Green Brick Partners - Earnings Call - Q1 2021
May 5, 2021
Transcript
Speaker 2
Thank you. I'm going to do the operator's part. We apologize for the delay in commencement. The operator had connection issues. Good afternoon, everyone, and welcome to Green Brick Partners' earnings call for the first quarter ended March 31, 2021. Following today's remarks, we will hold a question-and-answer session. As a reminder, this call is being recorded and will be available for playback. A slideshow supporting today's presentation is available on Green Brick Partners' website, greenbrickpartners.com. Go to Investors and Governance, then click on the option that says Reporting, and then scroll down the page until you see the first quarter investor call presentation.
The company reminds you that during this conference call, we'll make various forward-looking statements within the meaning of the safe harbor provisions of the U.S. 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 subject to risks 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 first quarter earnings press release, which was released yesterday, Tuesday, May 4, 2021, and the risk factors described in our 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. I would now like to turn the conference call over to Green Brick's CEO, Jim Brickman. Go ahead, Jim.
James Brickman (CEO)
Okay. Hi, everyone. With me is Rick, our CFO, Jed Dolson, our COO. Thanks for joining the call. As the operator mentioned, Rick, a presentation that accompanies this earnings call can be found on our web page at greenbrickpartners.com. At the top of our web page, click on Investors and Governance, then click on the option that says Reporting, and scroll down the page until you see the first quarter investor call presentation. I'll give everybody a quick second to do this. I'm happy to report that the tremendous demand that we saw last year accelerated throughout the first quarter of 2021. For years, we have planned diligently to have the best lots in the best housing markets in the nation with a best-in-class operating structure.
Last quarter, thanks to that positioning combined with the strong fundamentals in today's housing market, Green Brick Partners has achieved its strongest first quarter results in the company's history. By design, we were ready to capitalize on favorable market conditions of positive demographic trends, a persistent deficit in for-sale housing inventories, and sustained low interest rates to continue to accomplish record results. Highlighting that point, net income attributable to Green Brick Partners over the last 12 months reached $123.7 million. This is a 100% increase over the prior 12-month period. I want to thank all of the Green Brick Partners team on the hard work involved in doubling an already strong net income. Likewise, our first quarter net orders of 1,082 homes and ending backlog of $996 million both represent all-time records for the company, up 28% and 45% over Q4 2020 record levels.
To meet the unprecedented demand, Green Brick started a record 2,043 homes in the last six months and ended the quarter with 2,303 homes under construction, a 62% increase from a year ago. We feel confident that our efforts will produce heightened earnings beginning next quarter and each successive quarter for the rest of this year. This rapid uptick in sales and starts has not been at the cost of our land pipeline. We believe that Green Brick's capability to source highly profitable land without straining our balance sheet will continue to propel our operating and financial results well beyond the bar set this quarter. During the quarter, we acquired approximately 5,600 home sites, expanding our total lots owned and controlled by 118% over the past 12 months and 31% in the past three months alone.
This increase was achieved while starting a record number of homes and maintaining a debt-to-total capital ratio of 26.4%, one of the lowest among public home builders. Our record starts of 1,039 homes this quarter were despite the severe snowstorm in Texas that impacted construction schedules, leading to the deferral of approximately 40 home closings in the second quarter. Please flip to slide four of our presentation. We are a diversified builder with eight brands in 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 homebuyers and expect that our entry-level segment will continue to rapidly expand through growth in our Trophy Signature and CB JENI brands.
As we have discussed in our previous earnings call, Green Brick operates under a much simpler owner structure than in prior years, where more than two-thirds of our top-line revenues are now generated by wholly-owned builders. The markets where Green Brick 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 released last week. Out of the 25 largest states in the U.S., these four states showed some of the highest percentage increases from their population 10 years ago. Texas led the nation with its resident population expanding just under 4 million people this decade. Colorado, Florida, and Georgia all showed double-digit growth over the same period, while the population of the U.S. grew only 7.3%.
We believe this positive population growth is evidence that our concentration in Sunbelt and Sunbelt-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 Sunbelt 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 listings seen in April 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, Atlanta and Dallas-Fort Worth have remained remarkably resilient.
