Smith Douglas Homes Corp. Class A

Thank you for standing by. My name is Rebecca and I will be your conference operator today. At this time, I would like to welcome everyone to the Smith Douglas Homes third quarter 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 would like to ask a question during this time, simply press star followed by the number one on your telephone keypad If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Joe Thomas, Senior Vice President of Accounting and Finance. Please go ahead.

Good morning and welcome to the earnings conference call for Smith Douglas Homes. We issued a press release this morning outlining our results for the third quarter of 2024, which we will discuss on today's call and which can 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 the 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 Stevendorf, our Executive Vice President and CFO. I'd now like to turn the call over to Greg.

Thanks, Joe, and good morning to everyone. Smith Douglas turned in another quarter of solid profitability in the third quarter of 2024, generating pre-tax income of $39.6 million, or $0.58 for diluted share. The primary driver of these results was continuing to deliver on our growth plan with new home deliveries of 812. a record quarter for our company. These closings led to home closing revenue rising 41% year over year to $277.8 million. We also performed well on the margin front in the quarter, with home sales gross margins coming in at the high end of our guidance range at 26.5%. Despite the impact of the continued high interest rates, We have been able to strategically take price where possible while remaining focused on reducing our sticks and bricks costs of homes sold. We're also able to gain operating leverage on our selling, general, and administrative costs, with our SG&A expenses falling to 12.3% of revenue for the quarter. Order activity during the quarter followed normal seasonal patterns with some variation caused by movements in mortgage rates. We continue to see healthy demand trends in our markets driven by a lack of existing home inventory, strong local economies, and steady growth in household formation. We did experience some hesitancy on behalf of buyers beginning in September and into October. As many people in the market expected rates to come down further or had concerns about the outcome of the election, we believe these issues proved to be temporary headwinds to our sales efforts and optimistic that much of the macro uncertainty will be cleared up in time for the spring selling season next year. During the quarter, we made progress solidifying our presence in our more established markets while also gaining a better foothold in our newer markets. Our two biggest markets, Atlanta and Alabama, continued to perform well for us from a unit delivery perspective. but we do continue to face some issues of affordability in Alabama. The Carolinas held steady during the quarter, while demand in Houston was a little softer. We make further headway, ramping up our operations in central Georgia and Chattanooga with additional hires and contracting of future lots. Additionally, we're happy to announce that we've entered Greenville, South Carolina market, where we've recently hired a new division president, and already have five land deals under contract and expect lot deliveries in early 2026. We've been very deliberate and thoughtful in our expansion efforts, targeting markets with great long-term growth prospects that fit our company's operational strategy. We believe our existing geographic presence will serve as an excellent platform to grow and increase the company's size and scale. Driving this growth will be the same operational philosophies that have proven successful since our inception. Type land via option agreements and land banking arrangements, offer quality new homes at affordable prices, allow our customers the ability to personalize their homes, and work with our partners to streamline the construction process and deliver homes in a timely manner. We remain focused on adhering to this operational model and believe it is the key to our long-term success in this industry. As we head into the end of 2024, we believe we're in a great position to achieve our delivery goals for the year and carry that momentum into 2025. Cycle times are back to their pre-COVID levels in most markets and in some instances even better. We have several new communities scheduled to open ahead of spring selling season that we believe will help us drive sales. We also have the advantage of offering some of the most affordable priced homes of any of the publicly traded home builders. Our balance sheet remains in great shape, and we have a real opportunity to gain in market share. Given these positives, I remain very optimistic about the future of the industry and our company. 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.

