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[Basis of Presentation](index=4&type=section&id=Basis%20of%20Presentation) This section outlines the foundational principles for the financial report, including definitions of key terms, the corporate reorganization following the IPO, and the presentation of financial information using both GAAP and non-GAAP measures [Certain Definitions](index=4&type=section&id=Certain%20Definitions) This section provides definitions for key terms used throughout the Quarterly Report, including financial metrics like Average Sales Price (ASP), corporate structure terms like Continuing Equity Owners and LLC Interests, and event-specific terms such as IPO and Refinancing, to ensure clarity and consistent understanding of the report's content - Key terms defined include 'Average sales price' (ASP), 'Basis Adjustments', 'Construction cycle time', 'Continuing Equity Owners', 'Controlled lots', 'Devon Street Homes Acquisition', 'IPO', 'LLC Interests', and 'Refinancing'[7](index=7&type=chunk)[8](index=8&type=chunk) - The 'IPO' refers to the initial public offering completed on January 16, 2024, which generated gross proceeds of **$185.8 million** from the sale of **8,846,154 Class A common shares** at **$21.00 per share**[7](index=7&type=chunk) [The Transactions](index=5&type=section&id=The%20Transactions) Smith Douglas Homes Corp. was formed as a holding company for Smith Douglas Holdings LLC, reorganizing the corporate structure in connection with its IPO. This involved recapitalizing LLC interests, establishing Class A and Class B common stock with differing voting rights, and using IPO proceeds to purchase LLC interests and repay debt. The company adopted an 'Up-C' structure, allowing Continuing Equity Owners to retain partnership tax benefits while providing liquidity options - Smith Douglas Homes Corp. was formed on June 20, 2023, as a holding company and the sole managing member of Smith Douglas Holdings LLC, with its principal asset being LLC Interests[9](index=9&type=chunk) - In connection with the IPO, the corporate structure was reorganized, including recapitalizing LLC Interests, appointing Smith Douglas Homes Corp. as the sole managing member, and establishing Class A (one vote) and Class B (ten votes until Sunset Date) common stock[11](index=11&type=chunk) IPO Proceeds Usage (in millions) | Use of Proceeds | Amount (millions) | | :------------------------------------------------ | :------------------ | | Purchase newly issued LLC Interests from SDH LLC | $125.2 | | Purchase LLC Interests from Continuing Equity Owners | $47.6 | | Repay borrowings under Prior Credit Facility | $84.0 | | Redeem Class C and D Units | $2.6 | | Repay notes payable to related parties | $0.9 | - The corporate structure following the IPO is an 'Up-C' structure, allowing Continuing Equity Owners to retain partnership tax benefits and providing potential liquidity through redemption or exchange of LLC Interests for Class A common stock or cash[14](index=14&type=chunk) - A Tax Receivable Agreement (TRA) was entered into, requiring Smith Douglas Homes Corp. to pay Continuing Equity Owners **85%** of certain tax benefits realized from Basis Adjustments, Section 704(c) Allocations, and other tax benefits[15](index=15&type=chunk) [Presentation of Financial Information](index=7&type=section&id=Presentation%20of%20Financial%20Information) Smith Douglas Holdings LLC is the accounting predecessor, meaning the financial statements represent a continuation of its operations. The report uses non-GAAP financial measures like adjusted home closing gross profit and adjusted EBITDA to supplement GAAP results, believing they offer better insight into performance and comparability, despite inherent limitations - Smith Douglas Holdings LLC is the accounting predecessor, and the financial statements represent a continuation of its financial position and results of operations[16](index=16&type=chunk) - The report utilizes non-GAAP financial measures (e.g., adjusted home closing gross profit, adjusted net income, EBITDA, adjusted EBITDA, net debt-to-net book capitalization) to provide additional insights into consolidated financial performance and facilitate period-to-period comparisons[19](index=19&type=chunk) - These non-GAAP measures are used by management to better understand performance and project future results, but they may not be comparable to similarly titled measures of other companies[19](index=19&type=chunk) [Forward-Looking Statements](index=9&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section provides a disclaimer regarding forward-looking statements, highlighting inherent risks and uncertainties that could cause actual results to differ materially from projections [Forward-Looking Statements Disclaimer](index=9&type=section&id=Forward-Looking%20Statements%20Disclaimer) This section contains forward-looking statements subject to safe harbor provisions, based on current expectations and projections. These statements involve known and unknown risks and uncertainties that could cause actual results to differ materially, including general economic conditions, land acquisition challenges, mortgage market volatility, and the impact of the Tax Receivable Agreement and dual-class structure - The report contains forward-looking statements covered by safe harbor provisions, based on current expectations and projections about future events and financial trends[22](index=22&type=chunk)[23](index=23&type=chunk) - Key risk factors include general business and macroeconomic conditions, inability to secure adequate land inventory, tightening mortgage lending standards, housing market fluctuations, and the substantial cash payments required under the Tax Receivable Agreement[23](index=23&type=chunk) - Investors are cautioned not to unduly rely on these statements, as actual results could differ materially due to inherent risks and uncertainties[24](index=24&type=chunk) [PART I—FINANCIAL INFORMATION](index=11&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=11&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements, including the Balance Sheets, Statements of Income, Statements of Equity, and Statements of Cash Flows, along with detailed notes explaining the company's business, accounting policies, and specific financial line items for the periods ended June 30, 2025 and December 31, 2024 [Condensed Consolidated Balance Sheets](index=11&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity as of June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets (in thousands) | Asset/Liability/Equity | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $16,777 | $22,363 | | Real estate inventory | $320,848 | $277,834 | | Deposits on real estate under option/contract | $132,372 | $103,026 | | Total assets | $570,219 | $475,901 | | Notes payable | $74,088 | $3,060 | | Total liabilities | $155,387 | $74,174 | | Total equity | $414,832 | $401,727 | [Condensed Consolidated Statements of Income](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) This section presents the company's financial performance, detailing revenues, costs, and net income for the three and six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Income (in thousands, except per share) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Home closing revenue | $223,924 | $220,933 | $448,646 | $410,142 | | Cost of home closings | $171,985 | $161,875 | $343,177 | $301,624 | | Home closing gross profit | $51,939 | $59,058 | $105,469 | $108,518 | | Selling, general and administrative costs | $34,702 | $31,809 | $67,701 | $59,350 | | Income before income taxes | $17,179 | $25,866 | $36,746 | $47,273 | | Net income | $16,435 | $24,734 | $35,145 | $45,220 | | Net income attributable to Smith Douglas Homes Corp. | $2,365 | $3,646 | $5,048 | $6,618 | | Basic EPS | $0.26 | $0.41 | $0.56 | $0.75 | | Diluted EPS | $0.26 | $0.40 | $0.55 | $0.74 | [Condensed Consolidated Statements of Equity](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Equity) This section details changes in the company's equity, including net income, equity-based compensation, and non-controlling interests, for the six months ended June 30, 2025 and 2024 - Total equity increased from **$401,727 thousand** as of December 31, 2024, to **$414,832 thousand** as of June 30, 2025, driven by net income and equity-based compensation, partially offset by tax distributions[32](index=32&type=chunk)[29](index=29&type=chunk) - Non-controlling interests attributable to Smith Douglas Holdings LLC increased from **$328,095 thousand** to **$334,850 thousand** during the six months ended June 30, 2025[32](index=32&type=chunk)[29](index=29&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=15&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025 and 2024 Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(63,847) | $(9,234) | | Net cash used in investing activities | $(4,225) | $(3,153) | | Net cash provided by financing activities | $62,486 | $9,908 | | Net (decrease) in cash and cash equivalents | $(5,586) | $(2,479) | | Cash and cash equivalents, end of period | $16,777 | $17,298 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=18&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the unaudited condensed consolidated financial statements, covering accounting policies, specific line items, and significant transactions [Note 1 - Description of business and summary of significant accounting policies](index=18&type=section&id=Note%201%20-%20Description%20of%20business%20and%20summary%20of%20significant%20accounting%20policies) This note describes the company's business model, the impact of its IPO and corporate reorganization, and outlines significant accounting policies for revenue, inventory, and income taxes - The Company is a builder of single-family homes in the southeastern and southern United States, primarily targeting first-time