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Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Smith Douglas Homes First Quarter 2025 Earnings 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. [Operator Instructions] Thank you. I would now like to turn the call over to Joe Thomas, SVP 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 first 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 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 filing. 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 filing. 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 would now like to turn the call over to Greg.

Thanks, Joe, and good morning to everyone. Smith Douglas Home hosted another quarter of strong profitability to start the year, generating pre-tax income of $19.6 million or net earnings of $0.30 per share. Home closing revenue was $225 million in the first quarter, representing a 19% increase over first quarter 2024. Home closing gross margin for the quarter came in at 23.8%, which was higher than the guidance range we shared on our last call. We generated 768 net new orders in the first quarter on a sales pace of 3.1 homes per community per month. Overall, I’m very pleased with our execution to start the year and believe Smith Douglas remains on track to achieve our long-term goals. We experienced normal seasonality during the quarter, with the quarter activity improving as we headed into the spring. We had solid traffic throughout the quarter. The sales conversions were negatively impacted by affordability concerns and macro uncertainty. Similar to past quarters, we used financing incentives to overcome these obstacles and solve for monthly payments that would fit our buyers’ needs. While there are many factors that affect our business that are out of our control, there are many things we can do to optimize our performance in any demand environment. The first is controlling land through option agreements rather than owning it outright. At the end of the first quarter, less than 5% of our un-started controlled lots were owned on balance sheets, while the remainder was tied up through options and land banking agreements. This land lot strategy gives us some degree of flexibility with respect to our lot takedown timing, if needed, and limits our downside risk should market conditions soften. Another factor within our control is how quickly we build our homes. For those of you that followed the Smith Douglas story, you know we’re highly focused on improving build times and turning our inventories as fast as possible. Not only does this improve our return on capital, it also limits the possibility of cancellation thanks to a shorter timeframe between sale and close. At the end of the first quarter, our cycle times averaged 56 days, excluding Houston. We also made further progress during the quarter getting Houston division and their trade partners on board The Rteam platform, and we expect to see build times move closer to the company average over time. A third factor we focus on at Smith Douglas is limiting the amount of spec inventory for sale in our communities. We believe our business runs better and more properly when we pre-sell our homes. This gives buyers the ability to make important design decisions for their home and allows us to implement lot premiums and offer higher margin home upgrades in our communities, which we feel reduces our cancellation rate as the buyers become attached to their homes they have designed. In summary, while there’s more uncertainty today around the economy and our industry than in previous quarters, we built Smith Douglas to weather the ups and downs of this business. We remain focused on our long-term goals of growing our market share and achieving better economies of scale while maintaining a strong balance sheet and focusing on returns. This strategy has worked for our company since its inception and we believe will continue to do so into the future. With that, I’d like to turn the call over to Russ, who will provide more details on our results this quarter and give an update on our outlook.