Thanks, Greg. I'm going to highlight some of our results for the second quarter and conclude my remarks with our expectations and outlook for the fourth quarter and full year for 2024 and touch on some high-level thoughts for 2025. As Greg mentioned, we finished the third quarter with $278 million of revenue. a greater than 40% increase from the year-ago period on 812 closings for an average sales price on closed homes of $342,000. Our gross margin was 26.5% and SG&A expense was 12.3% of revenue. All these results were at the high end or better of our previous guidance for the quarter. Pre-tax income was $39.6 million with net income of $37.8 million for the quarter. Given the nature of our upseat organizational structure, our reported net income reflects an effective tax rate of 4.4% on the face of our income statement. This income tax expense is primarily attributable to the income related to the 17.3% economic ownership of our public shareholders that is held by Smith Douglas Homes Corp and Smith Douglas Holdings LLC. Our adjusted net income, which is a non-GAAP measure that we believe is useful given our organizational structure, is $29.9 million for the quarter, and assumes a 24.5% blended federal and state effective tax rate as if we had 100% public ownership operating as a subchapter C corporation. We believe adjusted net income is a useful metric because it allows management and investors to evaluate our operating performance and comparability more effectively to industry peers that may have a more traditional structure from an organizational and tax standpoint. You can find more information about our structure and income taxes in the footnotes of our financial statements. We finished the third quarter with just under 18,000 total controlled lots, an increase of 54% over the third quarter of 2023, and 13% higher than second quarter of this year. As we enter and expand into new markets, as Greg previously highlighted, we would expect our year supply of option lots under contract to be elevated from the typical run rate of three and a half to five and a half years of lots controlled based on forward closings. We finished the third quarter with 961 homes in backlog with an average selling price of $346,000 and an expected gross margin on those homes of approximately 25.5%. At the end of the quarter, we were operating out of 74 active selling communities versus 62 at the end of the third quarter last year. Looking at our balance sheet, we ended the quarter with approximately $24 million of cash and no borrowings under our $250 million revolving credit facility and $372 million of stockholders' equity. our debt to book capitalization was 0.9% and our net debt to net book capitalization was negative 5.8%. We had approximately 229 million available on our unsecured credit facility and are well positioned to execute on our growth strategy as Greg previously mentioned. Now I'd like to summarize our outlook for the fourth quarter and full year for 2024. We anticipate our fourth quarter home closings to finish between 750 and 800 homes and an average sales price between $340,000 and $345,000, with gross margin in the range of 25.2% and 25.7%. Based on the aforementioned fourth quarter guidance, we are now projecting total home closings for the full year 2024 to come in between 2,780 and 2,830 homes. An increase of 80 closings are approximately 3% higher than the midpoint of our prior guidance. We expect our average selling price to range between $339,000 to $341,000, and our home closings gross margin to finish between 26% and 26.5%, which is a slight decrease to the higher end of our prior guidance, primarily due to the additional closings we are now forecasting at a lower margin. For SG&A expenses, we now expect our ratio to be in the range of 13.5% and 14% for the full year, an approximate 25 basis point improvement from previous guidance. While we are still wrapping up our 2025 budget process with division management, which we will review with our board in December, I would be remiss if I did not provide some color on our expectations for next year, given that we won't hold our next earnings call until March. Before getting to our numbers, I first must caveat that there are many factors beyond our control that can and will impact our forecasts. But we remain committed to providing the analyst and investor community as much transparency into our business as reasonably possible, which we committed to during our IPO process earlier this year. As Greg previously touched on, we remain long-term optimistic about new home demand given the current and projected lack of housing supply in our markets. Housing affordability continues to remain the biggest challenge across the country. Sitting here today, it is too difficult and too early to gauge the pace and direction at which mortgage rates will move over the next six to 12 months. Additionally, while the election is behind us, it is also too early to determine what impact this administration's policies specifically on immigration and tariffs, will have on our industry and the potential impact on costs and production. With that said, our preliminary expectations are for 2025 closings to be in the range of 3,000 to 3,250 homes, assuming we finish 2024 near the midpoint of our guidance. As we have previously guided, gross margin will continue to compress due to higher land costs, and we would now expect a gross margin target of 25%, with a 25 basis point margin of error to either side. Lastly, we would anticipate our ASP on homes closed to remain relatively flat from 2024 and be within a range of $335,000 to $345,000 for 2025. We believe the primary risk to all of our projections are around our ability to maintain sales pace and bring our new communities and lots online. As I have mentioned on every call, we continue to see some delays with municipalities on permitting and plats. Macroeconomic factors primarily around jobs, inflation, and interest rates could also have unforeseen impacts to our numbers. With that, I'd like to turn the call over to the operator for instructions on Q&A.

