Earnings Call Transcript - GRBK Q3 2020

Operator, Operator

Good afternoon everyone and welcome to Green Brick Partners Earnings Call for the Third Quarter ended September 30, 2020. 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 at www.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 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 2020 and the future. Investors are cautioned that such forward-looking statements, with respect to revenues, earnings, performance, strategies, including but not limited to, comments related to the anticipated impact of COVID-19 on our future operations, prospects and other aspects of the business of Green Brick Partners, are based on current expectations and are subject to risks and uncertainties. Those factors could cause actual results or outcomes to differ materially from those expected, as set forth in our press release, which was released on Thursday, October 29th, 2020 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 the 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 over to Green Brick's CEO, Jim Brickman. Please go ahead sir.

James Brickman, CEO

Thank you, operator. Hi everybody. I hope this call finds you well. With me is Rick Costello, our CFO; and Jed Dolson, our COO. Thanks for joining the call. As the operator mentioned, the presentation that accompanies this earnings call can be found on our webpage at greenbrickpartners.com. At the top of the web page, click on Investors and Governance then click on the option that says Reporting, and then scroll down the page until you see the third quarter investor call presentation. I'll give everybody a second to do this. The inflection that started more than a year ago accelerated this quarter. We are seeing unprecedented demand for our homes, as many people adapt to a post-COVID lifestyle. People want to own their own spaces, have a home office, and grill for their family and friends in their own backyard. Our neighborhoods offer these homes at reasonable price points in some of the best and most diversified growth markets in the country. We are benefiting from rapid growth and successful expansion of our Trophy Signature Homes brand in the DFW market. Our net new home orders this quarter were up 89% year-over-year, and 41% sequentially from Q2 2020. This was driven by order growth at every price point from entry-level to second-time move-up home buyers. With demand for new quality homes at the highest levels in more than a decade, Green Brick has successfully continued to expand its community count, growing 18% from the prior year. At the same time, Green Brick has grown profitability managing pace and price, as we increased our Q3 2020 sales absorption by 58% and gross margins by 370 basis points year-over-year to 24.8%. We have leveraged our much higher volumes with only moderate growth in operating expenses to drive earnings per share to a record quarterly basic EPS of $0.69, up 123% over Q3 2019. Over the past three months, our company has grown our owned and controlled lots over 31% to an all-time record of 12,066 lots, which is net up starts during the quarter, which also set a record of over 700 homes started during the third quarter. Thanks to the hard work of our land team and our strong relationships with land sellers and municipalities in our core markets, Green Brick has been able to quickly and efficiently invest its strong operating cash flow into investments in land to fund our future planned growth. It is important to note this record growth in land and lots was achieved while actually decreasing our debt-to-capital ratio by 250 basis points from Q2 2020 to 25.3%. This is one of the lowest of all public builders. The combination of our consistently strong growth and profitability with our conservative balance sheet has been critically important in building our relationship with Prudential Private Capital, resulting in our second issuance of senior notes this August. This $37.5 million senior unsecured note was issued due in 2027 at a fixed rate of 3.35%, a rate comparable with that of long-term rates paid by low-leveraged large-cap peers. The low cost of our debt clearly distinguishes Green Brick from our small-cap and mid-cap peers and we believe will allow for further expansion in our core markets in 2021. Please flip to Slide 4 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 growth in our Trophy Signature and CB JENI brands. As we discussed in our Q2 2020 earnings call, Green Brick now operates under a much simpler owner structure than seen in the past. For the nine months ending September 30, 2020, over 66% of our total revenues were generated through wholly-owned subsidiaries compared to only 5% for the nine months ended September 30, 2019. Driven by increased ownership in our Southgate, Centre Living, CB JENI, and Normandy brands, as well as the expansion of Trophy Signature Homes, this increased control has allowed Green Brick to adapt quickly to the booming demand for our new homes and rapidly respond to new challenges as they arise. Slide 5 announces Green Brick’s second consecutive recognition on Fortune Magazine’s 100 fastest growing companies. This year shows Green Brick jumping 38 spots to 55th place. And there's an excellent acknowledgment of Green Brick’s tremendous growth story. On Slide 6, we highlight the resilience of our key markets in Dallas-Fort Worth and Atlanta. 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 earlier in the year. However, as shown on the graph on this page, our DFW and Atlanta markets ended the quarter with the lowest and second lowest unemployment rates out of the ten largest metropolitan areas in the United States. Additionally, the Dallas-Plano and Irving submarket had the lowest year-over-year increase in its unemployment rate of the 38 metropolitan subdivisions in the nation. With 85% of our ending active selling communities in these core markets of DFW and Atlanta, we believe that Green Brick is fully prepared to capture more new homebuyers in these markets as demonstrated by a robust 89% year-over-year sales growth from Q3 2019 to Q3 2020. We believe the strong bounce back from the lows seen in April 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. Thanks to the superior and economically diversified markets where we operate, Green Brick is poised to capitalize on what we believe are long-term positive shifts in homeownership. As seen on Slide 7, the national homeownership participation rate has risen since the Fed began reducing interest rates in August 2019. As of September 30, 2020, the national home ownership rate now sits at 67.4%. Sustained homeownership rates above 67% have not been seen in over a decade, indicating there is a clear secular shift taking place toward homeownership. With interest rates expected to remain low for the foreseeable future and an increased appreciation and demand for larger, energy-efficient, fresh-looking homes with dedicated work-from-home spaces, we fully expect this positive trend to continue. Strikingly, this quarter saw the homeownership rate of buyers under 35 increase by 270 basis points from the third quarter of 2019 to 40.2%, and decreased only 40 basis points from the 40.6% seen in Q2 2020. This quarter represents the first time the homeownership rate has exceeded 40% for two consecutive quarters since 2008. Millennials currently represent the fastest growing ownership segment, and we believe this age group will continue to drive further increases in overall homeownership. While this trend will be constrained by the available supply of housing, we believe that this higher ownership rate, especially related to younger homebuyers, should at a minimum be considered the new normal. With homeownership of buyers under 35 still 340 basis points below its peak in the mid-2000s, we feel this shift represents a true secular change in the homebuilding marketplace and that Green Brick Partners is fully prepared to address this growing market. Jed Dolson, our Chief Operating Officer and Executive Vice President, will now speak in greater detail to the growth drivers and our land position. Jed?

