Smith Douglas Homes Corp. Class A

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Smith Douglas Homes fourth quarter 2025 earnings conference call and webcast. 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, then the number one on your telephone keypad. To withdraw your question, press star one again. We kindly ask that you please limit your questions to one and one follow-up. I would now like to turn the conference over to Joe Thomas, Senior Vice President, 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 fourth 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, outlook, performance, and ability to gain market share, including in uncertain environments, 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 in this call to the most comparable GAAP measures can be found in our press release, located on our website, and in 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. Good morning to everyone joining us on today's call as we go over results for the fourth quarter of 2024 and provide some insight into the state of our home building operations for the first few months of 2025. Ms. Douglas Holmes reported pre-tax income of $30 million in the fourth quarter of 2024, capping off a very profitable year for our company in which we generated nearly $117 million in pre-tax income. The 836 homes we delivered in the quarter were well above our stated guidance range and represented a quarterly record for our company. For the full year, Miss Douglas delivered 2,867 homes. Our gross margins for the quarter came in as expected at 25.5%, which was the midpoint of our guidance. For the full year, gross margins on home closings averaged 26.2%. The combination of strong delivery growth, healthy margins, and quick inventory turns resulted in an adjusted return on equity of 29% for 2024, well above the industry average for publicly traded homebuilders. Overall, we're extremely pleased with our performance in 2024 and look forward to building on successes we've achieved during the year. During the fourth quarter, we generated 569 net new orders. Similar to last quarter, price incentives and closing cost support were an important sales tool to all our communities. While this has been an effective way to address affordability issues, but it had a negative impact on our margins. We made further progress on improving the construction efficiency in the fourth quarter, cycle times coming in at approximately 55 working days, excluding our Houston division. Our trade partners and suppliers continued to buy in to the R-Team philosophy, which streamlines the construction process and provides a level of accountability that leads to better cycle times. The adoption of the R-team system in Houston continues to progress. We expect to see real improvement to their operating efficiency in the coming quarters. Our ability to turn inventory quickly is a key component of our home building strategy, and we remain committed to making incremental improvements across our footprint. We ended the year with 19,522 controlled lots. Of our unstarted controlled lots, 96% were controlled via option agreement consistent with our asset loss strategy. This land-lap model allows us to control a significant number of lots in a capital-efficient manner while offloading much of our risk associated with owning the developing land. As we look ahead to 2025 to move into the heart of the spring selling season, there are microeconomic and political uncertainties particularly around interest rates and tariffs that may cause potential headwinds for the business. Anticipated relief in mortgage rates after the Fed started cutting in the back half of 2024 never materialized. In fact, rates increased throughout the fourth quarter of 2024 and into January, where the average 30-year mortgage reached a peak of over 7 percent. As several of our peers It also reported January sales started off a bit slow compared to our expectations before picking up through February and early March. Despite seeing some stabilization in inflation, affordability remains a significant challenge for our buyers. Additionally, the lock-in effect where homeowners are reluctant to sell due to their low mortgage rates is keeping housing inventories near historic lows and contributing to home prices remaining higher. While there might be some near-term headwinds and additional pressure on margins, longer term, we continue to remain optimistic about the outlook for our industry and especially Smith Douglas. We believe our manufacturing approach to home building, operational efficiency, and land-light strategy will serve us well in any environment. Our balance sheet remains in excellent shape. We have a real opportunity to gain market share as we expand our operations throughout the Southeast. Before I turn the call over to Russ, I want to thank all of our team members for their contributions to a remarkable year for our company. Smith Douglas has come a long way since we started operating out of Atlanta 17 years ago. Our significant expansion throughout the Southeast and Texas over the years, and our highly successful IPO last year, It's all due to the hard work and commitment of more than 450 team members. We truly appreciate all of you. And now I turn it over to Russ.