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.