Jed Dolson, COO

Thanks, Jim. Take a look at Slide 8 titled growth drivers, which demonstrate that Green Brick still has a long pathway towards future growth. On a last 12-month basis, total revenues from Q3 of 2018 to Q3 of 2020 have grown 65% over that two-year period. Additionally, our backlog grew 79% to $553 million as of September 30, 2020. These improvements indicate that Green Brick is positioned to capitalize on the booming demand for new homes and is already capturing waves of new buyers. During these last 24 months, we also increased our lots owned and controlled by 49% and grew the average number of selling communities by 51%. In fact, in the last quarter alone, Green Brick added 3,600 lots to our inventory of lots owned and controlled while Trophy Signature Homes opened 12 new selling communities. With our dramatic growth in lots owned and controlled and record starts of over 700 units this quarter, we are confident that we have the necessary levels of sold and spec inventory to hit significant growth in 2021 and beyond. On Slide 9, we established the relationship between total lots owned and controlled and our total topline revenues. As you can see from the chart on this slide, each investment we made in land has been highly correlated to future growth and revenue. For the last 12 months ending September 30, 2020, our revenues have already grown 27% over the 12 months ending September 30, 2019. With our massive investment in land and lots this quarter, we believe we can continue to maintain significant growth well into 2022. Slide 10 further details our Q3 2020 land investment, which resulted in 31.5% sequential growth and total lots for the company. As the slide details, roughly two-thirds of this land growth was spread across three DFW communities. These communities represent significant long-term investments in our Texas market and will be a dependable source of new lots as our Trophy Signature Homes and CB JENI brands continue to expand across the metroplex. Slide 11 details the growth wave already seen in our Trophy brand over the past 12 months. When picking a new location for one of our builders, we're diligent to target a minimum 21% unleveraged internal return for new properties that in turn drives our industry-leading gross margins. As you can see from our community map on this slide, we were able to more than double Trophy’s active selling communities over the past year and have been thrilled to see Trophy performance from both entry-level and move-up buyers. With the total annual housing starts in DFW expected to exceed 35,000, we believe Trophy can continue to expand its footprint across the entire DFW metroplex for years to come. Please move to Slide 12. John Burns Real Estate Consulting has published maps of our Dallas and Atlanta metropolitan areas, where they have designated grades on submarkets from most desirable being an A location, through most affordable being an F location. Based on a variety of subjective factors such as schools, proximity of jobs, and the existence of infrastructure for quality of life, we have overlaid the locations of our Green Brick communities with green dots. The preponderance of our communities on the submarkets rated most desirable. In the current market environment, we believe that our superior market positioning will be key in differentiating our results from our peers. This positioning is further strengthened by the lot supply shortages in both the northern suburbs of Dallas and Atlanta, which we believe will be a strategic advantage for us as we expect land development activity for other builders to slow in the coming months. Our community count grew 18% from Q3 2019 to 100 active communities as of September 30, 2020 as we continue to open more communities geared toward the first-time buyer. However, this increased focus on affordability has not been at the cost of increased risk. Based on our Q3 2020 home closings with our unconsolidated mortgage venture, Green Bricks saw an average FICO score of 760, with 89% of fundings exceeding a FICO score of 700. The creditworthiness of our average buyer profile is a fundamental strength of many of the A markets where we operate, which we believe will continue to mitigate risk for our business. Next, Rick Costello, our CFO, will discuss our third quarter and annual results in more detail.

