Green Brick Partners Inc (GRBK) 2022 Q1 法說會逐字稿

Good afternoon, everyone, and welcome to Green Brick Partners Earnings Call for the First Quarter ended March 31, 2022. (Operator Instructions) As a reminder, this call is being recorded and will be available for playback.

A slide show 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. And finally recognizing a rising interest rate environment, I will also share some thoughts on supply and demand fundamentals.

I'll now turn the call over to Rick Costello, our Chief Operating 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 4 of the presentation. Our total revenues in Q1 2022 increased 68% year-over-year to $394 million and also our residential units revenue increased 68% year-over-year to $365 million, driven by higher closing volume and higher ASPs.

During the quarter, we delivered 658 homes to homebuyers, 27.5% more compared to last year. And 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 the $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 '21. Also our cancellation rate of 8% was in the range of the last 2 years, which has been between 6% and 12.3%.

So thanks to strong pricing power and operating efficiency, SG&A leverage improved by 420 basis points year-over-year to 9.4%, which was our second best operating leverage only surpassed by the 8.8% last quarter.

Turning to Slide 5. Our gross margin 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 mid cap and small cap peers, we continue to have some of the best gross margins in the industry.

We believe that our focus on price over pace will continue to sustain our gross margins at levels higher than most of our peers. We also believe that our position as a third largest builder in DFW allows us to better control both cost and cycle times. And further price increases of our homes have continued to be accepted by our buyers.

So 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 6. 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 7 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 homebuyers who are more financially secure and less sensitive to interest rates. These communities, which include Trophy, are located in light constraints 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 our off-balance sheet financing arrangements. As 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 '15. And 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 mid cap and small cap peers. Combined with our healthy liquidity and significant operating cash flows, we believe that we're in a strong and flexible position to grow.

With these strategic initiatives and a 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 7. We continue to exercise an approach which includes, 1, investing significantly in lot growth; 2, executing the organic growth of our builder's subsidiaries; and 3, expanding in new markets while maintaining our disciplined approach to investment.

We do not lower our hurdle rate of 20 plus percent 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 of early moves and accessing and underwriting deals, we have an abundant lot position. It 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 4300 finished home sites in 41 communities to our builders at an attractive cost basis during the year.

As we have discussed on recent calls, we have accumulated almost 9,000 future home sites for Trophy Signature Homes in 6 communities that individually exceed 800 lots. These larger longer life communities are in submarkets which we believe have long-term growth potential at very affordable prices. And in the case of these Trophy communities, the lots have an average cost of 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 1100 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 in many of Trophy 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 of 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 location. 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 in 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 the healthy housing market.

Slide 8 is a chart that we brought back into our slide deck to remind everyone of the most important secular change of the current generation. The graph represents an irreversible demand of over 4 million of millennials who will enter their prime home buying years over the next decade.

After under supply in the market since the end of the Great Recession, the homebuilding industry will continue to benefit from the increased desire of this demographic to own a home. Additionally, specific to Green Brick, our markets continue to experience some of the strongest demographic inflows and job growth in the country. DFW, our largest market, wrapped 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 homebuyers searching for homes in our submarkets. When we release a new home site for sale, our sales agents know they have a large inventory and ready and willing buyers. They select their buyers from the 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 with an 80% of our total closing dollars in Q1. Those buyers typically are better credit scores, higher incomes and are less susceptible to interest rate increases.

They also have a greater ability to 1, buy down of interest rate; 2, qualify for a jumbo portfolio loan such as a 5 year or 7-year arm; and 3, 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 9. Homebuilders 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 shortages 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. 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 send 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.

(Operator Instructions) Our first question comes from the line of Mike Rehaut with JPMorgan.

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 there in the next few quarters? I know you touched on it a little bit. And if getting worse, are there any distinct examples of what you've been having more 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. The problem is we get so many of our shipments from out of the country and when there are container shortages or ports are shutdown, stuff can be going very smoothly for months and then a shutdown on a port and we can all of a sudden be out of a particular material. So I do think the ability for these suppliers to track it is greatly improved as COVID is going on, but we are still seeing some hiccups.

Mike, this is Jim. One of the things we're doing particularly at Trophy is we're limiting because this housing demand is still is very strong. We're limiting the amount of offerings and the SKU numbers to customers to combat that. So basically, we're going to our suppliers frequently and saying what 4 materials can you assure us that we're going to have rather than trying to get 8 in the SKU and having problems with 4 items.

Great. And then lastly, if you guys could just touch on kind of the cadence of orders and closing throughout the previous quarter?

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 meet our sales. We were also finding increasing lumber cost 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.

Our next question comes from the line of Carl Reichardt with BTIG.

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 Q, and I didn't -- I haven't gone through all the Q yet. So I'm sorry if I'm asking this and it's in there already, but I'd just like your thoughts on the different segments.

Yes, I can answer that, Carl. This is Jed. Trophy in its A and B market location performed exceptionally well probably even -- for sure even better than our sister companies, subsidiaries. And in the far out locations, we for the quarter oftentimes saw double-digit sales per month per community.

