Green Brick Partners, Inc (GRBK) Q3 2021 Earnings Call Transcript

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Green Brick Partners, Inc (GRBK -0.62%)
Q3 2021 Earnings Call
Nov 3, 2021, 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, everyone and welcome to Green Brick's Partners Earnings Call for the Third Quarter ended September 30, 2021. Following today's remarks, we will hold a question-and-answer session. [Operator Instructions] A slideshow supporting today's presentation will accompany today's webcast and is available on Green Brick Partners website, www.greenbrickpartners.com. For listeners joining us by teleconference, go to Investors & Governance, then click on the option that says Reporting, and then scroll down the page until you see the Third 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 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 third quarter earnings press release, which was released on Tuesday, November 2, 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 release that Green Brick issued yesterday and the presentation available on the company's website.

I would now like to turn the conference over to Green Brick's CEO, Jim Brickman. Please go ahead, sir.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Thank you, operator. 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 are joining us by phone today, the presentation that accompanies this earnings call can be found on our webpage at greenbrickpartners.com. At the top of our webpage click on Investors & Governance, then click on the option that says Reporting and scroll down the page until you see the Third Quarter Investor Call Presentation. I will give everybody a few seconds to do this. Our third quarter income of $48.5 million was a record for any third quarter and up nearly 40% from the prior year. Year-to-date, our net income is up 50% versus the first nine months of 2020. Thanks to a great team effort, we provided our investors some of the best returns in the industry. Our return on equity was 26.1% for the quarter, bringing our year-to-date return on equity to 24%, which compares to 19.9% year-to-date 2020. After we saw the huge upward shift in demand in June 2020, our land teams did a fantastic job of quickly pivoting to acquire well-located land. As a result, during the last 12 months our lot position grew over 100% to 24,354 owned and controlled lots. While these additional 12,000-plus lots acquired over the last year did not meaningfully contribute to our bottom line in 2021. These lots will contribute to us growing significantly in the future -- in our future earnings. Our gross margin reached 26.9% this quarter, up 580 basis points from two years ago, up 210 basis points from the prior year quarter and up 150 basis points from the first quarter of 2021 and up marginally compared to the last quarter as Green Brick achieve pricing power in our core markets of Dallas-Fort Worth and Atlanta. In order to capitalize on rising prices and demand, we have pace sales by limiting our available homes for sale to generally those where the slab is at least poured.

We have also achieved price increases in excess of input costs. We believe this focus on price over pace will sustain our industry leading margins and strong financial performance. With our record 1 billion backlog, leading margins and superior lot position, Green Brick is extremely well positioned to grow our business in 2022 and beyond. At the end of the third quarter, we now have a record 830 -- 863 spec homes under construction, which is up nearly 50% year over year, included in our record 2,555 homes under construction. Most of our homes under construction should convert to closings over the next three quarters. The sale and closing of the increased number of spec homes will allow us to capture the most current price increases and to maximize our profitability. 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 this 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 the growth of our Trophy Signature and CB JENI brands. As we have discussed in previous earnings calls, Green Brick 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. If you turn to slide five, we highlight some of our financial results. Since 2015, we have grown our revenues at a compounded annual growth rate of 27.4% from just under 300 million in 2015 to just over 1.2 billion over the last 12 months. Over that same period Green Brick has grown our bottom line pre-tax income and an even better compounded annual growth rate of 44.3% as we have improved margins, added financial services, instituted national purchasing, simplified our ownership structure and gained overhead leverage.

Our current quarter residential growth of 28.4% and pre-tax income growth of 39.3% falls right in line with our historically high compounded annual growth patterns. This current year growth is not surprising since we have sustained this growth since Green Brick went public in late 2014. We aim to achieve the best risk adjusted returns possible for our investors for the third quarter and had a 26.1% return equity. Third quarter gross margin of 26.9% are some of the best in the industry, while we maintained one of the lowest debt to capital of homebuilding peers at 31.9%.Just last week, Green Brick was given the rank of number 19 on Fortunes fastest growing companies list for 2021. This is up 36 spots from last year and positions Green Brick as one of the fastest public builders. We continue to focus on growing our business responsibly with high quality communities and low leverage in markets where Green Brick operates, and we get the benefit of significant economic and demographic trends, which we will discuss in more detail in the next few slides. Slide six quantifies the strong population growth over the past decade seen in Texas, Colorado, Florida, and Georgia for the 2020 census data. Out of the 25 largest states in the United States, these four states show some of the highest percentage increases from the population 10 years ago. Texas led the nation with its resident population expanding just under four million people in the last decade. Colorado, Florida and Georgia all show double-digit growth over the same time period, while the population for the US grew only 7.3%.We believe this positive population growth is evidence that our concentration in the Sunbelt and Sunbelt adjacent lower tax state is a winning strategy.

