Smith Douglas Homes (SDHC) 14 Aug 242024 Q2 Earnings call transcript

Thank you for standing by.

My name is Kayla, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Smith Douglas Homes Second Quarter of 2024 Earnings Call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question-and-answer session.

Instructions]. [Operator

like President call of now Thomas, to turn Vice Senior Accounting to would over the Joe I and Finance.

begin. may You

Good Douglas' Smith welcome call. and earnings morning, conference to

the release discuss Relations will today's link the of at call, found bottom outlining We investors.smithdouglas.com, which be on this our can at our a of XXXX, the press results issued homepage. Investor for on second and or quarter we selecting morning website by

Relations Investor of be simultaneously webcast Please our note this the website. call will on section

this call would forward-looking including are operating I not call, begins, that and certain like performance facts, everyone Before which statements. to statements statements historical this financial and remind concerning future made on goals are

unknown the and detailed risks, factors as Actual SEC company's important uncertainties, statements could results materially and from other in differ such filings. known due to

by Except the update no these duty statements. undertakes to company as forward-looking required law,

in most on to measures Additionally, can on this SEC our reconciliations call found press financial discussed filings. of comparable GAAP measures website and our the release non-GAAP be our located

call this morning and company's Chairman; Vice Executive the Devendorf, Bennett, Greg our and President Russ CEO Vice the and are CFO. Hosting

the like Greg. to I'd to call now turn over

the team. welcome Thanks, and Joe, to

Finance, Senior has Central As Georgia Vice Eddy from the month, established newly role for our company's to Joe Accounting as and Division. we a announced who is taking transitioned President last new over of Kleid, Division President

services investment earlier key comes a of role to provided offering initial where of banking our public this to Joe clients us Bank played in from number he year. and a America,

in expect part his team Eddy great from have to We're Joe and as the thrilled new operational role. things of

quarter. income for Smith million, results. quarter $X.XX translates $XX.X second of the per which diluted our Douglas reported to to pre-tax share Turning

revenue. which We quarter closing over closed represents million XXX XX% XXXX a during guidance increase and in of and second home quarter, $XXX.X was above generated stated the our homes

Home came XX.X%. closing at in also guidance gross margin above

performance margin in forecasted. and stable than cost containment combination better a pricing, of solid demand, we That's resulting had

came a orders at new home increase. XXX, quarter for representing the Net in XX% year-over-year

favorable levels inventory, environment our and the We low stable continue in existing highlighted home experience by markets to operating healthy job in-migration. growth, of

fairly of the were in price, our market which to terms thanks hit spot customization, sweet we offerings, trends consistent our believe our and new of Demand across divisions value. home

secret no real affordable these there's housing providing solutions this being quality and pride a and in ourselves It's we needs. for need leaders meet to country on

previously Another our aspect we is operational of and take pride efficiency. about have great business in spoken our

and a very often comes success well down Homebuilding competitive you is industry execute. to how

a at instill discipline Smith accountability we beginning, of culture very and the Douglas. From

operations, materials for constantly ways we how improve we We procure way land to to to labor our look underwrite sell and and homes. build from deals we the way the

of is expectations line remaining approximately of to integrate our systems. days We IT migrated into successfully the our one our Houston outside our cycle is XX by with main demonstrated Douglas our in and time have differentiators onto which operating feel model this fully and division, at continue Smith we

efficient XX.X% our the has rate, cancellation We reduce cycle which also second was this feel for time quarter. helped

focus operational our strategy. our land of pillar is final lot The

view a We are our as than means necessary homebuilders rather which of investing. for first we business and speculative something foremost, land component

business. development and one most of of land aspects unpredictable is land know also the this We and costly

and tying close As of as on ownership option a our from result, we possible. land as agreements priority of operations have with as a seeking just-in-time risk up made the basis take land to it to by eliminate a as much to possible lots

our lots second XX% quarter, the were option the controlled of end of unstarted via agreement. At controlled

policy serves market, against an While this insurance as we feel strategy in land downturns. costs an lot trending acquisition potential higher in can it result upwardly

also better and returns. generate efficiently capital more allows to us It deploy our

operations. feel current the about good our of state we Overall,

markets right we believe homebuilding right We have place beyond us they the the to today. in operations are grow our to in what allow strategy

this remains there desire and to The macro in for homeownership a real continues be country. positive environment

in half Our is shape we the balance we as second of the sheet and year. momentum great into head have solid

result, to for goals well-positioned achieve we our and year beyond. believe we a As are this

call that, give With like to update who this over outlook performance on our year. on more I'd the detail Russ provide quarter to turn the our and will an for

Thanks, Greg.

