Smith Douglas Homes Corp. Class A

Hello and welcome to Smith Douglas Home Second Quarter 2025 call and webcast. Please note that this call is being recorded. After the speaker's prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd like to hand the call over to Joe Thomas. You may now 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 second quarter of 2025, 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, or 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 gap 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 Homes turned in another strong operational performance in the second quarter of 2025, generating pre-tax income of $17.2 million and an earnings of 26 cents per diluted share. Home sales revenue was $224 million for the quarter on home closings of $669, which exceeded the guidance range we gave last quarter. Home closing gross margin came in at the high end of our guidance range at 23.2%, and net new orders for the quarter totaled 736 homes. Overall, I'm proud of our company's performance this quarter, despite a challenging macroeconomic backdrop for home building, and believe it once again demonstrates the strength of our asset life operational model focused on turning inventory quickly. We experienced inconsistent demand trends during the quarter, with stretches of solid order activity followed by periods of softness. While we believe there's a strong desire In need for new homes in our markets, affordability constraints, declining consumer confidence, and lack of urgency from buyers continue to be a headwind for our industry. As a result, we remain intensely focused on operating elements that are within our control, which include making our homes as affordable as possible while giving our buyers the choice and customization they desire. Our average sales price on homes closed this quarter came in at $335,000, which is one of the lowest ASPs of our peers. We ended the second quarter with 92 active communities, a 23% increase over the second quarter of 2024, and improved our controlled lot count by 57% compared to a year ago to almost 25,000 lots. Under our asset lot strategy, which gives us operational and financial flexibility to adjust to challenging market conditions, optioned lots accounted for 96% of our unstarted controlled lot count at the end of the quarter. We continue to focus on growing our operations in existing markets while exploring strategic expansion opportunities where we can deploy our operating model further increase our overall market share of new home sales and achieve better economies of scale and operating leverage. To that end, I'm happy to share that we'll be entering Dallas-Fort Worth and Gulf Coast of Alabama markets through Greenfield Startups. We have been working to secure several finished lot positions in DFW over the last six months and expect closing our first lots and start selling by year-end. Additionally, we have been working on several opportunities to acquire lots in the greater Baldwin County area of southern Alabama and expect to close on several land deals that would have us targeting communities opening in the second half of 2026. We believe in long-term growth prospects of these markets, and they fit nicely into the geographic footprint where we can continue to deliver first-time homebuyers affordable, high-quality personalized homes. Construction efficiency continues to be another major focus area of our company. Excluding Houston, our average cycle time at the end of the quarter was 54 days, which is down from 60 days in second quarter of 2024. We continue to make headway in the court of bringing Houston division on board with these principles and look forward to them achieving cycle times closer to the company average in the near future. Despite the challenging sales backdrop, we feel our balance sheet remains in great shape with our net debt to net book capitalization ratio coming in at 12.1% at the end of the quarter. The strength of our balance sheet allows us to operate from a position of strength and remain opportunistic when the market dislocations occur. With our previously announced $50 million share repurchase authorization, we also have the flexibility to buy our stock back should the opportunity present itself. As we head into the second half of the year, I feel good about our company's outlook, even as the macroeconomic and interest rate environments continue to remain uneven and uncertain. We have many well-located communities and some of the best markets in the country. and deliver homes at an average selling price that represents a good value. We continue to look for ways to curb costs, and our build times continue to improve, which will help us turn our inventories faster. Despite the uneven sales environment in the second quarter, our can rate was actually down year over year at 10% for the quarter, which is a testament to the appeal of our homes and the shortened time between sales and closings. We also have several new communities open at the start of the third quarter, which will serve as a tailwind for our sales efforts. Given these positives, I remain optimistic about the future of Smith Douglas Homes. Now I'd like to turn the call over to Russ, who will provide more detail on our financial and operational performance this quarter and give an update on our outlook for third quarter.