Thanks, Greg. I’ll now walk through our financial results for the first quarter and then provide an update on our outlook for the second quarter. We closed 671 homes during the first quarter, up 19% from 566 closings in the same quarter last year. Homebuilding revenue was $224.7 million, an increase of nearly 19% over the prior year. Our average sales price was approximately $335,000, which is up slightly year-over-year due to shifts in geographic and product mix. Gross margin came in at 23.8%, which was at the high end of our guidance range and compares to 26.1% in the prior year. On an adjusted basis, excluding a $642,000 impairment charge related to a Houston community we exited during the quarter, our gross margin would have been 24.1%. Our lower year-over-year margin reflects the impact of higher average lot costs, which were 25.5% of revenue in the current quarter versus 23% in the year-ago period, as well as rising incentives and promotional activity, which totaled 4.7% of revenue this quarter, up slightly from 4.5% a year ago. SG&A was 14.7% of revenue, compared to 14.5% last year, driven primarily by increased payroll and performance-based compensation expense. We continue to tightly manage overhead while supporting our growth. Net income for the quarter was $18.7 million, compared to $20.5 million in the prior year, and pre-tax income was $19.6 million versus $21.4 million. Our numbers for the quarter include a $716,000 charge related to the abandonment of a lot option deal with a developer, which is included in other income and expenses. This is related to the same community where we recorded the $642,000 impairment, I mentioned earlier, which is included in our cost-of-home closings. Adjusted net income was $14.7 million, compared to $16.1 million in the prior year. As a reminder, given the nature of our UPCEA organizational structure, our reported net income reflects an effective tax rate of 4.4% this quarter, which is attributable to the approximate 17.5% economic ownership held by public shareholders through Smith Douglas Homes Corp. and Smith Douglas Holdings LLC. Because the majority of our earnings are allocated to our Class D 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 $12.7 million in cash and had $40 million outstanding on our unsecured revolver, with $195 million available to draw. Our debt to book capitalization was 9.5% and our net debt to net book capitalization was 6.9%. I am also happy to announce that we are in the final stages of finalizing an amendment to our credit facility that will, among other things, increase the total facility size by $75 million to $325 million and extend the maturity, which will be four years from the closing date. We appreciate all of our existing and new banking partners for their unwavering support. Our strong balance sheet and liquidity puts us in a great position to support our ongoing growth. Backlog at the end of the quarter was 791 homes with an average sales price of $341,000 and an expected growth margin of approximately 22.5%. While backlog is lower from the 1,100 homes year-over-year, reflecting a tougher selling environment this year, we did see positive momentum in our absorption pace as we progressed through the quarter. Monthly sales per community improved from 2.4 in January to 3.3 in February and 3.8 in March. In April, we saw that average dip back to approximately three sales per community as we move further into the spring selling season. Affordability remains a key challenge for our buyers, and we have leaned into targeted incentives to support sales. In late March, we launched a $10 million forward commitment program offering a 4.99% mortgage rate buy-down in select communities, which helped boost conversion rates. In the trailing 13-week period, our total incentives and discounts have averaged just over 7%. Turning to our second quarter outlook, we expect to close between 620 and 650 homes with an average sales price between $335,000 and $340,000. Gross margin is projected to be in the range of 22.75% to 23.25%. While incentives will continue to pressure margins, we are maintaining discipline in how and where we deploy them. We ended the first quarter with 87 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 encouraged with our start to 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 or volume of sales and closings. We remain focused on executing what we can control and believe our landline 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.

Thank you. [Operator Instructions] Our first question comes from the line of Michael Rehaut with JPMorgan. Please go ahead.

Hi. Good morning. This is Alex Isaac on for Mike. Thanks for taking my question. You mentioned on the demand side that there’s some weakness and a lot of affordability challenges. I wanted to ask how you would characterize the spring and summer season overall and your expectations for that? Also, do you feel like that demand weakness is consistent across geographies or do you see it more specifically in certain geographies than other geographies?

Yeah. Thanks for the question. I think the spring demand has been there all along. It’s just week-by-week. As we said, we’re just solving for payments to reach affordability in each market. It seems to be across our entire footprint, demand has been relatively the same.

That makes a lot of sense. I appreciate the color on that. And then, as my follow-up question, I wanted to ask, on the land side, you mentioned some land inflation. I’m just curious about any color on the land environment and your ability to find new lots, both unfinished and finished lots, as well as how we should think about the land environment for the company going forward?

Yeah. It’s -- we’ve obviously been able to find deals, right? We’ve more than doubled our controlled lot count over the last -- since we’ve been public. Land inflation, certainly over the prior 12 months, has continued to increase. But we’ve always said, I think land sellers are usually, when things have started to slow, land sellers typically, in our experience, are the last ones to figure out that maybe their land isn’t worth what it was previously. But we are starting to see a few cracks in the sellers out there. I think it is transitioning a bit to a buyer’s market. And so, you are starting to see some land prices moderate. I mean, there’s definitely demand out there, right? I think builders are still out looking for deals and so we’re competing every day. But the land that’s in our backlog, and as we mentioned on the call, we’re working off a land that the prices over the last few years have continued to increase. So the stuff that we’re closing obviously has a higher basis than what we had previously. But we are starting to see a little bit of negotiating power in some of the land deals. So hopefully that trend continues, especially as affordability remains challenging.

That makes a lot of sense. I appreciate all the help.

Sure.

Our next question comes from the line of Michael Dahl with RBC Capital Markets. Please go ahead.

Hey. Good morning, everyone. You guys actually got Stephen Mea on for Mike today. Thanks for taking my question.

Sure.

I wanted to start with the outlook beyond 2Q. I appreciate the macro outlook has gotten a lot murkier since we last spoke, but I just wanted to get a sense of how you guys are formally thinking about the guideposts you guys have been giving us for the full year. I believe it was around 3,200 homes, just beyond the second quarter. What do you guys have in mind? How are you guys thinking about that? Thanks.