At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Mike Dahl with RBC Capital Markets.

Morning. Thanks, Greg, Russ, for all the comments and the opening remarks and the thoughts on 25. Russ, I want to pick up on that and understanding it's very early, lots of moving pieces. When you think about those numbers that you just threw out given the moving pieces, how should we interpret that? Is that kind of assuming a market status quo from where we sit today, these are the numbers you deliver, or is that still embedding some view on some potential improvement in market conditions as kind of the spring kicks off?

Yeah, that's, thanks, Mike, and good morning, but it's pretty consistent with what we're seeing you know, today, just from a market perspective, we're not assuming any, you know, major shift in what, you know, what may or may not happen, you know, just, you know, based on now the fact that we're past elections, interest rates, it's, you know, this is what I would tell you. We've been going through a budget process with the divisions for the last, you know, 45 days, 60 days. It's kind of what we're seeing from the roll-up right now. And look, it's difficult to project, again, because we've had such a great year I think it's been a little bit choppy, you know, towards the last couple months. But yeah, that's our best guess sitting here today. But certainly, you know, if rates come down and things improve, sure, probably some, you know, I'd look more to the higher end of the range. But if we see a little bit more of a shakeup, you know, with jobs or, you know, certainly kind of towards the lower end. Again, just kind of best guess status quo. Okay, Scott.

Yeah, I appreciate the balance there. And then sticking with a similar topic, when you're thinking about that delivery guide, you know, your community counts kind of stagnated a little bit. Obviously, there's a lot of lots you've put under control, a lot of plans for community openings, both in existing new markets so help us understand kind of the ramp as you envision it in into and through uh 25 and then if i could sneak in a different one just back on the lot cost comment can you help us kind of quantify what specifically i know we've talked about this in the past but give us an update on what you're looking at on lot cost for next year versus 24.

Sure, I think you know it'd be fair to expect 15% increase in in Community count next year and again we've got. A lot of communities, I think, coming online when we look at our our lot. You know our our Community schedules, it looks like you know there's there's more communities coming online in the back half of the year, and you know some of this is, if you think about. You know let's go in public putting more lots and we've had a significant ramp up in putting lots under control. it's now getting some of those lots and communities coming online. Because it takes us, you know, once we contract for a deal and, you know, then get, you know, LDP, it's like 14 to 18 months to get a community online. You know, I'd say that that's part of, you know, that growth. You know, you might not, even though we might end with 15% by the end of the year, you know, keep in mind it's not that those are going to be, you know, all, you know, coming online and delivering a full year of absorption. So that's kind of the ramp. And then, yeah, go ahead with your question on lot costs.

Just remind us or refresh us on kind of quantifying what the, you know, as you look at it today, what your average lot costs are going to look like in 25 and how that compares to 24.

Yeah, so I'll start by telling you our lot cost in the quarter was about $85,000, and that's about a 24.8% of our revenue. And it compares last year, we were right at around $73,000 in a lot cost, which was 21 and a half percent of revenue. And then I would, so there's, you know, there's, you know, 300 basis points. And like we talked about, that's, that's the big driver of the compression that we've, we've seen in margin and will continue to be the big driver. Because when you look at our sticks and bricks, it's been relatively flat. And really for the last, you know, two, three years. You know, sticks and bricks have been relatively flat, and we were just looking at this the other day, and our square footage of homes is also flat. So, we've really been able to control our vertical costs, which is great, and the, you know, subcontractor costs, and it's really all the lot costs. And so, as we look towards next year, you know, we think that the lot cost is going to go up another 10 to 12,000, you know, dollars per lot. So it's, you know, somewhere mid-90s or so. And that's, again, assuming that we have a, you know, a flattish ASP, you know, there's going to be your erosion in margin, you know, and again, assuming that we can keep those, you know, vertical costs pretty flat. Okay. Thank you very much. Very helpful. Yep. Sure.