Thanks, Greg. I'll now walk through our financial results for the second quarter and then provide an update on our outlook for the third quarter. We closed 669 homes during the second quarter, up 2% from 653 closings in the same quarter last year. Home building revenue was $223.9 million, an increase of 1% over the prior year. Our average sales price was approximately $335,000, which is down slightly year over year, due to slightly higher discounts and shifts in geographic and product mix. Gross margin came in at 23.2%, which was at the high end of our guidance range and compares to 26.7% in the prior year. Our lower year-over-year margin reflects the impact of higher average lot costs, which were 26% in the current quarter versus 23.9% of revenue in the year-ago period, as well as rising incentives and promotional activity, which totaled 4.8% of revenue this quarter, up slightly from 4.2% a year ago. SG&A was up 2.9 million versus prior year and was 15.5% of revenue compared to 14.5% last year, driven primarily by increased payroll and associated expenses with a sizable portion of the increase coming from the opening of new divisions over the last few quarters. Net income for the quarter was 16.4 million compared to 24.7 million, in the prior year and pre-tax income was $17.2 million versus $25.9 million. Adjusted net income was $12.9 million compared to $19.4 million in the prior year. As a reminder, given the nature of our up-sea organizational structure, our reported net income reflects an effective tax rate of 4.3% this quarter, which is attributable to the approximate 18% economic ownership held by the public shareholders through Smith Douglas Homes Corp and Smith Douglas Holdings, LLC. Because the majority of our earnings are allocated to our Class B members, which is shown as income attributable to non-controlling interests on our income statement, we provide adjusted net income, which assumes 100% public ownership and a 24.9% blended federal and state effective tax rate. We believe this measure is helpful in evaluating our results relative to peers with more traditional C corporation structures. Additional details on our structure and related income tax treatment can be found in the footnotes to our financial statements. Turning to the balance sheet, we ended the quarter with $16.8 million in cash and had approximately $70 million outstanding on our unsecured revolver, with $189 million available to draw. As I mentioned on our last earnings call, we finalized the amendment to our credit facility, which included, among other things, an increase in total size to $325 million and extended the maturity to May 2029. Our debt-to-book capitalization was 15.2%, and our net debt-to-net-book capitalization was 12.1%. Backlog at the end of the quarter was 858 homes with an average sales price of $341,000 and an expected gross margin of approximately 21.5%. Monthly sales per community went from 2.8 in April to 2.4 in May and 2.8 in June. In July, we saw that average dip back to approximately 2.5 sales per community. Affordability remains a key challenge for our buyers, and we continue to lean into targeted incentives to support sales. Continuing our program from late March, we utilized forward commitments to buy down interest rates, which we believe help boost conversion rates. During the quarter, we recognized 0.9 million of costs on forward commitments, which is recorded as an offset to revenue. We expect to continue to utilize these rate buy downs through the end of the year as we focus on a pace over price philosophy. Turning to our third quarter outlook, We expect to close between 725 and 775 homes with an average sales price between 330,000 and 335,000. Gross margin is projected to be in the range of 20.5% to 21.5%. While incentives will continue to pressure margins, we are maintaining discipline in how and where we deploy them. We ended the second quarter with 92 active communities and expect to see that number continue to grow modestly throughout the remainder of the year. We're actively opening new communities across multiple divisions and remain focused on supporting a stable and scalable growth platform. Before I conclude, I want to reiterate that while we're pleased with our results through the first half of the year, our outlook does include several risks. As always, our ability to achieve these results will depend on maintaining an adequate pace of sales, bringing new lots and communities online as scheduled, and managing cost pressures, particularly in labor and materials. Additionally, broader macroeconomic factors such as inflation, employment trends, interest rates, and consumer confidence could create headwinds to demand and impact the timing of our volume of sales and closings. We remain focused on executing what we can control and believe our land light model, steady operations, and financial strength position us well to navigate these challenges over the long term. With that, I'll turn the call over to the operator for questions.