When compared to employment levels as of February 2020, Atlanta and Dallas-Fort Worth are down only 2.5% and 4.1% respectively, which represent the smallest declines out of the 10 largest metro areas in the United States. 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 April 30, 2021, of the 10 largest MSAs, with listings down 70% and 63% respectively. This remarkable drop in listings is evidence of the booming demand in our markets and indicative of the pricing power Green Brick has in 2021 to capitalize on inventory shortages of existing homes. We expect this imbalance between housing demand and supply in our markets to persist through 2022, providing Green Brick 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 Green Brick is well-positioned to succeed in 2021 and beyond. Additionally, we believe 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 our land position. Jed?
Jed Dolson (COO)
Thanks, Jim. On slide seven, we demonstrate how our investment in land has translated into 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 and revenue. During the first quarter, our lots owned and controlled increased by 4,471 to indeed 18,939 lots, total lots, an all-time high for the company. This is a 31% increase sequentially from the start of the year. As you review the chart on this slide, you may also notice a significant shift in our controlled lot position. This increase is primarily driven by an increase in land under option of over 5,000 lots from Q4 2020-Q1 2021.
More than two-thirds of our lots added related to a roughly 1,700-acre master plan community about 35 mi south of downtown Dallas. The land for these lots was placed under contract in Q1 2021 and was acquired in April 2021. Due to its size and required planning, this neighborhood will not start producing revenue until 2024. We expect a significant portion of the infrastructure costs will be funded by municipal development bonds that are non-recourse to Green Brick and at a low cost of capital. After including land under option and lots optioned through joint ventures, we expect nearly 86% of our current inventory of lots owned and controlled will be self-developed by the company. We believe this strong emphasis on land development should allow Green Brick's margins and returns to remain competitive with our peers as these self-developed lots avoid expensive premiums charged by third-party land developers.
Slide eight compares our year-over-year growth in Green Brick's total lots owned and controlled against available data for other public builders. As the chart shows, our 118% growth in total lots significantly outpaces our public peers. Over the past nine months, we have added over 12,000 owned and controlled lots to our land pipeline. Despite the significant ramp-up in land acquisition, we actually saw our debt-to-capital ratio drop 140 basis points over the same period, decreasing from 27.8% on June 30, 2020, to 26.4% on March 31, 2021. We believe our ability to source land while maintaining our low financial leverage will facilitate continued top-line and bottom-line growth for the next several years. Slide 10 highlights our ending units under construction. Our units under construction are up 69% over the past six months.
While we have seen significant growth at virtually all of 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 236% during the six months ended March 31, 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. In fact, because of our continued expansion of Trophy, our Q1 2021 quarterly sales absorption of 11.3 units per active selling community was the highest in the company's history. Additionally, our pivot to these larger communities focused on entry-level buyers has not been at the cost of increased risk. Our Q1 2021 home closings saw an average FICO score of 754, with 88% of fundings exceeding a FICO score of 700 per data from Green Brick Mortgage Ventures.
The creditworthiness of our average buyer profile is a fundamental strength of many of our A markets where we operate, which we believe will continue to mitigate risk for our business. I will now outline Green Brick's growth to illustrate where we stand today and where we expect to be in future quarters. Let's start by going back two years to Q1 2018. We grew our lots owned and controlled from about 6,300 total lots as of March 31, 2018, to about 9,200 lots as of June 30, 2019. Over the span of five quarters, we grew lots by 45%. Because of this acquisition and subsequent development activity, we were able to grow our community count by 33% from 75 selling communities as of June 30, 2019, to 100 communities as of September 30, 2020.
Over the last three quarters, we have grown our backlog by 123% to $1 billion. As I just reviewed with you, our units under construction are up 69% over the past six months. The second quarter will begin the next phase of our growth story as we will increase our closing pace of our homes. By the way, our most recent growth in total lots with over 12,000 lots added over the past nine months provides Green Brick excellent visibility to continued and substantial growth in revenues into and beyond 2023. We expect that our average community size will continue to grow at future price points, so unit growth should exceed community growth. 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.
Next, Rick Costello, our CFO, will discuss our fourth quarter results and annual results in more detail.
Rick Costello (CFO)
Thanks, Jed. Thank you for joining us again. Thank you for joining us today to review our 2021 first quarter financial results. Look at slide 11 of our presentation, which shows the year-over-year growth in our home closings and home closings revenue for both the quarter and the last 12 months. On a last 12-month basis, our closings grew 27%, while related revenues grew 22% year-over-year. The gap between unit and revenue growth is primarily due to our shift to the entry-level price point during this period. However, as seen in the quarterly comparison, our year-over-year growth in units of revenue has narrowed to 15% versus 14%, respectively, demonstrating the impact of strong price increases starting in Q4 2020.