We expect that in migration to these states from California and the Northeastern United States and the very strong demographic profiles of the Sunbelt will continue to generate positive population growth for many more years to come, and will preserve the robust housing market for us in future years. Slide seven, we highlight the economic growth of our core markets and present the decline in active homebuilding listing seen in September 21 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 of this page, Atlanta and Dallas-Fort Worth have remained remarkably resilient, with Atlanta and Dallas-Fort Worth achieving the lowest unemployment rates in August 2021. It is evident that our core markets should 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 the Dallas-Fort Worth and Atlanta had the second and third largest 12-month decline in active listings as of September 30, 2021 of the 10 largest MSAs with listings down 34% and 28%, respectively. This remarkable drop in listings is evidence of the booming housing demand in our markets and is an indicator of the pricing power Green Brick has in 2021 to capitalize on inventory shortages of existing homes. We believe this imbalance between housing demand and supply in our markets will persist through 2022, and provide Green Brick with continued pricing power to offset rising input costs. With 90% of our ending active selling communities in DFW and Atlanta, we believe that Green Brick is well-positioned to succeed in Q4 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 land position. Jed?

Jed Dolson -- Chief Operating Officer and Executive Vice President

Thanks, Jim. On slide eight, we demonstrate how our investment in land has translated to an increased capacity to generate topline 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. Year-to-date, our lots owned and controlled increased by 9,886 to end at 24,354 total lots, a new all-time high for the company. This is a 68% increase from the start of the year. After including land under option and lots option through joint ventures, we expect about 90% 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 Green Brick'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 nine provides additional detail on the attractive submarkets in DFW and Atlanta where our lot supply is located. Now, follow me to slide 10 and you will see that our communities and lots under development hit new highs this quarter. With 55 communities under development versus 42 last quarter, our land pipeline is well-established to meet our continued growth trajectory over the next several years. These lots under development will shift toward the entry level market, with over one-third of the lots under development located in more affordable submarkets. In the next three months, we expect to complete and release roughly 900 lots to our subsidiary homebuilders for new housing starts. During fiscal year 2022, we expect to accelerate our delivery of finished lots by finishing 3,700 lots during the year. With both our long-term and short-term land needs met, we have visibility for growth at least fiscal year 2023.

Slide 11 highlights our ending units under construction. Our units under construction are up 44% over the past nine months and up 88% over the last 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, where we increased its Indian units under construction by 255% during the 12 months ended September 30th, 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. Our Q3 2021, home closings saw an average FICO score of 747, with 84% of our fundings exceeding a FICO score of 700 per data from Green Brick'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 will -- 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 for low risk buyers, all while maintaining a conservative debt to capital ratio and achieving industry-leading margins. To provide some additional context for the strong results this quarter and take a more detailed look at how our Trophy brand is well established for future growth. Please turn to slide 12 of our presentation, which gives an in-depth look at Trophy share of Green Brick's performance metrics through September 30, 2021. As you can see on this slide, Trophy's percentage of home closings has grown by 15% from 20% of our full year closings in fiscal year 2020 to 36% for the nine months ended September 30, 2021.