We are now opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. Please keep your question to one question and one follow-up. Your first question comes from the line of Sam Reed of Wells Fargo. Your line is now open.

Awesome. Thanks so much. Definitely great to see the gross margin come in at the high end of the guide for the second quarter. Just curious what you're seeing from a stick-and-brick labor standpoint or either of those you know, tailwinds relative to expectations in the quarter. And then looking to your third quarter guide, it does look like the homes you're planning to sell in close into your quarter will be carrying a lower margin relative to your backlog. I'm just curious what's embedded in your gross margin assumptions from an incentive standpoint, especially as it sounds like you're stepping up finance incentives.

Yeah, good morning, Sam. The sticks and bricks were flat during Q2. They're down year to date a little. I'll let Russ hit a little bit on the gross margin pressure.

Yeah, so what we assume for Q3 is continued incentives, particularly on the forward commitments. So we've had some success. with the rate buy down. So we implemented, we started really back at the end of the first quarter and carried it through second quarter. So we've seen that it's a pretty good traffic driver. So we've been buying rates down to, you know, on a fixed basis to 499. We started to implement a 5-1 arm at a 399 and it's been pretty good from a traffic standpoint. So that's really the expectation is we'll at least continue that through the third quarter and really just kind of monitor it as we move along. The nice thing is we did see a little bit of a tick down in rates and certainly the cost of the forward. So that was nice this past week. But that's kind of our assumptions going forward.

That's helpful. And then maybe switching gears, just touching on lots. So it looks like your controlled lot position is up almost about 60 or so percent year over year. Maybe just break out kind of what that looks like. in your existing markets versus how much of that might have come from some of the newer markets that you're looking to enter, like Dallas and the Gulf Coast? Just so we can kind of contextualize what that looks like in the context of your existing operations. Thanks.

Sure. Yeah, nothing yet from the Gulf Coast. But for Dallas, we're probably 600 or so Lots, I believe, in there. And then we had a significant bump in Chattanooga over the last six to 12 months, which is part of our Atlanta division. But really, it's something that we're looking at as a possible standalone division in the future. So we've got some growth in there. Central Georgia as well, which we also mentioned about six months ago, we divisionalized that. That's kind of another split from Atlanta because of the continued growth. uh in in our largest division uh but middle georgia central georgia is uh you know perry making that you know is really really kind of south of i-20 if you know the atlanta market so we've we've picked up uh quite a few lot positions and then obviously greenville uh was another division that we uh opened last year and we continue to to pick up lots so it's it's coming i mean it's it's actually a pretty good um uh spread across the footprint of the company. You know, Houston, clearly, we continue to drive growth. We think, you know, going from, you know, close to 400 closings last year, you know, we've got a view that that can be another 1,000-unit market for us in the next few years, so we continue to add lot positions. So it is spread across the company, but, you know, hopefully that gives you a little bit of color in some of the newer spots that we're entering. Thanks, Sam.

No, thanks so much. Oh, go on. No, that was it. That was it. Awesome. No, thanks so much, guys. Really appreciate it. I'll pass it on. Thanks.

Your next question comes from the line of Mike Dahl of RBC Capital Markets. Your line is now open.

Hey, good morning, everyone. You've actually got Steve and Mia on for Mike Dahl today. Thanks for taking my questions. I wanted to start by kind of checking in on your thoughts for the outlook for the full year. Obviously, third quarter guide is super helpful and want to fully respect the volatility in the current macro with everything going on out there. But I was kind of hoping you could share with us how you're thinking about the kind of 3,000 to 3,100-ish homes target you gave us last quarter and kind of what may have James, if that's kind of still a good guidepost and if there's any more details you could give us on how you're thinking about the balance of the year, that'd be helpful. Thanks.

