Green Brick Partners, Inc.

Good afternoon, everyone, and welcome to GreenBrick Partners earnings call for the second quarter ended June 30th, 2021. Following today's remarks, we will hold a question and answer session. And 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 it is available on GreenBrick Partners website, www.greenbrickpartners.com, for listeners joining us by teleconference. Go to investors and governance, then click on the option that says reporting. and then scroll down the page until you see the second quarter investor call presentation. The company reminds you that during this conference call, it will make various forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, including its financial and operational expectations for 2021, and the future and anticipated impact of COVID-19 on our future operations, prospects, and other aspects of our business. Investors are cautioned that such forward-looking statements are based on current expectations and are subject to risk and uncertainties and could cause actual results or outcomes to differ materially from those set forth in our forward-looking statements. These risks are set forth in our second quarter earnings press release, which was released on Tuesday, August 3rd, 2021, 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 the Regulation G regarding these metrics can be found in the earnings released that GreenBrick issued yesterday in the presentation available on the company's website. I would now like to turn the conference call over to GreenBrick's CEO, Jim Brickman. Please go ahead, sir.

Thank you. Hi, everyone. With me is Rick Costello, our CFO, and Jed Dolson, our COO. Thank you for joining the call. As the operator mentioned, if you're joining us by phone today, the presentation and the companies this earnings call can be found on our webpage at greenbrickpartners.com. At the top of our webpage, click on Investors and Governance, then click on the option that says Reporting, and scroll down the page until you see the second quarter investor call presentation. I'll give everybody a few seconds to do this. With our all-time record results achieved this quarter, Greenbrick's annualized Q2 2021 return on equity hit a new high of 30.2%. Thanks to a great team effort, we provided our investors some of the best returns in the industry. Even better, we expect these returns to accelerate. Our total revenues were $1.1 billion on a trailing 12-month basis. From Q1 to Q2, we increased home building revenues by 54%, and our EPS doubled. We continue to be confident that our revenues and earnings will continue to grow sequentially each quarter this year. Our core focus on land development and our dominant presence and reputation in our markets has resulted in a 133% increase in our lots owned and controlled from a prior year. Our superior capacity to source new land has allowed us to grow our units under construction an astounding 95% as compared to June 30, 2020, and provides a ready supply of new housing to meet demand. Our gross margin reached 26.8% this quarter. This is up 360 basis points from the prior year and up 140 basis points from the first quarter as GreenBrick has achieved pricing power in the core markets of Dallas, Fort Worth, and Atlanta. In order to capitalize on rising prices and demand, we have paced sales by limiting our available homes for sale to generally those with at least the slab foundation board. We have also achieved price increases in excess of rising input costs. We believe this focus on price over pace will sustain our industry leading margins and strong financial performance through the remainder of 2021. In addition to our prepared remarks on the call, we will plan to provide more detailed insights into our growth strategy, capital planning, and operational initiatives driving the record results this quarter. This event will also provide a unique opportunity to field questions to our division presidents and purchasing teams. The Investor Day webcast will stream from 9 a.m. to 12 p.m. Central Daylight Time, and we encourage all of our attendees on today's call to register for this event through the investor day 2021 option under the investors and governance section in our webpage. Please flip to slide four of our presentation. We are a diversified builder with eight brands and four major markets with a wide array of product types and price ranges. We believe the stratification of products will continue to appeal to a broad base of home buyers and expect that our entry-level segment will continue to rapidly expand through the growth of our trophy signature and CB Jenny brands. As we have discussed in previous calls, Greenbrick operates under a much simpler ownership structure than seen in prior years, as approximately 70% of our top-line revenues are now generated by wholly-owned builders, and another 10% of our total revenues are generated by subsidiaries with a 10 to 20% minority interest. The markets where GreenBrick operates benefit from significant economic and demographic trends, which we will explore in detail in the next two slides. Slide five quantifies the strong population growth over the past decade seen in Texas, Colorado, Florida, and Georgia per the 2020 census data. Out of the 25 largest states in the United States, these four states showed some of the highest percentage increases from their populations versus 10 years ago. Texas led the nation with its resident population expanding just under 4 million people this decade. Colorado, Florida, and Georgia all show double-digit growth over the same period, while the population for the U.S. grew only 7.3%. We believe this positive population growth is evidence that our concentration in the Sun Belt and Sun Belt adjacent states is a winning strategy. We expect that in-migration to these states from California and the northeastern United States and the strong demographic profiles of the Sun Belt will continue to generate positive population growth for many more years and will preserve robust housing demand in our future years. On slide six, we highlight the economic strength of our core markets and present the decline in active home listings seen in June 2021 from the prior year. Like every other economy in the country, the COVID-19 pandemic created a major disruption in commercial activity and led to a significant rise in unemployment early last year. However, as shown on the right side of the graph on this page, Atlanta and Dallas-Fort Worth have remained remarkably resilient, with Atlanta and Dallas-Fort Worth achieving the lowest and third lowest unemployment rates in May 2021. It is evident that our core markets continue to sustain a strong job market and labor force. We believe these economic strengths will continue to support the strong demographic trends in our markets and reinforce housing demand for years to come. Looking at the left side of the graph, you can see that Dallas, Fort Worth, and Atlanta had the largest 12-month decline in active listings as of June 30, 2021, of the 10 largest MSAs, with listings down 59% and 53%, respectively. This remarkable drop in listings is evidence of the booming housing demand in our markets and is an indicator of the pricing power Greenbrick has in 2021 the cap laced on inventory shortages of existing homes. We expect this imbalance between housing demand and supply in our markets to persist through 2022, providing GreenBrick with continued pricing power to offset or even more than offset rising costs. With 87% of our ending active communities in DFW and Atlanta, we believe that GreenBrick is well positioned to succeed in 2021 and beyond. Additionally, we believe that the strong bounce back from the high unemployment seen in April 2020 and the rapid uptick in demand is further proof that our focus on business-friendly, pro-growth markets is the correct and best choice that will continue to differentiate us from peers. Jed Dolson, our Chief Operating Officer and Executive Vice President, will now speak in greater detail to our growth drivers and land position. Jed.

