Smith Douglas Homes(SDHC) - 2025 Q2 - Quarterly Report

Basis of Presentation 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 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][8] - 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] The Transactions 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] - 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] 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] - 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] Presentation of Financial Information 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] - 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] - 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] Forward-Looking Statements 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 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][23] - 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] - Investors are cautioned not to unduly rely on these statements, as actual results could differ materially due to inherent risks and uncertainties[24] PART I—FINANCIAL INFORMATION 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 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 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 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 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][29] - 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][29] Condensed Consolidated Statements of Cash Flows 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 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 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] - 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][44][45] - 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][55] - Revenue is recognized when a home closes and title transfers, with customer deposits totaling $5.9 million as of June 30, 2025[56][57] - 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] Note 2 - Real estate inventory and capitalized interest 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 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] - 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] 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] Note 4 - Investments in unconsolidated entities 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] 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] Note 5 - Notes payable 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] - As of June 30, 2025, outstanding borrowings under the Amended Credit Facility were $68.9 million, with an interest rate of 6.74%[77][79] - The Company was in compliance with all financial covenants of the Amended Credit Facility as of June 30, 2025[78] - 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] 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 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][87] - The carrying values of these instruments approximate their fair values due to variable interest rates that align with market rates[87][88] Note 7 - Warranty reserves 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 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 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] - 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] Note 10 - Equity 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] - 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] - 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] Note 11 - Share-based payments 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] - 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] - Compensation expense for PSUs was $116,000 for Q2 2025 and $131,000 for YTD 2025[113] Note 12 - Income taxes and tax receivable agreement 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] - 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] 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] - 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][120] Note 13 - Transactions with related parties 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] Note 14 - Segment information 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] 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 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] - Diluted EPS adjusts for potentially dilutive securities, including LLC Interests exchangeable for common stock and unvested RSUs[132] 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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] - 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] - The company's operations are organized into two reportable segments: Southeast (Atlanta, Central Georgia, Charlotte, Greenville, Raleigh) and Central (Alabama, Houston, Nashville)[140] Results of Operations Data 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] - 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][155] - 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][157] - 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] - 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] - 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] Non-GAAP Financial Measures 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] 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] 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 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] - 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][198] - 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] - 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] - 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] - 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] - 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] PART II—OTHER INFORMATION This section provides disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings 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] - 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] Item 1A. Risk Factors 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] - There have been no material changes in the risks affecting the Company since the filing of its Annual Report[232] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - There was no use of proceeds to report[234] - There were no purchases of equity securities by the issuer and affiliated purchasers[235] Item 3. Defaults Upon Senior Securities The Company reports no defaults upon senior securities during the period - There were no defaults upon senior securities[236] Item 4. Mine Safety Disclosures This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[237] Item 5. Other Information 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] - No material changes to the procedures by which security holders may recommend nominees to the board of directors[240] - No insider trading arrangements and policies to report[241] Item 6. Exhibits 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] - Certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are filed herewith[242] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase Documents) and the Cover Page Interactive Data File are also included[242] Signatures This section contains the official signatures of the company's principal executive and financial officers, certifying the accuracy of the report 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] - The report is also signed by Russell Devendorf, Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)[247] - Both signatures are dated August 6, 2025[247]