Your next question comes from the line of Michael Reholt with JP Morgan.

Hi, everyone. This is Andrew for Mike. I really appreciate you taking my questions. Sure. And congrats on the quarter.

Thanks, Andrew.

Yeah, you know, thanks for those thoughts on next year. You know, I'd love to get, I'm not sure if you kind of alluded to your assumptions on the potential incentive load going forward. Would love to hear your thoughts on that. I know it's, you know, relatively small for you guys.

Yeah, so incentives, and this is between price adjustments and closing cost incentives, we're running just over 3% for us. You know, the price adjustments are about, you know, a little less than half of that, and the closing costs are a little bit more of that, you know, just over 3%. It's actually when we were looking at that year over year, it's actually slightly down year over year, like about 30 basis points, mostly on the price adjustment side. which is kind of the discounting we give on the sticker price. It's really closing costs where we've seen those incentives creep. You know, we're kind of assuming, you know, our budget or, you know, for next year, flat, you know, flattish incentives. And again, you know, interest rates are going to be the big wild card. Obviously, the Fed continues to lower rates, but I think a lot of that's been baked into, You know mortgages already for for some time, and so it's really difficult. Like I said in the in the prepared remarks, you know who knows the next 6 to 12 months. It's it's real difficult to figure out. You know the direction of of where those rates are going and then clearly we feel like you know with the change in administration and you know some of the policies, you know, hopefully it's it's a more net positive, but you know, certainly remains to be seen way way too early to tell.

Got it. Thanks for that, Russ. And then maybe turning to the M&A environment and maybe a less strict regulation environment, can you talk about what you're seeing there and has anything changed in how the pipeline's looking like?

Sure. Look, we think certainly, you know, less regulation is definitely a positive that will come out of this, whether it's M&A and TAB, Mark McIntyre, And hopefully just in you know us, you know dealing with the municipalities and and you know the federal agencies that we typically have to go through, as we, you know put. TAB, Mark McIntyre, As we go through the process of getting you know zoning and all that stuff so that should be that should be helpful and then just you know, specifically on the m&a front yeah look I think that's going to really go the way of. you know, the general market, you know, how the economy fares going forward. We're still seeing a pretty healthy pipeline. There's definitely deals out there. We've seen packages come across our desk. You know, again, from our standpoint, you know, might be a little too rich right now. But, you know, we're always looking. We're going to be opportunistic, as we've said, you know, previously. um we didn't we did enter uh as greg mentioned uh greenville south carolina we're doing that through a greenfield startup um you know so we're seeing plenty of opportunity as we look at some new markets you know not just on the m a front but you know for us in our business model uh and you know up until we we did the houston deal last year everything we've we've done is through a greenfield startup so we're very confident in in getting ramped up in in markets it takes a little bit longer clearly but um You know, that's probably the strategy that we will, you know, proceed with is more looking at Greenfield. But, yeah, we're seeing some deals. We'll keep our eyes open. But, yeah.

Thank you, Russ. I'll pass it on.

Again, if you would like to ask a question, press star 1 on your telephone keypad. Your next question comes from the line of Sam Redd with Wells Fargo.

Thanks so much, guys, for taking my question. Wanted to touch on the order cadence. On the prepared remarks, it sounds like it was a bit more seasonal, but wanted to put a finer point on that, especially September into October, where it sounds like buyers might have pulled back a bit ahead of the election. And then I know it's still early. But we are, let's call it a week off the election here. Any early thoughts on fire traffic and conversion in November coming off the election that we should be mindful of as we're modeling orders in Q4?