Thanks, Jim. On slide seven, we demonstrate how our investment in land has translated to an increased capacity to generate top line growth. As you can see from the chart on this slide, a key driver behind our strong financial and operational results has been our ability to convert investments in land to future growth in revenue. During the first half of 2021, our lots owned and controlled increased by 6,883 to end at 21,351 total lots, a new all-time high for the company. This is a 48% increase from the start of the year. After including land under option and lots optioned through joint ventures, we expect nearly 88% of our current inventory of lots owned and controlled to be self-developed by the company. We believe this strong emphasis on land development should allow Greenbrick's margins and returns to continue to represent one of the best growth opportunity profiles among our peers as these self-developed lots avoid expensive premiums charged by third-party land developers. For those of you who are interested, slide 8 provides additional detail on the attractive submarkets in Dallas-Fort Worth and Atlanta where our lot supply is located. Now follow me to slide nine and you will see that our communities and lots under development hit new highs this quarter. With 42 communities under development, our land pipeline is well established to meet our continued growth trajectory in the next several years. These lots under development will shift towards the entry level market with over one third of the lots under development located in more affordable sub markets. In the next six months, we expect to complete and release roughly 1,800 lots to our subsidiary home builders for new housing starts. During fiscal year 2022, we expect to accelerate our delivery of finished lots by finishing 4,600 lots during the year. With both our long-term and short-term landings met, we are confident Greenberg should be able to continue growing through fiscal year 2023. Slide 10 highlights our ending units under construction. Our units under construction are up 40% over the past six months and 95% over the past 12 months. While we have seen growth at virtually all our brands and price points, our unit growth was primarily driven by starts in our Trophy brand, which increased its ending units under construction by 315% during the 12 months ended June 30, 2021. As we go forward, we expect the continued expansion of the Trophy Brand to establish larger communities with higher absorption rates and unit density. Additionally, our pivot to these larger communities focused on entry-level buyers has not been at the cost of increased risk. For Q2 2021, Home Closing saw an average FICO score of 750, with 85% of our fundings exceeding a FICO score of 700 per data from Greenbrick's Mortgage Ventures. The creditworthiness of our average buyer profile is a fundamental strength of many of the A markets where we operate, which we believe we will continue to mitigate risk for our business. In summary, we feel we have a very strong land position in some of the best markets in America with strong demand from low-risk buyers, all while maintaining a conservative debt-to-capital ratio and achieving industry-leading margins. Next, Rick Costello, our CFO, will discuss our second quarter and annual results in more detail.

