Smith Douglas Homes Corp. Class A

Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Smith Douglas Holmes second quarter of 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, again, press star and one. I would now like to turn the call over to Joe Thomas, Senior Vice President of Accounting and Finance. You may begin.

Good morning and welcome to Smith Douglas' earnings conference call. We issued a press release this morning outlining our results for the second quarter of 2024, which we will discuss on today's call and to be found on our website at investors.smithdouglas.com or by selecting the investor relations link at the bottom of our homepage. Please note this call will be simultaneously webcast on the investor relations section of our website. Before this call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating goals and performance, are forward-looking statements. Actual results could differ materially from such statements due to known and unknown risks, uncertainties, and other important factors as detailed in the company's SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be found in our press release located on our website and our SEC filings. Hosting the call this morning are Greg Bennett, the company's CEO and Vice Chairman, and Russ Devendorf, our Executive Vice President and CFO. I'd now like to turn the call over to Greg.

Thanks, Joe, and welcome to the team. As we announced last month, Joe is our new senior vice president of accounting and finance, taken over from Eddie Clyde, who has transitioned to a role of division president for the company's newly established Central Georgia division. Joe comes to us from Bank of America, where he provided investment banking services to a number of clients and played a key role in our initial public offering earlier this year. We're thrilled to have Joe as part of the team and expect great things from Eddie in his new operational role. Turning to our second quarter results, Smith Douglas reported pre-tax income of $25.9 million, which translates to $0.40 for diluted share for the quarter. We closed 653 homes during the quarter, which was above our stated guidance. and represents a 17% increase over the second quarter of 2023 and generated $220.9 million in home closing revenue. Home closing gross margin also came in above guidance at 26.7%. That's a combination of solid demand, stable pricing, and cost containment resulting in better margin performance than we had forecasted. Net new home orders for the quarter came in at 715, representing a 17% year-over-year increase. We continue to experience a favorable operating environment in our markets, highlighted by low level of existing home inventory, healthy job growth, and stable in-migration. Demand trends were fairly consistent across our divisions, thanks to our new home offerings which we believe hit the sweet spot of our market in terms of price, customization, and value. It's no secret there's a real need for quality, affordable housing in this country, and we pride ourselves on being a leader and provide solutions to meet these needs. Another aspect of our business we take great pride in and have spoken about previously is our operational efficiency. Home building is a very competitive industry, And success often comes down to how well you execute. From the very beginning, we instill a culture of discipline and accountability at Smith Douglas. We constantly look for ways to improve our operations. From the way we underwrite land deals, to the way we procure labor and materials, to how we build and sell homes. We feel this is one of our main differentiators and is demonstrated by our cycle time remaining in line with our expectations at approximately 60 days outside of our Houston division, which we continued to successfully integrate into the Smith Douglas operating model, and it fully migrated on our IT system. We also feel this efficient cycle time has helped reduce our cancellation rate, which was 11.8% for the second quarter. The final pillar of our operational focus is our landline strategies. We are home builders first and foremost, which means we view land as a necessary component of our business rather than something for speculative investing. We also know land and land development is one of the most costly and unpredictable aspects of this business. As a result, we have made it a priority to eliminate as much of the land risk from our operations as possible by tying up land with option agreements and seeking to take ownership of lots on as close to a just-in-time basis as possible. At the end of the second quarter, 96% of our unstarted controlled lots were controlled via option agreement. While this land acquisition strategy can result in higher lot cost in an upwardly trending market, we feel it serves as an insurance policy against potential downturns. It also allows us to deploy our capital more efficiently and generate better returns. Overall, we feel good about the current state of our operations. We believe we have the right strategy in place in the right markets to allow us to grow our home building operations beyond what they are today. The macro environment remains positive and there continues to be a real desire for home ownership in this country. Our balance sheet is in great shape and we have a solid momentum as we head into the second half of the year. As a result, we believe we are well positioned to achieve our goals for this year and beyond. With that, I'd like to turn the call over to Russ who will provide more detail on our performance this quarter and give an update on our outlook for the year.