Yes, Sam. Thanks for the question. We did see softer traffic September into October. You know, traffic probably followed more like seasonality. The conversions were slower. Buyers were more hesitant to make decisions. I can only assume that a lot of that's tied to the election and thoughts around, well, will there be incentives and opportunities? Should we wait? Kind of thoughts with buyers. That's an assumption that maybe that was the mentality. You know, as you said, it's been early, but we had good traffic last week, maybe slightly better than seasonal traffic. You know, what's encouraging, our appointments were up. So to me, that's an indicator, maybe future, we're going to see some of the reluctancy to come back. You know, we're still getting conversions. They're just, you know, the typical buyer's taking much longer. to get converted. Yeah, but I think it's too early for us to say there's going to be any meaningful uptake, but we're optimistic.

No, that helps. Thanks, Greg. And then I wanted to talk through your recently announced mortgage JV. I believe that's been a long time coming. I know it's going to probably streamline the mortgage process for your buyers, but maybe also, can you give us any color on how you might be able to better target your financing incentives, perhaps with a more formal mortgage gateway program in place?

Yeah, I think for us, the biggest thing will be consistency across our platform. We've had, I think it's roughly 18 preferred lenders across the footprint, and we're real thankful. For those preferred lenders, it's actually, you know, in my, you know, 25 years in the business, you know, the preferred lenders and the kind of capture that we had been getting had been really good. You know, they were good partners. But there are, look, it's much more difficult to manage that, you know, those kind of relationships. You know, it takes a lot of time for the divisions to do it. It's difficult for us at corporate to really help. in the management and really looking at stats and trying to keep things consistent. So I think the biggest thing for us is the consistency that that's going to bring across the footprint. And then certainly, Loan Depot goes without saying, but they partner with some other big builders. That was a big reason for us choosing Loan Depot. This isn't their first rodeo. They operate all across the country, so they are definitely well Tad Piper- set up to to support us and and the growing business so we're we're real excited about that partnership. Tad Piper- But yeah it's it's going to be a lot of a lot of consistency that we bring to the table and look first and foremost. Tad Piper- For us, the preferred lender relationships and even this loan depot the joint venture you know it's it's going to be great sure it's going to add some dollars to the bottom line. No doubt, but it's really about controlling the process, as most builders would tell you. You know, having that financial partnership and getting that capture is really about controlling the process and helping our buyers mostly, you know, get into the closing table and work through a smooth closing process. So we're pretty excited.

No, thanks so much, Greg. Russ, I'll pass it along. Sure. Thanks, Sam.

Your next question comes from the line of Jay McCandless with Weedbush Securities.

Good morning, guys. Thanks for taking my question.

So, Russ, not to get too much into the details, but with what y'all are talking about with doing some greenfield expansions, any thought as to what SG&A dollars or percentages look like for 2025? Because it sounds like between Chattanooga, Greenville, and the I-75 corridor, y'all are going to be doing a lot of greenfield, buying a lot of new dirt. So, any thoughts on SG&A would be helpful.

Yeah, we're going to finish. I think I quoted 13.5% to 14% this year on SG&A as a percent of revenue. Um, yeah, we're, we're gonna put some, some, you know, more variable. Well, I mean, we're gonna put the, put the fixed overhead in, you know, we've got division president Greenville. We, we've got a, uh, we've hired somebody on the land development side. We're looking at somebody on the, the land act side as, as well. And, and some folks, and then obviously some office space. And so, yeah, there, there's some, there's definitely gonna be some GNA ramp without the revenues, uh, for sure next year. But we are growing, you know, we're hoping to grow the business at least, you know, somewhere in the 10 to 20% range, you know, from a unit volume perspective. And if ASPs stay relatively flat, obviously that's going to grow the revenue. And I think we're pretty good right now on the support center side. You know, I don't think there's a lot of headcount to add on the corporate G&A. So I would be surprised if we didn't see Um, the, the opportunity to leverage more overhead, you know, maybe it's 50 basis points. I mean, we, we'd love to, I'd love to tell you, we're going to get down in a hundred basis points to 12 and a half percent, but it's, it's hard to sit here and say that when we also are looking at some of these greenfield opportunities, um, that, that are going to definitely add some, some GNA. So look, if we can get, you know, closer to 13% next year, I'd say that's probably a good target. If you're, if you're going to try and model something.