Thanks, Jed. Thank you, everyone, for joining us today to review our 2021 second quarter financial results. Before I talk about our record second quarter results, I want to provide some additional context for the remarkable growth this quarter and take a more detailed look at how our trophy brand is well established for future growth. Slide 11 of our presentation provides an in-depth look at trophy share of Greenberg's performance metrics through June 30th, 2021. As you can see on this slide, Trophy's percentage of home closings has grown by 14% from 20% of our full year closings in fiscal year 2020 to 34% for the six months ended June 30th, 2021. However, with 41% of our starts this year and 65% of our lots owned and controlled related to Trophy, we believe Trophy has a clear runway to continue its growth trajectory in Dallas-Fort Worth. While all lots owned and controlled allocated at Trophy has increased nearly 460% from a year ago, it's important to note that the nearly 14,000 lots shown as of June 30, 2021, includes two communities with more than 1,000 lots each that will have a much longer life cycle. So excluding these two communities, Trophy's share of existing lots is still 54%. which is 20% higher than Trophy's 34% share of our home deliveries these past six months. Slide 12 of our presentation explains why we believe the growth of our trophy signature brand has the capacity to scale our bottom line results even faster than our top line results. First, with the average trophy community expected to be double the size of our other subsidiaries next year in terms of lot count per community, We're able to increase our absorption pace without requiring growth in community count. Second, Trophy's business model allows for 100% utilization of purchase orders during construction with no changes allowed. This process reduces our average standard cycle time by roughly 12% and allows for more efficient inventory turnover and stronger financial returns. And finally, Trophy has seen an outsized improvement in its gross margin over the last 12 months, increasing by 490 basis points. This growth exceeds by 130 basis points, our consolidated margin improvement of 360 basis points on the same year-over-year basis. So this higher profitability is enhanced by Trophy's lower SG&A leverage. This combination of higher margins, shorter cycle times, and better SG&A leverage should generate higher returns on invested capital. All in all, we believe these strong fundamentals will continue through 2022 and make a strong case of our continued investment in trophy signature homes. Slide 13 of our presentation shows the continuation of our high levels of year-over-year growth in our home closings and home closings revenues. On a last 12-month basis, our closings grew 27%, while related revenues grew 26% year-over-year. Quarter-over-quarter, our closings grew by 37%, and our home closing revenues grew by a remarkable 47%. And as Jim mentioned earlier, we believe this volume of closings represents a new normal for the company that Greenbrick can continue to grow further in the remaining quarters of this year. While slide 13 looks at our historical revenue, slide 14 pivots to our future closings and shows the year-over-year increases in net new orders and our ending backlog. While net new orders are up 50% on the last 12-month basis year-over-year, our Q2 2021 net orders were just up 4% as the company successfully metered sales to better match construction schedules and buyer expectations. and improve our ability to capture price volatility. Despite significant price increases taken by the company, net new home orders were 210%, over double, of home deliveries during Q1 of this year. Consequently, we determined that price increases were not sufficient to limit demand for net new home orders. As a result, we metered sales during the three months ended June 30, 2021, by limiting sales per community to better align the absorption rate of sales with the ability to deliver new homes. Like many of our peers, we limit sales almost universally to homes that at least have a slab port. The absorption rate per average selling community per quarter of 6.8 homes during the three months ended June 30th, 2021 and 9.1 homes year to date exceed the 5.9 net home new orders during both the three months and six months ended June 30, 2019, that's two years ago, by 15% and 54% respectively. This slowdown of our record sales pace seen in the previous three quarters has allowed us to shift our mix of sold versus spec units under construction nearly 500 basis points over the last three months. That's something we haven't provided before, but our mix of homes under construction is now at 33% spec homes at June 30th, 2021, which is up from only 28% as of March 31, 21, but still far below the 44% spec home level as of the beginning of the year. Likewise, our Q2 2021 ending backlog is up 118% from a year ago prior, but saw a small 2% decline sequentially despite closing a record number of homes during the quarter. We will continue to normalize our pace and our level of spec versus backlog homes under construction and our total backlog levels as well as we drive closing volumes higher each successive quarter of this year. Bottom line, we're holding back homes for sale so we have a better mix of pre-sold backlog homes versus specs. We think improving our mix will lead to higher margins in returns and less risk of construction costs. Prices are rising every month, so selling some houses two or three months before completion will get us a better margin than selling all the houses seven months ahead. The expected return to a higher level of spec units under construction should position us to capture increased sales prices. Managing this type of flow is a