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]

Revenue and Income - Home closing revenue increased by 19% year-over-year to $224.7 million, driven by a 19% increase in home closings to 671 units[5]. - Pretax income for Q1 2025 was $19.6 million, compared to $21.4 million in Q1 2024, resulting in earnings of $0.30 per diluted share, down from $0.33[5]. - Net income for the three months ended March 31, 2025, was $18,710, a decrease of 8.7% from $20,486 in the same period of 2024[23]. - Adjusted net income for Q1 2025 was $14,695, down 8.5% from $16,055 in Q1 2024[30]. - The Southeast segment reported net income of $23,855 for Q1 2025, up 13.6% from $21,005 in Q1 2024[23]. - The Central segment experienced a decline in net income to $7,010 in Q1 2025, down 31.9% from $10,283 in Q1 2024[23]. Operational Metrics - Active community count rose by 24% to 87 at the end of the quarter, while total controlled lots increased by 45% to 20,442[5]. - Net new home orders were 768, slightly up from 765 in the previous year, with a contract value of $258.7 million[5][17]. - Cancellation rate improved to 8.1% from 10.6% year-over-year, indicating better order stability[17]. - Backlog homes decreased by 29% to 791, with a contract value of $270.1 million, down from $381.2 million[17][21]. - Total controlled lots increased by 45% year-over-year, reaching 20,442 lots as of March 31, 2025, compared to 14,117 lots in 2024[22]. Financial Position - Total liabilities increased to $106.8 million from $74.2 million at the end of the previous year[12]. - Cash and cash equivalents at the end of the period were $12.7 million, down from $22.4 million at the beginning of the period[15]. - Net debt-to-net book capitalization improved to 6.9% as of March 31, 2025, compared to (5.0)% at the end of 2024[26]. - Total debt increased significantly to $42,648 thousand as of March 31, 2025, from $3,060 thousand at the end of 2024[26]. - The company’s total capitalization reached $449,811 thousand as of March 31, 2025, compared to $404,787 thousand at the end of 2024[26]. Taxation - The company reported a provision for income taxes of $857 for Q1 2025, slightly down from $921 in Q1 2024[30]. - The tax-effected adjustments for Q1 2025 amounted to $4,872, compared to $5,352 in Q1 2024[30]. Strategic Outlook - The company maintains confidence in its strategic plans despite macroeconomic uncertainties, supported by a strong balance sheet and operational execution[4].

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] Group 2 - There is no stock, option, or similar derivative position held by the analyst in any mentioned companies, nor are there plans to initiate such positions in the near future [2] - The article reflects the author's personal opinions and is not compensated beyond the platform [2] - Seeking Alpha does not provide recommendations or advice regarding the suitability of investments for particular investors [3]