However, with 39% of our starts this year and 61% 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 our lots owned and controlled allocated to Trophy has increased nearly 148% from a year ago, it's important to note that the nearly 15,000 lots shown as of September 30, 2021 includes two communities with more than 1,000 lots each that will have a much longer lifecycle. So excluding these two communities, Trophy's share of existing lots is 51%, which is still 15% higher than Trophy's 36% share of our home deliveries these past nine months. One of the main ways we mitigate risk in these larger, longer life communities is buying land in sub markets at very attractive, very affordable prices. In future phases of our own block deals, not included in our 55 communities under development, we have approximately 6,600 lots at a basis of under $6,300 per favor lot, which is substantially below replacement costs today. Most of these also have muds or pits that further reduce our cost of capital and development risk. Slide 13 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 subsidiary, next year in terms of lot count per community, we are 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 cycle time by roughly 12% and allows for more efficient inventory turnover and stronger financial results. Finally, Trophy has seen an outsized improvement in its gross margin over the last 12 months, increasing by 410 basis points. This growth exceeds by 140 basis points our consolidated margin improvement of 270 basis points for the same period year-over-year. 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.

Next Rick Costello, our CFO will discuss our third quarter and annual results in more detail. Rick?

Richard A. Costello -- Chief Financial Officer

Thanks, Jed. And thank you all for joining us to review our 2021 third quarter financial results. Slide 14 of our presentation shows the continuation of our high levels of year-over-year growth in our home closings and home closings revenue. Year-to-date, our closings have grown by 24%, while related revenues grew 31% year-over-year. Quarter-over-quarter, our closings grew by 19% and our home closing revenues grew by 29%.While side 14 looks at our historical closings in revenues, slide 15 points and pivots to our future closings and shows the year-over-year increases in net new orders and a record backlog. While net new orders are up 52% versus the first nine months of 2020, our Q3 2021 net orders were down 16%, as the company metered sales to better match construction schedules and buyer expectations and improve our ability to capture price increases throughout the construction cycle. Interestingly, with our average sales price of $542,000 in net new orders, is up nearly 22% in Q3 on a year-over-year basis, our sales revenues for net new orders in the quarter was up 2% over last year, despite the 16% drop in order numbers. Year-to-date sales revenue is up 34% with orders up 17% and the average sales price up 15%.The absorption rate per average active selling community per quarter of 8.8 homes during the nine months ended September 30, 2021, exceeds the 6.9 net new home orders per quarter during the nine months ended 9/30 of 2020 by 27.5%. That said, our absorption pace in Q3 of 2021 of 8.2 net homes per quarter is over 50% higher than Q3 of 2019, two years ago. By metering sales during the last six months, we've been able to increase our spec homes under construction by nearly 50%, which will enable us to capture ongoing price increases and to maximize profitability.

We're now limiting sales to homes that have at least a slab poured. Our mix of homes under construction is now at 34% spec homes at 9/30/21, which is up from only 28% as of March 31 of this year, but so far below the 44% spec level as of the end of last year. Likewise, our Q3 2021 ending backlog is up 84% from a year prior, with our backlog average sales price up 21%. We will continue to limit our sales pace, begin to reduce our backlog and increase our level of spec inventory in the coming period. Bottom line, we're holding back homes for sale. So we have a better mix of pre-sold backlog homes versus specs. We believe that any noted decline in new orders reflects these efforts rather than changes in demand, which remains very strong. We think improving our mix will lead to more efficient operations, higher margins and 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 of completion. 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. Let's move to slide 16 related to our financial highlights. Adjusted gross margin for Q2 2021 was up 210 basis points over the same quarter of 2020 and adjusted gross margin was up 160 basis points quarter-over-quarter. For the nine months ended September 30, 2021, homebuilding gross margin and adjusted homebuilding gross margin were up 270 basis points and 230 basis points respectively from the same prior year period. We believe that our focus on price over pace will continue to sustain our industry leading gross margins.

Turning to operating leverage, our SG&A expense improved by 80 basis points at 9.8% for Q3 of 2021 with the prior year quarter at 10.6%. Our year-to-date, Q3 ratio of SG&A expense to total revenues of 10.2% improved by 110 basis points from 11.3% for the prior year. With increasing top line revenues expected in Q4 2021, we expect quarterly and full year operating leverage to continue to improve. Our interest coverage of 17.9 times year-to-date was 22% higher than the same prior year period. Our strong interest coverage clearly demonstrates our capacity to generate positive cash flow well above our needs. Our bottom line Q3 2021 diluted EPS of $0.95 was a record for any third quarter and represents a 40% increase over Q3 of 2020, far outpacing our total revenue growth of 24%. For the nine months ended 9/30 of 2021, our diluted EPS of $2.48, was up 49% from the prior year period. Now, as you will recall during 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 which has grown 61% year-to-date over the first nine months of 2020. And finally, our annualized net income return on average book equity is strong this quarter of 26.1% and for the year increased an additional 100 basis points to reach 24% year-to-date. So combined with our low debt leverage, our risk adjusted returns are truly remarkable. Our focus on high quality communities that drive our industry leading gross margins and impressive returns to shareholders is even more evident in our performance over the last two years as we show on slide 17.

