Smith Douglas Homes Corp. Class A

Okay, got it. And then as you shift back more towards BTO, I think just, you know, looking at, you know, 2023 and 24 backlog conversion rates in the 60 to 70% range, should we expect backlog conversions to trend back to that level as you kind of normalize the BTO versus spec mix in the business?

It should, and just to be clear, we never moved away from BTO. It was just a function of the market and the demand environment. I tell you, and I give a lot of credit to our sales folks, but it's really hard to know that you're setting the right price in a declining market. You really don't know until it's in the rearview mirror. so I tell you you know last year and kind of into the beginning of this year you know you always I'd tell you probably most builders would say you're always kind of playing catch up because you're kind of looking in the rear view and saying well shoot we didn't we didn't move pace fast enough so I guess we didn't cut prices quick enough and I think we did a really good job in the first half of the year matching pace or exceeding pace on our sales versus starts so yeah I would tell you Given the way we've executed in the environment, I think, yes, I think we'll get back to a more, I'm hopeful that we're going to start getting back to a more normal kind of conversion and backlog going forward.

Okay, got it. And then last one for me, just on M&A or strategic opportunities. As you work to continue to build scale in your markets, are you seeing opportunities to execute some tuck-in M&A? How does the pipeline look? What's the level of willingness on the part of some of these other builders to sell?

Yeah, there's activity. We're seeing there's usually consistent flow of packages. The environment is such that it's unfortunate I think some of the smaller Douglas Homes Corp. Class A, Gregory Bennett, Teresa Carlile, Julie James, We go about it because we we're absolutely it's important to protect kind of the way we operate, you know, our team strategy. And so the deal has to make sense. So we're always looking. We're certainly exploring new possible markets for maybe a greenfield. There are some deals out there that we'll take a look at packages and if it makes sense to expand. Again, we're really focused on just building out the southeast and central, maybe creeping up a little bit into the Midwest, but that's kind of our sweet spot if we were to do anything.

Okay, great. Thanks so much.

As a reminder, if you would like to ask a question, please press star one to raise your hand. Your next question comes from the line of Jay McKinless with Citizens. Jay, your line is open. Please go ahead.

Hey, good morning, everyone. Greg, I wanted to go back to the comment you made about maybe spec, competitive spec inventories coming down a little bit. Is that kind of widespread across all Smith Douglas geographies or is it are there some areas where you're seeing even less competition than you were before?

Jay I think we're seeing it across all of our geographies that you know there's there's less inventory. I would say there appears to be an increase though in in resale activity and and resale homes on the market but I think there New home specs has slowed a bit.

Okay, that's great to hear. And then I guess, you know, good to see growth in backlog for both of the segments, but maybe on an individual MSA basis. So there's some MSAs that stood out this quarter in terms of being able to grow orders, and then there's some that maybe lag relative to the overall average.

Yeah, we've seen pretty consistent demand across all the markets. I would say one bright spot for me that has been very interesting to see is the Houston and Dallas markets for us, the amount of pre-sale as a percentage is probably higher there than any markets we're in. Our message of personalization and ability for buyers to do that has resonated and been embraced, and our spec levels there are at all-time lows, and obviously Dallas Newmarket, but Houston for sure. That's great.

And then just one more. If you look at the backlog right now, Russ, where would you say that incentive percentage is relative to the, I think you said 780 basis points for the second quarter?

Yeah, we were second quarter. What we closed was 780. Again, without seeing the numbers, I'm going to tell you it's probably a little bit higher than that. Just again, given our guide of you know the 16 to 16 and a half which we hope is is going to be a little bit better but that's that's where we see the the margin compression coming from it's in those it's in the incentives and that's a combination of price discounts closing costs and forward commitments and then you know again we we have been also reducing base price so it's it's going to be a combination of price reductions and and those things so it's not It's not really on the cost side or and I can't imagine it's it's really the land cost that's that's shifting that much between quarters. Right. So it's it's really going to be driven by that that incentives in the top line revenue.

And then the last question had actually just kind of sticking on land cost with all the M&A dislocation, whatever you want to call it in the industry this year. Are you all seeing some opportunities to maybe buy land a little bit cheaper? or some of these sellers being maybe a little more reasonable on what they think the land is worth?

You know, we've seen some, but it's not as widespread as you would think. You know, it's still, you know, a lot of the land sellers are still thinking their land's at the top of market and, you know, which is evident by a couple of the Those abandonments that we showed that, you know, we try hard to work through every deal and going to work through every deal. But at a certain point, you can't. And, you know, so, but we are seeing, you know, a lot of easing on terms, you know, probably more so than price, which at the end of the day is a savings. So, yeah, I'd say it's probably 50-50 in the market right now.

We have reached the end of our Q&A session. I will now turn the call back to Greg for closing remarks.

Thank you everyone for joining us for our Q2 results. And again, just want to add a thank you to all our team members and Smith Douglas

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