Yeah. I wish we had the perfect crystal ball. It’s kind of the reason that we didn’t really give specific guidance. I think when we talked towards the end of last year and going back a little bit, and when the Fed started to cut rates, we were hopeful that that would help with affordability. But as we moved into the first quarter, clearly the mortgage rates were not in our favor, right? They peaked in January. And they still, looking today, I think the 10-year yield is back up to about 4.5%. So affordability is a challenge. Like Greg said, you’re seeing people need homes. There’s demand out there. As it relates to full year guidance, that’s why we really kind of pulled it off. It’s very -- it’s really kind of a day-to-day thing as we just kind of navigate what’s happening with more of the macro environment. We certainly have the communities and the lots to get to our 3,300 closing target. so that’s clearly the objective. A lot’s going to depend on how the balance of selling season shakes out and where we see kind of the demand for the back half of the year, really more so the affordability and what we’re able to do. We’re trying to balance margins with the or really balance our incentives and try to find that appropriate mix. So look, our target, without giving specifics or definitive guidance, we’re certainly targeting that 3,300. Like I said, I think we can get there, but it’s really going to be more of a macro story.

Definitely appreciate that. I also appreciate all the color. Thanks for that. And I wanted to jump to Houston and kind of the expansions you guys have been making recently. It’s great to hear that there’s further progress year-to-date and I guess since the acquisition on like the Rteam integration in Houston. But I think it would be helpful for everyone in terms of framing the story, like, if there’s any further color you can provide on that progress and any potential timeframe you may have for milestones there within Houston and the other expansion areas, which we really also think?

Yeah. Thanks for the question. We are seeing really big improvements in cycle time in Houston. We’re up and running in our arching process across the footprint. We are, I think, implemented on a 70-day schedule currently that we’ve rolled out. We’re not executing to a 70-day schedule quite yet, but our goal is to be there by the end of this year. So, yeah, and that’s from a high point of cycle time near 200 days when we closed on that acquisition. So I’d say there’s been quite a bit of improvement there.

Yeah. Absolutely. Thanks. Thanks for the question, guys. I will pass on. Thanks, Greg. I will pass on.

Our next question comes from the line of Jay McCanless with Wedbush. Please go ahead.

Thanks. Good morning, everyone. So three questions for me. I guess, could you talk a little bit about what you’ve seen so far in May in terms of demand and pricing power?

I think it’s been pretty consistent with April. We haven’t seen any real shift. Like I said, people are still coming into the sales office. We’re seeing traffic, but it’s still a challenging environment from an affordability perspective. And then even from a competitive perspective, when you see a lot of new homebuilders offering some pretty big incentives that we -- and a lot more spec inventory on the ground. So it’s challenging, but like I said, I don’t see a huge difference from what we’ve seen in April.

Okay. And so not to harp on it, but are you guys pulling the fiscal 2025 guidance or do you still think you can hit some of the targets that you laid out last quarter?

Yeah. Look, I think for the last question, it’s really, like I said, we’ve got the community count. We’ve got the lots in place. We are not -- we didn’t want to comment specifically on it. I think our target is still to get to that 3,000, 3,100. That’s our goal. And if the macro environment gets a little bit better, remains steady, I think we have a good shot at hitting it. It’s just -- it’s really stuff that’s out of our control, right? So we are -- I think some of our competitors, some of the other new builders have pulled back on some guidance. It’s just -- it’s still a little bit early to tell based on where things are moving. Obviously this new administration, there’s been some, quite a bit of choppiness from a macro perspective. So it’s -- I’ll be honest, I mean, it’s difficult to forecast in this environment, right? But look, our goal, and like I said, we still have a good shot at getting to our 3,000 plus target.

Got it. And then the last question for me, I’m sure you guys saw the news on Lance [ph] yesterday. Any comments you might make on that and any impact that could have on Smith Douglas?

No. I mean, we don’t -- we wouldn’t comment on somebody else’s transaction traditionally, but the only thing I would say is, look, it’s Apollo. So it does show some pretty good support from a pretty good backer that clearly they see some opportunity to make an investment of that size in the homebuilding space. So we like to see that. And it won’t -- no impact from our standpoint, we don’t see Lance or New Home in our markets.

Okay. Great. Thanks, Greg.

Sure.

And our final question comes from the line of Rafe Jadrosich with Bank of America. Please go ahead.