This is a new chart that shows since Q3 of 2019, our gross margins have improved 580 basis points to 26.9% with eight consecutive quarters of increase. That's a 27.5% increase from 21.1% in Q3 of 2019 and is driven remarkable earnings growth during that time. On the last 12 months basis, net income has grown 66.8% annually over the last two years from $56.1 million in Q3 of 2019 to $156 million in Q3 of 2021. We've achieved this growth while maintaining a conservative balance sheet and have redeployed our earnings into a robust land pipeline that has grown our lots owned and controlled by 100% over the last year, which positions Green Brick for growth in 2022 and beyond. Please move to slide 18 of our presentation where we compare our Q3 2021 gross margins with available peer data. Our gross margin reported for the quarter was 26.9% and 26.5% year-to-date. This chart demonstrates that this 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 our gross margins to remain among the best in the industry as we focus on maximizing profitability by limiting pre-sales and increasing spec homes. Slide 19 visually demonstrates that we have grown our revenues and provided stable earnings by concentrating on several homebuyer segments. For the nine months ended 9/30/2019, two segments accounted for about 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 nine months of this year.

For the nine months ending September 30, 2021, our entry-level segment plus our first time move-up segment, now combined to represent 35% of home closings revenues, an increase of 1,600 basis points over two years ago when they combined to represent just 19% of home closings revenues. The expansion of our more affordable inventory was created through intentional reallocation of more capital to our Trophy Signature Homes brand. We expect to continue to expand our entry level segment, which we believe should position Green Brick to capture an even greater portion of today's housing demand. Please turn to slide 20. 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 have provided six measures, five of the measures covered the 12 months ended 9/30/2021 or the nearest period, growth in homebuilding revenues, gross margin percentage, interest coverage, pre-tax income return on invested capital and growth in lots owned and controlled and the other measure, which is debt to capital is as of a point in time, 9/30/2021. With the strength of Green Brick 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 margins succeed even some large cap peers as we discussed earlier in our remarks. Our returns on capital are even more impressive when you consider our pure leading growth in lots supply, as most of these lots will not produce income until 2022 and beyond. Lastly, please look at slide 21, which focuses on our lower leverage. We were able to achieve our record setting results, while maintaining one of the lowest debt to cap ratios among small cap and mid cap builders and growing our land and lot positions by 100% over the last 12 months.

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?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Great. Thanks, Rick. Really great results this quarter, or the culmination of years of diligent planning and hard work by our subsidiary builders in our corporate team. We believe that the results achieved this quarter are just the next step in Green Bricks remarkable growth story, as the company swiftly moves to materially exceed $1 billion in revenues this year. We believe Green Bricks prospects for continued top-line and bottom-line growth are truly unrivalled in our industry.

I'll now turn the call back over the operator for your questions. Thank you.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from line of Michael Rehak [Phonetic] with JPMorgan. Please proceed with your question.

Maggie Wellborn -- JPMorgan -- Analyst

Hi. This is Maggie on for Mike. Thanks for taking my questions. You talked about your focus on price over pace and also pointed to the continued pricing power that you're seeing. Could you talk about this quarter the pace and magnitude of price increases maybe compared to earlier this year? And looking forward how you're thinking about the potential for further price increases particularly, being mindful of affordability as you can take continue to pivot toward the entry level segment.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Sure. This is Jim Brickman. Obviously, this is a major topic that everybody wants to discuss. And Jed Dolson, our Chief Operating Officer is probably best prepared to really answer that in detail because he deals with this question on almost a daily basis with our builder. So Jed, do you want to talk about price versus pace pricing strategy or margins?

Jed Dolson -- Chief Operating Officer and Executive Vice President

Yes, Maggie, we were very aggressive our price increases this quarter in Q3 more so than in Q2 Two. And we think those results will show up later in further quarters.