So there is no alteration in the trajectory of Trophy demand-wise ex 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 when you can close you may have a better knowledge of cost, or are there some other elements that would enable you to remove those governors on Trophy or the other brand?

We're really caught up with starts which Jed can speak to, Carl. If you take a look at that, our start pace is great and we think you're going to 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. So that was a very tough comp to follow up on.

In hindsight, if we had any idea of supply chain bottlenecks that that gigantic sale quarter would generate, we probably would have behaved differently a year ago. But in terms of start, we're back ramped up to a much greater start pace. What's our start pace now really?

We did just under 900 this quarter, which we haven't done that since Q2 of last year. So that's a much preferred start pace for us and that's pretty much normalized, Carl. It's really the house is 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.

The interest rates means that the sales people might have to go deeper into their pile of folks if 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.

So being in the higher price points for so much of our inventory really insulates us in that regard as well which is just nothing on the existing home market.

The Q1 of 2021 again, we have seen now strong sales after that, that we finally have pushed kind of the pick through the pipeline and the cadence of our starts and sales pace are going to be much more normalized, which is going to help operate our business more efficiently.

That's great. It's very helpful. And 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. And 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? And I'd just be interested if you could compare to what you're underwriting today versus maybe what you looked at 3 or 4 or 5 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 3 or 4 or 5 years ago or relative to the margins that we think of is more typical for the homebuilding industry?

Yes. So we are very -- we are just now bringing the market some communities where we bought in the summer of 2020, Carl. So again, it's taking almost 2 years to bring those communities to market, and we're seeing margins far exceed what we just announced as our margins for Q1. So I guess I'd answer that by saying we feel good overall about margins and relative to 5 years ago or 4 years ago we think they will continue to be high.

Our next question comes from the line of Alex Rygiel with B. Riley.

Congratulations on a very nice quarter here. 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 -- 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?

Yes, this is Jim. I think that it's a neighborhood-by-neighborhood situation. A location markets, which is the predominance of our income right now, which will slowly be phasing out over time as we expand Trophy, these cities or municipalities are 85%, 90% build-out. And when I started my career, competing against existing homes was a big part of the equation that you underwrote as a builder. And 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 going to remain very, very high in these select infill locations that dominate our balance sheet because -- let's use an example, Alex. If you just bought home in the last 3 years in any of these infill markets, you probably got a 3% interest rate. And if interest rates are 5% and house prices are up 20%, you're not going anywhere. So we see existing inventory continuing to decline and be even less of a factor going forward. And in these markets, we have very restricted competition from other builders. So we feel good about it.

As Trophy grows its business, that's to me more of a wildcard. But again, we've 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? And 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 compound the stack 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 and we think that's going to maintain high margins in our industry.

It's just on the flip side of it, it's just not a really good time to be a consumer buying a house or a lot of other things right now.

And now 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 in the country. And 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 2 offices because they're both -- if they're not working from home, they're now doing a lot more work from home.

So there are many factors that just naturally cause attrition and turnover in the home inventory. And we see it in great numbers, specifically because we're in DFW and Atlanta and Challengers in Colorado Springs. And you just see the demand is very unique. We have more pricing power because of that.

Our next question comes from the line of Jay McCanless with Wedbush.

So my first question is, if we look at the closing growth in the quarter versus last year, could you break out for Trophy versus the other brands, what the growth rate in closings was versus last year?

We don't provide closings by brand.

If we look at your backlog and thinking about rate locks in this environment, some of the builders have talked about what percentage of their buyers in backlog have 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?

Yes, 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 labor rate lock. And you know that we're continuing to monitor that almost on a daily basis.

Yes and Jay the other part of that too is, again, we have more well held 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 5 year and 7-year arm products where instead of paying 5.X percent, they're paying 4.25% for 5 or 7 years.

Got it. And then I guess if you think about pricing power in the quarter and then also I think maybe in the press release there were some commentary about improved results moving into the next quarter. Should we expect unit closings to be in line or maybe higher than what we saw in the first quarter just given that your spec starts have ramped back up now?

Well, the starts that have just ramped up now are going to be obviously benefiting future quarters. But in Q2 if you look back in time, you'll see the large number of starts that we did have in Q2 of '21 because of all of the sales growth that we had in Q1 of '21. So it's just coming around. It's going to -- I know we're -- typically in our industry, see Q4 being the biggest quarter, but we have so many starts back then that are rolling into the closing Q now.

Jay, we really needed, in a perfect world we would have started more homes in the third and fourth quarter of 2021, but we didn't have the capacity to do that. We got those homes started, and I think you're going to start to see that benefit in the second quarter.

Got it. And then 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 would be great.

Yes. Our pricing power we have been consistently able to more than offset the input costs. Obviously, trees don't grow to the sky and that's going to hit a peak, but it hasn't hit peak for us yet, and we're keeping our fingers crossed.

Our next question comes from the line of Bill Dezellem with Tieton Capital Management.

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. And layer on top of that, 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 going to have to do my job in the next call.

I probably couldn't repeat it.

That was really good, Bill.

But that is the net of what you're saying?