Richard Costello, CFO

Thanks, Jed, and thank you, everybody for joining us today to review our 2020 Q3 financial results. Flip to Slide 13, please, which compares our year-to-date Q3 2020 gross margins with available peer data. Our gross margin reported for the nine months ended September 30, 2020, was 23.8% as shown here. This was up 250 basis points over the year-to-date results for Q3 2019, but for quarter-to-quarter alone for 2020 gross margins in Q3 were up 370 basis points over our margins reported in Q3 of 2019. This chart clearly demonstrates that our performance is among the very best in the industry. We believe our superior margin experience is evidence that our conservative land underwriting and prudent planning that Jed mentioned earlier are winning strategies that have left the company well-prepared to manage pace and price during the remainder of 2020 and beyond. Slide 14 visually demonstrates that we've grown our revenues and provided stable earnings by not concentrating on any one homebuyer segment. At this point two years ago, in 2018, two segments accounted for about three quarters of our revenues. Fast-forward two years and we now address six distinct and individually significant customer segments, which all experienced strong revenue growth in sales volume through September 30, 2020. This revenue growth is in line with our 53% year-over-year growth in net new orders and demonstrates the health of our markets. Our net new order growth breaks down as follows; net new orders of entry-level single-family homes and townhomes were up 258% in Q3 2020 versus Q3 2019. Thanks to the terrific profitable expansion, highly profitable expansion in our Trophy Signature brand and growth in entry-level townhome sales and our CB JENI brand. Likewise, our net orders of first-time move-up and second-time move-up single-family homes were up 41% and 177% year-over-year, and 41% quarter-over-quarter respectively due to the strong reception in our DFW market to Trophy’s value-oriented homes and the continued performance of our Southgate brand in highly desirable suburbs of North Dallas. Our sales for age-targeted segment at GHO homes in Florida were up 68% year-over-year, as we have seen improved demand for product as lockdown restrictions have lifted and homebuyers continued to migrate out of large urban centers in the Northeast, as well as from South Florida. Finally, urban home sales in Q3 2020 were up 175% over Q3 2019. This growth is driven by the move of urban millennials away from dense apartment living, as well as a demand for larger, more intentional living spaces as Jim mentioned earlier. So to recap, every price point is seeing great improvement. Please move to Slide 15 related to our financial highlights. For Q3 of 2020 versus Q3 of 2019 and year-to-date comparisons, here's some key operational metrics. Net new orders increased by 89% for the quarter, and this increase was a function of a 58% increase in the absorption rate of net orders per community, as well as a 19% increase in average selling communities. For the nine months ended September 30, 2020, our 53% order growth is driven by a 21% increase in average selling communities and a 26% improvement in absorption. Home deliveries increased by 40% with residential revenues up 32% for the quarter. For year-to-date, residential revenues improved by 27% due to a 35% increase in homes closed. Our average sales price of homes delivered declined by 5.3% for the quarter and 4.8% year-to-date versus the comparable periods in 2019. These declines in ASP are attributable to the increasing contribution of Trophy Signature Homes and CB JENI Homes, Townhome division to our total revenues. Both of these builders sell homes at average sales prices that are below the average sales price for the company. As emphasized earlier, we believe this improved affordability will serve to preserve and improve our market share. Year-over-year, homes under construction are up 4% with homes started on a last 12-month basis, up by 23%. While we did start over 700 homes this quarter, which was another record, we expect to expand starts in Q4 to even higher levels. The dollar value of the units in backlog increased by 73% year-over-year and 24% sequentially, with sales continuing into Q4 at an accelerated pace. We expect our year-to-date growth in backlog and expanded community count to drive closing growth next year. As I highlighted earlier, homebuilding gross margins were up exactly 370 basis points over Q3 2019 and adjusted homebuilding gross margins were up 380 basis points