And one thing I'll add there, Jay, is Chattanooga, we're already realizing closings there and getting some offset. And the majority of the lot pickup there in Chattanooga was finished lots. So we're already into production and vertical in most all those neighborhoods.

That's great. Thank you, Greg.

I guess the second question on pricing power, I guess, what percentage of communities were you able to raise base pricing and could you break out what incentives were this quarter maybe versus TQ and last year?

Yeah, so I'll touch on the incentives. I know we actually just did an analysis on, you know, communities where we were, you know, where we've raised base prices and, you know, maybe actually took some decreases. And I can tell you, and Joe's here, he's looking it up, but it actually, slowed down clearly, right? We, you know, third quarter, we did not raise price in communities as fast as we had. And actually, in some cases, we were taking base prices down. And Joe, if he's able to pull it up, can give you exact, or we can get back to you after the call. As it relates to incentives, I think I mentioned on one of the prior questions, our incentives And this is between price adjustments and closing cost incentives were just over 3%. A little less than half of that 3% was coming from the price adjustments. And, you know, greater than half of that was on the closing cost side. And that's, you know, mortgage buy downs and, you know, some closing credits and stuff. And then last year that compared, we were actually down about 30 basis points from third quarter of last year. Um, so it was actually the, the, the price adjustments came down a bit, but it was the closing cost incentives that were, that were, that were up. But, but overall between the two, we were slightly down. Um, and then I'd have to look, uh, I don't have the second quarter in front of me, but I want to tell you, I think it's, it's probably, probably about flat from where we saw second quarter, uh, you know, closing costs might've been up a little bit. Um, so it's, um, I mean, again, we haven't, we haven't seen. We haven't seen it move, but I'd say materially, you know, quarter over quarter. We definitely did see, you know, some base price decreases and certainly the speed at which we were raising prices has slowed quite a bit. So we're, you know, we're definitely seeing the effects of a little more choppy third quarter, as Greg mentioned, and kind of as we get, we headed towards the election, you know, some buyer hesitancy.

Okay, great. And then the last question I had, Greg, you touched on Alabama, some affordability issues. I guess, what do y'all do in there, whether it's smaller floor plans, taking some options out? How are y'all attacking that challenge?

So we are focused on plan size, but it's more on the incentive side and margin. I mean, we're just giving up margin to keep pace and making the homes as to meet the buyer's qualification needs.

Your next question comes from the line of Rabe Jadrosic with Bank of America.

Hi. Good morning. Thanks for taking my question. I appreciate all the comments on 2025. I just wanted to follow up on the gross margin side. I think you said your backlog now is a little bit above 25%, maybe 25 and a half, if I heard it right. And you're sort of planning to stay in that range next year. Can you just talk about what that assumes for inflation and net price into what you have visibility on? Um, obviously it sounds like you still have land inflation. It feels like you feel confident you can offset that. Um, just help us understand the puts and takes there.

Yeah. So our backlog right now is sitting at 25 and a half. Um, there's, there could be a little more cushion with rebates in there. Uh, you know, and so we guided, and again, like I mentioned on the prepared remarks, I mean, there's a ton of caveats in there. We're we're. you know so so early to tell what what's going to happen with again rates and policy um you know the best we can sit here and say is hey 25 percent gross margin with you know a margin of error 25 basis points on either side so that 25 could actually come down a little bit but you know what we've seen in our last um we look at gross margin you know in our sales you know we look at it on trailing 13 week and and where things are going and it's still We're still selling at north of 25% as we sit here today. So we'd love to say that we're going to go into the end of the year. And a lot of this depends on how much we sell, the balance of the year and what closings come in at. But we'd love to see our backlog be close to about a third of what we're going to close in 2025. And so if we're sitting at you know, 25 and a half plus percent with 30% of the closings already baked, then you can imagine, you know, we are assuming that, you know, margins are going to continue to compress as we sell throughout the years. But that's just kind of, you know, land costs and, you know, just, you know, really considering a more flat market. But again, if the market doesn't cooperate, sure. I mean, that margin could actually you know, be a little bit lower. And if you know how we operate, which we've talked about before, we are a pace over price builder, right? We're, you know, we make more or we lose less at full capacity. And so we're really, you know, focused on keeping our manufacturing or operating machine going. And so we'll, you know, margin is really that's going to be what we have to dial up or down. to hit our velocity. So it really just, it's going to depend. But sitting here today, we just kind of expect, like I said earlier, status quo, you know, from a market perspective.