Richard A. Costello -- Chief Financial Officer

And hey, Maggie, it's Rick. Thanks for your question. And also, just in terms of magnitude, our backlog ASP grew by 7%, from quarter to quarter. And that was largely driven by the ASP on our new orders, which was up by 10%, from Q2 to Q3.

Maggie Wellborn -- JPMorgan -- Analyst

Got it? Thank you. And then the second question is, on your gross margin outlook over the next couple of quarters. Can you remind us when you expect to see peak lumber costs flowing through the P&L and then also talk about how you're thinking about other inflation into 2022? And then lastly, at your Investor Day, you highlighted some of your programs in operational efficiency -- initiatives that are helping you manage through the current environment. So, you could you talk about how those are also factoring into your outlook over the next couple of quarters?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Sure, Maggie. This is Jim Brickman. Most of the lumber cost, the big lumber price increases, we're going to run through the income statement by the end of the fourth quarter. Really, the challenge right now is what's happening, are we going to give up some of those lumber cost benefits as lumber prices they retreat slower than they then they go up. But we're going to give some of those increases back next year? And we're watching that very closely. We think we read prices nicely where we can still have margin growth. Next week, for example, Jed and I are talking to all of our division Presidents and each one of our purchasing departments and operating managers and we are -- we have basically nine stages of construction. We're going through each stage of the construction and reviewing input cost today and projections tomorrow. And really, it's just an ongoing process. We feel good about it, but it's very volatile.

Maggie Wellborn -- JPMorgan -- Analyst

Got it. Thank you.

Operator

Our next question comes from line of Susan Maklari with Goldman Sachs. Please proceed with your question.

Charles Peron -- Goldman Sachs -- Analyst

Hey, everyone, this is Charles Peron [Phonetic] in Susan. Thanks for taking my questions. First, I would like to talk about the land market and what you're seeing in there? Seems like you were able to secure further your land position this quarter and to support growth for the coming years. But can you talk about the competition that you're seeing for those lots, both from the public and the private builders? And how does this impact the margin trajectory in the coming years?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Okay, Charles. This Jim Brickman. I'm going to take that at a high level and then try to answer it a little bit more on a granular level. First of all, my job as CEO is to manage risk, and create a culture that manages risk. And I think we've done a really good job of doing that. And we're going to continue to do that. At the same time. You know, we recognize the profit starts with land, and the greatest risk is in land. And I'd like to leave kind of our audience with two points about off balance sheet, land banking risk, margin return. And one is that, land banking comes at a very high cost of capital. Two is that, land bankers are some of the smartest people in the homebuilding space. And three, I've been really perplexed by this. And that is that the idea that to please Wall Street that land risk can be magically shifted to land bankers, that are some of the smartest people in the room, I think, is a little disingenuous. Lots are very low supply in all of our markets. There are very few developers in our markets. We have been the biggest land developer in our markets for a very long time. And we are going to use our strong balance sheet, low lot supply to continue to develop lots because generally, we think these lots are going to provide at least a 5% margin advantage over auction lots. So does that answer your question and kind of a broad basis and a margin basis?

Charles Peron -- Goldman Sachs -- Analyst

Yeah, yeah -- it does. I appreciate the collar on that, Jim. And then my follow up. I was wondering if you can talk a little bit more about the supply chain -- mix that you've seen over the quarter. Obviously, a lot of your competitors have reported a very challenging supply chain environment right now. But I will be curious to know how it is impacted your business over the course of the quarter. And where do you see the most pressure right now?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Jed, why don't you take that?

Jed Dolson -- Chief Operating Officer and Executive Vice President

Yes, Charles. The biggest problem with the supply chain right now is the lack of predictability about what is going to be the next shortage, whether it be labor or material. So just the uncertainty about what is around the band, after we finished the next stage of construction. We are ordering materials way in advance now. We have labor lined up way in advance. But frankly, labor is having to touch the homes more frequently, they're having to come back on return trips, because they don't have all the materials that are needed when they make the first trip out. So it's in material barriers shortage -- material shortages vary market-by-market. For example, in Atlanta, we are having cabinet and window issues. In Dallas, we're having less of that. But we're having more brick shortages here. So it's really a sub-market by sub-market issue.