quarter-over-quarter. From Q2 to Q3 of this year, adjusted gross margins were up 160 basis points sequentially. For the nine months ended September 30, 2020, our year-to-date homebuilding consolidated margin and adjusted homebuilding gross margins were up 250 basis points and 260 basis points respectively. Turning to operating leverage, Green Brick experienced a 140 basis point improvement in quarterly SG&A expense as a percentage of total revenues, as the ratio dropped from 10.6% in Q3 of 2020 from 12.0% in Q3 2019. Year-to-date, our SG&A expense dropped a similar 130 basis points from 12.6% in 2019 to 11.3% for the nine months ended September 30, 2020. In addition to strong revenue growth in both the quarter and year-to-date of 32% and 27% respectively, we also benefited from the large reduction in overhead that we implemented at the end of the first quarter. A good portion of an 18% reduction in employee headcount, which we enacted effective April 1, is still in place as we have methodically increased headcount from those reduced levels by only 12%, despite record volumes and start sales and closings this quarter. Our interest coverage of 24.2, that's not a typo, it's 24.2 for Q3 2020, represents 203% growth over the third quarter of 2019, and clearly demonstrates our capacity to generate positive cash flow well above our needs. Year-to-date, our interest coverage of 14.7 represents a 101% improvement year-over-year. As we let off our earnings release, our Q3 2020 basic EPS set a new all-time record of $0.69 for the quarter, which is an increase of 123% over Q3 2019. Likewise, on a year-to-date basis, our basic EPS of $1.67 is 97% higher than the same year-to-date period last year. Our final metric on Slide 15 is our net income return on average book equity, which grew from 12.5% in Q3 2019 to an annualized 23.5% during Q3 2020, an increase of 1,100 basis points. Combined with our low debt leverage, our risk-adjusted returns are remarkable. Please turn to Slide 16. Here we have compared our performance versus our small and mid-cap peers to show that our risk-adjusted growth and returns are uniquely strong. We've provided five measures. In the previous slide, we already discussed our remarkable 27.4% growth in residential units revenue during the quarter, which, as Jim mentioned earlier, was primarily driven by organic growth at both CB JENI and Trophy Signature brands. And you can see how that ranks against our peers. With both team builders focused on increasing our offerings of affordable products, this growth is expected to bring further diversification and reduction in our overall average sales price that we are showing you today. That dynamic growth rate can be seen in the first data column, where our growth rate ranks very high among our peers. And as we demonstrated again this quarter, our industry-leading gross margins drove excellent returns on revenues again this quarter. Also included on slide 15 is our year-to-date interest coverage of 14.7x EBITDA, which is a function of great earnings combined with conservative lower levels of financial leverage. This lower leverage is reflected in our low net debt-to-capital, which is the fourth metric here, which indicates our reliance on organic growth rather than financial leverage to maintain strong operating cash flows. Finally, we’ve included pre-tax return on average invested capital to measure each builder's return, disregarding differences in leverage and tax rates. The last slide, I'm going to have you look at is Slide 17, which focuses on our lower leverage, which I just discussed. And as Jim stressed at the start of the call, we were able to achieve record-setting Q3 results for 2020, while also decreasing our debt-to-capital by 660 basis points year-over-year and 250 basis points sequentially. Our debt-to-capital ratio remains one of the lowest in the industry, on this chart, it is the lowest, which positions Green Brick to continue limiting risk while generating industry-leading return on equity of 23.5% during Q3 as shown on the previous slide. Also as mentioned in Jim's opening remarks, we are once again thrilled to expand our partnership with Prudential Private Capital this quarter with $37.5 million of senior unsecured notes issued, which are due in 2027 at a fixed rate of 3.35%. We believe our lower relative interest costs will be a positive tailwind for gross margins and profitability as the company continues to grow and scale through 2021 and 2022. I will now turn the call back over to Jim who will wrap up our part of the call prior to opening up for questions.

