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]

Table of Contents FORM 10-Q (Mark One) x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2025 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 o For the transition period from ___________________ to ___________________ Commission File Number: 001-41917 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 Securities registered pursuant to Section 12(b) of the Act: Smith ...

Smith Douglas Homes (SDHC) Q1 2025 Earnings Call May 14, 2025 08:30 AM ET Company Participants Joe Thomas - SVP of Accounting & FinanceGregory Bennett - President, CEO, Director & Vice ChairmanRuss Devendorf - Executive VP & CFOMike Dahl - Managing Director - Equity ResearchJay McCanless - SVP - Equity Research Conference Call Participants Alex Isaac - Equity Research AnalystRafe Jadrosich - Managing Director & Senior Equity Analyst Operator Thank you for standing by. My name is Tina, and I will be your con ...

Smith Douglas Homes (SDHC) Q1 2025 Earnings Call May 14, 2025 08:30 AM ET Speaker0 Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Smith Douglas Homes First Quarter twenty twenty five Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Thank you. I would now like to turn the call over to Joe Thomas ...

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]

IPO and Capital Structure - Smith Douglas Homes Corp. issued 8,846,154 shares of Class A common stock in the IPO, generating gross proceeds of approximately $185.8 million at an IPO price of $21.00 per share[16]. - The company used net proceeds of approximately $125.2 million to purchase 6,410,257 newly issued LLC Interests from Smith Douglas Holdings LLC and $47.6 million to purchase 2,435,897 LLC Interests from Continuing Equity Owners[16]. - Smith Douglas Holdings LLC repaid approximately $84.0 million of borrowings under the Prior Credit Facility and redeemed Class C and Class D Units for $2.6 million using proceeds from the sale of LLC Interests[16]. - Continuing Equity Owners hold approximately 82.7% of the economic interest in Smith Douglas Holdings LLC, while Smith Douglas Homes Corp. holds approximately 17.3%[19]. - The Class B common stock has ten votes per share, allowing Continuing Equity Owners to maintain control over significant corporate decisions until the Sunset Date[19]. - The Tax Receivable Agreement provides for the payment of 85% of tax benefits realized by Smith Douglas Homes Corp. to the Continuing Equity Owners[501]. Financial Performance - Home closing revenue for 2024 reached $975,463, an increase of 27.6% compared to $764,631 in 2023[460]. - The cost of home closings increased to $719,921 in 2024, up from $548,304 in 2023, reflecting a rise of 31.2%[460]. - Home closing gross profit for 2024 was $255,542, compared to $216,327 in 2023, marking a gross margin improvement[460]. - Net income attributable to Smith Douglas Homes Corp. for 2024 was $16,070, with a net income of $111,829 overall, down from $123,180 in 2023[460]. - The company reported a net income of $111,829,000 for the year ended December 31, 2024, compared to $123,180,000 in 2023, reflecting a decrease of approximately 9.2%[464]. - Cash flows from operating activities decreased to $19,132,000 in 2024 from $76,257,000 in 2023, indicating a significant decline of approximately 74.9%[464]. - The total stockholders' equity increased to $401,727,000 as of December 31, 2024, up from $208,903,000 in 2023, representing a growth of approximately 92.3%[462]. - The total segment profit for the Company in 2024 was $166.728 million, compared to $149.425 million in 2023, reflecting an increase of about 11.6%[583]. Assets and Inventory - Total assets increased to $475,901 in 2024, up from $352,692 in 2023, representing a growth of 35%[459]. - Real estate inventory rose to $277,834 in 2024, compared to $213,104 in 2023, indicating a 30.4% increase[459]. - Total real estate inventory rose to $277.8 million in 2024, up from $213.1 million in 2023, representing a 30.34% increase[507]. - The company reported outstanding borrowings under its Amended Credit Facility totaling $44.0 million as of March 14, 2025[446]. Costs and Expenses - Selling, general and administrative costs for 2024 were $136,382, significantly higher than $92,442 in 2023, reflecting a 47.5% increase[460]. - Advertising expenses increased to approximately $6.8 million in 2024 from $4.8 million in 2023, reflecting a growth of 41.67%[503]. - The Company recognized $3.0 million of deferred compensation expense related to incentive compensation agreements in 2024, compared to $2.3 million in 2023[533]. - Warranty reserves increased to $3.6 million in 2024, up from $2.8 million in 2023, with additions from new home closings amounting to $1.95 million[532]. Business Model and Strategy - The company operates in multiple markets including Atlanta, Birmingham, and Houston, targeting first-time and empty-nest homebuyers[468]. - Smith Douglas Homes Corp. has adopted a land-light business model, primarily purchasing finished lots via lot-option contracts[468]. Tax and Deferred Assets - The Company recognized a deferred tax asset of $10.5 million related to the purchase of LLC Interests, with a corresponding estimated liability of $10.4 million to the Continuing Equity Owners[566]. - As of December 31, 2024, the net deferred tax asset was $10.9 million after accounting for a valuation allowance of $15.2 million[561]. - The estimated impact of the exchange of all Continuing Equity Owners' LLC Interests was an additional deferred tax asset of approximately $328.2 million[567]. Future Outlook - The company anticipates future growth and capital expenditures, with forward-looking statements subject to risks and uncertainties that may impact actual results[27]. - The Company is currently evaluating the impact of ASU 2023-09 on its financial statement disclosures, which will require expanded income tax disclosures starting in 2025[505].