Charles Peron -- Goldman Sachs -- Analyst

I appreciate the color. Thanks for the time and good luck.

Jed Dolson -- Chief Operating Officer and Executive Vice President

Thank you.

Operator

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

Carl Reichardt -- BTIG -- Analyst

Thanks. Hey, Jim, Rick, Jed. Hope you are all well. I had a couple for you guys, one on deliveries. Was there -- if you look at your internal budget for 3Q, did you have some deliveries that shifted out of 3Q into 4Q due to those delays, Jed? And then second, you mentioned of the 2,500 plus homes that you have under construction, you thought most of those would close in the next three quarters. I'm just trying to get a definition of most, is 90% kind of the right numeric to attach the most?

Jed Dolson -- Chief Operating Officer and Executive Vice President

Yes. This is Jed, Carl. Yes to answer your last question first. Yes, you could assume 90% of the 2,500 will close in the next three quarters. And on -- and then yes, we did have several last minute material shortages. We had a lot of flooring issues in Dallas in Q3 that did push some closings into Q4.

Carl Reichardt -- BTIG -- Analyst

Okay. Thank you. And then on orders. Could you talk about maybe the percentage of communities that your metering sales instill and it seemed to me that your order is actually from an absorption or community perspective will be pretty good. There I mean, there are up. And so sort of anti-seasonally in 3Q weeks we've heard or they're obviously we've seen other builders whose numbers have been sort of off anti-seasonally. I'm just kind of curious your thinking on whether or not the orders surprise you to the upside given the metering, given the price increases and given the relatively flat communities sequentially?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Let me kind of answer that a backwards way in that. Q3, we were a little disappointed with our cycle time. We thought with the drier weather, we would have finished more homes like we just alluded to, but we had labor and material shortages that prevented that. So I think as you look forward in Q4, I think you'll see us tap the brakes a little bit on sales compared to Q3. As you mentioned, we sold more homes in Q3 than we did in Q2 of this year. So, Q4 we're going to tap the brakes a little, the demand is off the charts, strong. We're metering sales in 80% plus of our communities.

Jed Dolson -- Chief Operating Officer and Executive Vice President

And again, we have a lot more spec inventory that's going to be available to sell the first and second quarter of 2022.

Carl Reichardt -- BTIG -- Analyst

Okay. Thanks Jed and Jim. And then last on pricing, are you noting in your sense -- Jim kind of may alluded to this in terms of specs, but is your sense that your pricing power in Trophy signature right now is greater than it is in the remainder of the brands and products? And then like I asked almost every quarter, any sense as to whether or not you're looking at expanding Trophy signature more aggressively sooner in the market outside Dallas? Thanks.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

No, our greatest pricing power is in the very supply constrained markets like Frisco, Alpharetta -- Frisco, Texas; Alpharetta, Georgia where we are the largest builder in those sub markets, and there's very limited competition from other builders and unbelievably, low existing house supply. So, that's where really we have unbelievable pricing power. At Trophy, it's still very good. Jed can talk more about limiting sales, but what we do when many Trophy communities is, we'll say, well, we're going to only take four or five sales and just limit sales after that totally. But take those four sales and obviously, the highest margins we can harvest.

Jed Dolson -- Chief Operating Officer and Executive Vice President

Other markets?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Other markets, unbelievably strong. Colorado Springs--

Jed Dolson -- Chief Operating Officer and Executive Vice President

Expansion of Trophy--

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Yes, on the expansion of Trophy, we are -- we continue to really keep our eye on two markets. And we think we're making good progress in those two markets.

Carl Reichardt -- BTIG -- Analyst

Okay, thanks guys. Appreciate the time as always.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Thank you, Carl.

Operator

Our next question comes from line of Alex Rygiel with B. Riley. Please proceed with your question.

Alex Rygiel -- B. Riley -- Analyst

Thank you for taking my question. As it relates to average selling price, if we look out over the next few quarters, given the product shift, how should we model that?

Jed Dolson -- Chief Operating Officer and Executive Vice President

Alex, this is Jed. Was the question, how should we model average sales price over the next few quarters?

Alex Rygiel -- B. Riley -- Analyst

Yes, you know, average selling price for the total company, understanding that there's going to be some mix shift in there over time?

