• Revenue: $277.8 million, a 41% increase year-over-year.
• Pretax Income: $39.6 million or $0.58 per diluted share.
• Net Income: $37.8 million for the quarter.
• Adjusted Net Income: $29.9 million, assuming a 24.5% effective tax rate.
• Gross Margin: 26.5%, at the high end of guidance.
• SG&A Expenses: 12.3% of revenue.
• Home Closings: 812 homes, with an average sales price of $342,000.
• Backlog: 961 homes with an average selling price of $346,000.
• Total Controlled Lots: Just under 18,000, a 54% increase over the prior year.
• Active Selling Communities: 74, up from 62 the previous year.
• Cash and Credit Facility: $24 million in cash, no borrowings under a $250 million revolving credit facility.
• Debt to Book Capitalization: 0.9%.
• Net Debt to Net Book Capitalization: Negative 5.8%.

• Warning! GuruFocus has detected 7 Warning Signs with SDHC.

Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Smith Douglas Homes Corp (NYSE:SDHC) achieved a record quarter with 812 new home deliveries, leading to a 41% year-over-year increase in home closing revenue to $277.8 million.
• The company reported a strong gross margin of 26.5%, which was at the high end of their guidance range.
• SG&A expenses were reduced to 12.3% of revenue, indicating improved operating leverage.
• Smith Douglas Homes Corp (NYSE:SDHC) expanded its market presence by entering the Greenville, South Carolina market with five land deals under contract.
• The company maintained a robust balance sheet with $24 million in cash, no borrowings under its $250 million revolving credit facility, and a debt to book capitalization of 0.9%.

Negative Points

• The company experienced some buyer hesitancy in September and October due to high mortgage rates and election uncertainties.
• Affordability issues were noted in the Alabama market, impacting unit deliveries.
• Lot costs increased significantly, contributing to margin compression, with expectations of further increases in 2025.
• Order activity showed seasonal variation, with softer demand in Houston and hesitancy in buyer conversions.
• The company faces challenges with delays in permitting and platting processes, which could impact the timely availability of new communities and lots.

Q & A Highlights

Q: How should we interpret the 2025 projections given the current market conditions? A: Russell Devendorf, CFO, explained that the projections are based on the current market status quo without assuming any major shifts. The numbers reflect what they are seeing from their budget process, and adjustments will depend on changes in interest rates and job market conditions.

Q: Can you elaborate on the expected ramp in community count and lot costs for 2025? A: Devendorf noted a 15% increase in community count is expected, with more communities coming online in the latter half of the year. Lot costs are projected to increase by $10,000 to $12,000 per lot, impacting margins due to higher land costs.

Q: What are your thoughts on incentives and their impact on future sales? A: Devendorf stated that incentives, including price adjustments and closing costs, are running just over 3%. They expect incentives to remain flat next year, with interest rates being a significant factor influencing this.

Q: How is the M&A environment affecting your strategy, and what changes are you seeing? A: Devendorf mentioned that less regulation could positively impact M&A and dealings with municipalities. They are seeing a healthy pipeline of deals but are focusing on greenfield start-ups for expansion, as seen with their entry into Greenville, South Carolina.

Q: Can you provide insights into the order cadence and buyer behavior post-election? A: CEO Greg Bennett noted softer traffic and slower conversions in September and October, likely due to election-related hesitancy. However, post-election traffic has been slightly better than seasonal, with increased appointments indicating potential improvement.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.