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Good morning, and welcome to the Smith Douglas Homes Third Quarter 2025 Earnings Call and Webcast. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the call over to Joe Thomas, Senior Vice President, Accounting and Finance. Thank you. Please go ahead, sir.

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 third 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 home page. Please note, this call will be simultaneously webcast on the Investor Relations section of our website. Before this 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 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 GAAP 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 Devendorf, our Executive Vice President and CFO. I'd now like to turn the call over to Greg.

Thanks, Joe, and good morning to everyone on the call today. In the third quarter of 2025, Smith Douglas Homes continued to execute on its long-term strategic plan of being the builder of choice for homebuyers in key markets throughout the South. Our operating philosophy is straightforward, but hard to replicate, thanks to our operating discipline and culture. We focus on providing our customers with quality homes at affordable price while maintaining tight cost controls and leading cycle times. We also avoid much of the risk associated with homebuilding by controlling most of our lots and land through option agreements and by sustaining a strong balance sheet. These are key elements of Smith Douglas strategy, and we believe they lead to superior shareholder returns over the long term. For the third quarter of 2025, we generated pretax income of $17.2 million and earnings of $0.24 per share. Home sales revenue came in at $262 million on home closings of 788 and an average selling price of $333,000. Gross margins on homes closed averaged 21% for the quarter. These results were largely in line with our previous guidance and demonstrates our ability to accurately forecast and execute on our stated objectives. Net orders for the quarter increased 15% year-over-year to 690 homes on a sales pace of 2.4 homes per community per month. Despite some tailwinds with mortgage rates trending down in the quarter, overall, demand stayed soft, which we believe is an indication that the buyer psyche and consumer confidence are the main headwinds facing our industry. Financing incentives remain an important sales tool in getting buyers to move forward and purchase. And we expect this to continue into the fourth quarter. We continue to emphasize our approach of pace over price as we believe our operations run more efficiently at or near full capacity. We made further progress establishing a foothold in our new markets in the third quarter. We began vertical construction on homes in Greenville market, started generating interest list for our communities in Dallas market and expect Gulf Coast market to be up and running in the middle of next year. These markets fit nicely into our business model and will be key contributors to our volume goals in the coming years. Cycle times in the third quarter were consistent with the second quarter at 54 days, excluding our Houston division. The efficiency of our operations is a key differentiator for our company, and it is a discipline we practice every day. It is a system senior management has developed and refined over decades in the homebuilding business and one that requires the coordination of our employees, suppliers and trade partners. Overall, I'm pleased with how our company has performed in the third quarter and believe we made further progress towards becoming a large-scale builder in the Southeast and Southern United States. Our balance sheet is in great shape, and we have several new communities slated to open in the coming months that should give our sales efforts a boost as we head into our spring selling season. Finally, I would like to thank our team members for their continued hard work. Homebuilding is a very competitive business, particularly in uncertain times like the ones we're in today, and you've shown a willingness to go the extra mile for our homebuyers and our company's success. I truly appreciate all that you've done to make Smith Douglas a leading builder. With that, I'd like to turn the call over to Russ, who will provide more detail on our results for this quarter and give an update on our outlook for fourth quarter.