James Brickman, CEO

Okay. Thanks, Rick. When I co-founded this company more than 10 years ago, we had no revenue, but I was confident that a conservative land-focused and local strategy would be a winning course to build Green Brick Partners into a successful public home building company. Looking at our success this year, I'm elated with the accomplishments we have achieved to date, and I believe we can continue to improve upon Green Brick’s superior risk-adjusted return for years to come. Our continued growth relies heavily on our capacity to acquire and entitled great land positions. With a 31.5% sequential growth in lots owned and controlled in one quarter, I believe we have clearly proven that we can meet this challenge going forward. In fact, as many of our peers sit on large cash balances at the end of the quarter, I am encouraged by the fact that Green Brick has been able to quickly pivot and redeploy capital to invest in our future growth, despite historic levels of competition for the best land and lots. With our deep roots in our core markets and strong local operators that are well connected to the land sellers and municipalities where we operate, I believe Green Brick can continue to lay the groundwork for significant future growth and profitability. Our success this quarter would not have been possible without the hard work of our employees and team builders across the United States. I would like to thank each of you for your effort, and I am confident our dedicated team will continue to achieve great results for our investors going forward. Indeed, October has already started out very strong. I'll now turn the call back to the operator for questions. Thank you.

Operator, Operator

Thank you. The floor is now open for questions. Our first question comes from Michael Rehaut of JPMorgan.

Margaret Wellborn, Analyst

Hi. This is Maggie on for Mike. Congrats on the quarter.

James Brickman, CEO

Thanks, Maggie.

Margaret Wellborn, Analyst

My first question is on that last comment about strengths continuing into October. I was wondering if you could give us an idea of how orders have trended so far in October, maybe versus the exit rate coming out of September. Have you seen any seasonality start to kick in there?

James Brickman, CEO

This is Jim. The type of growth that we saw in the third quarter, which was really huge over same prior periods, we've seen continue right into October. So we have not seen any deceleration in demand.

Richard Costello, CFO

Yes. Maggie, the data point, we haven't quite finished the month yet, but we're at 269 net sales for the month. We expect to be higher than that by the end of the month, so on a year-over-year basis, we're up. It's going to be an 80 something percent handle. So it's obviously very strong.

Margaret Wellborn, Analyst

Great. Thank you. And second, I was wondering if you could talk about the pricing backdrop that you're seeing right now. Obviously, we've been hearing about price increases across the industry. So could you talk about if you raised prices across your communities during the quarter? And if so, maybe give us an idea of the magnitude and timing of those increases? And finally, how are you thinking of those increases in terms of offsetting or more than offsetting increased input costs such as lumber recently?

James Brickman, CEO

Jed, why don't you talk about lumber because we're seeing that finally starting to decelerate and talk about pricing strategy?

Jed Dolson, COO

Yes. Maggie, so we've been raising prices very steadily since August. We're seeing the price increases for October be smaller than they were in September. But we're also seeing the price increases for our input materials go down as Jim mentioned. So we're finally seeing lumber go in the other direction, which is helpful from a gross margin standpoint.

James Brickman, CEO

Maggie, our goal is to try to price and continue to maintain the pace versus price strategy. That's really been effective for us, where we can maintain 24%, 25% margins. And we're still pretty confident that that's looking good. As we add option communities, the margins are a little bit lower than they are on where we own the land, but we're not seeing market margin declines.

Margaret Wellborn, Analyst

Got it. Thanks guys.

Richard Costello, CFO

Thanks Maggie.

Ryan Gilbert, Analyst

Hey, thanks. Good morning, guys. First question for me on Trophy Signature, really nice ramp going from 20 communities – going into 20 communities from seven a year ago. I guess looking out to 2021 based on your lockdown that seems like we should expect continued community count growth. And I'm just wondering what the – how that mix of Trophy Signature should look in 2021 versus where it's at now at around 20%.

