to Jim for closing remarks. Jim?
Thank you, Jed. In closing, we believe our infill location, disciplined capital allocation, strong balance sheet, superior land positions, and efficient operations will allow us to be defensive and offensive in a normalizing marketplace. I would like to thank our entire Green Brick team. Going forward, we believe Green Brick is in a position of strength to manage our business in an evolving housing landscape. We remain focused on creating shareholder value and to continue looking for ways to build a better company. This concludes our prepared remarks. We will now open the line for questions.
Thank you. If you would like to ask a question, please press star plus the number one on your telephone keypad. We will now pause for a moment to compile the Q&A roster. Your first question comes from the line of Alex Rygiel with B. Riley. Your line is now open.
Thank you. Good morning, gentlemen. Very nice quarter. You've got a very large number of homes under construction at a time when new orders are softening a bit here. Can you discuss your flexibility in altering those plans to possibly accommodate a buyer that is in need for a lower average selling price?
Yeah, Alex. This is Jim Brickman. Jed, you can chime in after I talk a little bit about this. Alex, right now, everybody's trying to really figure out how elastic or how pricing is gonna really impact demand of that first-time buyer. Trophy is our entry-level and first-time move-up builder and is more dependent on that first-time buyer than our other brands. As we noted in the call, about 80% of our revenues are still being generated from less competitive supply-constrained infill markets. You know, we feel really good about those markets, and we really don't have a lot of visibility right now into what is gonna be taking place in that first-time entry-level buyer. It's very spotty right now, and we think it's gonna improve, but we're just not sure.
Jed, do you have anything you want to add to that?
I would just echo what Jim said. You know, the A locations. You know, we don't have a ton of lots in the A locations per neighborhood, so we will adjust sales velocity accordingly. Oftentimes, those lots are very hard to replace or near impossible to replace. In the entry-level community, we're seeing, you know, some green shoots of the first-time buyer at low prices. We're opening up a bunch of new neighborhoods in the coming months where we think the ASPs will be at or below, possibly below $400,000. We feel good about being able to bring an affordable product to them going forward.
Excellent. One of the challenges that we have is to try to model and forecast what kind of pressure, if any, could be on gross margins from some of these incentives and price discounts and so on and so forth. If we look back into Green Brick's history back in 2018, gross margins did decline from sort of a 26% level to a 21% level when demand moderated. I didn't follow the company back then, so I'm looking to you for, you know, a better understanding of maybe some of the dynamics that played out in 2018 that caused that gross margin erosion and how in the next twelve months could be different?
Yeah. Good question. There are a lot of differences this time around. First of all, in 2018, one of the reasons the margins went down was we had purchased a whole chunk of very inexpensive lots in 2013, 2014, and those very high-margin lots were burned off of our business, and we were replacing those lots with most of our self-developed lots. So that was part of the reason for margin erosion. The second big component is since 2018, in those four years, we have worked very hard on our back-office operations. This is purchasing national accounts and just really running our business better.
I don't think you're gonna see a margin degradation to 21% or anything like that, like we experienced in 2018 because we have really a great lot book going forward, and we're just running the company so much better today than we were four years ago.
Excellent. Thank you very much.
Your next question comes from the line of Carl Reichardt with BTIG. Your line is now open.
Thanks, everybody. You've talked a little bit, Jed, about slowing starts. We're hearing that from others. Can you talk a little bit about how current conditions might impact your decision to open new communities? Is it still full speed ahead with your ramps, or are you starting to think about holding some of those back?
No, we're full steam ahead. We're excited about the new communities. Many of them were bought, you know, right after COVID set in, so they were bought at very attractive cost basis. The land development costs were much lower for the majority of those communities.
You know, most of them are geared toward entry-level buyers. We're extremely excited about the new community.