Sure. Yeah, obviously we feel a lot better about, you know, giving Q3 guidance. It's, you know, just given the environment, it's pretty difficult to forecast, you know, too far out. Obviously, you know, we put out $3,000. That's a goal for us as a company. It's definitely achievable. We certainly have the lot positions. You know, we've got the community count. So it's really going to depend on demand for us. And look, as Greg mentioned, I mean, we've got a pace over price philosophy. So for us, it's really just finding that price in which we can continue to clear you know, inventory and continue to push sales. But, you know, 3,000 is in our sights. You know, 3,000-plus would be great. And so, you know, it's really, you know, going to depend on the demand and more the macro environment if we can get there. You know, we felt like we had a pretty good balance this quarter, and we've started using incentives and driving traffic. And, you know, the nice thing is just this past week we had – I don't know if it was – a contribution of kind of where rates moved last week, but we did see a nice uptick in traffic and had a pretty good week of sales this past week. So we'll see, but it's still a target of ours.

That's super helpful. Appreciate the context there. Secondly, I had a question on the land side. You mentioned last quarter that you were starting to see some cracks in sellers out there. So I was wondering kind of from a higher level what your current view of the kind of land landscape is and what may have changed from last quarter to this quarter and your overall views on that. Thanks.

Yeah, thanks. I'll take that. We're, you know, we are seeing some softness in the land. It's really not a lot of pullback on price. we are seeing the ability to go back on some terms and more favorable negotiating. But on the land itself, it's still holding. But there's a fair amount of retrading going on currently, and I think we'll see that continue probably through the end of the year yet.

Got it. Super helpful, guys. I'll pass it on. Thanks.

Next question comes from the line of Andrew Ozzie of JP Morgan. Your line is now open.

Hi, guys. Thank you for taking my question. I appreciate the time here. I would love to kind of focus in on, you know, maybe get an update for how are you thinking about community account growth. I mean, I think with – obviously, I don't think you necessarily got it to 3,000, but if that were the case, that would imply – a nice year over year growth and closings in four Qs. So just wanted to see if you guys can expand on that any further. Thank you.

Sure. Yeah, look, clearly that was a little bit of a soft guide I gave on the last question. But like I said, it's good to have goals, right? So that $3,000 is a target for us. We'd like to get there. You know, as far as community count, so like I said, we've got the community count. You know, the other thing to keep in mind with some of our community, the way we count it, we've got a few communities in Houston where we've got some different lot sizes, more or less the same product. So there's, you know, there's probably our community counts may be overstated or it includes really like probably three communities where you've got a couple lot sizes, but we do count them as separate communities. So You typically don't get the same absorption pace in where you've got a couple of, you know, different single family lot sizes. So I just want to, you know, at least highlight that. But yeah, we think that there'll be some moderate growth with community count, you know, through the back half of the year. And you're right. I mean, fourth quarter, you know, we've got some expectations. We've got the inventory in the ground. You know, when you look at our uh you know spec levels uh today they're a little more elevated than than we normally have you know we're we're primarily a pre-sale builder um but you know with the way that we we operate from a really an assembly line manufacturing approach you know we we continue to to watch our inventory levels but we're pushing we're pushing pace and pushing incentives so that we can uh you know target our our uh you know absorptions and and you know try and get to our closing number. So hopefully that gives you a little color.

Thanks, Rob. Always helpful. I guess for my second question, I just want to say expand on maybe if you can expand on the decision to enter VFW. Obviously, I think that's positive, a net positive, but given kind of the inventory dynamics there and potentially some oversupply, what drove that decision and kind of your strategy going forward for Greenfield there and and into other markets in the future?

Yeah, I'll take that. If we entered Houston, part of that message was kind of it's a launchpad for us across Texas with DFW being in the sights. We've actually been on the ground in DFW for several months now, working on some opportunities and trying to be opportunistic where it's you know, it was available and feel like we've got some really good positions there. We understand, you know, the dynamics in that market presently, but feel like as in any of our markets, we're in a good place with those lots that we've secured.

