Smith Douglas Homes Corp. Q3 FY2025 earnings call

• Greg Bennett mentioned the company executed on its long-term strategic plan, focusing on quality homes at affordable prices with tight cost controls. - Third quarter pretax income was $17.2 million, earnings per share $0.24. - Net orders increased 15% year-over-year. - Made progress in new markets: vertical construction in Greenville, interest lists in Dallas, Gulf Coast market to launch mid-next year. - Cycle times 54 days excluding Houston division. - Balance sheet in great shape with new communities slated to open.

In the third quarter of 2025, home sales revenue was $262 million from 788 home closings, with an average selling price of $333,000. Gross margins on homes closed averaged 21% for the quarter. Home closings were 788, and net orders increased 15% year-over-year to 690 homes.

• Fourth quarter expected to close between 725 and 775 homes. - Average sales price expected between $330,000 and $335,000. - Gross margin projected in the range of 18.5% to 19.5%. - Expect to continue using forward commitment programs to drive sales velocity.

• Macroeconomic factors like inflation, employment trends, interest rates, and consumer confidence could impact demand. - Labor and materials cost pressures. - Permitting delays in municipal levels across markets, more prevalent in central metro areas.

Q: Bridge Q3 to Q4 gross margin and talk about incremental price discounting versus forward commitments?

A: Russ Devendorf said they continue to push incentives to maintain pace over price, using forward commitments to drive sales velocity and expecting to continue using rate buydowns through year-end.

Q: Bridge Q3 to Q4 gross margin and talk about incremental price discounting versus forward commitments?

A: Russ Devendorf said they continue to push incentives to maintain pace over price, using forward commitments to drive sales velocity and expecting to continue using rate buydowns through year-end.

Q: Geographic distribution of active communities and controlled lots and market expansion priority?

A: Russ Devendorf said they prioritize markets where they can gain scale, focusing on areas like Charlotte, Carolinas, Nashville, Central Georgia, Chattanooga, Dallas, and Gulf Coast, aiming for at least 400 closings per division.

Q: Spec versus build-to-order mix in deliveries and backlog, margin difference?

A: Russ Devendorf said Q4 closings likely had a higher spec count, maybe 50-50 but leaning towards spec, and backlog has a mix, with historically heavy presale before line in the sand but current environment shifted to more spec.

Q: SG&A run rate with community count growth?

A: Russ Devendorf said they are budgeting, expecting fixed overhead leverage and variable SG&A to move with community count and sales, expecting leverage next year.

Q: Incentives flow monthly, forward commitment spread, absorption pace target?

A: Russ Devendorf said incentives trended up through the quarter, forward commitment costs came down as rates moved down, and they target absorption pace of 2.5 to 3 in Q4.

Q: Consumer mix shifts, downsizers and active adults hesitation?

A: Greg Bennett said they are seeing buyers with contingencies not closing, new homes cheaper than resales making it difficult for move-down buyers.