and empty-nest homebuyers, utilizing a land-light business model[41](index=41&type=chunk) - The IPO closed on January 16, 2024, raising approximately **$172.8 million** net proceeds, and resulted in a corporate reorganization establishing Smith Douglas Homes Corp. as a holding company and sole managing member of Smith Douglas Holdings LLC[42](index=42&type=chunk)[44](index=44&type=chunk)[45](index=45&type=chunk) - Real estate inventory is stated at cost unless impaired, with a **$0.6 million** impairment charge recognized in the Central segment during the six months ended June 30, 2025[54](index=54&type=chunk)[55](index=55&type=chunk) - Revenue is recognized when a home closes and title transfers, with customer deposits totaling **$5.9 million** as of June 30, 2025[56](index=56&type=chunk)[57](index=57&type=chunk) - The Company is assessing the impact of the One Big Beautiful Bill Act (OBBBA) enacted on July 4, 2025, but does not currently believe it will have a material impact on income tax expense[62](index=62&type=chunk) [Note 2 - Real estate inventory and capitalized interest](index=21&type=section&id=Note%202%20-%20Real%20estate%20inventory%20and%20capitalized%20interest) This note details the composition of real estate inventory, including lots and homes under construction, and provides a breakdown of capitalized interest activity for the reported periods Real Estate Inventory (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :------------ | :---------------- | | Lots held for construction | $81,370 | $73,352 | | Homes under construction, completed, model | $239,478 | $204,482 | | Total real estate inventory | $320,848 | $277,834 | Capitalized Interest (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Capitalized interest, beginning of period | $325 | $858 | $253 | $1,338 | | Interest incurred | $1,645 | $893 | $2,539 | $1,832 | | Interest expensed | $(772) | $(591) | $(1,438) | $(1,289) | | Interest charged to cost of home closings | $(365) | $(333) | $(521) | $(1,054) | | Capitalized interest, end of period | $833 | $827 | $833 | $827 | [Note 3 - Variable interest entities](index=21&type=section&id=Note%203%20-%20Variable%20interest%20entities) This note explains the company's use of lot option agreements to manage land inventory and clarifies its involvement with Variable Interest Entities (VIEs) - The Company uses lot option agreements to procure finished lots, providing deposits to sellers for future purchases at predetermined prices, which defers capital requirements and reduces financial risks[67](index=67&type=chunk) - As of June 30, 2025 and December 31, 2024, the Company was not identified as the primary beneficiary of any Variable Interest Entities (VIEs) associated with option and purchase agreements, thus no consolidation was required[69](index=69&type=chunk) Land Option Agreements (in thousands) | Category | June 30, 2025 Deposits/Investments | June 30, 2025 Remaining Purchase Price | Dec 31, 2024 Deposits/Investments | Dec 31, 2024 Remaining Purchase Price | | :--------------------------------- | :--------------------------------- | :------------------------------------- | :--------------------------------- | :------------------------------------- | | Option contracts | $125,772 | $1,378,974 | $100,826 | $1,094,040 | | Option contracts with unconsolidated entities | $8,286 | $32,704 | $2,800 | $13,674 | - A lot option contract abandonment charge of **$0.7 million** was recognized in the Central reporting segment during the six months ended June 30, 2025, with no such charges in the prior year[73](index=73&type=chunk) [Note 4 - Investments in unconsolidated entities](index=23&type=section&id=Note%204%20-%20Investments%20in%20unconsolidated%20entities) This note describes the company's equity method investments in entities for lot development, mortgage services, and title insurance, and reports related income - The Company holds non-controlling equity interests in entities for lot development, mortgage broker services, and title insurance, accounted for using the equity method[74](index=74&type=chunk) Equity in Income from Unconsolidated Entities (in thousands) | Period | Equity in Income (2025) | Equity in Income (2024) | | :----------------------------- | :---------------------- | :---------------------- | | Three months ended June 30 | $0.6 | $0.2 | | Six months ended June 30 | $0.8 | $0.4 | - Investments in unconsolidated entities totaled approximately **$2.1 million** as of June 30, 2025, up from **$1.0 million** as of December 31, 2024[74](index=74&type=chunk) [Note 5 - Notes payable](index=23&type=section&id=Note%205%20-%20Notes%20payable) This note details the company's debt instruments, including the amended revolving credit facility and related party notes, along with their terms and future maturities - The Company's unsecured revolving credit facility was increased from **$250.0 million** to **$325.0 million** and extended to May 15, 2029, with a **$100.0 million** accordion feature[75](index=75&type=chunk) - As of June 30, 2025, outstanding borrowings under the Amended Credit Facility were **$68.9 million**, with an interest rate of **6.74%**[77](index=77&type=chunk)[79](index=79&type=chunk) - The Company was in compliance with all financial covenants of the Amended Credit Facility as of June 30, 2025[78](index=78&type=chunk) - A **$3.0 million** secured promissory note was borrowed from an affiliated entity in May 2025 to partially fund an office building purchase, bearing **8.5%** interest[81](index=81&type=chunk) Future Maturities of Notes Payable (in thousands) | Year ending December 31, | Amount | | :----------------------- | :----- | | 2025 (remaining six months) | $1,113 | | 2026 | $1,892 | | 2027 | $575 | | 2028 | $626 | | 2029 | $69,581| | Thereafter | $301 | | Total | $74,088| [Note 6 - Fair value of financial instruments](index=24&type=section&id=Note%206%20-%20Fair%20value%20of%20financial%20instruments) This note discusses the fair value measurement of the company's financial instruments, primarily debt, and their classification within the fair value hierarchy - The Company's financial instruments measured or disclosed at fair value include borrowings under the Amended Credit Facility, seller note payable, and related party promissory note, all classified as Level 2 in the fair value hierarchy[85](index=85&type=chunk)[87](index=87&type=chunk) - The carrying values of these instruments approximate their fair values due to variable interest rates that align with market rates[87](index=87&type=chunk)[88](index=88&type=chunk) [Note 7 - Warranty reserves](index=25&type=section&id=Note%207%20-%20Warranty%20reserves) This note provides a breakdown of the company's warranty liability activity, including additions from new home closings and claims paid, for the reported periods Warranty Liability Activity (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Balance, beginning of period | $3,723 | $2,978 | $3,622 | $2,839 | | Additions from new home closings | $450 | $437 | $899 | $819 | | Warranty claims | $(152) | $(99) | $(256) | $(242) | | Adjustments to pre-existing reserves | $(244) | $(212) | $(488) | $(312) | | Balance, end of period | $3,777 | $3,104 | $3,777 | $3,104 | [Note 8 - Leases](index=25&type=section&id=Note%208%20-%20Leases) This note details the company's lease costs, right-of-use assets, and lease liabilities for operating leases Lease Costs (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating leases costs | $220 | $170 | $486 | $339 | | Variable lease costs | $31 | $74 | $79 | $110 | Lease Assets and Liabilities (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Right-of-use (ROU) assets | $2,171 | $3,065 | | Lease liabilities | $2,268 | $3,183 | [Note 9 - Commitments and contingencies](index=26&type=section&id=Note%209%20-%20Commitments%20and%20contingencies) This note outlines the company's contingent liabilities from legal proceedings and claims, as well as its performance and surety bond obligations - The Company is subject to contingent liabilities from litigation and claims in the ordinary course of business, but management believes their resolution will not materially affect financial position[94](index=94&type=chunk) - Performance and surety bonds related to development obligations totaled **$42.8 million** as of June 30, 2025, an increase from **$32.1 million** as of December 31, 2024[94](index=94&type=chunk) [Note 10 - Equity](index=26&type=section&id=Note%2010%20-%20Equity) This note details the company's capitalization structure, including Class A and Class B common stock, economic interests, tax distributions, and the stock repurchase program Capitalization and Voting Rights as of June 30, 2025 | Class of Stock | Authorized | Issued & Outstanding | Votes per share | Economic Rights | | :--------------- | :--------- | :------------------- | :-------------- | :-------------- | | Preferred stock | 10,000,000 | None | | | | Class A common stock | 250,000,000 | 9,015,173 | 1 | Yes | | Class B common stock | 100,000,000 | 42,435,897 | 10 (1) | No | - Smith Douglas Homes Corp. holds a **17.5%** economic interest in Smith Douglas Holdings LLC, while Continuing Equity Owners hold **82.5%**, presented as non-controlling interests[101](index=101&type=chunk) - Smith Douglas Holdings LLC made tax distributions to Continuing Equity Owners totaling **$9.5 million** for Q2 2025 and **$23.3 million** for YTD 2025[103](index=103&type=chunk) - The Board authorized a stock repurchase program for up to **$50.0 million** of Class A common stock in May 2025, with no shares acquired as of June 30, 2025[105](index=105&type=chunk) [Note 11 - Share-based payments](index=27&type=section&id=Note%2011%20-%20Share-based%20payments) This note describes the company's share-based compensation plans, including time-based Restricted Stock Units (RSUs) and market-based Performance Restricted Stock Units (PSUs), and related