Thanks, Greg. I'll now walk through our financial results for the third quarter and then provide an update on our outlook for the balance of the year. We closed 788 homes during the third quarter, down 3% from 812 closings in the same quarter last year. Home closing revenue was $262 million, a 6% decrease from $277.8 million in the prior year. Our average sales price was approximately $333,000, down 2.6% year-over-year due to slightly higher discounts and shifts in geographic mix. Gross margin came in at 21%, which was at the midpoint of our guidance range and compares to 26.5% in the prior year. Our lower year-over-year margin reflects the impact of higher average lot costs, which were 27.8% of revenue in the current quarter versus 24.8% in the year ago period. Additionally, rising incentives and promotional activity further compressed margins. Closing cost incentives, which are included in cost of sales totaled approximately $9,500 per closing, up from $6,600 in the year ago period and pricing discounts were 1.8% of revenue, up from 1.2% last year. We utilized forward commitment programs to buy down interest rates, which we believe help boost conversion rates. During the quarter, we recognized $3.9 million in costs on forward commitments, which is recorded as an offset to revenue versus $185,000 in the year ago period and $0.9 million in the second quarter this year. We expect to continue to utilize these rate buydowns through the end of this year to drive sales velocity as we remain committed to our pace over price philosophy. SG&A was up approximately $2 million versus prior year and was 13.8% of revenue compared to 12.3% last year, driven primarily by lower revenue this quarter and increased payroll and associated expenses with a sizable portion of the increase coming from the opening of our new divisions. Net income for the quarter was $16.2 million compared to $37.8 million in the prior year, and pretax income was $17.2 million versus $39.6 million. Our pretax income this period includes a $1.6 million charge related to the abandonment of a lot option deal with a land seller, which is included in other income and expense. Adjusted net income was $13 million compared to $29.9 million in the prior year. As a reminder, given the nature of our Up-C organizational structure, our reported net income reflects an effective tax rate of 5.9% 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 B members, which is shown as income attributable to noncontrolling interest on our income statement, we provide adjusted net income, which assumes 100% public ownership and a 24.6% 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 $14.8 million in cash and had $49 million outstanding on our unsecured revolver with $201 million available to draw. Our debt-to-book capitalization was 11.2%, and our net debt to book capitalization was 8.4%, down 370 basis points sequentially from the second quarter. This improvement reflects our continued discipline in managing leverage and our commitment to maintaining a strong and flexible balance sheet. In a period marked by persistent macroeconomic uncertainty, we remain focused on fortifying our financial position to ensure we can navigate market volatility and capitalize on strategic opportunities as they arise. Backlog at the end of the quarter was 760 homes with an average sales price of approximately $340,000 and an expected gross margin of approximately 20%. Monthly sales per community went from 2.5 in July to 2.8 in August and 2.0 per community in September. In October, we saw that average stay constant at 2.0 sales per community. Turning to our fourth 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 18.5% to 19.5%. While incentives will continue to pressure margins, we are maintaining discipline in how and where we deploy them. We ended the third quarter with 98 active communities and expect to see that number remain approximately in line during the fourth quarter. 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 3 quarters 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 or 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.

[Operator instructions] Our first question comes from Sam Reid from Wells Fargo.

And also, thanks so much for all the color on the discounts and forward commitment impacts to the top line and margin line. It's very helpful color. In terms of my question, I was just hoping if you could bridge the Q3 to Q4 gross margin and talk through the composition of perhaps incremental price discounting versus forward commitments. It does obviously look like you're planning to close houses below what's in your backlog. So, I would also just be curious in terms of mix of homes you plan to close outside of your backlog during the fourth quarter, too?

Yes. Good question. We continue to push on incentives into year-end really in an effort to keep that pace over price philosophy. I mean, obviously, we're really deliberate about keeping that pace. It's really important for our operating philosophy. We make more, we lose less at full capacity. And so, the assumption is that they continue to drive pace because it's -- as I'm sure you would agree, it's the macro environment is pretty uncertain. As Greg mentioned, it's really a confidence issue with our buyers. We've been able to solve the rate issue for some time now, but it does seem like it's just becoming a little more difficult to get buyers across the finish line. So, we're going to continue to push on rates. We introduced a really attractive 3.5% fixed rate on some older specs. And so, that's really kind of the assumption. We have seen costs of those forward commitments come down a bit in recent months as rates -- overall rates have come down. But -- so we're just making an assumption that we'll continue to push incentives, and we plan for the worst and hope for the best.

And then -- maybe just switching gears a little bit on 2026. I know you're not providing guidance, but would just love any high-level commentary on directionally where we should be thinking about community count, especially in the context of some -- all the new divisional openings? And then also just some perspective on lot costs, especially as the composition of your geographic mix changes.

Yes, sure. Yes, we -- as I'm sure most other builders -- most companies, it's real difficult to provide any sort of guidance into 2026. I think if we did, it wouldn't be right of us just -- it's so uncertain right now. But that said, given where we've driven our controlled lot count from the time we went public just over 18 months ago, we've nearly tripled our controlled lots. And you've obviously seen the growth in our community count this year. We ended the quarter with 98, which is up substantially. So, we have the community count next year to kind of drive a pretty good amount of growth. Again, is somewhere in the 10% to 20% growth range in community count? Absolutely, I think we've got the communities. But a lot of that is really just dependent on where the market is, right, and just making sure that those developers and we get those lots delivered on time. But yes, it's not out of the question to see something in a 10% or 20% community count growth. And then -- but the wildcard is really going to be what's the absorption pace on those communities and ultimately translating into sales and closings. So, I hope that helps.

Our next question comes from Andrew Azzi from JPMorgan.

Backlog conversion is pretty elevated here compared to your own history and likely to remain pretty high next quarter or go higher. I would love to kind of just get some color on how you see that metric trending longer term and any structural factors there that are going on?