James Brickman, CEO

Jed, can handle that. Trophy is continuing to really grow at a very fast pace. I think the only negative thing I can tell you about Trophy is that it now takes me two full days just to drive their sites and see everything that we have going on and plan for the future. But those are exciting two days because really we're driving the communities that are just opening right now and they're pre-selling homes without even having a model. I visited four on Tuesday. So Jed, why don't you talk a little bit more about kind of where Trophy fits into our strategy.

Jed Dolson, COO

Yes. Sure. As Jim mentioned, we have delivered a lot of new communities. I think we reported 20 for Trophy open stores. Really good news that we're very excited about is a lot of these communities have very long runways of lots. In many cases, the phases we just put on the ground exceed 200 lots. So we don't – for the first time in a while, we think we're going to be able to sell 10 or more out of these communities per month without having to ration our sales or cap our sales as we've previously been doing. So we expect further community count increases with Trophy over next year. Like I said, these will be very big communities where we should see absorption more than double.

James Brickman, CEO

This is Jim. I don't want to get hyper-technical on this call about internal rates of return and that type of analysis. But I think it's important for the analysts to know that when we have these gross margins, we're looking at right now, we're not putting big lot inflators or other things in your assumptions when they're buying some of these properties. So if we keep getting the tailwinds that we're having, those lots should be very attractive going forward in terms of price.

Ryan Gilbert, Analyst

Got it. And can you share the absorption differential between Trophy Signature and your more traditional brands move-up product?

Jed Dolson, COO

It really varies by what price point because Trophy can sell up to a $650,000 house, but at the lower price points, we're seeing that 2x multiple compared to our other brands.

James Brickman, CEO

And really because sales accelerated so quickly in what two or three neighborhoods for Trophy, we had to cut off sales. We could have actually had more sales, but the next phase of lots or the next development that was in the same municipality wouldn't be ready, so that we didn't do that. We were managing pace over price and actually slowed down sales in a few neighborhoods.

Ryan Gilbert, Analyst

Okay. Got it. And then as you go out and buy land for Trophy, are you noticing any competition from other builders or how is the availability of land for entry-level communities?

Jed Dolson, COO

Yes. Green Brick has a proven track record of performing in our core markets. And so we're seeing increased competition, but sellers are looking at our track record of closing and oftentimes selecting us.

James Brickman, CEO

Well, let me give you a case study event that we're working on right now. And I can't tell you this is going to close, and I wouldn't tell you where it is because we're still working on it. But we had a land seller that came to us very concerned that if he doesn't sell and close his property this year, and it's a fairly large transaction that he's going to pay a lot more in capital gains. So he came to us and said, can you guys close this rather large property before December? He knows us, he's dealt with us for a long time. And we're very optimistic that we can get that closed. And that's not something that a typical public builder could react to and get done in that kind of time frame.

Ryan Gilbert, Analyst

Okay. Got it. That makes sense. Last question for me is just on production capacity. We're seeing kind of throughout the industry, cycle times are extending. Fourth-quarter backlog for a lot of builders has been – they're guiding to pretty substantial decline, which I suppose is to be expected just given how strong the demand has been. So just thinking about Green Brick’s fourth quarter, you started 710 homes in the third quarter. Do you think you can get all of those delivered in the fourth quarter? Or should we, just for modeling purposes, are you thinking about maybe the cycle times extending into Q1 2021 or Q2 2021?

James Brickman, CEO

Let me answer that question at a higher level to start with because our business started where we were really and still are. I think our strategic advantage is the land entitlement, land development side of our business. And frankly, we've learned from the giants that are really great in the manufacturing and process side of their business, the Lennar’s, the Pulte’s, and we continue to improve our operations learning from these guys. And so our cycle times are improving, but they started at a higher point. And so I think, Jed, we're pretty much – our cycle times really aren't extending overall, are they?

Jed Dolson, COO

We're seeing anything that comes from a factory is a little bit of a game of Whac-A-Mole. We can't get windows one week. We can't get – trusses the next, but we're working through these issues. The biggest thing is as we've gone to all of our suppliers and vendors at our biggest brands like Trophy and worked at an even flow schedule, so they can predict exactly how much material we're going to be needing on a weekly basis. So we feel good about starting even more homes than 700 in Q4.