expenses Time-based Restricted Stock Units (RSUs) Activity | Metric | Three months ended June 30, 2025 RSUs | Three months ended June 30, 2024 RSUs | Six months ended June 30, 2025 RSUs | Six months ended June 30, 2024 RSUs | | :---------------- | :------------------------------------ | :------------------------------------ | :---------------------------------- | :---------------------------------- | | Beginning balance | 518,007 | 440,727 | 463,938 | — | | Granted | 39,364 | 24,269 | 283,887 | 464,996 | | Vested | (23,897) | — | (214,161) | — | | Forfeited | — | (2,850) | (190) | (2,850) | | Ending balance | 533,474 | 462,146 | 533,474 | 462,146 | - Compensation expense for RSUs was **$0.9 million** for Q2 2025 and **$1.5 million** for YTD 2025[109](index=109&type=chunk) - Market-based Performance Restricted Stock Units (PSUs) were granted in March 2025, vesting based on the Company's total shareholder return (TSR) relative to a peer group over three years[111](index=111&type=chunk) - Compensation expense for PSUs was **$116,000** for Q2 2025 and **$131,000** for YTD 2025[113](index=113&type=chunk) [Note 12 - Income taxes and tax receivable agreement](index=29&type=section&id=Note%2012%20-%20Income%20taxes%20and%20tax%20receivable%20agreement) This note explains the company's income tax structure, effective tax rate, deferred tax assets, and the liability under the Tax Receivable Agreement - Smith Douglas Homes Corp. is taxed as a C corporation, while Smith Douglas Holdings LLC is taxed as a partnership, passing taxable income/loss to its members[114](index=114&type=chunk) - The estimated annual effective tax rate for 2025 is **4.5%**, primarily due to income attributable to non-controlling interests not taxable to Smith Douglas Homes Corp. and entity-level taxation election for Smith Douglas Holdings LLC[115](index=115&type=chunk) Income Tax Provision (in thousands) | Period | 2025 | 2024 | | :----------------------------- | :--- | :--- | | Three months ended June 30 | $744 | $1,132 | | Six months ended June 30 | $1,601 | $2,053 | - A deferred tax asset of **$9.5 million** was recorded from the step-up in basis related to LLC Interests purchase, and a valuation allowance of **$16.4 million** was recorded for certain deferred tax assets deemed not more likely than not to be realized[117](index=117&type=chunk) - A Tax Receivable Agreement (TRA) liability of **$10.4 million** was recorded as of June 30, 2025, for payments to Continuing Equity Owners related to tax benefits[119](index=119&type=chunk)[120](index=120&type=chunk) [Note 13 - Transactions with related parties](index=30&type=section&id=Note%2013%20-%20Transactions%20with%20related%20parties) This note details transactions with affiliated entities, including lease costs and the purchase of an office building Related Party Lease Costs (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Operating leases costs | $45 | $87 | $142 | $173 | | Variable lease costs | $3 | $21 | $21 | $39 | - The Company purchased an office building for **$4.0 million** from an affiliated entity in May 2025, partially funded by a **$3.0 million** secured promissory note from another affiliated entity[126](index=126&type=chunk) [Note 14 - Segment information](index=30&type=section&id=Note%2014%20-%20Segment%20information) This note provides financial information by reportable segment, detailing home closing revenue, segment profit, and assets for the Southeast and Central regions - The Company operates in two reportable segments: Southeast (Atlanta, Central Georgia, Charlotte, Greenville, Raleigh divisions) and Central (Alabama, Houston, Nashville divisions)[127](index=127&type=chunk) Home Closing Revenue by Segment (in thousands) | Segment | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Southeast | $141,267 | $124,392 | $279,485 | $227,887 | | Central | $82,657 | $96,541 | $169,161 | $182,255 | | Total | $223,924 | $220,933 | $448,646 | $410,142 | Segment Profit (in thousands) | Segment | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Southeast | $21,991 | $25,598 | $45,846 | $46,603 | | Central | $6,345 | $13,336 | $13,355 | $23,619 | | Total | $28,336 | $38,934 | $59,201 | $70,222 | Assets by Segment (in thousands) | Segment | June 30, 2025 | December 31, 2024 | | :-------- | :------------ | :---------------- | | Southeast | $291,252 | $230,226 | | Central | $248,613 | $205,257 | | Corporate | $30,354 | $40,418 | | Total | $570,219 | $475,901 | [Note 15 - Earnings per share](index=32&type=section&id=Note%2015%20-%20Earnings%20per%20share) This note explains the calculation of basic and diluted earnings per share, including the treatment of potentially dilutive securities - Basic EPS is calculated by dividing net income attributable to Smith Douglas Homes Corp. by weighted-average Class A common stock outstanding[130](index=130&type=chunk) - Diluted EPS adjusts for potentially dilutive securities, including LLC Interests exchangeable for common stock and unvested RSUs[132](index=132&type=chunk) Earnings Per Share (except share and per share amounts) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic earnings per share | $0.26 | $0.41 | $0.56 | $0.75 | | Diluted earnings per share | $0.26 | $0.40 | $0.55 | $0.74 | - For Q2 and YTD 2025, the dilutive impact of **42,435,897 LLC Interests** was excluded from diluted EPS calculation as it would be anti-dilutive[133](index=133&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=34&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance and condition, highlighting key operational results, market trends, and liquidity. It details revenue, profit, and expense changes, segment performance, and non-GAAP financial measures, while also discussing capital resources and off-balance sheet arrangements [Company Overview](index=34&type=section&id=Company%20Overview) This section provides an overview of Smith Douglas's business model, market focus, and strategic approach to land acquisition and risk management - Smith Douglas designs, constructs, and sells single-family homes in high-growth markets in the Southeastern and Southern U.S., targeting entry-level and empty-nest homebuyers with an efficient land-light, production-focused model[136](index=136&type=chunk) - Despite market softening due to elevated mortgage rates, the company achieved **669 homes closed** (up **2%** YoY) and **$223.9 million** in home closing revenue (up **1%** YoY) for Q2 2025[137](index=137&type=chunk) - The land-light strategy, primarily acquiring finished lots via lot-option contracts, reduces upfront capital requirements and operational/financial risk, with only **3.4%** of total controlled lots being owned unstarted lots as of June 30, 2025[139](index=139&type=chunk) - The company's operations are organized into two reportable segments: Southeast (Atlanta, Central Georgia, Charlotte, Greenville, Raleigh) and Central (Alabama, Houston, Nashville)[140](index=140&type=chunk) [Results of Operations Data](index=36&type=section&id=Results%20of%20Operations%20Data) This section presents key operational and financial performance metrics, including home closings, average sales price, net new home orders, backlog, and controlled lots, for the reported periods Key Operating Data | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Home closings | 669 | 653 | 1,340 | 1,219 | | ASP of homes closed | $335 | $338 | $335 | $336 | | Net new home orders | 736 | 715 | 1,504 | 1,480 | | Contract value of net new home orders | $247,421 | $243,842 | $506,139 | $503,282 | | Cancellation rate | 10.0% | 11.8% | 9.1% | 11.2% | | Backlog homes (period end) | 858 | 1,173 | 858 | 1,173 | | Active communities (period end) | 92 | 75 | 92 | 75 | | Total controlled lots (period end) | 24,824 | 15,842 | 24,824 | 15,842 | - Home closing revenue increased **1%** for Q2 2025 and **9%** for YTD 2025, primarily due to increases in homes closed (**2%** for Q2, **10%** for YTD), while ASP remained consistent[151](index=151&type=chunk) - Home closing gross profit decreased **12%** for Q2 2025 and **3%** for YTD 2025, with gross margin declining to **23.2%** (Q2 2025) and **23.5%** (YTD 2025) from **26.7%** and **26.5%** respectively, mainly due to a **4%** increase in average cost of home closings[154](index=154&type=chunk)[155](index=155&type=chunk) - Selling, general, and administrative costs increased **9%** for Q2 2025 and **14%** for YTD 2025, driven by higher sales commissions, advertising, and payroll due to increased homes closed and employee headcount[156](index=156&type=chunk)[157](index=157&type=chunk) - Net income decreased by **$8.3 million** (**34%**) for Q2 2025 and **$10.1 million** (**22%**) for YTD 2025, primarily due to lower gross profit and higher SG&A costs, partially offset by positive changes in other (income) expense, net[165](index=165&type=chunk) - Backlog homes decreased **27%** to **858 homes** as of June 30, 2025, with contract value down **28%** to **$292.9 million**, compared to June 30, 2024[168](index=168&type=chunk) - Total controlled lots increased **57%** to **24,824** as of June 30, 2025, compared to June 30, 2024, reflecting a **15%** increase in owned lots and a **62%** increase in optioned lots[170](index=170&type=chunk) [Non-GAAP Financial Measures](index=40&type=section&id=Non-GAAP%20Financial%20Measures) This section presents and reconciles non-GAAP financial measures such as adjusted home closing gross profit, adjusted net income, EBITDA, adjusted EBITDA, and net debt-to-net book capitalization, providing additional insights into the company's performance - Adjusted home closing gross profit and margin decreased for both Q2 and YTD 2025 compared to 2024, primarily due to a **4%** increase in the average cost of home closings[175](index=175&type=chunk) Adjusted Home Closing Gross Profit and Margin (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Home closing gross profit | $51,939 | $59,058 | $105,469 | $108,518 | | Adjusted home closing gross profit | $52,338 | $59,012 | $106,514 | $109,312 | | Home closing gross margin | 23.2% | 26.7% | 23.5% | 26.5% | | Adjusted home closing gross margin | 23.4% | 26.7% | 23.7% | 26.7% | Adjusted Net Income (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $16,435 | $24,734 | $35,145 | $45,220 | | Adjusted net income | $12,901 | $19,399 | $27,596 | $35,455 | EBITDA and Adjusted EBITDA (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :----------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | EBITDA | $18,798 | $26,868 | $39,547 | $49,957 | | Adjusted EBITDA | $19,801 | $28,771 | $42,368 | $52,934 | | EBITDA margin | 8.4% | 12.2% | 8.8% | 12.2% | | Adjusted EBITDA margin | 8.8% | 13.0% | 9.4% | 12.9% | - EBITDA and Adjusted EBITDA decreased for both Q2 and YTD 2025, primarily due to decreases in net income and the non-recurrence of contingent consideration liability remeasurement from 2024[183](index=183&type=chunk) Net Debt-to-Net Book Capitalization (in thousands, except percentages) | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------- | :------------ | :---------------- | | Notes payable | $74,088 | $3,060 | | Equity | $414,832 | $401,727 | | Total capitalization | $488,920 | $404,787 | | Debt-to-book capitalization | 15.2% | 0.8% | | Net debt | $57,311 | $(19,303) | | Total net capitalization | $472,143 | $382,424 | | Net debt-to-net book capitalization | 12.1% | (5.0)% | [Liquidity and Capital Resources](index=43&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's financial flexibility, including cash position, credit facilities, and cash flow from operations, and outlines its land-light strategy and capital commitments - As of June 30, 2025, the Company had **$16.8 million** in cash and cash equivalents and believes existing cash, Amended Credit Facility availability, and positive operating cash flows will be sufficient for the next 12 months[186](index=186&type=chunk) - The Amended Credit Facility was increased to **$325.0 million** and extended to May 15, 2029, with **$68.9 million** outstanding as of June 30, 2025[193](index=193&type=chunk)[198](index=198&type=chunk) - Net cash used in operating activities increased significantly to **$63.8 million** for YTD 2025 from **$9.2 million** for YTD 2024, primarily due to increases in real estate inventory and deposits on real estate under option or contract[206](index=206&type=chunk) - Net cash provided by financing activities increased to **$62.5 million** for YTD 2025 from **$9.9 million** for YTD 2024, driven by net borrowings under the Amended Credit Facility and proceeds from real estate sales[208](index=208&type=chunk) - The land-light strategy involves controlling **16,177 lots** through option contracts with **$127.0 million** in non-refundable cash deposits and a remaining aggregate purchase price of **$1,085.0 million** as of June 30, 2025[213](index=213&type=chunk) - Surety bonds totaled **$42.8 million** as of June 30, 2025, up from **$32.1 million** as of December 31, 2024, with no outstanding letters of credit[214](index=214&type=chunk) - A stock repurchase program for up to **$50.0 million** of Class A common stock was authorized in May 2025, but no shares were acquired as of June 30, 2025[215](index=215&type=chunk) [PART II—OTHER INFORMATION](index=48&type=section&id=PART%20II%20OTHER%20INFORMATION) This section provides disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits [Item 1. Legal Proceedings](index=48&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in various legal proceedings and claims arising in the ordinary course of business. Management believes that the probable resolution of these contingencies will not materially affect the Company's financial position, results of operations, or cash flows - The Company is subject to mediation, arbitration, litigation, or claims in the ordinary course of business[231](index=231&type=chunk) - Management does not believe any existing claims or proceedings will have a material effect on the business, consolidated financial condition, or results of operations[231](index=231&type=chunk) [Item 1A. Risk Factors](index=48&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the comprehensive risk factors detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. There have been no material changes to these risks since the filing of the Annual Report, which could materially adversely affect the Company's business, financial condition, liquidity, results of operations, and capital position - Investors should carefully consider the risk factors discussed in Part I, Item 1A. Risk Factors of the Annual Report[232](index=232&type=chunk) - There have been no material changes in the risks affecting the Company since the filing of its Annual Report[232](index=232&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=48&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Company reports no unregistered sales of equity securities and no use of proceeds during the period covered by this report - There were no recent sales of unregistered securities[233](index=233&type=chunk) - There was no use of proceeds to report[234](index=234&type=chunk) - There were no purchases of equity securities by the issuer and affiliated purchasers[235](index=235&type=chunk) [Item 3. Defaults Upon Senior Securities](index=48&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The Company reports no defaults upon senior securities during the period - There were no defaults upon senior securities[236](index=236&type=chunk) [Item 4. Mine Safety Disclosures](index=48&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[237](index=237&type=chunk) [Item 5. Other Information](index=48&type=section&id=Item%205.%20Other%20Information) The Company reports no material changes to procedures for recommending board nominees or insider trading arrangements and policies, and no disclosures in lieu of a Current Report on Form 8-K - No disclosure in lieu of reporting on a Current Report on Form 8-K[239](index=239&type=chunk) - No material changes to the procedures by which security holders may recommend nominees to the board of directors[240](index=240&type=chunk) - No insider trading arrangements and policies to report[241](index=241&type=chunk) [Item 6. Exhibits](index=51&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including the Asset Purchase Agreement, Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Lender Addition and Acknowledgment Agreement, compensation letters, certifications, and Inline XBRL documents - Exhibits include the Asset Purchase Agreement, Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, and the Lender Addition and Acknowledgment Agreement and First Amendment to Amended and Restated Credit Agreement[242](index=242&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are filed herewith[242](index=242&type=chunk) - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) and the Cover Page Interactive Data File are also included[242](index=242&type=chunk) [Signatures](index=53&type=section&id=Signatures) This section contains the official signatures of the company's principal executive and financial officers, certifying the accuracy of the report [Signatures](index=53&type=section&id=Signatures) This section contains the official signatures of the company's principal executive and financial officers, certifying the accuracy of the report - The report is signed by Gregory S. Bennett, President, Chief Executive Officer, Vice Chairman, and Director (Principal Executive Officer)[247](index=247&type=chunk) - The report is also signed by Russell Devendorf, Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)[247](index=247&type=chunk) - Both signatures are dated August 6, 2025[247](index=247&type=chunk)

Core Insights - Smith Douglas Homes Corp. (SDHC) reported revenue of $223.92 million for the quarter ended June 2025, reflecting a year-over-year increase of 1.4% [1] - The earnings per share (EPS) for the same period was -$0.13, a decline from $0.40 a year ago, indicating a significant drop in profitability [1] - The reported revenue exceeded the Zacks Consensus Estimate of $216.52 million by 3.42%, while the EPS fell short of the consensus estimate of $0.25 by 152% [1] Financial Performance Metrics - Net new home orders were 736, slightly below the average estimate of 757 from two analysts [4] - The backlog of homes at the end of the period was 858, compared to the estimated 904 [4] - Home closings totaled 669, surpassing the average estimate of 644 [4] - The number of active communities at the end of the period was 92, exceeding the average estimate of 89 [4] - The average selling price (ASP) of homes closed was $335 million, slightly below the average estimate of $336.31 million [4] Stock Performance - Shares of Smith Douglas Homes Corp. have returned +1.3% over the past month, outperforming the Zacks S&P 500 composite's +0.5% change [3] - The stock currently holds a Zacks Rank 5 (Strong Sell), suggesting potential underperformance relative to the broader market in the near term [3]