Yeah, the only other thing I'd add there is obviously with our business model, we maintain a pretty conservative balance sheet and there was a a really good opportunity to pick up finished lots, and we're definitely seeing some dislocation in the market there. Like you said, I think there's some builders that are struggling. Our hope is that clearly we're getting it at a time where we think there's opportunity. Could there be some continued softness? Sure, but we just feel like with our balance sheet and really our long-term philosophy, we knew we were going to be there. It just felt like the right time, and we can pick up finished lots with some pretty low deposits, and so really, really limits the risk, but it's a good time for us to start taking advantage of some opportunity.

That makes a lot of sense. I appreciate the call, I guess. I'll pass it on.

Thanks. Next question comes from the line of Grace Chadrosick of Bank of America. Your line is now open.

Grace, thank you. Hi. Good morning. Thanks for taking my questions. Good morning, Rick. Good morning. I first wanted to ask, just with the DFW and Gulf Coast entries, how do we think about just the SG&A run rate from here? Is there any sort of incremental investment as you ramp up into some new markets here? And then how do we think about, you know, Chris Wanner, Building strategy, which is very efficient, how do we think about when those markets are able to get scale and you're able to like implement your your our team and at what level of you know deliveries, you need to get to before that that hits that run right.

Chris Wanner, Sure, like we mentioned in the prepared remarks probably about half of where we saw the. the year-over-year increase in SG&A was really from some of these new divisions. And so, you know, it's really payroll. It's headcount costs. That's the big driver when you're doing a greenfield startup is just putting some boots on the ground there. So, yeah, I think, look, the cost is – there's a cost. It's moderate, but, you know, maybe a couple million dollars in the first year to really get a division going. before you start seeing some significant sales closings. But when we do a greenfield startup, the plan is within the first two years, we'd like to get, and you know the way that we do business with our R team model, kind of our geographic pause, but within the first two years, the plan is always to get to a run rate of about that 200 closings, which is one full R team. It's usually about two years before you start seeing some generating some profits. You know, the hope is that those first, you know, 12 to 18 months, you're going to get to, you know, kind of a break-even and then kind of you get that run rate of 200. And then every, you know, call it 18 months or so, you'd like to see adding another R-team, so another 200 units and get to 400. I mean, that's our approach is that we want to enter markets where we can get at least two full R-teams. And certainly with Dallas, you know, that's the largest market in the country. You know, that's a market where we'd love to see within, you know, five years plus, you know, 1,000. We hope that we can get to 1,000 deliveries there, just kind of like where we're targeting in Houston when we did that acquisition. So that's really the thought process and how that math works for us.

That's really helpful. And then... We look at the backlog is obviously down quite a bit year over year. How do you think about the percentage of spec going forward here? Where has it been historically? Where was it in the quarter? And how do we think about it going forward? And your comfort level in spec shifting to a little bit more spec versus BTOs?

Yeah, historically, you know, really, really pre-COVID, we really are, you know, 70-plus percent pre-sale versus spec. And before we hit drywall, which we call line in the sand, we're normally, you know, 90-plus percent of our homes have a contract on it. So, again, we are – we continue to be focused, heavily focused on pre-sale. It's just – Really, it's the market that's kind of driving a little higher spec levels for us and what we're seeing in our new home competitors, just with the specs on the ground. And that's where a lot of the opportunities are for buyers from an incentive standpoint. So we're probably closer to 50%, 60% right now, but we continue to push and have some ideas to try and continue to push you know, more pre-sale. I mean, that's obviously a focus, but we've been successful. You know, we do have some higher levels of inventory. So, while the backlog is down, you will see our inventories up a bit. But again, we've just been selling, you know, at a higher, you know, spec rate. So, you know, backlog turnover is obviously, you know, increased, but we're getting, you know, some higher spec sales. So, Again, given our guidance for the third quarter and a little bit of that soft guidance, again, for the back half of the year, I feel like we can get to our numbers. But our focus is and always will be pre-sales. But it's really kind of the market that's driving a little bit of that shift right now. And we're focused on getting back to higher pre-sale levels when the market starts to hopefully move in our direction.