Yes, that is the net and I think really the other factor that we're seeing is that the homes are less of a discretionary purchase because you're also facing 15% rent increases in many markets.

This may be a completely unanswerable and maybe it doesn't matter question, but are rents going up because home prices are going up, and so they have that pricing umbrella? Or are home price is 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 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 house, the ability for the housing market do well and the rental market to really do well at the same point in time.

Another factor there, Bill, too, is if you got the leading edge of the Gen Z coming in and -- whereas the millennials are 71, 72 million strong, the Gen Zs are 67 million strong. So, almost as big of an age cohort. And the first half of them let's say or so are starting to come out into the I need a house market or I need an apartment market. It's just household formation is being driven by demographics and you just have these tidal waves coming at us and the industry has not corrected to higher production levels.

All right. Okay. 2 more questions, please. The first one is between your markets, do you see a discernable difference in the level of demand versus supply imbalance? And then 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. For those of us who are not homebuilders, would you help us understand what you mean when you say you didn't have the capacity?

Yes, just there are no more brick layers, not enough sheet rockers. There's not enough framers. And ordinarily, you could say, well, I'm now offering this guy more money, but that's not creating more workers. I think a lot of builders decided that they can't chase that and they're going to 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, and I would like to say we're all geniuses because Green Brick I think we do a better job, but the reality is nobody could overproduce this time if they wanted to.

That's part of that, it's different this time. Relative then into discernible differences between supply and demand between your 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. And we don't have any perimeter locations in any of our other markets. Challenger does in their markets. But fortunately, Brian Bahr and Tom Hennessey -- Brian is 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 the lot position.

Congratulations on a great quarter.

Our next question comes from the line of Alex Barron with Housing Research Center.

I heard you say you started 900 homes. But for a frame of reference, could you tell us how many you started last year and the year ago quarter?

I think I can. We started around 939 homes in Q2 of '21. In this quarter I believe the number was 896. So very comparable.

What about the first quarter of last year?

First quarter was 1,038.

Again, you should not just look at the starts because the ASP is up 20% plus on those terms.

Right. That's just because I'm just trying to get a sense, since your orders have been down for 3 quarters fairly significantly, I would think this 900 start should allow you to bump up your orders going forward quite a bit.

I think you're going to see us sell more evenly throughout the year than we did last year.

Got it. My second question has to do with the gross margin. I guess historically you guys have had some of the top gross margins in the group and other builders seem to be catching up. So does that suggest that you guys have further upside from here, or do you think there just the whole industry is just kind of enjoying these margins because of the pricing power everybody is seeing?

I think so. I think the whole industry is benefiting from better margins. I think that we are uniquely positioned relative to many peers to maintain margins because of our lot position, and we are seeing peers that have -- some peers have great lot position, the other peers have burned through their or margin loss scenario, and have great difficulty in replacing those. So it's a mixed bag.

Yes. And I think our margins would have been higher in Q1 had we not sold so many homes early last year. So early last year, lumber prices were lower, labor prices were lower, material prices were lower and some of the more complicated homes that take 9 months to a year to build really saw margin erosion because we frankly sold too early. And that's why we have been so diligent at metering our sales.

The volatility in lumber prices has been 3% to 4% of margin and that's almost impossible to predict.

Right. And if I could ask one last one. Do you guys track buyer activity in terms of other state buyers? I'm trying to get a sense of how much the sustained momentum in sales is coming from the fact that let's say people are moving from California to Texas or from New York, some higher price states to a lower price states, how much of that is contributing to the strong sales momentum that continues to today? Do you guys track that in any way?

Yes, we do track it. It can be a little bit misleading because when people leave a high-tech state like New York or California, they often rent before they buy. So they're going to have a local address that makes it appear like they were a resident of Texas if we take a look at where their residence was when they applied for a mortgage. But when we talk to all the economic development groups, whether it's the Dallas Chamber of Commerce or whatever, the relocation activity and the interest from California, Chicago or New York is just as high as it's ever been.

Ladies and gentlemen, this does conclude our Question-and-Answer Session. We do have a follow-up question from the line of Alex Barron.

One last one. In terms of pricing power versus rising rates, do you feel that the pricing power remains intact at this point, or do you guys -- are you more careful given that affordability obviously is getting impacted by daily interest rate increases? How are you approaching the pricing as you release houses?

Yes, this is Jed. We're approaching it submarket by submarket, neighborhood-by-neighborhood. In the upper infill locations, we think pricing power is still very strong. We think in the perimeter locations we were very aggressive in Q1 and we're probably going to be more moderate the remainder of the year in our pricing increases.

Great. And last one on build time. Have you guys seen an increase in build time this quarter versus last quarter? And if so, what was it? And what is it versus a year ago, just understanding there's obviously more supply chain issues today than they were a year ago?

It varies by product type and neighborhood and municipality so much. But I would say as I've kind of said in the past few calls, things are not really getting much better. They're getting better on the material front, probably worst on the labor front. And so as a whole, we continue to see elongated cycle times.

Ladies and gentlemen, this does conclude our question-and-answer session, and thank you for your participation. This does conclude our call. You may disconnect your lines at this time and have a wonderful day.