corporate strength, and making decisions like this contribute to our superior gross margin and return on capital. Now let's move to slide 15 related to our financial highlights. Adjusted gross margin for Q221 was up 360 basis points over Q2 of 2020, and adjusted gross margin was up 320 basis points Q over Q. Sequentially, Gross margins were up 140 basis points from Q1. For the six months ended June 30, 2021 home building gross margin and adjusted home building gross margin were up 320 basis points and 270 basis points respectively from the same prior year period. Our robust year-over-year growth in gross margin is expected to continue over the next two quarters as we see the benefits of strong pricing power in our ending backlog translate to future closings. Turning to operating leverage, our SG&A expense was down 190 basis points at 9.1% for Q2 of 21, with the prior year quarter at 11.0%. Our year-to-date Q2 ratio of SG&A expense to total revenues of 10.4% was down 140 basis points, from 11.8% for the prior year. So with increasing top line revenues expected through the remainder of this year, we expect quarterly and full year operating leverage to continue to improve. Our interest coverage of 21.9 times for Q2 21 represents a 53% growth over Q2 2020, while our year-to-date interest coverage for Q2 21 of 17.6 times was 56% higher than the prior same-year period. Our strong interest coverage clearly demonstrates our capacity to generate positive cash flow well above our needs. Now the bottom line. Our Q2 2021 diluted EPS of $1.02 was a record for any quarter and represents a 55% increase over Q2 of 2020 and is a doubling sequentially from 51 cents in Q1 of this year. For the six months ended June 30th, our diluted EPS of $1.53 was up 56% from the prior year period. Now, if you'll recall, during Q2 of last year, Q2 of 2020, we benefited from a $6.7 million tax benefit from energy tax credits related to open prior tax years. So to get a better sense of our improvement in our operational income performance, we really need to look at pre-tax income. Pre-tax income grew 94% in Q221 over the second quarter of 2020. And our annualized net income return on average book equity, which Jim referred to earlier, grew an outstanding 610 basis points to reach 30.2% this quarter. Combined with our low debt leverage, our risk-adjusted returns are truly remarkable. Please move to slide 16 of our presentation where we compare our Q2 21 gross margins with available peer data. Our gross margin reported for the quarter was 26.8% and 26.3% year-to-date. This chart demonstrates that our performance is among the best in the industry. We believe our superior margin experience is evidence of our conservative land underwriting, operating efficiencies as we scale our business, and prudent planning. This is a winning strategy that has well prepared us to manage pace and price during the remainder of 2021 and beyond. We expect gross margin to continue to rise sequentially during 2021 as we continue to realize the strong price appreciation in our backlog through future closings. Slide 17 visually demonstrates that we have grown our revenues and provided stable earnings by concentrating on several homebuyer segments. For the six months ended June 30th, 2019, two years ago, two segments accounted for more than 60% of our revenues. Fast forward two years and we now address six distinct and significant customer segments, which all experienced strong revenue growth in the first six months of the year. For the six months ended June 30th, 2021, our entry level segment plus our first time move up segment now combine to represent 41% of home closings revenues. an increase of 2,500 basis points over two years ago when they combined to represent just 16% of home closings revenues. Now this expansion of our more affordable inventory was created through the intentional reallocation of capital to our trophy signature homes brand. We expect to continue to expand our entry-level segment in the remainder of 2021, which we believe should position GreenBrick to capture an even greater portion of today's housing demand. Please turn to slide 18. Here we have compared our performance versus our small and mid-cap peers to demonstrate why we believe that our risk-adjusted growth and returns are uniquely strong. We've provided six measures. Five of the measures cover the 12 months ended June 30, 2021, or the nearest period. Growth in home building revenues, gross margin percentage, interest coverage, pre-tax income return on invested capital, in growth in lots owned and controlled. And the other measure, which is debt to capital, is as of a point in time, June 30, 2021. With the strength of Greenberg's results for each of these metrics, Greenberg continues to perform at or near the top of our peer group. In fact, our high gross margins exceed even some of the large cap peers, as we discussed earlier. Our returns on capital are even more impressive when you consider our peer-leading growth in lot supply, which has included the investment of $180 million of land and lot acquisitions during the second quarter of this year alone. And with our expected sequential growth in home building revenues continuing for the balance of 2021, we expect income returns on capital to additionally elevate during the balance of the year. Lastly, on the financial slides, please look at slide 19, which focuses on our lower leverage. We were able to achieve our record-setting results when maintaining one of the lowest debt-to-capital ratios among small-cap and mid-cap builders, again reminding you while funding $180 million of land and lock acquisitions during the quarter. I'll now turn the call back to Jim, who will wrap up our part of the call prior to opening things up for Q&A. Jim?