Okay. Thanks, Jed. Jim, you and I have talked a number of times about your own lot positions. 84% of your lots are owned versus optioned. I'm interested in sort of how you're seeing with the potential change in the market here, how you're seeing that position knowing that you've got relatively low basis, though knowing you work hard on the pricing and the process of getting those to market. How do you contrast your position versus the folks who are more focused on option lots and where their risk profile sits compared to yours?
An interesting question. It's gonna be really interesting to watch this play out. I think that Wall Street really has oversimplified this land light model in that, first of all, the land bankers that provide financing for this land light model are some of the smartest people in the room, and they're not allowing builders just to all of a sudden magically make money at their expense. Any builder that goes land light has a very high cost of capital that he's paying a land banker. That's number one. Number two is these lots are on a takedown requirement where these builders have to buy lots, and they're paying retail prices for lots, not our wholesale prices for lots.
In an economic slowdown, builders that said, "Oh, we're land light," are now gonna be taking down lots and putting retail priced lots on their balance sheet. Number three is, I don't think investors understand that many of these lots in a slowing economy have 6% price escalators in their lots. Lots that land light builders are taking down today are gonna be 6% more expensive at this same point in time next year. Fourth is, gosh, they can walk away from their options. Well, they can, but that's a very expensive proposition. On most really good lot deals, they're putting 15% of the retail price of the lot as a first loss lot earnest money deposit that they would have to walk away from.
I don't have a real crystal ball about how this is gonna work out over the next year, but I can say that I think we're in a really strong position relative to some guys that bought land light lots at a very high price. They're gonna be putting them on their balance sheet.
Thanks, Jim. You didn't have that speech prepared or anything, did you? Sounded like you might have. If you don't mind if we-
No, I've been wanting to talk about this for about the last 10 conference calls.
Well, I have one more for you, if you don't mind me squeezing one more in, which was on share repurchase and obviously the substantial amount of stock you bought back over the last, this quarter in particular was a surprise, at least to us. You have $57 million left on the authorization. Can I assume that even though the price is substantially higher than the $21 you averaged at, that you'll continue to look at buybacks? Then sort of how, once you're through that, will you think about buybacks compared to other potential uses of capital, particularly getting, investing more dollars and developing those lots that you do have?
Well, first of all, we look at everything all the time in a way, the opportunities of growing the business, buying land, buying stock. Really one of the things I'm excited about more than I ever have been in the past is that, as builders are not gonna be aggressively probably growing revenues over the next 12 months, I think we're gonna see opportunities in the private acquisition sector that we haven't seen really since we bought GHO, five years ago. We may want to have capital reserve for that potential going into 2023 because, I just don't see, the builders that sold last year and the year before, the private builders probably did a great job.
You know, I think it's gonna be a much more competitive landscape and a more attractive buying market possibly next year.
Great. Thank you so much, Jim. I appreciate it, guys.
Mm-hmm.
Your next question comes from Jay McCanless with Wedbush Securities. Your line is now open.
Hey, good morning, everyone. Thanks for taking my questions. Jed, encouraged to hear your comment about an inflection in the supply chain. Could you maybe drill down on that?
Yeah, sure. I mean, it's wide ranging. It goes from on the land development side, being able to get 8-inch waterline pipe as needed. It's still very expensive. We think that as inventories increase, I'm just using that as an example, that prices will eventually come down because there comes a point when the suppliers' yards aren't big enough to hold all the excess water lines being manufactured. I'm just using that as, again, one case study. We're seeing that time and time again right now. There are, you know, still some items that are hard to get. But we're seeing much better, you know, much better supply chain today.
Okay. In land dev and vertical construction?
Yeah, it's. I mean, the same thing could be
Said for HVAC coils, could be said for, you know, any of, you know. I mean, we're seeing some instances where, like, smart locks that use chips, those are the ones that you punch in that, you know, your door code to enter, those are still hard to get. So it's not everything has been cured, but we're in much, much better shape than we were this time last year or even at the start of this year.
Okay. That's great. When I look at the order decline for this quarter, could you talk about geographic differences in that? I mean, Dallas and Atlanta are your two core markets. Did both of them suffer equally, or was it more pronounced in certain areas versus others?