Jed Dolson -- Chief Operating Officer and Executive Vice President

I think it'd be pretty consistent with what we're seeing right now in our new orders. I mean, you can really take a lot out of the overall trend and the backlog dollars, which is on an ASP basis is up year-over-year now 21%. And that's for the near-term, the general direction, that you should see our prices travelling. I mean, it's not to suggest that it's going to fully go up that distance, because it's come a long way so far, but directionally, it's been pretty, pretty smooth on that basis.

Alex Rygiel -- B. Riley -- Analyst

The modelling question--.

Richard A. Costello -- Chief Financial Officer

Alex, just to put some numbers to that. I would just say in Q1, our ASP was approximately 420 and we see a pathway for that getting to around 500.

Alex Rygiel -- B. Riley -- Analyst

That's helpful. And then as we think about an effective tax rate for 2022. I assume it could be slightly higher than this year, any broader thoughts on that?

Richard A. Costello -- Chief Financial Officer

Well, certainly depends on if anything happens coming out of Washington. But absent that, we should continue on. If the tax credits are the same, it would be at the 23.5% the tax credits are certainly moving target right now in Washington.

Alex Rygiel -- B. Riley -- Analyst

Thank you.

Richard A. Costello -- Chief Financial Officer

Thanks, Alex.

Operator

Our next question comes from line of David Papson with CDT Capital. Please proceed with your question.

David Papson -- CDT Capital -- Analyst

Hi, and good afternoon, everyone. My question is regarding the guidance for finished landlords, for 2022. Looks like it's come down quite substantially quarter-over-quarter with that expectation, there's not a 900 lot Delta. Just kind of curious, what kind of causing that? Is it really just supply chain loads and labor works -- is a bit helpful?

Richard A. Costello -- Chief Financial Officer

Well, David -- our communities that we do deliver they are -- as we mentioned, they're continuing to increase the number of lots. We did you know, we're, we're seeing development delays, just like we're seeing homebuilding delays. So we have from a community count perspective, we did see community account just dip a little bit. But those communities are higher velocity, higher number of lot communities, which we had forecasted. So we -- as I think we gave some pretty good numbers during our -- during the call about what we you know how many loss -- anticipate delivering over the next three to four quarters.

Jed Dolson -- Chief Operating Officer and Executive Vice President

Yeah, David, that delta is certainly was a function of communities going from the end of Q4 of 2022 to the beginning of Q3 2023. So it wasn't a big delta, it was one community basically

David Papson -- CDT Capital -- Analyst

One community. All right, that's helpful. And then just going forward, I guess, more broadly, is the company more in terms of growth of acquiring new land? Is it -- is the company more in growth mode? Is it in state stability mode is a kind of harvesting mode now that the number of laws in inventory has doubled? Any guidance around, what we should expect for land acquisition going forward? Maybe not specific numbers, but incremental numbers might be helpful?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

This is Jim. Well, first of all, I think we pivoted very quickly and alertly after, as we said in the call in May and June of 2020, and moved on a lot of land positions ahead of the pack. So we're in a really good position in terms of lots in 2022 and beyond. So we don't need to be aggressive on the land side to allow significant growth in our homebuilding revenues. We don't predict what that growth is going to be. But we have the lock position, and the price position on those lots of we're bought opportunistically to grow our business. And we're just going to continue to manage that the best we can.

David Papson -- CDT Capital -- Analyst

That's helpful. Thank you for taking my question.

Operator

Our next question comes from line of Bill Dezellem with Tieton Capital. Please proceed with your question.

Bill Dezellem -- Tieton Capital -- Analyst

Thank you. I want to start out just by asking you to repeat what you said about the fourth quarter revenues versus the third quarter revenues, if you would please, and any additional color you'd like to put around it?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Rick?

Richard A. Costello -- Chief Financial Officer

Hey, Bill. This is Rick. We really just said that we expect sequential revenue growth from Q3 to Q4. We really didn't provide any incremental color than that.

Bill Dezellem -- Tieton Capital -- Analyst

And you don't want to take this opportunity now to do that?

Richard A. Costello -- Chief Financial Officer

Nope.

Bill Dezellem -- Tieton Capital -- Analyst

Alright, fair enough. I thought I'd give you the opportunity, anyhow.