Okay, thanks, Rick. Our record results this quarter are the culmination of years of diligent planning and hard work by our subsidiary builders, and our corporate team. We believe the outstanding results achieved this quarter are just the first step in GreenBrick's remarkable growth story as the company swiftly moves to materially exceed $1 billion in revenues this year. We believe GreenBrick's prospects for continued top-line and bottom-line growth are truly unrivaled in our industry. To better understand how GreenBrick has achieved our impressive risk-adjusted returns to date, We invite each of you to join us tomorrow for our inaugural Virtual Investor Day from 9 a.m. to noon Central Daylight Time. With our Q2 2021 financial and operational results reaching new highs this quarter, we believe this event will provide critical insight into the new inflection point in the company's growth story and hope that each of you will be able to attend. To register, please go to our website and click Investor Day 2021 under Investors and Governance. I'll now turn the call back to the operator for questions.

And at this time, we'll be conducting a question and answer session. If you'd like to ask a question, please 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 start keys. One moment, please, while we poll for questions. And our first question is from Michael Riott with JP Morgan. Please proceed with your question.

Hi, this is Maggie on for Mike. Thanks for taking my questions. First, I'd like to dig a little bit more into how you're thinking about sales for the remainder of this year and into next year. After three quarters of the elevated starts levels, do you see this as more of a normalized starts pace going forward? And also, as you look at the back half of the year, you've got the pivot towards the higher absorption trophy communities. You've got kind of the increased mix of spec homes under construction. But you've also got that competing with the price increases. So can you talk about how we should kind of balance all of those factors as we think about the next quarter or two?