In fact, and this is interesting, we have instituted base house price increases that averaged 19% for our three large team builders in DFW and 9% average in Atlanta on an unweighted basis from the end of November through today. Over that five-month period, base prices have increased strongly. At Trophy Signature Homes, our largest builder, it is up by a remarkable 25% on an unweighted average over that period. While slide 11 looks at our historical revenues, slide 12 pivots to our future closings and shows the year-over-year increases in net new orders and our current backlog. With net new orders up 71% year-over-year and the dollar value of our ending backlog at quarter-end up 133% year-over-year, we fully expect home closings and home closing revenues to accelerate strongly beginning next quarter and to push Green Brick's overall profitability considerably higher.
Now, move to slide 13 related to our financial highlights. Home building gross margin for Q1 2021 was up 230 basis points over Q1 2020. An adjusted home building gross margin was similarly up 200 basis points quarter over quarter. From Q4-Q1 of this year, Q4 2020-Q1 2021, gross margin was up 30 basis points. We continue to raise prices faster than costs rise. We expect, therefore, gross margin to continue to rise sequentially during the balance of 2021. Turning to operating leverage, our SG&A expense was flat for Q1 2021 with the prior year quarter at 12.6%. Q1 2021 leverage was impacted negatively by the 40 closings pushed into Q2 due to weather delays.
With increasing top-line revenues expected during the balance of the year from Q1 levels, we expect quarterly and full-year operating leverage to improve, as will be reflected in a decline in our SG&A expense from Q1 levels. Interest coverage of 12.7% for Q1 2021 represents a 49% growth over Q1 2020 and clearly demonstrates our capacity to generate positive cash flow well above our needs. Bottom line, our Q1 2021 diluted EPS of $0.51 for the quarter was an increase of 65% over Q1 2020. Our annualized net income return on average book equity grew from 11.9% in Q1 2020 to 15.9% during Q1 2021, an increase of 400 basis points. Combined with our low debt leverage, our risk-adjusted returns are truly remarkable. Please move to slide 14 of our presentation where we compare our Q1 gross margins with available peer data.
As you can see, our gross margin reported for the quarter was 25.4%, up 230 basis points, as I said, over Q1 of last year. 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 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. As I mentioned, we expect gross margin to continue to rise sequentially during 2021 as we continue to raise prices faster than costs rise. Slide 15 visually demonstrates that we have grown our revenues and provided stable earnings by concentrating on several home buyer segments. For the 12 months ended March 31, 2019, two years ago, two segments accounted for about 70% of our revenues.
Fast forward two years, and we now address six distinct and significant customer segments, which all experienced strong revenue growth and sales volumes through March 31, 2021. For the last 12 months ended March 31, 2021, our entry-level segment plus our first-time move-up segment now combine to represent 36% of home closing revenues, an increase of 1,900 basis points over two years ago when they combined to represent 17% of home closing revenues. This expansion of our more affordable inventory was created through intentional reallocation of capital to our Trophy Signature Homes brand. We expect to continue to expand our entry-level segment in the remainder of this year, which we believe should position Green Brick to capture an even greater portion of today's housing demand. Please turn to slide 16.
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 here. Five of the measures cover the last 12 months ended March 31, 2021, or the nearest period for other builders. Those five measures are growth in home building revenues, gross margin %, interest coverage, pre-tax income returned on invested capital, and growth in lots owned and controlled. The other measure, which is debt to capital, is as of a point in time at March 31, 2021. With the strength of Green Brick's results for each of these metrics, Green Brick continues to perform at or near the top of our peer group. In fact, our high gross margin and growth in total lots rival even some of the large cap peers, as we discussed earlier in our remarks.
With our expected growth in home building revenues commencing in the second quarter, we expect income returns on capital to additionally elevate during the balance of the year. Lastly, please look at slide 17, which focuses on our lower leverage. As Jim and Jed have both stressed, we were able to achieve our record-setting results while maintaining one of the lowest debt-to-capital ratios among public builders. I'll turn the call back to Jim, who will wrap up our part of the call prior to opening things up for Q&A. Jim?