Yeah.
Jed, why don't you take that, or Rick?
Yeah.
We look at this really on a daily basis. We get a sales report on every house and every neighborhood in our four markets. Jed and Rick, why don't you take the rest of the question?
We've seen a universal kind of decline as we pointed out in our release in sales in the second half of the quarter. When we look at the Dallas market within Texas, and we talked. We're now, this winter we'll be opening up in Austin. We talked to our peers and our mortgage companies that do business across the state of Texas, for example. I can tell you, Dallas is weathering the storm much better than, and seeing much smaller declines than other parts of the state. We still see strong demand in Atlanta and Florida. Florida's been a smaller division for us over the years.
Again, as Jim's pointed out before, we really like where our book of business is, and we really like our basis and our land bank. We're excited about the next, you know, 12 months-24 months.
Hey, Jay, this is Rick. One of the things that we're, you know, keenly aware of is the huge difference, you know, getting back to the 2018, 2019 era, when there were multiple reasons for what was happening back then. You had the interest rate spike back then, and you had a lull period in terms of sales. This is a very recent phenomenon for us, a couple of months worth of lighter sales going from position of metering sales. You know, we have 10 finished units as of the end of the quarter.
Two months' worth of just lighter sales is not gonna create an inventory accumulation, simply because, A, we have backlog, and B, because we were metering sales, there's not that much coming down the pike on a short-term basis. It's really an interesting conundrum that we're gonna be interested to see, how do you have an inventory adjustment when there's no inventory? You know, we're gonna be watching as well and just adjusting as we go through it. You know, starting with the very best margins in the industry is certainly a preferred position.
Rick, let me add one thing, though, because I think the analysts are correct in that in Dallas, for example, we were running in the first quarter at a 60,000-ish annual start rate, and builders generally did continue to start homes expecting a 60,000 start rate. If we reduce to 45,000 or anybody, who knows what the number's gonna be. There is gonna be a reduction in starts and some demand. Yes, there is gonna be some of those starts that are gonna finish over the next two or three quarters. At the end of the day, we still are very confident about our markets. Whether Dallas is a 40,000, 45,000, 50,000 start market, it's still probably gonna be the largest housing market in the United States, and we think we have the best lot position.
In Atlanta, it's a little more unique for us. We are totally in very triple-A locations, infill locations. Interestingly, John Burns came out with a report last week that still ranked Atlanta as a higher or better market than Dallas. Florida is just very seasonal. Our builder that we own 49.9% of in Colorado Springs and Denver, Colorado Springs is still just gangbusters, and Denver has really slowed down. That's pretty much about how we're looking at the market.
Okay. That's great. Yeah. Thank you, guys. Appreciate it.
Your next question comes from the line of Alex Barron with Housing Research. Your line is now open.
Yeah. Thank you, gentlemen. I was just wondering if you guys could comment on your approach to, you know, competitive actions by others, whether it be incentives or price cuts. You know, what your general philosophy is, and do you feel that this slowdown is just something temporary or something that might be more extended?
Jed?
Yeah, sure. I can take that. It really varies all over the place, and builders with big backlogs are gonna be hesitant to incentivize or take price changes because they would like to close that backlog at higher margins. Spec builders that have less backlog are not gonna wanna sit on eventual finished homes, so they'll be more incentivized to discount finished homes. You know, in Dallas-Fort Worth, you have every public builder except MDC. here, and MBR, and you have a lot of private, so everybody's gonna have a different strategy. We're not seeing a universal strategy right now just because of the wide mix of private and public builders that you have. I would say that carries across the country in the markets that we operate in.
Right. I understand each has different strategies, but I'm kind of starting to see several builders, you know, resorting to cutting prices, which frankly surprised me because I didn't think it merited that so soon for the reasons you stated that it would scare people in backlog. But I'm just wondering if you guys are doing that or thinking of doing that, or if not, how do you sustain sales with others doing that?