Yeah, and this is Jim. And Jed and both Rick can chime in on this. But we are having normalized starts. And really, it's a little bit more than normalized. We're going to complete growth starts, particularly in the trophy brand. We are seeing still very strong demand. I think some investors don't understand how really strong that demand is and we have intentionally delayed selling homes because we know that demand is going to be there. There really aren't a lot of options for home buyers. We have one community in Atlanta, for example, that is not a big community and we had 1,200 people show interest like an 80 lot community that we haven't even considered really opening up for sales yet. So we have a lot of indicators like this that demands very strong and that's why we have not taken orders. We could have probably pre-sold that whole community, but there's no point in doing that. It's a community that we took a long time to entitle and there's no point in pre-selling product in an inflationary cost environment when we can capture higher margins down the road. We have a lot of examples like that.

Got it.

Also, Maggie, just to continue on that a little bit, we've ticked up from 28% to 33% spec. That 5%, 500 basis point increase was very similar to what DR Horton did this quarter as well. There are some builders who have not started to meter their sales, and they're getting fewer and fewer spec homes out there as a percentage of what they do. Our model is not based on having such a large number of backlog homes. We leave money on the table. We can't tell our customers with certainty when they're going to be closing. You know, by selling earlier in the process, we're losing out on potential price increases. So for us, we seek to get back to those levels. Yeah, we're going to be closing a lot of houses in the back half of this year, but we still want our backlog as a portion of what we've got under construction to go down some.

Okay, thank you. And second on pricing, Could you give us an idea of how much you raised prices during the quarter and, looking forward, how much more runway you think you have to continue raising prices before you start to see some more pushback? And also, if you could maybe give any update on kind of where you think ASP for the year might end up.

Jed, why don't you take that since you manage this process?

Sure. You know, we, on a monthly basis, we've been raising prices, you know, varying, you know, three to five percent per community per month. I think the one thing that we're very excited about is really not price raising, but because we do want to still provide an affordable product to the consumer, but we're very excited about what lumber is doing and how the cost input side of our business is dramatically falling. In some cases, we've seen lumber packs fall $20,000 in the past two months. We think there's still some room for that to fall. We're excited about that. That should lead to increased margins going forward.

Got it. One more, if I could sneak it in there. I think you mentioned that Trophy's gross margins improved above the company average for the quarter, but on an absolute basis, where are Trophy's margins versus the rest of the company?

Maggie, we don't, by brand or by geography, disclose gross margins. We gave about the most information on so many areas in this call that we typically don't touch. As you know, we don't give guidance We came about as close as we can to giving guidance telling that we expect the rest of the year to be better. Hopefully the market will start paying attention to that, but we don't give gross margins by brand or geography.

Okay. Thank you.

And our next question is from Alex Reigel with B Reilly. Please proceed with your question.

Thank you and very nice quote, gentlemen. Circling back to one of the earlier questions, talking about building materials costs, understanding that lumber has come down. When might we see sort of the peak of lumber expense go through your P&L? So therefore, when are we on sort of the backside of the curve? Is that right now or is that a little bit later in the third quarter? And then how should we think about building material costs for all other products going into the house?

Okay, I'm going to take part of that question. I would like to have Jed chime in later. We were able, I think, reacting very quickly into being in really strong markets and strong neighborhoods within our markets. The lumber costs that went up, we are able to more than pass on. I've read a number of other conference calls where people are concerned about the lagging effect of those lumber costs and how they're going to affect third and fourth quarter margins. We don't see margin degradation in the third and fourth quarter because we were able to raise prices very quickly. And so we are not seeing that in the third and fourth quarter this year. In terms of building material costs, I really hope that everyone on this call can attend our investor day. Jack Wilkes is in town. He's our national purchasing director. All of our purchasing agents are gonna be at the investor day. And you're gonna get really a very granular look on what we expect to see in purchasing and how we're operating our business. But in a nutshell, it's still a minefield out there in terms of bottlenecks and supply constraints. But we think that we've managed this process really well. And tomorrow on the investor day, you can meet the people that are doing that.

That's great. And then turning over to land sales, obviously it ticked up in the quarter. Can you talk a little bit about your intermediate and longer term land sales strategy?