James Brickman (CEO)
Okay. Thanks, Rick. Thanks, everyone. As we move forward in 2021, we expect that our revenues, margins, and profitability to all improve significantly beginning next quarter as the record sales order growth we saw last year and again during Q1 converts into higher closing volumes. At the same time, we have continued increasing prices across all price points to better match our sales pace with our construction cycle. Beginning in March 2021, we began limiting our for-sale inventory to units that have been completed framing at most of our communities. By limiting sales until framing is completed, we will reduce our risk by shortening the time between contract and completion, where we are exposed to uncertain and rising input costs. Further, delaying sales will enable us to capture more price increases as pricing continues to steadily rise.
Over the past five years, Green Brick has established itself as a billion-dollar company that can achieve strong risk-adjusted returns. Today, we are announcing that we will have our inaugural virtual investor day on August 6, 2021. At that event, we will provide additional insights into our growth plans, operating strategy, and our efforts to achieve environmental and social goals over a multi-year period. I'll now turn the call back to the operator for questions. Thank you.
Operator (participant)
At this time, if you would like to ask a question, you may do so by pressing star then the number one on your telephone keypad. Again, that is star one if you would like to ask a question. Our first question is from Michael Rehart of J.P. Morgan.
Michael Rehart (Analyst)
Hi. Congrats on the quarter. This is Maggie on for Mike. My first question is just around how to think about ASP for the year. You pointed to some very solid price increases across all of the segments. At the same time, there is the ongoing faster growth at the entry-level segment. Where do you think ASP could end up? Also, separately, how much more pricing power do you think you have at the Trophy brand while being mindful of maintaining the affordability there?
James Brickman (CEO)
I'll chime in the first part. Rick, you can finish parts of it. One of the things that some of our ASP, if you take a look at the backlog numbers, it's distorted a little bit on the high end because GHO Homes, for example, almost builds exclusively as a backlog builder in Florida. They have a higher price point. The backlog ASP may be higher than the actual closing ASP, which is just kind of anomaly the way our business operates. Rick, you want to take the rest of the question about ASP?
Rick Costello (CFO)
Sure. I guess, Maggie, one of the things that limits our ability to raise it as fast as might be reflected in the price increases that have averaged 19% in Dallas and 7% or 9% in Atlanta is the fact that we entered the year with almost $700 million of backlog. Now, all that backlog is certainly under construction by now, and most of it is going to close this year. The price increases over this five-month period that we've talked about are definitely going to raise that faster than the increase in the first-time home buyer segment. I wouldn't be surprised to see our ASP go up $30,000-$40,000 from where it was at the end of last year.
Michael Rehart (Analyst)
Got it. Thank you. Next, on community count, I mean, obviously, you're shifting towards the higher density Trophy communities, so maybe fewer larger communities. You're also, with the strong demand, probably selling out faster. Can you give us any sense of where you see community count, I mean, where you see it going this year and kind of how to think about that number?
Rick Costello (CFO)
Rick, you want to take the community count. Yeah. I think we intimated, outright said, started saying during last quarter's call that we really are focused more now on the larger, longer-lasting, higher-absorption communities a la Trophy. We really do not expect to see much in the way at all of community growth. None of it is a limiting factor on our sales growth because we are in larger communities where we do not have to replenish them. I mean, if you really were able to dive into the details, you would see that a lot of our older communities had really a low community count in them. Those are being replaced with communities that have several hundred lots in them.
That serves to give us the staying power where we also don't have those situations of having to grow into sales absorption, but rather continue the momentum that you have there and the sales floor.
Michael Rehart (Analyst)
Got it. Thanks. If I can just sneak one more in, I apologize if I missed this, but did you break down orders by order growth by buyer segment this quarter?
Rick Costello (CFO)
We did not.
Michael Rehart (Analyst)
Okay. Thank you.
Rick Costello (CFO)
Thanks, Maggie.
Operator (participant)
Your next question is from Carl Rehart of BTIG.
Carl Reichardt (Managing Director and Senior Equity Research Analyst)
Thanks. Hey, guys. How are you?
Rick Costello (CFO)
Great.
Carl Reichardt (Managing Director and Senior Equity Research Analyst)
Good. We're looking at our model and thinking about operating cash flow this year. I think if we've got it right, it's going to be pretty substantial relative to what we've seen in the past. Given that I think it seems like you're pretty happy with your leverage ratio, can you talk a little bit about what your intentions are for the cash you will generate in terms of reinvestment in the business, shares, or whatever else?