Yes. I mean, it's all a function of the current environment where the competition, everybody is -- there's a lot of specs on the ground. That's where a lot of the discounting is taking place. And so, that's part of the reason why we've been leaning into forward commitments from a competitive standpoint and specifically on our spec homes to continue to keep that velocity, or moving through our assembly line process. So, presales have just been -- it's been a little more difficult to come by from a presale standpoint because when you think those forward commitments -- the most cost-effective forward is, let's say, a 60-day or less rate lock. And so, that's part of the -- part of what's driving just kind of the industry to a more spec-heavy environment. And we are trying to -- we've offered some presale incentives. So, I think we are offering something though that's pretty unique and trying to move back to more of our presale approach. I mean we are focused -- let's put it this way, we are focused on preselling. It's really the environment that's pushing us more to a little spec heavy. And so, that's why the resulting backlog conversions are higher. But over the last quarter, we've really had a heavy focus on getting that incentive into presales with the way we're doing lot reservations and such. So, we expect to go back to more presale heavy, certainly as the environment changes. And I think specs become less and less as an industry, I think that's -- our approach has not changed. We are presale focused. It's just the current environment has kind of pushed us a little more to specs from a competitive standpoint.

That makes sense. And then obviously, you've seen a lot of growth in your active communities and controlled lots. Could you provide any detail on kind of the geographic distribution of those and how you're prioritizing market expansion?

Yes. Look, we -- as we stated from the time we went public, I mean, when we enter a market, we want to make sure that we have -- that we enter markets where we can gain scale. And for us, scale is -- we operate in an R-team philosophy, geographic pods. And so each pod or our team has 200 closings. And so, for us, we'd like to, at a minimum, have 400 closings per division. And certainly, in some divisions, we're going to have in excess of that, some of the larger markets like in Atlanta, Houston, Dallas. But at a minimum, we're looking to do at least 2 full R-teams. So, we are -- we've been prioritizing or really trying to scale up in those markets where we have not yet hit that escape velocity, I'll call it, or that scale. And so, you can look at Charlotte, the Carolinas, Nashville, we're -- those are some of the areas that we've started to focus. And then clearly, we've -- as you know, we've opened a few new divisions. We've divisionalized Central Georgia, so getting Central Georgia, which is really south of I-20 in Atlanta and down to Perry Making that area, really focusing on gaining more scale out of Georgia in those areas. Chattanooga is we've added quite a few positions in Chattanooga. And then as we announced last quarter, Dallas, is a market that we just entered and Gulf Coast, which right now is Gulf Coast of Alabama. So, those are areas we focus. But clearly, where we can take advantage in markets where we already have that 2 full R-teams, we will continue to try and take some additional market share if the opportunity arises.

Our next question comes from Mike Dahl from RBC.

You've actually got Stephen Mea on for Mike Dahl today. The granular monthly and quarter-to-date demand trend discussion was all super helpful. Looking ahead, I wanted to ask what you all have built into your assumptions for the fourth quarter, more so the extent of how November, December may compare to what you've been seeing in October and how you see the balance of the quarter sort of shaking out against your historical seasonal patterns.

Yes. We haven't really made any different assumptions for the balance of the year. I think it's just that -- it continues to be a difficult environment, but we see a couple of green shoots here and there. So, it's not -- look, it's good, right? It's -- we are -- we've got traffic. Traffic has been decent. Folks are showing up. People still need and want homes. So -- but the conversions, it's just a little bit tougher. That's why we're leaning into the incentives. But we're not making any more -- any additional assumption for an increase in velocity. Maybe we'll get it, maybe we won't. We'll continue to push on incentives and -- but we're getting our fair share. It's just too hard to predict right now. It's kind of on a week-to-week basis.

No, for sure, that's logical. Thanks for the insight there. And I guess, my second question more broadly, I wanted to ask on permit -- some permitting. You've stalked previously about at times seeing pockets of delays at certain municipal levels kind of depending on where it is. I just wanted to see you check in how that's been going for you all today in general across your markets, if there's been any kind of change in that trend, especially given some of the broader enthusiasm around potential relief for housing lately.

Yes. Thanks for the question. I'll take that up. We continue to see challenges and delays in permitting, both on getting final plan approval to start projects and then getting final sign-off on completing projects. And it's pretty widespread. It's across all our markets. I wouldn't say it's in any market more so than another, but we do see it less prevalent in the areas that may be truly outside of the metros that are a little hunger for having some stimulation from housing, but in more of the central metro markets, we're still seeing a lot of delays.

Our next question comes from Rafe Jadrosich from Bank of America.

Could you give us the spec versus build-to-order mix that was in your deliveries? And then maybe what -- like what's in the backlog? And then any color about -- is there a difference in the margin between spec and BTO right now?

