Smith Douglas Homes Corp. Q1 FY2025 earnings call

Greg Bennett noted strong profitability in Q1 with pre-tax income $19.6 million and net earnings $0.30 per share. There were 768 net new orders in Q1 with a sales pace of 3.1 homes per community per month. Land strategy: less than 5% of un-started controlled lots owned, rest via options/land banking for flexibility and downside risk mitigation. Focus on reducing build times: cycle times averaged 56 days excluding Houston; progress on integrating The Rteam platform in Houston to improve build times. Limiting spec inventory: pre-selling homes to reduce cancellation rates and allow design decisions, lot premiums, and higher margin upgrades.

In the first quarter of 2025, Smith Douglas Homes had home closing revenue of $225 million, a 19% increase over Q1 2024. They closed 671 homes, up 19% from Q1 2024. Homebuilding revenue was $224.7 million, an increase of nearly 19% year-over-year. The average sales price was approximately $335,000, slightly up year-over-year. Gross margin was 23.8%, higher than the guidance range, and on an adjusted basis (excluding a $642,000 impairment charge) was 24.1%. SG&A was 14.7% of revenue, up from 14.5% last year. Net income was $18.7 million, down from $20.5 million in the prior year. Backlog at the end of Q1 was 791 homes with an average sales price of $341,000 and an expected growth margin of approximately 22.5%.

Second quarter outlook: expect to close between 620 and 650 homes with an average sales price between $335,000 and $340,000; gross margin projected to be in the range of 22.75% to 23.25%. Target to reach 3,300 closing target for full year, depending on macro environment and affordability.

Affordability challenges impacting sales conversions. Macro factors like inflation, employment trends, interest rates, and consumer confidence affecting demand. Labor and material cost pressures. Land inflation and potential slowdown in land market transition.

Q: Characterization of spring/summer season demand and geography consistency?

A: Spring demand present but week-by-week, consistent across footprint, solving for affordability.

Q: Land environment and new lot availability?

A: Land inflation continued, but seeing some moderation, transitioning to buyer's market, some negotiating power in land deals.

Q: Full year guidance beyond Q2?

A: No specific guidance, target 3,300 closings, depends on macro environment and affordability.

Q: Houston Rteam integration progress?

A: Big improvements in cycle time, goal to be at 70-day schedule by end of year from ~200 days post-acquisition.

Q: May demand, pricing power, and fiscal 2025 guidance?

A: Consistent with April, no big shift, still challenging on affordability; target 3,000+ closings, macro-dependent.

Q: Houston expansion and milestone timeframe?

A: Cycle time improving, goal to reach 70-day schedule by end of year.

Q: Second quarter gross margin guidance, backlog conversion, mortgage JV?

A: Q2 margin decline due to higher incentives; backlog conversion can be increased by moving speculative inventory; mortgage JV with loanDepot improving, capture 56% last week, improving.

Q: Competition, starts pace, spec inventory?

A: No interruption in starts, competitors slowing starts, pushed starts in Q4 2024, cycle times improving, pre-sales overtaking inventory