Great. Thank you. Appreciate it.

Perfect. Your next question comes from the line of Jay McCandless of Wedbush. Your line is now open.

Hey, Jay. Jay, you there? On mute.

Oh, there we go. Works better when the mute's not on. There you go. Sorry about that. No worries. So, Russ, if you don't mind, I heard the June and the July numbers. Could you give the April and May, please?

Joe's pulling it up. I think April was three, if I recall, because I think we gave that on the last... I think it was 2.8 and 2.5. Yeah. Yeah, it was higher in April and trended down... to maybe flat in May and then kind of, you know, as we move through the summer. But can't get good help, Jake. You know, it's taken Joe a while to pull up numbers. We'll circle, but when Joe gets it, we'll circle back.

Yeah, I'll follow up afterwards. Yep. No problem on that. And then I guess the next question I had, so with the loose kind of 3,000 closing number you called out, that's what, almost 970, 988? You're going to need to close in the fourth quarter. Does that feel achievable? And do you think you're going to have to lean into the incentives and hit the gross margin to sell some of this excess spec inventory? Is that kind of how you guys are thinking about the rest of the year?

Yeah, for sure. I mean, look again, we are. We're we're pace over price, so it's clearly a matter of just leaning into incentives to the extent that it's needed to drive that that pace. Like I mentioned, it's not a. It's not a community count issue. It's not a. It's not an construction issue. Our cycle times actually continue to improve, so you know credit to. You know our operators out in the field. It's really. It's really just trying to. you know, hit a price that can get that demand going. So, you know, again, our goal is $3,000. You know, could it be $2,900? Sure. It's just, you know, a lot of it's just going to depend on price and incentives. And, you know, that's why I haven't touched margin because, you know, it's real difficult to figure out, you know, where that margin is going to be to get that pace. But that's our focus.

I THINK IT'S WORTH CALLING OUT.

JUST GOING BACK, IT WAS 2.8 IN APRIL, 2.4 IN MAY.

AND 2.8 IN JUNE, LOOKS LIKE, YEAH. YEAH, 2.8 IN JUNE. SO TICK BACK UP IN JUNE AND THEN YOU HAVE THE NUMBERS WE GAVE FOR JULY AND AUGUST. OR, YEAH, JULY.

SORRY. YEAH, I'D LOVE TO HAVE THAT AUGUST NUMBER ALREADY. IF YOU GOT THAT, THAT WOULD BE A GOOD ONE. So it's actually encouraging, I think, that you guys are saying that if you give a little more on incentives that the consumer is responding because some of your larger competitors have talked about how even if they did lean in and put more incentives in, it's not making the consumer react. So maybe talk a little bit, if you could, about what type of uptake you're seeing when you do lean into the incentives because that's different from what we've been hearing from some of your larger competitors.

T. yeah look at least for us it's it's definitely so we weren't a big user at you know we really did our first forward commitments. T. In at the end of Q1 and we pushed it into to Q2 because we did see an uptick in in traffic, and you know we we do feel like we're getting a little bit better conversion rate and so. It's, you know, I can't quantify exactly, but we continue to monitor. You know, we talk to the field on a regular basis and just, you know, try to figure out what's working, really try to continue to educate, you know, our sales folks on, hey, these are the positives of using these incentives. You know, we implemented kind of that ARM product this, you know, last several weeks because, you know, at a 399 rate, Getting folks to be able to qualify at that 399 rate is a big deal, especially for our buyer. For us, our buyers, it's really figuring out that payment. We're still giving closing costs, so we're also giving zero closing costs plus that 399. It's a really attractive opportunity. And so it's, you know, like we said last quarter, you know, some of what's happening in the market, I feel, is a confidence issue by consumers. But hopefully as there's not as much noise, you know, people start feeling good into the back half of the year. And like I said, these incentives feel like they're working for us. And so we'll continue to monitor and continue to push it to the extent that we feel like it's helping out.