Financial Data and Key Metrics Changes - The company reported pretax income of $17.2 million and earnings of $0.26 per diluted share for Q2 2025 [4] - Home sales revenue was $224 million for the quarter, with home closings of 669, which is a 2% increase from 653 closings in the same quarter last year [11] - Gross margin was 23.2%, at the high end of guidance, compared to 26.7% in the prior year, reflecting higher average lot costs and increased promotional activity [12] - Net income for the quarter was $16.4 million, down from $24.7 million in the prior year [12] Business Line Data and Key Metrics Changes - The average sales price (ASP) for homes closed this quarter was approximately $335,000, one of the lowest among peers [5] - The company ended the quarter with 92 active communities, a 23% increase year-over-year, and improved controlled lot count by 57% to almost 25,000 lots [6] Market Data and Key Metrics Changes - The company experienced inconsistent demand trends, with solid order activity followed by periods of softness due to affordability constraints and declining consumer confidence [5] - Monthly sales per community fluctuated, with averages of 2.8 in April, 2.4 in May, and returning to 2.8 in June [14] Company Strategy and Development Direction - The company is focused on an asset-light operational model, aiming to turn inventory quickly and maintain affordability for buyers [5] - Strategic expansion into Dallas Fort Worth and Gulf Coast of Alabama markets is planned, with expectations to start selling by year-end [6][7] - Construction efficiency is a major focus, with average cycle time reduced to 54 days, down from 60 days in 2024 [8] Management's Comments on Operating Environment and Future Outlook - Management remains optimistic about the company's outlook despite macroeconomic challenges, citing a strong balance sheet and operational flexibility [9] - The company plans to continue utilizing targeted incentives to support sales, particularly through rate buy-downs [15] - Risks include maintaining adequate sales pace and managing cost pressures, particularly in labor and materials [16][17] Other Important Information - The company has a net debt to net book capitalization ratio of 12.1%, indicating a strong balance sheet [9] - Backlog at the end of the quarter was 858 homes with an average sales price of $341,000 and expected gross margin of approximately 21.5% [14] Q&A Session Summary Question: What are the expectations regarding labor costs and gross margin for Q3? - Management indicated that labor costs were flat during Q2 and that gross margin pressure is expected due to continued incentives [20][21] Question: Can you break down the controlled lot position growth? - The controlled lot position increased significantly, with approximately 600 lots in Dallas and growth in Chattanooga and Central Georgia [25][28] Question: What is the outlook for the full year regarding home closings? - The company aims for a target of 3,000 to 3,100 homes, depending on market demand and macroeconomic conditions [35][36] Question: How is the land landscape currently viewed? - There is some softness in the land market, with more favorable negotiating terms but little pullback on prices [39] Question: What is the strategy for community count growth? - Moderate growth in community count is expected, with a focus on maintaining presale levels despite higher spec levels due to market conditions [46][61] Question: How does the company view M&A opportunities? - The company is open to M&A but prefers greenfield expansions due to a conservative approach and long-term strategy [101][106]

Core Viewpoint - Smith Douglas Homes Corp. reported a quarterly loss of $0.13 per share, significantly missing the Zacks Consensus Estimate of $0.25, and down from earnings of $0.4 per share a year ago, indicating a substantial earnings surprise of -152.00% [1] Financial Performance - The company posted revenues of $223.92 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 3.42%, and showing a slight increase from year-ago revenues of $220.93 million [2] - Over the last four quarters, the company has exceeded consensus revenue estimates three times, but has only surpassed consensus EPS estimates once [2] Stock Performance - Smith Douglas Homes Corp. shares have declined approximately 21.6% since the beginning of the year, contrasting with the S&P 500's gain of 7.1% [3] Future Outlook - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the upcoming quarter is $0.43 on revenues of $288.39 million, and for the current fiscal year, it is $1.32 on revenues of $1.04 billion [7] Industry Context - The Real Estate - Operations industry, to which Smith Douglas Homes Corp. belongs, is currently ranked in the top 28% of over 250 Zacks industries, suggesting a favorable industry outlook [8]

[Executive Summary & Highlights](index=1&type=section&id=Executive%20Summary%20%26%20Highlights) Smith Douglas Homes reported strong Q2 2025 results with increased closings and strategic expansion, despite some margin and income declines [Second Quarter 2025 Performance Overview](index=1&type=section&id=Second%20Quarter%202025%20Performance%20Overview) Smith Douglas Homes Corp. announced its second quarter results for the three and six months ended June 30, 2025, highlighting strong performance driven by disciplined homebuilding and solid execution - Smith Douglas Homes Corp. (NYSE: SDHC) announced second quarter results for the three and six months ended June 30, 2025[2](index=2&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) CEO Greg Bennett reported strong Q2 2025 results, with home closings exceeding guidance and gross margin at the high end of the range. CFO Russ Devendorf noted uneven new home sales due to affordability concerns but highlighted strategic expansion with 57% more lots under control and 23% more new communities, while maintaining a strong balance sheet with a net debt-to-net book capitalization ratio of 12.1% - CEO Greg Bennett stated that home closings for the quarter came in above guidance, and home closing gross margin of **23.2%** was at the high end of the range[4](index=4&type=chunk) - CFO Russ Devendorf noted new home sales were uneven due to affordability constraints and macroeconomic concerns, but the company ended Q2 with **57% more lots under control** and **23% more new communities** open year-over-year[4](index=4&type=chunk) - The company maintained a strong balance sheet with a net debt-to-net book capitalization ratio of **12.1%** at quarter end[4](index=4&type=chunk) [Key Financial and Operational Highlights (Q2 2025 vs Q2 2024)](index=1&type=section&id=Key%20Financial%20and%20Operational%20Highlights%20(Q2%202025%20vs%20Q2%202024)) The second quarter of 2025 saw modest increases in home closings and revenue, alongside a decline in gross margin and pretax income. Operational expansion was significant, with active community count and total controlled lots increasing substantially Q2 2025 vs Q2 2024 Key Highlights | Metric | Q2 2025 | Q2 2024 | Change (%) | | :-------------------------------- | :------ | :------ | :--------- | | Home closings | 669 | 653 | 2% | | Home closing revenue (in millions) | $223.9 | $220.9 | 1% | | Home closing gross margin | 23.2% | 26.7% | -3.5 pp | | Net new home orders | 736 | 715 | 2.9% | | Pretax income (in millions) | $17.2 | $25.9 | -33.6% | | Earnings per diluted share | $0.26 | $0.40 | -35% | | Debt-to-book capitalization (vs Dec 31, 2024) | 15.2% | 0.8% | +14.4 pp | | Active community count (quarter end) | 92 | 75 | 23% | | Total controlled lots (quarter end) | 24,824 | 15,842 | 57% | [Company Information](index=2&type=section&id=Company%20Information) Smith Douglas Homes provides details on its Q2 2025 conference call, company profile, and investor relations contact [Conference Call & Webcast Information](index=2&type=section&id=Conference%20Call%20%26%20Webcast%20Information) Management hosted a conference call on August 6, 2025, to discuss the Q2 results, with replay options available for seven days - A conference call was hosted on August 6, 2025, at **8:30 a.m. Eastern Time**[6](index=6&type=chunk) - Replay numbers and a playback passcode (**8459388**) are provided, with the replay expiring **7 days** after the event[7](index=7&type=chunk) [About Smith Douglas Homes](index=2&type=section&id=About%20Smith%20Douglas%20Homes) Smith Douglas Homes, headquartered in Woodstock, Georgia, completed its IPO in January 2024 and is a top 50 national builder, targeting entry-level and empty-nest homebuyers - Smith Douglas Homes completed its initial public offering in **January 2024**[7](index=7&type=chunk) - The company is ranked a top 50 builder nationally, holding the **32 position** on the Builder Magazine Top 100 list with **2,867 closings in 2024**[7](index=7&type=chunk) - Smith Douglas primarily targets entry-level and empty-nest homebuyers in metro areas including Atlanta, Birmingham, Charlotte, Chattanooga, Greenville, Houston, Huntsville, Nashville, and Raleigh[7](index=7&type=chunk) [Investor Relations](index=2&type=section&id=Investor%20Relations) Investor inquiries can be directed to Joe Thomas via email - Investor Relations contact: Joe Thomas at **investors@smithdouglas.com**[8](index=8&type=chunk) [Forward-Looking Statements](index=3&type=section&id=Forward-Looking%20Statements) This section contains a standard disclaimer regarding forward-looking statements, emphasizing that they are not guarantees and involve known and unknown risks and uncertainties that could cause actual results to differ materially. The company disclaims any obligation to update these statements - The press release contains forward-looking statements regarding performance, growth, market share, strategic plans, financial position, and ability to navigate the macroeconomic environment[9](index=9&type=chunk) - These statements involve known and unknown risks, uncertainties, and other important factors that may cause actual results to be materially different, as discussed in the Annual Report on Form 10-K[9](index=9&type=chunk) - The company disclaims any obligation to update such forward-looking statements in the future[9](index=9&type=chunk) [Condensed Consolidated Financial Statements](index=4&type=section&id=Condensed%20Consolidated%20Financial%20Statements) This section presents the company's condensed consolidated statements of income, balance sheets, and cash flow information for the reported periods [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For Q2 2025, Smith Douglas Homes reported a 1% increase in home closing revenue to $223.9 million, but a 3.5 percentage point decrease in gross margin to 23.2%. Income before income taxes declined by 33.6% to $17.2 million, resulting