Rick Costello (CFO)
Sure. Hey, Carl. Thanks for joining, and thanks for the questions. We will produce substantial cash flow because of the significant investment that we have made in prior years. However, because of our growth, we're continuing to reinvest in land, lots, and development in a major way. Our spend in that regard could approach $500 million-$600 million, depending on what deals actually close and what we underwrite over the balance of the year. We may take our leverage up slightly because of those acquisitions, but it's still going to be in our comfort range where we really don't want to go much past, on a gross basis, 30%-35%.
Carl Reichardt (Managing Director and Senior Equity Research Analyst)
Okay. The right way of thinking about this is cash goes back into land. That kind of leads me to my second question, which is based on the comments you made on the new deal, which we heard about, and some other hints you've given, my sense is that the reinvestment, as you look at it, is likely to be in the markets where you already got a reasonable presence, some size, some scale. I'm interested in the potential for you to begin to start to look outside these core markets for additional growth opportunity, given the cash you're generating and given that your concentration level is pretty high in Dallas and Atlanta, among other places.
James Brickman (CEO)
Yeah. We typically don't announce our plans, but I think it's going to be fairly well known. We have a 49% interest in Challenger Homes. It's just been a wonderful investment and a relationship with everybody at Challenger Homes. They're the second largest builder in the Colorado Springs area. Challenger expanded to Denver recently this year in some small communities. We hope to expand Trophy into Denver, where Green Brick Partners would be a land developer for both Challenger and Trophy Homes in 2022. That would be a very synergistic relationship. That guy that is the CEO of Challenger Homes ran a large mid-cap builder in Denver for 12 years. He has great land relationships there. We have good local engineering and other entitlement teams in place there. We're going to start sniffing around that market very diligently this summer.
Carl Reichardt (Managing Director and Senior Equity Research Analyst)
Great, Jim. I appreciate that. Thanks for letting us know. Just last question. Can you talk, if you haven't, I may have missed it, about how trends have looked in April and into early May in terms of traffic in particular, and also just orders? Thanks.
James Brickman (CEO)
Jed?
Jed Dolson (COO)
Yeah. Carl, the traffic has been great. We, like most builders, are limiting our sales so that we do not outpace production. We are still seeing very strong traffic and sales in April, and the pricing to go along with it.
Carl Reichardt (Managing Director and Senior Equity Research Analyst)
Okay. Thanks, Jed. Thanks, Jim. Thanks, Rick.
Rick Costello (CFO)
Thanks, Carl.
Operator (participant)
Your next question is from Alex Rydale of B. Riley.
Alex Wolodzko (VP)
Thank you. A follow-up on that last question. Since you are limiting your sales, are you suggesting that new order activity in the second quarter could be down a little bit from the first quarter?
Rick Costello (CFO)
Yes. That would be a good takeaway. I mean, we've got $1 billion of backlog, and we've started a ton of houses. We really have to pace down. We had a lot of price increases that we were able to get while we were doing all those sales in Q1, but we definitely want to catch up to our backlog, yes.
James Brickman (CEO)
It's great to hear. The first quarter was, in terms of a comp, really kind of an outrageously high comp. It was over 1,000 home sales. We intentionally could never maintain that on a consistent basis. I think it was 1,082, actually, in the first quarter. The second quarter is going to be down sequentially from that on purpose.
Carl Reichardt (Managing Director and Senior Equity Research Analyst)
Understandable. How has your build cycle time changed over the past three months, and where is it at today?
James Brickman (CEO)
It's extended about a month, Jed. Why don't you kind of—and it varies a little bit by product type. But Jed, you're our operating guy. Why don't you answer that?
Jed Dolson (COO)
Yeah. If you look company-wide, it's about seven months right now. We are seeing Trophy build significantly faster. As you see Trophy become more of a larger share of our closings, that cycle time should be going down. It really hasn't gotten that much worse in the past three months. We had a little hiccup, like everybody did with the Texas weather storms in February, where we had snow for quite some time. It hasn't changed measurably from January 1.
Carl Reichardt (Managing Director and Senior Equity Research Analyst)
Very helpful. Thank you.
Rick Costello (CFO)
Thanks, Alex.
Operator (participant)
Your next question is from Alex Barron of Housing Research Center.