Ryan Gilbert, Analyst

Okay. Got it.

James Brickman, CEO

Well, I can tell you something, it's going to be – unless the cities for some reason just shut down where you can't get building permits, we’re going to significantly exceed third quarter starts.

Ryan Gilbert, Analyst

Okay. Great. Thank you.

Operator, Operator

Our next question comes from the line of Aaron Hecht of JMP Securities.

Aaron Hecht, Analyst

Hey guys. Great quarter. I'm wondering on the subcontractor side, are you seeing any constraints there that may limit your ability to push the order growth? Or is that just not an issue?

Jed Dolson, COO

This is Jed. It’s an issue. We are the fifth largest builder in DFW. So in DFW, where we're getting a lot of our units and our revenue, we have the ability. We're important – we're very important to our vendors. And so we're getting top priority compared to some smaller builders. That being said, like I mentioned earlier, it's Whac-A-Mole. I can't tell you what next week's production problem is going to be, but there will be one. The good news is we haven't found a production problem that we haven't been able to relatively quickly solve.

James Brickman, CEO

The other thing that's helping us is apartment starts are really decelerating. And that was a big component of starts in the DFW market, more than 30,000. And as that decelerates, that labor pool is shifting to a single-family.

Richard Costello, CFO

Hey, Aaron. This is Rick. Thanks for joining the call and your questions. Also, if you look at our Florida builder GHO Homes, they have a top market share there which has consistently been 20% to 25% market share. So they got a lot of focus and attention there. And also Brian Bahr in Colorado Springs with Challenger Homes is always amongst the top three in terms of sales closings and starts, so we get a lot of attention there as well from the subcontractor community.

James Brickman, CEO

Yes. Two or three public builders, for example, told me they dipped their toe and bought a very small building in Colorado Springs. It seems every eight or 10 years the guys from Denver want to dip their toe in that market. But the labor and subcontractor markets are really very closely held among three builders in Colorado Springs.

Aaron Hecht, Analyst

Got it. And then it sounded like you started managing your pace a little bit based on your community openings or the lot availability. And it sounded like – I think you said that you're going to expect any kind of growth next year, which is great. And you highlighted all the lots being brought on, but wondering if you're going to continue to manage that pace to have less volatility in the community count, so we see kind of consistent growth or if there could be some volatility there.

Jed Dolson, COO

Well, this is Jed. We can't, not every community we take on can be 1,000 lots unfortunately with a long runway. So it really is a balance. A lot of our communities are 100 lots or less. So we do need to ration starts in those communities where I do it based on what our internal capabilities as well as our external vendor capabilities are. But the good news is we have several big flagship communities where we're going to be able to start 10 to 15 homes a month, every month. And we have the long runway lots to do that.

Aaron Hecht, Analyst

If you look at your lot position today, and obviously you've brought on a lot of lots, but are there any holes that you guys are going to look to backfill? Maybe it's 2022, 2023. Is there a specific timeframe based on the pace that you guys are seeing now that you really have to be focused on?

James Brickman, CEO

Well, Rick can talk about the cash flow. We're reinvesting our cash flow heavily into land positions. We have a conservative balance sheet. Those investments we are going to be making right now and into early 2021 are really for 2023 and 2024 revenues. And we're just starting to tee that ball up right now.

Aaron Hecht, Analyst

Right. And last one for me, given the growth that you're seeing, do you have to start thinking about some new markets or do you have enough runway to considerably grow within the markets you're participating in currently?

James Brickman, CEO

Well, we're in Dallas, which is the largest new house market, north of 40,000 starts. So to give you a benchmark, Horton is building over 7,000 houses here, so there's a lot of runway here. I think when I was saying about 2,200, they're kind of way behind Horton, but still a big builder here. The Atlanta market is similar. The market is big. I think Horton is 3,000 starts there. So there's a lot of runway in both of those markets, but at the same time, if we could find a market that we thought made sense, I think we're going to start looking back in mid-2021.

Aaron Hecht, Analyst

Got it. Appreciate it. Fantastic results. Thanks guys.

Jed Dolson, COO

Thanks, Aaron.

Operator, Operator

I'm showing that there are no final questions at this time. With that, we will conclude today's conference call. You may now disconnect your lines and have a wonderful day.