Yes. I have to go -- we might have to get back to you on the exact percentage. I don't want to quote you something that's wrong. But I would tell you the -- there was a higher spec count than presale in Q4 from a closings perspective would be my guess. And maybe it's 50-50, but it's probably a little leaning more towards spec. And again, that's -- like I mentioned before, that's just kind of the environment we're in. As far as backlog, again, I'd have to go back and go and look at exactly what it is. But again, given the size of the backlog, I mean, there's probably heavier presale just sitting in backlog, but maybe not by a wide margin, I think, because most of the specs, if it's sitting in backlog and it was a spec, it's probably only 60 days old at most. So right, and we try to sell just as a matter of process, when we're focused on specs, clearly, if it's a finished spec, we've got a high focus on anything that gets finished without a contract. But even if we start something in our process, we're very focused on getting a contract on that before what we call line in the sand, it's basically drywall. So, historically, even -- while we're presale focused and historically, we're like 70% presale and 30% spec, when you take into account getting a contract before we hit that line in the sand, we were 90% plus of our homes had a contract on it before that line in the sand. So, it was really heavy, heavy but kind of presale prior to line in the sand. It's just the environment shifted that a bit. But ultimately, the market will change. You're starting to see spec levels come down from other builders, which also is a factor in impacting us as well. But I think that will continue to shift back in our favor over time.

And then with just the community count growth that you're talking about for next year, how do we just think about the SG&A run rate going forward? Should we think about sort of like on a dollar basis, SG&A will grow in line with like community count -- just trying to understand -- like I know there's a new market that you're expanding to. I'm just trying to understand like maybe the puts and takes of that.

Yes. We're in the process of budgeting right now. So, I can't give you an exact answer. All I would say is, clearly, the fixed overhead, we're going to continue to leverage fixed overhead because we have -- everything here is in place, the corporate support team, HR, legal, finance, all those -- that's in place, and we can do a good amount of volume above where we're at. So, that will continue to leverage. And then obviously, the variable piece of our SG&A, so commissions and community level marketing, things like that, that will move in line more or less with community count and sales starts closings. But I would expect some leverage going into next year.

[Operator instructions] Our next question comes from Paul Przybylski from Wolfe Research.

Thanks for the monthly order cadence. I was wondering if you could add some further color. How did incentives flow monthly through the quarter? And then regarding your forward commitment, how is the spread? Have you maintained that spread to market or widened it or tried to contract it? And then again, with absorptions at 2 in September and October, do you have a minimum absorption pace you're targeting?

Yes. We're -- so I'll take the last one because that's easy. More is that's more absorptions. We're in -- this spring selling season, obviously, is the -- is where we'll get higher absorption pace. But if we could hit 2.5 to 3 in the quarter, that's generally 2.5 to 3.5 would be more reasonable for Q4. So, we are trying to push, as we've mentioned, pace. So, we are looking at trying to push that absorption pace and -- but it's going to come at the expense of margin. And we leaned into the forwards in Q3. So, it's -- the cost did come down for sure. As rates started to move down, we were a benefactor of cheaper forward commitments. But we also -- at the same time, while the pro rata costs came down, we also pushed higher incentives to try and spur some of that absorption pace. So, anything that we gained, we kind of -- we gave back a little bit because we were really just pushing a stronger incentive, specifically on some of our older specs. We really have a focus on turning and not keeping any aged specs there. We did have a good week last week in terms, I think absorption pace was up last week, which we didn't -- I don't think I mentioned that in my prepared remarks. So, we saw a little bit of a nice bump. But yes, incentives trended up through the quarter for sure. And we'll see what the balance of the year holds. But like we said, pace over price. That's our philosophy, and we'll continue to use incentives to continue to push that pace.

Okay. And then I guess, as you look at your consumer mix, you got entry-level some downsizers, active adult, however you want to define it. Are you seeing any shifts there? I mean what I'm really asking, I guess, are you seeing any type of hesitation or cancellations with the downsizers or active adults because they just can't sell their home for what they're looking to get out of it?

Yes. We are, for sure, seeing a lot of buyers that -- and we have a resulting number of specs that happen from contingencies that they just don't get over the line. So, there's -- yes, for sure. I've heard the other day for the first time in a long time, new homes were cheaper than resales, and that's making that difficult. So yes, the move-up buyer for us, which is not a big cohort, but that move down buyer is pretty significant. They're still struggling with that challenge.

We have no further questions. I would like to turn the call back over to Greg Bennett for closing remarks.

Thank you, everyone, for joining us today and your interest in Smith Douglas. Hope you have a great day and look forward to visiting after Q4.