Sure, and Jed, I sure want you to chime in on this, but it was a little bit of an odd month this year. We had one large transaction, and we sold a retail site and a multifamily site to a multifamily institutional developer we've done a lot of business with. And we were, how many lots were we left with? 252. 250 lots after the sales. We made a nice gain on that. We've done business with these people. And what we need to communicate to investors is that these 250 lots that we're still left with, despite taking a nice land profit, our basis in these lots, on today's values, these homes do produce higher margins than our companies producing already. So we really don't plan on selling any more lots. We may come into a situation where we have a unique opportunity to coordinate a large parcel that we'll sell off the retail or multifamily uses because we don't do that. But we really don't plan on selling them any more lots. Jed, do you have anything?

No additional comments.

That's very helpful. Thank you.

And again, as a reminder, if you have any questions, you may press star 1 on your telephone. Doing so will ensure that you join the queue. And our next question is from Bill DeZellum with Titan Capital Management. Please proceed with your question.

Great. Thank you. Congratulations on an amazing quarter. I'm going to ask a couple of questions from a point of ignorance here, if you will allow me. Can you first of all talk about the 604 new home orders in the second quarter being down from the 1,082 new home orders in the first quarter? I mean, I know you've talked about limiting sales, but that's really quite a dramatic fall off.

Yeah, it is a fall off, but it was an intentional fall off. And I think our investors are going to be very pleased at the end of the year when they see the results of that strategy because, as we said, we're seeing great demand, and it doesn't make sense to sell 1,000. Let's say we could have sold 1,100, let's say, but it doesn't make sense in a rising price environment to sell 1,100 homes when we see demands there and we can harvest 3% or 4% greater margin by delaying that sales process.

Bill, in the first quarter, we sold 1,082 houses and closed 516. That's more than double. And that just really, all it does is add to our backlog on deals that are further out in delivery, where if we wait until later in the construction process, which is our typical in our business, is not to be a backlog builder. But if we wait until later in the process, we would have gotten even more price increases. passed along to our customers. So it's going to lead to better margins. It's going to lead to better control of our construction and the ability to give our customers better visibility on the dates they're actually going to close.

And in the homes we started, it should relatively improve cycle times because we're not dealing with a customer during a lot of this processing.

That's helpful. So essentially, this is the data point that highlights that what you've been talking about on the call, not only are you doing, but you're doing in a dramatic way.

Yes.

Okay. Thank you. One more question. Again, this is from a point of ignorance. How do you see, anticipate, or accomplish having revenues and earnings growing sequentially when the backlog, the backlog units, and the starts are down versus the first year?

Well, we had very strong starts for Q3 of last year, Q4, Q1. And you've really not seen that level of closings, including the 757 deliveries. I mean, we were over 1,000 starts per quarter for three quarters in a row.

We have the most homes built under construction I think we've ever had by a considerable margin. I think that's one of the things that investors are not really fully comprehending.

And one of the things that we have noticed or identified is that the trailing four-quarter starts is at a record high, as are the under-consumption units, as you point out. So should we be paying more attention to the trailing four-quarters starts than just any one individual quarter?

I think so, and what you have to put in context of those drilling four quarters, as we said, it was intentional. Many of those starts we didn't want to sell because we would have to sell the house at current prices today, and we think we can pick up margin with not a lot of risk because the demand has remained so strong in selling these homes two months before they're completed rather than trying to get a presale. And we're still trying to start more and more spec homes, but because of the supply bottlenecks, we just can't.

Thank you. Congratulations again on a great quarter and for helping us understand how you're managing the pieces of the puzzle. Well done. Thank you, Bill. Thank you, Bill.

And we have reached the end of the question and answer session. I'll now turn the call over to management for closing remarks.

I thank everybody for joining the call today. And again, reminder, please go to our website on our investor page and sign up for tomorrow's Investor Day. I think you'll find a lot of useful information. Thank you.