in diluted EPS of $0.26, down from $0.40 in Q2 2024 Condensed Consolidated Statements of Income (Q2 2025 vs Q2 2024) | Metric | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :--------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Home closing revenue | $223,924 | $220,933 | $448,646 | $410,142 | | Home closing gross profit | $51,939 | $59,058 | $105,469 | $108,518 | | Selling, general, and administrative costs | $34,702 | $31,809 | $67,701 | $59,350 | | Income before income taxes | $17,179 | $25,866 | $36,746 | $47,273 | | Net income | $16,435 | $24,734 | $35,145 | $45,220 | | Net income attributable to Smith Douglas Homes Corp. | $2,365 | $3,646 | $5,048 | $6,618 | | Diluted Earnings per share | $0.26 | $0.40 | $0.55 | $0.74 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets increased to $570.2 million from $475.9 million at December 31, 2024, primarily driven by a significant increase in real estate inventory and deposits. Total liabilities also rose substantially, mainly due to an increase in notes payable from $3.1 million to $74.1 million Condensed Consolidated Balance Sheets (as of June 30, 2025 vs Dec 31, 2024) | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $16,777 | $22,363 | | Real estate inventory | $320,848 | $277,834 | | Deposits on real estate under option or contract | $132,372 | $103,026 | | Total assets | $570,219 | $475,901 | | Notes payable | $74,088 | $3,060 | | Total liabilities | $155,387 | $74,174 | | Total equity | $414,832 | $401,727 | [Summary Cash Flow Information](index=6&type=section&id=Summary%20Cash%20Flow%20Information) For the six months ended June 30, 2025, net cash used in operating activities significantly increased to $63.8 million from $9.2 million in the prior year. Net cash provided by financing activities also increased to $62.5 million, leading to a net decrease in cash and cash equivalents of $5.6 million Summary Cash Flow Information (Six months ended June 30) | Metric | 2025 (in thousands) | 2024 (in thousands) | | :-------------------------------- | :--------- | :--------- | | Net cash used in operating activities | $(63,847) | $(9,234) | | Net cash used in investing activities | $(4,225) | $(3,153) | | Net cash provided by financing activities | $62,486 | $9,908 | | Net (decrease) in cash and cash equivalents | $(5,586) | $(2,479) | | Cash and cash equivalents, end of period | $16,777 | $17,298 | [Selected Operational Data](index=6&type=section&id=Selected%20Operational%20Data) This section provides key operational metrics including home closings, orders, backlog, and community and lot counts for the reported periods [Selected Other Operating Data](index=6&type=section&id=Selected%20Other%20Operating%20Data) Operational data for Q2 2025 shows a 2% increase in home closings and a 2.9% rise in net new home orders year-over-year. However, backlog homes decreased by 27% to 858 units, and the contract value of backlog homes fell by 28%. Active communities increased by 23% to 92, and total controlled lots surged by 57% to 24,824 Selected Other Operating Data (Q2 2025 vs Q2 2024) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Home closings | 669 | 653 | 1,340 | 1,219 | | ASP of homes closed (in thousands) | $335 | $338 | $335 | $336 | | Net new home orders | 736 | 715 | 1,504 | 1,480 | | Cancellation rate | 10.0% | 11.8% | 9.1% | 11.2% | | Backlog homes (period end) | 858 | 1,173 | 858 | 1,173 | | Contract value of backlog homes (in thousands) | $292,881 | $404,750 | $292,881 | $404,750 | | Active communities (period end) | 92 | 75 | 92 | 75 | | Total controlled lots (period end) | 24,824 | 15,842 | 24,824 | 15,842 | [Segment Performance Analysis](index=7&type=section&id=Segment%20Performance%20Analysis) This section analyzes key financial and operational metrics broken down by the Southeast and Central geographic segments [Home Closing Revenue by Segment](index=7&type=section&id=Home%20Closing%20Revenue%20by%20Segment) In Q2 2025, the Southeast segment saw a 14% increase in home closing revenue and a 15% rise in closings, while the Central segment experienced a 14% decrease in revenue and a 12% decrease in closings. Overall, total home closing revenue increased by 1% year-over-year Home Closing Revenue by Segment (Q2 2025 vs Q2 2024) | Segment | Home closing revenue (2025, in thousands) | Home closings (2025) | ASP of homes closed (2025, in thousands) | Home closing revenue (2024, in thousands) | Home closings (2024) | ASP of homes closed (2024, in thousands) | Revenue Change (%) | Closings Change (%) | ASP Change (%) | | :-------- | :-------------------------- | :------------------- | :------------------------- | :-------------------------- | :------------------- | :------------------------- | :----------------- | :------------------ | :------------- | | Southeast | $141,267 | 407 | $347 | $124,393 | 355 | $350 | 14% | 15% | (1)% | | Central | $82,657 | 262 | $315 | $96,540 | 298 | $324 | (14)% | (12)% | (3)% | | Total | $223,924 | 669 | $335 | $220,933 | 653 | $338 | 1% | 2% | (1)% | [Backlog by Segment](index=7&type=section&id=Backlog%20by%20Segment) As of June 30, 2025, total backlog homes decreased by 27% and contract value of backlog homes decreased by 28% year-over-year. Both the Southeast and Central segments experienced declines in backlog homes and contract value, with the Southeast seeing a 32% drop in homes and 34% in value Backlog by Segment (as of June 30, 2025 vs 2024) | Segment | Backlog homes (2025) | Contract value of backlog homes (2025, in thousands) | ASP of backlog homes (2025, in thousands) | Backlog homes (2024) | Contract value of backlog homes (2024, in thousands) | ASP of backlog homes (2024, in thousands) | Backlog homes Change (%) | Contract value Change (%) | ASP Change (%) | | :-------- | :------------------- | :------------------------------------- | :-------------------------- | :------------------- | :------------------------------------- | :-------------------------- | :----------------------- | :------------------------ | :------------- | | Southeast | 511 | $178,409 | $349 | 752 | $269,502 | $358 | (32)% | (34)% | (3)% | | Central | 347 | $114,472 | $330 | 421 | $135,248 | $321 | (18)% | (15)% | 3% | | Total | 858 | $292,881 | $341 | 1,173 | $404,750 | $345 | (27)% | (28)% | (1)% | [Controlled Lots by Segment](index=7&type=section&id=Controlled%20Lots%20by%20Segment) As of June 30, 2025, total controlled lots increased significantly by 57% year-over-year to 24,824. Both segments contributed to this growth, with the Southeast increasing controlled lots by 49% and the Central segment by 76%, primarily driven by a substantial increase in optioned lots Controlled Lots by Segment (as of June 30, 2025 vs 2024) | Segment | Owned lots (2025) | Optioned lots (2025) | Total Controlled lots (2025) | Owned lots (2024) | Optioned lots (2024) | Total Controlled lots (2024) | Owned Change (%) | Optioned Change (%) | Total Change (%) | | :-------- | :---------------- | :------------------- | :--------------------------- | :---------------- | :------------------- | :--------------------------- | :--------------- | :------------------ | :--------------- | | Southeast | 986 | 16,005 | 16,991 | 843 | 10,537 | 11,380 | 17% | 52% | 49% | | Central | 939 | 6,894 | 7,833 | 832 | 3,630 | 4,462 | 13% | 90% | 76% | | Total | 1,925 | 22,899 | 24,824 | 1,675 | 14,167 | 15,842 | 15% | 62% | 57% | [Net Income by Segment](index=8&type=section&id=Net%20Income%20by%20Segment) For Q2 2025, net income from the Southeast segment decreased by $3.6 million, while the Central segment saw a larger decrease of $7.0 million. Total segment net income declined by $10.6 million, partially offset by a $2.3 million improvement in 'Other' (corporate overhead and non-reportable segments), resulting in a total net income decrease of $8.3 million Net Income by Segment (Q2 2025 vs Q2 2024) | Segment | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Period over period change (in thousands) | | :-------------- | :------------------------------- | :------------------------------- | :------------------------ | | Southeast | $21,991 | $25,598 | $(3,607) | | Central | $6,345 | $13,336 | $(6,991) | | Segment total | $28,336 | $38,934 | $(10,598) | | Other | $(11,901) | $(14,200) | $2,299 | | Total | $16,435 | $24,734 | $(8,299) | [Non-GAAP Financial Measures](index=8&type=section&id=Non-GAAP%20Financial%20Measures) This section provides reconciliations and definitions for non-GAAP financial measures, including net debt-to-net book capitalization and adjusted net income [Net Debt-to-Net Book Capitalization](index=8&type=section&id=Net%20Debt-to-Net%20Book%20Capitalization) Net debt-to-net book capitalization is presented as a supplemental non-GAAP measure to evaluate leverage, defined as total debt less cash and cash equivalents, divided by total debt less cash and cash equivalents plus equity. As of June 30, 2025, this ratio was 12.1%, a significant increase from (5.0)% at December 31, 2024, primarily due to a rise in notes payable - Net debt-to-net book capitalization is a non-GAAP measure defined as (**Total debt - cash and cash equivalents**) / (**Total debt - cash and cash equivalents + equity**)[28](index=28&type=chunk) - This measure is used by management and external users to evaluate leverage and comparability within the industry[27](index=27&type=chunk) Net Debt-to-Net Book Capitalization Reconciliation | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------- | :------------ | :---------------- | | Notes payable | $74,088 | $3,060 | | Equity | $414,832 | $401,727 | | Total capitalization | $488,920 | $404,787 | | Debt-to-book capitalization | 15.2% | 0.8% | | Net debt | $57,311 | $(19,303) | | Total net capitalization | $472,143 | $382,424 | | Net debt-to-net book capitalization | 12.1% | (5.0)% | [Adjusted Net Income](index=9&type=section&id=Adjusted%20Net%20Income) Adjusted net income is a non-GAAP measure that adjusts net income for the tax impact, assuming 100% public ownership and a blended federal and state tax rate (24.9% for 2025, 25.0% for 2024). This measure helps evaluate operating performance and comparability to peers. For Q2 2025, adjusted net income was $12.9 million, down from $19.4 million in Q2 2024 - Adjusted net income is a non-GAAP measure that adjusts net income for the tax impact, assuming **100% public ownership** and a blended federal and state tax rate (**24.9% for 2025, 25.0% for 2024**)[30](index=30&type=chunk)[32](index=32&type=chunk) - Management uses adjusted net income to evaluate operating performance and comparability to industry peers[31](index=31&type=chunk) Adjusted Net Income Reconciliation | Metric | Three months ended June 30, 2025 (in thousands) | Three months ended June 30, 2024 (in thousands) | Six months ended June 30, 2025 (in thousands) | Six months ended June 30, 2024 (in thousands) | | :----------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net income | $16,435 | $24,734 | $35,145 | $45,220 | | Provision for income taxes | $744 | $1,132 | $1,601 | $2,053 | | Income before income taxes | $17,179 | $25,866 | $36,746 | $47,273 | | Tax-effected adjustments | $4,278 | $6,467 | $9,150 | $11,818 | | Adjusted net income | $12,901 | $19,399 | $27,596 | $35,455 |