Well, Alex, this is Jim. Obviously, you know, we don't set the market, we meet the market. As we said, 80% of our revenues are more infill. They're a little bit insulated from this. I read D.R. Horton's investor call with great interest, as a builder that's doing 80,000 or 90,000 starts. Obviously, if we're down the street from Horton in some neighborhoods, we're gonna have to be very aware of what Horton does 'cause we think we can sell our homes for incrementally more dollars, but we are not immune. When we get into a very similar location to what a competitor like Horton does. That said, we haven't seen in any neighborhoods where we are down the street from Horton major price cutting. You know, we're gonna watch it very closely day by day.
Okay, great. Thank you very much.
Your next question comes from the line of Michael Rehaut with JP Morgan. Your line is now open.
Hi, everyone. This is Andrew on for Mike. Have you seen anything in terms of the cancellation rate? Have you guys been proactive in making sure customers can still close? If you've seen anything, how much of an impact has it had?
Yeah. Obviously in our entry-level brand at Trophy, the cancellation rate is more elevated than it is in our other brands. We have no crystal ball really trying to figure out how cancellation rates are gonna trend. Our cancellation rate is very low, but we think that with the entry-level buyer at Trophy, it's just gonna be really a battle all the time in terms of keeping people qualified for mortgages. Jed, do you have anything you wanna add to that?
Yeah. It's, I mean, it's very. You know, we do stress test the backlog, but it's very. You know, most of our cancellations come either right after a contract is written and the buyer has buyer's remorse, or at the closing table when there's been a life, you know, some kind of, you know, underwriting change, you know, or life change for the buyer. It's hard to predict the ones that don't close, you know, that cancel at the last second.
One of the other differentiators we do that I think we're doing is, Jed, and even in our perimeter neighborhoods, whereas some peers will allow a buyer to contract for a home for $1,000 plus or minus earnest money deposit. We're getting a multiple of that even in our entry-level buyers 'cause we don't wanna have the cancellations. We wanna try to maintain and understand our backlog a little bit better. We aren't really going after that bottom pool buyer.
Yeah. No. That makes a lot of sense. That was really helpful. I guess just a follow-up. Can you kind of speak to SG&A outlook for the rest of the year? I know you guys had a nice improvement there.
Yeah, we had a great improvement just because revenues, you know, our quarter's a little bit more lumpy. We're able to convert a tremendous amount of backlog. SG&A, if you just take a look on an annualized basis, you know, we think it's gonna be pretty consistent, so it all gets down to how many revenues we're gonna push through the company each quarter.
Okay. Yeah. That's all for me. Thank you so much for taking my questions. Congrats on the quarter.
Thank you.
Your next question comes from the line of Bill Dezellem with Tieton Capital Management. Your line is now open.
Thank you. A couple of questions. First of all, specifically in your markets, what are you seeing from competitors in terms of their start rates?
Across the board. Jed can take the rest of this. Jed just had dinner with three or four division presidents last week, and it's varied. Some have reduced starts. One large builder, I think it's the fourth largest builder, that really is in all very perimeter neighborhoods, told us they were aggressively cutting starts. Other builders are not cutting starts very much, and we're kind of in between.
Great. Thank you. What are you seeing in terms of buyer behavior in terms of their requesting smaller homes or any other actions that buyers may be taking to make homes more affordable or reduce the price?
Yeah.
Well, three years ago when we opened up communities, we were really surprised in that we had floor plans that ran from 1,850 sq ft to, let's say, 2,200 sq ft, and we weren't selling any 1,800 sq ft houses. Low interest rates were driving these people to buy a bigger house. Jed, aren't some of these people now for the first time converting to smaller houses?
Yeah. We're seeing people buy 1,600 sq ft-1,800 sq ft homes that nobody wanted really a year ago.
Great. Thank you both.
There are no further questions. This concludes today's conference call. Thank you for attending. You may now disconnect.