Hi. Good morning. It’s Rafe. Thanks for taking my question. Russ, can you just, on the second quarter gross margin guidance relative to where you came in in the first quarter, which I think was pretty solid, is the quarter-over-quarter decline just higher incentives and that’s related to that forward commitment?

Yeah. That’s I think a good part of it and to the extent that we may do a little bit more, but that’s definitely a driver. Yeah.

Okay. And then when the backlog year-over-year is down, I think over 25% here, but you’ve been able to continue to grow deliveries. Can you -- the backlog conversion has obviously improved a lot over the last year. Where can that go from here? Do you still see additional opportunity to drive the backlog conversion higher? And is there sort of a cap to that? Well, you’ll have to sort of refill the backlog with more orders to continue to grow deliveries.

Yeah. And that’s a great point. We -- there’s a couple of things there. We -- our cycle times are improving, but yeah, we came in with a few more specs than we had last year. So even though backlog’s down, we actually had as much, if not a little bit more inventory. And so we’re able to, like Greg said, and we’ve said, there is demand there. So there are people coming into the sales offices, we’re getting traffic, but it’s just taking higher incentives to get people to convert. And so that’s why margins are dipping a bit, but we’re still able to get some pretty good closing numbers. And so even though backlog is down and we’re traditionally, and obviously, our business model is focusing on pre-sales, we’ve still got the inventory. We’re clicking on pretty much all cylinders from an operating perspective. And so we’re really just taking a measured approach to how we’re pricing. And we don’t want to get, we’re not looking to fill up a whole bunch of spec inventory. And so as we start to see maybe a few more specs or a little bit of slowness in a community here or there, we’ll turn the dial on incentives and kind of move the inventory. So that’s a long way of saying, yeah, we can definitely increase that backlog conversion rate because we’ll just continue to turn the dial and just move some more of that speculative inventory that’s sitting in some of those communities.

Okay. That’s helpful. And then is there any just update on the mortgage JV that you have right now? Any plans to change that relationship?

No. Actually, I tell you, it continues to get better every week. It’s part of the reason that really, and it’s been very helpful in pushing out some of these, a very consistent message on the incentive side. And so we were using through our partner, which is loanDepot, using them for our forward commitments and just pushing out a consistent message. We are now fully licensed in all of our markets. We’ve got loan officers that have been operating in all of our markets and our capture continues to get better. And I want to say last week, our capture was 56% for our mortgage partner. And so obviously, that’s -- our goal is to be at 90% plus, but we were still using, we were not using our Ridgeland brand yet in Atlanta, because we had just gotten licensed. And that’s obviously our biggest market, but in everywhere else, capture has been very good. And we think it’ll continue to improve. So looking forward to it.

And I think the operator said on the last one, if I could sneak one more in here.

Sure. Yeah.

In your core markets, are you seeing a pullback in starts from competition or have you adjusted the starts pace at all? And obviously some of the larger public builders that have already reported on a year-over-year basis, we’ve seen starts down a lot. I’m just wondering if some of the standing kind of sitting finished spec inventory out there from competitors, do you think that’s a problem right now or an issue? And is there any sign that that’s sort of improving and there’s been an adjustment on the start side?

Yeah. Hello, Rafe. I’ll take that. We have not had an interruption in starts on our side. We are hearing discussion about slowing starts from competitors and probably seeing a little bit of evidence of that. We went in to tag on to Russ’ backlog question, previous question. We pushed start in the end of 2024 to be certain that we kept our machine running. That is the kind of environment around rates. And we know how we ended Q4 with sales last year. It built some inventory, but that inventory coming into the year, drove a lot of conversion for us in Q1. We’ve grown backlog since the beginning of the year. And we continue to push starts every day. We’re hitting on our starts, actually ahead of our starts budget for the year. And I’ve been refreshed to see the past two weeks that we’ve outpaced with our pre-sales and our orders. So, I’m optimistic that we’ll continue to be able to build on our model and that our pre-sales will overtake the inventory that we’ve built. And our cycle times, as we said, helps us to be able to convert that buyer quickly.

Okay. That’s helpful. Appreciate all the color, guys.

Thank you.

Yeah. Thanks, Rafe.

And this does conclude our Q&A session. I will now turn the call back over to Greg Bennett, CEO, for closing remarks.

Yes. Thank you, Tina. Thank you, everyone, for joining us. Appreciate all the interest in Smith Douglas and hope to speak again next quarter.