Group 1 - The individual investor focuses on managing personal capital accumulated over the years, utilizing a diverse range of investment strategies including fundamental, technical, and momentum investing [1] - The investor aims to leverage the strengths of various investment approaches to refine their investment process [1] - The purpose of writing on Seeking Alpha is to track the performance of investment ideas and connect with like-minded investors [1]

PART I FINANCIAL INFORMATION This section covers the company's financial statements, management's analysis, market risk, and internal controls [Financial Statements](index=11&type=section&id=Item%201.%20Financial%20Statements) Q1 2025 financial statements show asset growth to **$513.9 million**, 18.8% revenue increase, but 8.7% net income decrease [Condensed Consolidated Balance Sheets](index=11&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$513.9 million** by March 31, 2025, driven by real estate inventory and deposits, and liabilities rose Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $12,651 | $22,363 | ($9,712) | | Real estate inventory | $294,991 | $277,834 | $17,157 | | Deposits on real estate | $119,339 | $103,026 | $16,313 | | **Total Assets** | **$513,919** | **$475,901** | **$38,018** | | Notes payable | $42,648 | $3,060 | $39,588 | | **Total Liabilities** | **$106,756** | **$74,174** | **$32,582** | | **Total Equity** | **$407,163** | **$401,727** | **$5,436** | [Condensed Consolidated Statements of Income](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Q1 2025 home closing revenue grew 18.8% to **$224.7 million**, but net income declined 8.7% to **$18.7 million** due to rising costs Condensed Consolidated Statements of Income (in thousands) | Metric | Q1 2025 | Q1 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Home closing revenue | $224,722 | $189,209 | +18.8% | | Cost of home closings | $171,192 | $139,749 | +22.5% | | **Home closing gross profit** | **$53,530** | **$49,460** | **+8.2%** | | SG&A costs | $32,999 | $27,541 | +19.8% | | Income before income taxes | $19,567 | $21,407 | -8.6% | | **Net income** | **$18,710** | **$20,486** | **-8.7%** | | Net income attributable to Smith Douglas Homes Corp. | $2,683 | $2,972 | -9.7% | | Diluted EPS | $0.30 | $0.33 | -9.1% | [Condensed Consolidated Statements of Cash Flows](index=14&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities significantly increased to **$34.9 million** in Q1 2025, leading to a **$9.7 million** decrease in cash Summary of Cash Flows (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(34,905) | $(9,273) | | Net cash used in investing activities | $(2,106) | $(430) | | Net cash provided by financing activities | $27,299 | $22,704 | | **Net (decrease) increase in cash** | **$(9,712)** | **$13,001** | - The increased use of cash in operations in Q1 2025 was mainly due to a **$19.5 million** increase in real estate inventory and a **$17.0 million** increase in deposits on real estate under option or contract[202](index=202&type=chunk)[203](index=203&type=chunk) - Financing activities in Q1 2025 were driven by **$66.0 million** in borrowings under the revolving credit facility, partially offset by **$26.0 million** in repayments and **$13.9 million** in distributions[34](index=34&type=chunk)[35](index=35&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=17&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) Notes detail the company's IPO, Up-C structure, accounting policies, **$1.16 billion** in lot-option commitments, and financial facilities - The company completed its IPO on January 16, 2024, raising net proceeds of approximately **$172.8 million** and reorganizing into an Up-C structure where Smith Douglas Homes Corp. is the sole managing member of Smith Douglas Holdings LLC[41](index=41&type=chunk)[42](index=42&type=chunk) - As of March 31, 2025, the company had total lot option contracts with a remaining purchase price of **$1.16 billion**, secured by **$121.0 million** in deposits[69](index=69&type=chunk) - The company entered into a **$250 million** unsecured revolving credit facility in January 2024, maturing in January 2027. As of March 31, 2025, **$40.0 million** was outstanding[73](index=73&type=chunk)[77](index=77&type=chunk) - In connection with the IPO, the company entered into a Tax Receivable Agreement (TRA) and has recorded a TRA liability of **$10.4 million** as of March 31, 2025[113](index=113&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2025 revenue growth from increased home closings, gross margin decline due to rising costs, and liquidity [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Q1 2025 home closing revenue increased 18.8% to **$224.7 million**, but gross margin contracted to **23.8%** due to rising costs Q1 2025 vs Q1 2024 Operating Highlights (dollars in thousands) | Metric | Q1 2025 | Q1 2024 | YoY Change | | :--- | :--- | :--- | :--- | | Home closing revenue | $224,722 | $189,209 | +18.8% | | Home closings (units) | 671 | 566 | +18.6% | | ASP of homes closed | $335 | $334 | +0.3% | | Home closing gross profit | $53,530 | $49,460 | +8.2% | | Home closing gross margin | 23.8% | 26.1% | -2.3 p.p. | | Net new home orders (units) | 768 | 765 | +0.4% | | Backlog homes (units) | 791 | 1,110 | -28.7% | | Contract value of backlog | $270,082 | $381,155 | -29.1% | - The decrease in home closing gross margin was primarily driven by a **3%** increase in the average cost of home closings while the ASP of homes closed remained constant[149](index=149&type=chunk) - The cancellation rate improved, decreasing to **8.1%** in Q1 2025 from **10.6%** in Q1 2024[142](index=142&type=chunk)[143](index=143&type=chunk) [Non-GAAP Financial Measures](index=37&type=section&id=Non-GAAP%20Financial%20Measures) Q1 2025 non-GAAP measures include adjusted gross margin of **24.1%**, adjusted net income of **$14.7 million**, and adjusted EBITDA of **$22.6 million** Reconciliation of GAAP to Non-GAAP Measures (Q1 2025, in thousands) | Measure | GAAP Value | Adjustments | Non-GAAP Value | | :--- | :--- | :--- | :--- | | Home closing gross profit | $53,530 | $646 | $54,176 (Adjusted) | | Home closing gross margin | 23.8% | +0.3 p.p. | 24.1% (Adjusted) | | Net income | $18,710 | $(4,015) | $14,695 (Adjusted) | | EBITDA | $20,749 | $1,818 | $22,567 (Adjusted) | | EBITDA margin | 9.2% | +0.8 p.p. | 10.0% (Adjusted) | - Adjusted EBITDA decreased from **$24.1 million** in Q1 2024 to **$22.6 million** in Q1 2025, primarily due to a **$1.4 million** charge for real estate inventory impairment and lot option contract abandonment in 2025 that was not present in 2024[177](index=177&type=chunk) [Liquidity and Capital Resources](index=41&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2025, liquidity includes **$12.7 million** in cash and a **$250 million** credit facility, with future TRA payments reducing cash flow - The company's principal uses of cash are deposits on lot-option contracts, acquisition of finished lots, and home construction[181](index=181&type=chunk) - The company has a **$250 million** unsecured revolving credit facility maturing in January 2027. As of March 31, 2025, **$40.0 million** was outstanding, with availability of approximately **$194.6 million** under the borrowing base[187](index=187&type=chunk)[77](index=77&type=chunk) - The company is required to make cash payments under the Tax Receivable Agreement equal to **85%** of realized tax benefits, which are expected to be significant and will reduce available cash flow[197](index=197&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) No material changes occurred in the company's market risk disclosures regarding interest rates and inflation since its last Annual Report - There have been no material changes to the information regarding market risk from changes in interest rates and inflation since the company's Annual Report[217](index=217&type=chunk) [Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were ineffective as of March 31, 2025, due to a material weakness in IT general controls, with remediation underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2025, due to a material weakness in internal control over financial reporting[219](index=219&type=chunk) - The material weakness relates to ineffective IT general controls (ITGCs) in user access, change management, and segregation of duties for key IT systems supporting financial reporting[220](index=220&type=chunk) - A remediation plan is in progress, which includes implementing regular reviews of privileged access, strengthening IT policies, reassessing roles and responsibilities, and hiring additional resources with IT control expertise[222](index=222&type=chunk)[223](index=223&type=chunk) PART II OTHER INFORMATION This section addresses legal matters, risk factor updates, and disclosures regarding equity security sales and use of proceeds [Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) The company is subject to ordinary course legal claims but anticipates no material impact on its business or financial condition - The company does not believe that any existing claims or legal proceedings will have a material effect on its business or financial condition[227](index=227&type=chunk) [Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred in the risk factors affecting the company since the filing of its Annual Report - No material changes have occurred in the risks affecting the Company since the filing of its Annual Report[228](index=228&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=47&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered sales of equity securities, no use of proceeds, and no equity purchases during the period - There were no unregistered sales of equity securities or use of proceeds during the quarter[229](index=229&type=chunk)[230](index=230&type=chunk)