It's helpful. Thank you. And then can you talk about what you're seeing in terms of the margins for Devon Street and Houston relative to the overall, like how that acquisitions progress on the margin side?

Sure. I want to say for the year, they were probably around 24, 25%, you know, gross. And it's actually, you know, it's as good as we could have expected. The overall acquisition, you know, one of the, I think our team has done a phenomenal job. You know, it's a huge credit to the Houston folks. We really didn't lose, you know, many folks in the transition. And now it's been, you know, almost, you know, it's over a year But that team's done a phenomenal job of, and our team as well, of just trying to integrate them into the Smith Douglas, you know, system and process. And we've changed over product where we could in neighborhoods. We've obviously rebranded the entire thing. And they are on 100% of our systems. Um, so it's, uh, it's actually, it's actually gone real well. Now, as Greg mentioned, Houston has been a little bit slower in the back half of the year. Uh, first half of the year sales were great. Um, I'd say it's definitely been, been a bit slower. Um, but, uh, they, they will, um, I think as part of our projection, I mean, we will get, you know, 375 to 400 closings out of Houston, uh, this year, maybe, you know, closer to the high end of the range as we sit here today. Um, so it's been a, phenomenal acquisition for us. We're real happy with it. Great. Thanks. Appreciate all the call.

Your next question comes from the line of Alex Baron with Housing Research Center.

Yes, thank you. Good morning. Yeah, I was just Robert Marlayson, Thinking about the rough guidance he gave of 3032 50 for next year, I guess, that would imply maybe 800 to 900 orders a quarter and given where things are at right now, and the comments on hesitancy is that the only thing you think needs to go away. Robert Marlayson, To to get those numbers back up there, or is there a implied ramp up in Community counter. Or is it your other comment about maybe dialing the margin a little bit lower just to increase the pace? What do you guys, how do you guys see the progression to get there?

Yeah, Alex, thanks for the question. It's, like I said, it's, we're assuming kind of a status quo. It assumes that, you know, we, you know, the market doesn't really move strongly one way or another. We do have the land and lots under control. certainly to get to those numbers, right? So 100% of our land and lots for next year are under control to hit those numbers. And I would tell you, look, if the market picks up and rates come down and jobs are great and policy is great, I think we can potentially do better. But, you know, it's real difficult sitting here today. There's definitely You know, the risks to next year, as I see it from a unit volume perspective, are certainly, you know, the market itself and, you know, what's, you know, what's that going to be for the demand picture? And I'd say specifically it's more about jobs, right? We've always, we've definitely been able to solve the affordability issue with rate buy downs and closing costs incentives, and that hasn't been the biggest issue. But if the demand, the actual home buyer demand slows, which I'd say the biggest thing is going to be around job growth or unemployment, that could be the biggest factor that would push you to a lower end of that guidance. And then the other, the second thing I'd say is really just getting some of those communities that we're forecasting mostly for the back half of the year to come online. And, you know, getting those finished lots in the ground so that we can start, you know, building homes. And internally, we have a big focus next year on looking at, you know, we're maniacal about cycle times, you know, when it comes to vertical construction. And so we're really taking a deep dive and a focus on that cycle time around, you know, the lot process and getting lots in the ground.

Okay. Thank you. Appreciate it. And best of luck.

Thanks, Alex.

Again, if you would like to ask a question, press star 1 on your telephone keypad. I will now turn the call back over to Greg Bennett for closing remarks.

Thank you, everyone, for your interest today. Thank you for the questions. Appreciate the opportunity to share with each of you on the earnings call today. Hope everyone has a great day.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.