Financial Data and Key Metrics Changes - Smith Douglas Homes reported pre-tax income of $30 million for Q4 2024, with a total of nearly $117 million in pre-tax income for the full year [8][10] - Revenue for Q4 2024 was $287 million, a 32% increase year-over-year, with an average sales price of closed homes at $344,000 [20][21] - Gross margin for Q4 was 25.5%, while the full year gross margin averaged 26.2%, down from 28.3% in 2023 [24][10] - The company ended the year with $287 million in revenue and a net income of $28.8 million for the quarter [21][10] Business Line Data and Key Metrics Changes - In Q4 2024, Smith Douglas delivered 836 homes, exceeding guidance and setting a quarterly record, with total home deliveries for the year at 2,867 [9][23] - The company generated 569 net new orders in Q4, with incentives impacting margins negatively [11][10] - The average lot cost increased to 24.4% of revenue compared to 21.3% in 2023, contributing to margin pressure [24][10] Market Data and Key Metrics Changes - The average 30-year mortgage rate peaked over 7% in January 2025, impacting affordability for buyers [15][10] - Sales started slowly in January but improved in February and early March, indicating some stabilization in the market [16][10] - Housing inventories remain low due to the lock-in effect, where homeowners are reluctant to sell due to low mortgage rates [16][10] Company Strategy and Development Direction - The company is focused on a land-light strategy, controlling 19,522 lots with 96% acquired via auction agreements [14][10] - Smith Douglas aims to expand operations throughout the Southeast, leveraging its manufacturing approach and operational efficiency [17][10] - The company is optimistic about gaining market share despite potential near-term headwinds from macroeconomic factors [17][10] Management's Comments on Operating Environment and Future Outlook - Management noted uncertainties around interest rates and tariffs as potential headwinds for the business [15][10] - Despite challenges, the company remains optimistic about the long-term outlook for the industry and its operational strategies [17][10] - The balance sheet is strong, with no borrowings under its credit facility, positioning the company well for growth [26][10] Other Important Information - The company ended the year with 694 homes in backlog, with an expected gross margin of just under 24% on those homes [25][10] - SG&A expenses were 14.9% of revenue for Q4, influenced by bonus accruals due to exceeding operational metrics [21][56] Q&A Session Summary Question: Backlog gross margins and dynamics - Backlog margin is about 24%, influenced by sales made in Q4 and increased incentives to maintain sales pace [32][10] Question: Lot cost inflation framework - Lot cost inflation is estimated to erode margins by 200 to 300 basis points, with expectations of leveling off in the future [36][10] Question: Community count growth and cadence - Community count is expected to grow low single digits, reaching around 90 by the end of the year [46][10] Question: Market assumptions in full-year guidance - The company has communities in place to meet its closing guidance, but uncertainties remain regarding margins and macroeconomic factors [62][10] Question: Incentives offered to buyers - Incentives are primarily in the form of closing costs, including rate buydowns, with some discounting as well [91][10]