Financial Data and Key Metrics Changes - Smith Douglas Homes reported pretax income of $19.6 million and net earnings of $0.30 per share for Q1 2025, with home closing revenue reaching $225 million, a 19% increase from Q1 2024 [5][11] - Gross margin for the quarter was 23.8%, down from 26.1% in the prior year, reflecting higher average lock costs and increased incentives [12][13] - Net income for the quarter was $18.7 million, compared to $20.5 million in the prior year, with adjusted net income at $14.7 million versus $16.1 million [13][14] Business Line Data and Key Metrics Changes - The company closed 671 homes in Q1 2025, a 19% increase from 566 closings in the same quarter last year [11] - Average sales price was approximately $335,000, slightly up year over year due to shifts in geographic and product mix [11] Market Data and Key Metrics Changes - Backlog at the end of the quarter was 791 homes with an average sales price of $341,000, down from 1,100 homes year over year [16][17] - Monthly sales per community improved from 2.4 in January to 3.8 in March, but dipped back to approximately three in April [17] Company Strategy and Development Direction - The company is focused on controlling land through option agreements rather than outright ownership, with less than 5% of unstarted controlled lots owned on the balance sheet [7] - Smith Douglas aims to improve build times and limit spec inventory, emphasizing pre-sales to enhance buyer attachment and reduce cancellation rates [8][9] - The company remains committed to long-term goals of growing market share and achieving better economies of scale while maintaining a strong balance sheet [9] Management's Comments on Operating Environment and Future Outlook - Management noted that while there are affordability concerns and macro uncertainties, demand remains consistent across their footprint [6][23] - The outlook for Q2 includes expectations to close between 620 and 650 homes, with gross margin projected between 22.75% and 23.25% [18][19] - Management acknowledged risks related to macroeconomic factors such as inflation and interest rates, which could impact demand and sales timing [19] Other Important Information - The company is in the final stages of amending its credit facility to increase the total facility size by $75 million to $325 million [16] - The mortgage joint venture continues to improve, with a capture rate of 56% for the mortgage partner [58] Q&A Session Summary Question: How would you characterize the spring selling season overall and expectations for that? - Management indicated that demand has been consistent across their markets, with efforts to solve for affordability [23] Question: Any color on the land environment and ability to find new lots? - Management noted that while land inflation has continued, there are signs of a transition to a buyer's market with some moderation in land prices [26][27] Question: Outlook beyond Q2 and guidance for the full year? - Management expressed uncertainty due to macro conditions but indicated a target of 6,100 closings for the year, contingent on market stability [35][36] Question: Update on Houston expansion and cycle time improvements? - Significant improvements in cycle times were reported, with a goal to reach a 70-day schedule by year-end [40] Question: Demand and pricing power observed in May? - Demand remained consistent with April, but affordability challenges persist [43] Question: Any updates on the mortgage joint venture? - The mortgage joint venture is performing well, with a consistent message on incentives and improving capture rates [57] Question: Are you seeing a pullback in starts from competition? - Management has not experienced interruptions in starts and continues to push starts ahead of budget [61]

Financial Data and Key Metrics Changes - Smith Douglas Homes reported pretax income of $19.6 million and net earnings of $0.30 per share for the first quarter of 2025, with home closing revenue reaching $225 million, a 19% increase from the same quarter in 2024 [4][11] - Gross margin for the quarter was 23.8%, down from 26.1% in the prior year, reflecting higher average lock costs and increased incentives [12][13] - Net income for the quarter was $18.7 million, compared to $20.5 million in the prior year, with adjusted net income at $14.7 million versus $16.1 million [13][14] - The company ended the quarter with $12.7 million in cash and $40 million outstanding on its unsecured revolver, with a debt to book capitalization ratio of 9.5% [14][15] Business Line Data and Key Metrics Changes - Home closings increased to 671 homes, up 19% from 566 closings in the same quarter last year [11] - The average sales price was approximately $335,000, slightly up year over year due to shifts in geographic and product mix [11] - Backlog at the end of the quarter was 791 homes with an average sales price of $341,000, reflecting a decrease from 1,100 homes year over year [15][16] Market Data and Key Metrics Changes - Monthly sales per community improved from 2.4 in January to 3.3 in February and 3.8 in March, but dipped back to approximately three sales per community in April [16][17] - The company launched a $10 million forward commitment program offering a 4.99% mortgage rate buy down in select communities to boost conversion rates [17] Company Strategy and Development Direction - The company is focused on controlling land through option agreements rather than outright ownership, with less than 5% of unstarted controlled lots owned on the balance sheet [6] - Smith Douglas aims to improve build times and limit spec inventory, believing that pre-selling homes enhances buyer attachment and reduces cancellation rates [9] - The company remains committed to long-term goals of growing market share and achieving better economies of scale while maintaining a strong balance sheet [9] Management's Comments on Operating Environment and Future Outlook - Management noted that while there is uncertainty in the economy and industry, the company is built to weather fluctuations and remains focused on executing controllable factors [9][19] - The outlook for the second quarter includes expectations to close between 620 and 650 homes, with gross margin projected between 22.75% and 23.25% [18] - Management acknowledged risks related to maintaining sales pace, managing cost pressures, and broader macroeconomic factors impacting demand [19] Other Important Information - The company is in the final stages of amending its credit facility to increase the total facility size by $75 million to $325 million and extend the maturity [15] - The mortgage joint venture continues to improve, with a capture rate of 56% for the mortgage partner [58] Q&A Session Summary Question: How would you characterize the spring selling season overall and expectations for that? - Management indicated that demand has been consistent across their footprint, with efforts focused on solving for payments to reach affordability [22][23] Question: Any color on the land environment and ability to find new lots? - Management noted that while land inflation has continued, they are starting to see some moderation in land prices, indicating a potential shift to a buyer's market [24][25][26] Question: Outlook beyond Q2 and guidance for the full year? - Management expressed uncertainty due to macroeconomic conditions but indicated a target of 6,100 closings for the year, contingent on market conditions [32][34][45] Question: Update on Houston expansion and cycle time improvements? - Management reported significant improvements in cycle times in Houston, aiming for a 70-day schedule by the end of the year [38] Question: Demand and pricing power observed in May? - Management stated that demand remains consistent with April, but affordability continues to be a challenge [42] Question: Comments on the recent news regarding Landsea? - Management refrained from commenting on other companies' transactions but noted that it reflects good support for the home building space [48] Question: Second quarter gross margin guidance and backlog conversion? - Management indicated that the decline in gross margin is primarily due to higher incentives, but they see potential for improving backlog conversion rates [50][52] Question: Update on the mortgage joint venture? - Management confirmed that the mortgage joint venture is performing well, with consistent messaging on incentives and improving capture rates [56][58] Question: Are you seeing a pullback in starts from competition? - Management noted no interruption in their starts, while competitors are experiencing some slowing in starts [60][61]