Alex Barron (President)
Yeah. Thanks, gentlemen. Yeah, I guess my question was similar to the last one. Just wanted to confirm that the cycle time hadn't changed that much and that the deliveries were mainly impacted because of Texas. Are you guys pretty much caught up on delivering any of those homes and are supply chain issues back to normal, or are you guys still kind of feeling the effects of that?
James Brickman (CEO)
Supply chain issues are not back to normal. I think we're just getting more accustomed to managing that process, where we really now expect to have some bottleneck occur in our business. It is a different bottleneck at any given point in time. In the aggregate, as we said, it's extending our cycle time about a month. We think that's what the foreseeable future looks like.
Rick Costello (CFO)
Yeah. We still have some manufacturers that are dealing with material shortages and/or ramping back up some of the Texas suppliers from the winter freezes. For the most part, we are just doing a better job of ordering our materials way in advance. Like Jim said, it's about 30 days, so it's not catastrophic.
Carl Reichardt (Managing Director and Senior Equity Research Analyst)
Okay. And then second question. When you guys were talking about 20% price increases, was that meant versus a year ago, right? It was not versus last quarter. Part two is, are you guys, as a result, expecting margins to continue trending higher in the back half of the year because of those price increases?
Rick Costello (CFO)
The price increase, the relative price increases, were from price lists as of November 30th to today. Basically, a five-month period is covered by that price increase. It is quite recent. The second question, we refer to that. We do expect to see increasing gross margins based on the fact that we've been able to increase prices, which is on 100%, including land cost, which is fixed, and gross margin, versus the cost increases, which are occurring on sticks and bricks being about 50% of your house price. Our crystal ball is only as good as it can be, but what we're seeing so far suggests that we should be able to maintain an increased gross margin.
Carl Reichardt (Managing Director and Senior Equity Research Analyst)
Got it. Actually, last one, last one. What should we model in for tax rate as you guys see it for the remainder of the year?
James Brickman (CEO)
That's a really great question. I don't know, really, between Washington, DC, and other things. I would model right now, just like we are, until we know different. Obviously, there is the potential to have higher corporate taxes. I don't know whether it's going to be retroactive or what that's going to look like.
Rick Costello (CFO)
The tax rate that we're experiencing Q1 is representative of what we should have because it's after the benefit of the energy tax credits, which were extended into this year. It is obviously, like Jim's saying, on current federal rates.
Alex Barron (President)
Okay. Thank you, gentlemen. Best of luck.
Rick Costello (CFO)
Thank you.
Operator (participant)
Your next question is from Tom Bishop of BI Research.
Tom Bishop (Senior Equity Research Analyst)
Hi. You mentioned a couple of times that the growth would accelerate next quarter. Do I take that to mean Q3?
Rick Costello (CFO)
Q2.
Tom Bishop (Senior Equity Research Analyst)
That's this quarter. You meant Q4?
Rick Costello (CFO)
We're reporting on Q1, so yeah.
James Brickman (CEO)
It's a manacle, but yes. The period ending June 30th.
Good. I just want to clarify that. Also, I'm amazed that the stock's off 11% today. I'm wondering if you have—I'm sure you've thought of it, wondered why, and if you have any thoughts on that and what investors are getting wrong. I see a good report here and good prospects, and I'm really confused by that.
I was confused by it too. I think the builders were kind of down 2% overall. Seeing your own stock down 11.5%, you figure, did I say something bad on the earnings call or whatever? Yeah, I'm surprised because our backlog is unbelievably strong. Our margins are improving, and our business has never been better. The only thing I can figure out is that our stock did go up quite a bit in the last three weeks, and maybe that's just an adjustment. My job is to run a home building company. If I could figure out stock prices, I would probably have a different job title.
Tom Bishop (Senior Equity Research Analyst)
That's my job, and I can't figure it out.
James Brickman (CEO)
Yeah. Because really, our backlog has never been better. Our prospects have never been better. Our FICO scores are the best they've ever been. Our deposits, in terms of risk on the homes, have never been larger. When we do sell the homes, the likelihood of its closing has never been better. Really, everything seems to be good today until I look at the stock chart.