Home Closings and Revenue - Q4 2024 home closings increased by 28% to 836, setting a company record for quarterly closings[4] - Q4 2024 home closing revenue rose by 32% to $287.5 million, compared to $217.3 million in Q4 2023[4] - Full year 2024 home closing revenue increased by 28% to $975.5 million, up from $764.6 million in 2023[4] - Total home closings for the year ended December 31, 2024, were 2,867, representing a 28% increase from 2,297 in 2023[22] - The Southeast segment contributed $192.609 million in home closing revenue, up 53% from $126.248 million in the same period last year[20] Income and Profitability - Pre-tax income for Q4 2024 was $30.0 million, slightly up from $29.7 million in Q4 2023[4] - Full year 2024 pre-tax income decreased to $116.9 million from $123.2 million in 2023[4] - Net income for Q4 2024 was $28.785 million, a slight decrease of 3% from $29.680 million in Q4 2023[28] - Adjusted net income for the year ended December 31, 2024, was $88.138 million, down 5% from $92.878 million in 2023[36] Orders and Cancellation Rates - Net new home orders for Q4 2024 increased by 9% to 569, while full year net new home orders rose by 12% to 2,649[4] - The cancellation rate for Q4 2024 was 14.8%, slightly higher than 14.0% in Q4 2023[15] Average Selling Price - The average selling price (ASP) of homes closed in Q4 2024 was $344, compared to $332 in Q4 2023[15] - The average selling price (ASP) of homes closed in 2024 was $340, a 2% increase from $333 in 2023[22] Controlled Lots and Debt - Total controlled lots increased by 52% to 19,522 at the end of 2024, compared to 12,821 in 2023[4] - Controlled lots increased to 19,522 in 2024, a 52% increase from 12,821 in 2023[26] - The company reported a debt-to-book capitalization decrease to 0.8% from 26.6%[4] - The net debt-to-net book capitalization ratio improved to (5.0)% in 2024 from 21.1% in 2023, indicating a significant reduction in net debt[33] - The company reported a total debt of $3.060 million as of December 31, 2024, compared to $75.627 million in 2023[33] Backlog - The backlog of homes as of December 31, 2024, was valued at $235.869 million, down 24% from $310.714 million in 2023[24]

Core Viewpoint - The outlook for homebuilder stocks is challenging as the spring selling season approaches, with declining demand and higher mortgage rates impacting performance [1][2]. Group 1: Company Downgrades - D.R. Horton, Inc. (DHI) has been downgraded from Buy to Neutral, with the price forecast reduced from $160 to $150 [3]. - Smith Douglas Homes Corp. (SDHC) has been downgraded from Neutral to Underperform, with the price forecast cut from $33 to $22 [6]. Group 2: Market Conditions - Homebuilder stocks lagged the market in 2024 due to a decline in demand in the second half of the year, primarily driven by higher mortgage rates [1]. - The tough environment for homebuilders is expected to persist through the first half of 2025 [1]. Group 3: Financial Projections - The analyst anticipates a decline in return-on-equity (ROE) for seven out of eight homebuilders in 2025, with order growth negatively impacting margins [2]. - DHI's lot costs, which constitute 26%-27% of total costs, are rising, with a 3% quarter-over-quarter and 10% year-over-year increase in the first quarter [4]. Group 4: Company-Specific Insights - DHI is no longer investing in its rental segment, which already accounts for 11% of book value, and is expected to have a low single-digit ROE for rentals in 2025 [5]. - SDHC is facing cost inflation headwinds and higher mortgage rates, which pressure net prices, despite a 15% community count growth and faster build cycles [6][7]. Group 5: Regional Performance - Housing markets in the Northeast, Midwest, and Mid-Atlantic are expected to outperform the Southeast and other regions, with the move-up and luxury segments set to outperform entry-level markets [3].