Richard A. Costello -- Chief Financial Officer

Sure.

Bill Dezellem -- Tieton Capital -- Analyst

So let me jump to home price. And really, you'd answered the question, I think, very early on in the Q&A, but I wanted to make sure that what we're seeing in terms of the backlog price being up or higher than the homes delivered price, that that is really a function of pricing in the market, rather than the mix of homes; meaning fewer starter homes, more second time move up, etc., or anything like that. It -- did we understand that correctly?

Richard A. Costello -- Chief Financial Officer

Yes. This -- it's a Rick, again, Bill. Our backlog ASP is up 22%, which is greater than the units are up. You can see, that's a trend indicator, if you will. It's not that the ASP is going to get to that level, because if you look in our history, it's indicative of the actual homes that are in backlog, not the entirety of our mix, because you will always have backlog with some of the more custom homes, populating your backlog, your built-to-suit jobs, etc., of Southgate Homes, etc.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

And Bill, this is Jim. Really, we don't expect people to track community by community by neighborhoods. But really, if we think for the next 90 days, if you tracked some of our Frisco communities with Trophy or our Alpharetta communities with TPG, you can actually just watch those prices increase pretty significantly in those neighborhoods.

Bill Dezellem -- Tieton Capital -- Analyst

So, bottom line, part of what we are seeing with the backlog of prices being above homes delivered prices is price. Part of it is also a function of -- well, and I presume, even will be more of a function going forward of the number of spec homes, which will influence that price of homes delivered relative to backlog also.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Yes.

Bill Dezellem -- Tieton Capital -- Analyst

Okay, that's helpful. And then lastly, when are you anticipating that your start will begin to ramp again, is looking at the -- at the chart where you're showing your lots purchased or excuse me, a lots owned and controlled. And that's been increasing for a while. But in the past you have said there's a couple year lag, but I think you've done some things to accelerate that, would you put all those pieces of the puzzle together for us and help us understand when you -- when you're anticipating that start curve to turn up?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Well, we don't predict starts in the future. But I can tell you that, you know, the backlog is huge, it's kind of picked through the Python [Phonetic] until we get the backlog starting to reduce materially and closings, just because of capacities internally with our own builders and externally with a subs and vendors. We don't want to start more homes, because we're just competing against ourselves.

Bill Dezellem -- Tieton Capital -- Analyst

Thank you all for the perspective.

Operator

Our final question comes from Alex Barron with Housing Research Center. Please proceed with your question.

Alex Barron -- Housing Research Center -- Analyst

Thanks, gentlemen. Just wanted to ask in terms of limiting sales to fix the backlog, is that something you think is just going to go through the end of this year, or do you think it will extend into the early part of next year as well?

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

I think that's a great question. And I wish I could give a good answer. This is Jim. And I really think what we're monitoring very closely is the capacity of our sub base and our trade base. And that's going to really dictate the answer to your question. We just don't know that yet.

Alex Barron -- Housing Research Center -- Analyst

Got it. And I'm not sure if I missed it. But do you guys give a number as far as how many homes you guys started this quarter? And just trying to get a sense of, you know, how many -- how much you're trying to start ahead of sales versus sales.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Yeah, we're pulling that for you right now.

Richard A. Costello -- Chief Financial Officer

You can usually divide that when you see our ending units under construction, you would add the starts and subtract the closing, since you know the beginning and ending and the closing, so you can kind of induce it. But the starts in Q3 were 807.

Alex Barron -- Housing Research Center -- Analyst

Got it. Thanks and best of luck.

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Thank you. Appreciate it.

Operator

[Operator Closing Remarks]

Duration: 58 minutes

Call participants:

James R. Brickman -- Co-Founder, Chief Executive Officer and Director

Jed Dolson -- Chief Operating Officer and Executive Vice President

Richard A. Costello -- Chief Financial Officer

Maggie Wellborn -- JPMorgan -- Analyst

Charles Peron -- Goldman Sachs -- Analyst

Carl Reichardt -- BTIG -- Analyst

Alex Rygiel -- B. Riley -- Analyst

David Papson -- CDT Capital -- Analyst

Bill Dezellem -- Tieton Capital -- Analyst

Alex Barron -- Housing Research Center -- Analyst

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