Smith Douglas Homes Corp. Q4 FY2025 earnings call

• Greg noted Smith Douglas Homes delivered 780 homes in Q4 with $260M revenue, 19.9% home closing gross margin, $17M net income. Full year 2025 delivered 2,908 homes, record, with $1.19 per diluted share earnings. Generated 532 net new orders in Q4, chose to be disciplined in sales pursuit due to difficult selling environment. Saw encouraging uptick in traffic and order activity in 2026, actively manage incentives. Company-wide build times 57 days in Q4, Houston division made strides with R-team philosophy. Long-term goal to grow volume and gain market share via targeted investment. - Russ highlighted Q4 results: $260M revenue, 9% decrease y-o-y, 780 closings, average sales price $334,000, home closing gross margin 19.9% vs 25.5% in Q4 2024, adjusted gross margin 21%, incentives 6.8% of base prices. Full year 2025: 2,908 homes delivered, 1% increase, $971M revenue, essentially flat y-o-y, home closing gross margin 21.8% vs 26.2% in 2024, adjusted gross margin 22.3%. Net new home orders 2,726, 3% increase. Ended with 512 homes in backlog, active community count up 28%, total controlled lots up 14%. Balance sheet: $12.7M cash, $44.1M notes payable, total equity $444M, debt-to-book capitalization 9%. Discussed pace over price operating philosophy, protecting production engine, current environment not constrained by production capacity, primary challenge aligning sales absorption with production capacity, monitoring pricing and incentives week to week at community level.

Fourth quarter: Delivered 780 homes, $260 million in revenue, home closing gross margin 19.9%, net income $17 million or $0.39 per diluted share. Full year 2025: Delivered 2,908 homes, record for the company, earnings of $1.19 per diluted share. Fourth quarter generated 532 net new orders. Full year 2025 had 2,726 net new home orders, ended with 512 homes in backlog. Active community count increased 28% to 100 communities, total controlled lots increased 14% to approx 22,300 lots.

• For the first quarter of 2026, currently expect closings between 575 and 625 homes, average sales price between 330,000 and 335,000, and gross margin between 17.5% and 18%. - Not providing full-year guidance at this time. - Macro environment remains uncertain, monitoring labor market trends closely.

• Broader macroeconomic conditions including mortgage rates, consumer confidence, and employment trends pose risks. - SG&A costs affected by expansion of divisions and divisionalization, which may impact overhead leverage until divisions reach full capacity. - Land costs still increasing in 2026, with some higher costs flowing through from past acquisitions, and need to continue pushing pace to take advantage of price reset and expand market share through the downturn.

Q: Any color on sales pace, pricing and incentives trends for spring selling season?

A: Followed traditional seasonal patterns, January slower, picked up in February, last couple weeks of March trended higher. Community count up 28% y-o-y, some communities with pre-selling models. Trends so far for spring selling season moving up but inconsistent.

Q: Trends in major markets?

A: Similarities in markets, seasonality consistent, new markets with pre-selling models hopeful to pace like others.

Q: 1Q dynamics, driving decisions to lean back into incentives?

A: A lot of Q4 sales closing in 1Q, leaned heavier into incentives in Q4, seeing uptick in traffic, monitoring on division and community basis, looking to maximize margins but not sacrifice pace, incentives include closing cost incentive, price discounts, forward commitment costs.

Q: SG&A, anything unusual in the quarter?

A: SG&A costs pushed higher due to opening new divisions, divisionalizing divisions, but expect better overhead leverage once divisions at full capacity.

Q: Incentive comp and SG&A leverage?

A: Incentive comp came down in Q4, offset by new divisions not fully operational.

Q: Land costs, relief or stabilization?

A: Land costs increase in 2026 from budget, able to renegotiate with developer partners in some cases, seeing reset in new deals, important to push pace to take advantage of price reset and expand market share.

Q: Spec count, heading into 1Q26?

A: Ideally want pre-sold, specs running about half current inventory, pushing more presales, inventory right where needed, continuing to work on pre-sale vs spec balance.

Q: Land strategy, preference for finished lot purchase agreements vs land banking?

A: Almost always first looking to do finish lot take down, secondly go to land bank partners, seeing softening in some locations, focused on better locations and terms.