Smith Douglas Homes(US:SDHC)2025-05-14 20:32PART I FINANCIAL INFORMATION This section covers the company's financial statements, management's analysis, market risk, and internal controls Financial Statements 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 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 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 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 contract202203 - 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 distributions3435 Notes to Unaudited Condensed Consolidated Financial Statements 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 LLC4142 - 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 deposits69 - 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 outstanding7377 - 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, 2025113 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2025 revenue growth from increased home closings, gross margin decline due to rising costs, and liquidity Results of Operations 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 constant149 - The cancellation rate improved, decreasing to 8.1% in Q1 2025 from 10.6% in Q1 2024142143 Non-GAAP Financial Measures 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 2024177 Liquidity and Capital Resources 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 construction181 - 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 base18777 - 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 flow197 Quantitative and Qualitative Disclosures About Market Risk 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 Report217 Controls and Procedures 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 reporting219 - 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 reporting220 - 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 expertise222223 PART II OTHER INFORMATION This section addresses legal matters, risk factor updates, and disclosures regarding equity security sales and use of proceeds Legal Proceedings 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 condition227 Risk Factors 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 Report228 Unregistered Sales of Equity Securities and Use of Proceeds 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 quarter229230