That's great. Thank you. And then the last one for me, I know y'all talked about your stick and brick. Sounds like that's a little better, but I think there is the looming threat potentially of higher lumber prices, depending on what happens with this Canadian softwood lumber agreement. I guess, are y'all seeing any pricing letters from your suppliers? Are y'all starting to see anecdotally any signs of lumber prices starting to move up? And if so, when do you think it might fit y'all's income statements?

Jay, this is Greg. Good morning. We've not seen any letters presently, so there's a lot of discussion around tariffs. There's a lot of discussion about potential, but as of present moment, we've not had any notifications of impact.

Okay. That's great. Thanks, guys. Appreciate it.

Thanks, Jay.

To ask a question, please press star followed by one on your telephone keypad. Press star followed by one on your telephone keypad. Your next question comes from the line of Alex Barron of Housing Research Center. Your line is now open.

Thank you. Good morning, guys, and congratulations on the reduction in the bill times. I was curious on that subject. If there's anything you can share on how you've been able to achieve those reductions and do you feel like there's any further potential or do you feel like that's as good as it gets?

Good morning. Yeah, we've got a stated goal company-wide that we want to be at 46 days on our bill. So yeah, we still believe there's opportunity. You know, the pace over price is our lever that we use with our trays to help drive our waste and our cost. So they know they're getting a commitment of starts, and that allows us to be more reliable in our assembly process.

Got it.

Thank you so much. Thanks, Alex.

Your next question comes from the line of Paul Friesbeck of Wolf Research. Your line is now open.

Thanks. Good morning, everyone. I guess, you know, you've got the two new green fields you just announced, but could you give us an update on what you're seeing, you know, with respect to the M&A environment and your appetite for M&A given current volatility and and how you would even go about underwriting a deal, you know, given the unknowns out there?

Yeah, no, good question. There's definitely M&A opportunities out there. You know, we absolutely, we're always looking. We evaluate opportunities. But again, for us, it's... You know, all but Houston, we've done through Greenfield. We feel really confident and comfortable in our ability to open new divisions through Greenfield. It's, you know, obviously it takes a little bit longer to get ramped up, but we're okay with that. You know, we're patient. Our majority shareholders are patient. You know, we're not looking at this as a sprint. You know, this is a long-term play, long-term view that we're taking. And really, the main objective is to build a durable company and stick to the culture and the things that have made us really good. And it's easier to do that through Greenfields and, you know, The one thing we didn't mention, but the two folks that are going to be heading up these operations are internal folks that have been at the corporate level for a long time and really get how we do things. So we're really fortunate, and that's how we look. We always look to promote internally, and we feel like that's the best way to do it. That said, if there was a really good opportunity that we felt like we were getting a really good deal, sure. I mean, we'd look at it. Like I said, there's opportunities out there. But it's tough to want to pay a big premium in today's environment. I'd say M&A is still not cheap. I think things are getting a little more realistic. There may be a time and a place for it for us, but for now we feel pretty good about the direction we're taking on the growth side of things.

Okay. And then I guess kind of related to that, have you made any changes to your current land underwriting standards? Have you pushed up your hurdle rates? And along with that, have you seen any change in financing costs given the volatility from you know, to keep stuff off balance sheet?

Yeah. On the latter part, really not a lot of term changes, but we are focused on, you know, our mature divisions. You know, we want to maintain pace, and we're underwriting based on our ability to maintain pace and market share. And then on our newer divisions, Maybe our underwriting is a touch softer, but we're still very conservative as we look at those new markets, knowing that we've got to ramp up. Not any real change overall to underwriting, but we're totally aware of the market conditions.

Great.

Appreciate it. Thank you. Thanks, Paul.

the call back to Greg Bennett for final remarks.

Thank you everyone for joining us today on behalf of Smith Douglas and the whole management group. We appreciate your interest and your involvement today. Have a great day.

Thank you for attending today's call. You may now disconnect. Goodbye.