Rick Costello (CFO)
Tom, it's an interesting question. I think we would all say that we're a buy right now, a strong buy, but that we're also very prejudiced in that regard. I think Jed really put the story very well when he spoke about, "Hey, first we got the lots under contract, and then developed them, and then opened a bunch of communities, and then we sold just a ton of houses and built our backlog, and then we started a bunch of houses, over $1,000 a quarter for the last two quarters." You see us with 516 closings in Q1, and it's just not what a lot of other builders showed in their numbers in terms of what they closed in Q1. Just wait till next quarter is really what we can say. That's what we've been trying to say. That's what we messaged ahead of time.
I guess sell the news, I guess.
James Brickman (CEO)
Yeah. Three odd. When you take a look, we have about a $1 billion backlog. The only thing that must be implied is when we say that we don't see degradation in our gross margin, that some people are not believing that.
Tom Bishop (Senior Equity Research Analyst)
The last thing that I saw also was that the closings were a little soft. The growth was, what, 14-15%, do I recall?
Rick Costello (CFO)
Yes.
Tom Bishop (Senior Equity Research Analyst)
That definitely lagged others. Now it's going to accelerate next quarter, so maybe investors should be looking ahead instead of in their rearview mirror.
Rick Costello (CFO)
I think we'd agree with you.
Tom Bishop (Senior Equity Research Analyst)
We lost about 40 closings to weather.
Rick Costello (CFO)
Yeah.
Tom Bishop (Senior Equity Research Analyst)
Okay. Thank you. Hopefully, we'll bounce back from here.
Rick Costello (CFO)
Thanks for your question.
Jed Dolson (COO)
It's encouraging to see the insider buying as well.
Rick Costello (CFO)
Yeah.
Operator (participant)
As a reminder, if you would like to ask a question, you may do so by pressing star, then the number one on your telephone keypad. Again, that is star one if you would like to ask a question. Your next question comes from Bill Dzelum of Teton Capital.
Bill Dezellem (Chief Investment Officer and President)
Thank you. I wanted to start with the delayed closings. Would it be the correct math that the 40 delayed closings using the average price of $400,000 plus $1,000 gets you roughly $16.5 million of revenue that was pushed into the second quarter, and then we would simply take the average gross margin, or is there an incremental gross margin that's higher that we should be using so the benefit to the bottom line would have been even greater than?
James Brickman (CEO)
There's an incremental gross margin because a lot of our SG&A costs are fixed. Those incremental sales drop more to the bottom line than typically if you just take a look at our gross margin. Yeah, there should be more incremental benefit on those additional closings that would have produced more income.
Bill Dezellem (Chief Investment Officer and President)
Jim, what do you consider your incremental gross margin to be?
James Brickman (CEO)
We can't say because we don't know. It's variable depending on what that income level is. If it was $40 million, it would be even more than $20 million because we have fixed costs that are being spread over a bigger number. I'm not trying to avoid the question, but it just gets down to operating leverage.
Bill Dezellem (Chief Investment Officer and President)
Understood. Either way, there was $0.05-$0.10, probably closer to $0.10 of earnings that were pushed from the first quarter into the second quarter.
Jed Dolson (COO)
Yes. We agree with your assessment.
Bill Dezellem (Chief Investment Officer and President)
Great. Thank you. You have talked about the coming quarters seeing—I mean, it sounds like a pop in earnings. Do you see that sequential improvement to be larger in the second quarter versus the first quarter, or is there even a further acceleration in Q3 versus Q2, so you would expect that the sequential increase there to be even larger?
James Brickman (CEO)
Good question. We're hopeful that it'll be larger Q3 than Q2. We don't want to go out on a limb and say that. Obviously, the risk as you get further in the time year is you take more input cost risk in determining that profitability as you stretch the model out. Yes, we think that Q3 can be credited better than Q2 as long as input costs don't go up more than we're expecting.
Bill Dezellem (Chief Investment Officer and President)
Jim, are you answering that question in the sense of the rate of sequential growth being greater in Q3 or simply the third quarter being an absolute better quarter than Q2?
Jed Dolson (COO)
Absolutely better. We think we'll do extremely well with our Q2 results, and then we think we will exceed those as we march towards the end of the year on an absolute basis.
Bill Dzelum (Analyst)
Great. Thank you. Last question. The share repurchases, did you have any in the first quarter, and if so, what was the level?
Rick Costello (CFO)
We had none in Q1.
Bill Dzelum (Analyst)
Great. Thank you all. Great quarter.
Rick Costello (CFO)
Thank you.
Operator (participant)
We have no further questions in queue. Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.