for XXXX. for to of highlight going and the and full our outlook third some conclude for my quarter quarter I'm results expectations our the with remarks and second year

second closings As an of quarter the million on revenue of Greg average $XXX,XXX. for with $XXX.X price closed homes mentioned, we XXX sales finished on

for of was revenue, margin XX.X% true-up and bonuses the of gross total. was that XX basis a which incentive points includes Our annual XX.X% SG&A for accounted

the income income for quarter. net of with Pre-tax was $XX.X million $XX.X million,

the net face of on our structure, our rate organizational our Given X.X% an reported reflects effective of of statement. income tax nature Up-C income the

Douglas to tax related income primarily This Homes Holdings LLC. Smith income and held expense XX.X% is shareholders that to is the Smith of the our attributable Corp by ownership Douglas public economic

a net adjusted our measure corporation. is had quarter is income, and which XXX% ownership subchapter public useful as given we non-GAAP and as believe federal structure blended effective we the if state a Our for operating XX% assumes rate that is C organizational million $XX.X a tax

comparability allows management traditional and a We that peers operating to investors effectively our useful structure. adjusted income more industry because net tax is and believe metric and a more to have evaluate organizational may performance it

more footnotes about find the our our statements. You of structure and income can in financial information taxes

will included acquisition adjustment early million the accounting of related to for Devon a of net be earnout next to income one-time the Our purchase charge paid related the $X.X true-up expected payment year. for Street a that quarter our

other income included statement. our expenses expense in on This is

[Operator Instructions].

of the with line Michael Our comes J.P. from question Morgan. Rehaut first

Your line is open.

questions. my taking for you thank Hi,

on This is of behalf Mike. Andrew

maybe get more count the you're some year. we community as I go an and and hoping it just to on about thinking was update granularity how growth through

maybe next thoughts initial for any And year?

you. Thank

Andrew. Hey,

the three maybe the in communities XX than XX, a perspective, stated of at this I XX more or quarter, rank. where Yes, end higher to expect somewhere before, two count probably community to we're from and we've XX, think the end we somewhere

we'd a So little grow to it bit. expect

and I bring or coming that online faster. little we're mean, exceeding to communities some a bit time from then communities hoping sales of just on -- our there's again some are offline

experiencing, mentioned, I as some delays. flat are We

But we that's give any year. on updates next as next as haven't really we then would sales well maybe -- of so some we'll expect yet, year, the provided and quarter, into closings but guidance and where for on next communities kind

Thanks, Russ.

or little your over expectations. And bit is few drill kind maybe months, your if demand progression coming us trends through down the sales we versus of the then a data maybe give door on you how the can last any could

that one. take I'll Yes,

probably seasonality. trends are slightly off Our typical from current

a seeing still of We're lot demand.

few got been seasons with the last school good, have The weeks although starting. you've typical

I our of divisions We just move storm our and a interruptions with some things. Carolina mean, a of lot through of a had those had lot coastal, sorts

pinpoint kind some of to of it's hard that. So

seasonality a little soft. maybe But is I just think

the are trends those But same.

Yes.

to mentioned, during that, as quarter. add Just pretty on we to with if a had, also storm Greg hit Houston the hard got

would expect, you a mean, trended I as can down absorptions see little But you bit.

terms sales. net April about When you flat monthly in their through were May and looked at our the quarter, actually of sales

balance. XXX June tailed and I then XXX a the May, and think for bit off were in we at

-- again we your seasonality. that's So typical kind of

weather there. think But factors also was some there in I

question of from Bank the next And your line with of Rafe Jadrosich comes America.

open. Your line is

Hi, good morning.

It's Rafe.

my question. taking for Thanks

margins talk of them? little a on how for ask to compared bit Street just in there the that you Houston, to the legacy terms business you're in can wanted are of what and Devon seeing the about I division sort progress integrating

Yes.

we as that as of last to getting into integration take the we good way continued had of as think them I going and last kind Douglas it, continued. part quarter, migrate we the on is business, has Smith to doing have expected, So could of systems, mentioned

of onto I our -- as totally today, would system. are migrated think, we I XXX%

had there. team out We've our meetings

So -- turned over again, we've to continued the right? brand, we've

pretty brand the was turned So over early.

some out started legacy we've of the models. integrate We but to are already homes, plans, floor our building

We're doing CRM. the marketing Smith more of Douglas

So everything's track. on

And that phenomenal. to been really mean, a shout they've team, I out

we've the I in one last person think year. lost maybe

us. it's we great one great but So hit and anniversary, our team, a just acquisition year been for extremely

exceed closings think that had year. going them I to for for they're And we this the projected

And well. then we as just could in have as of margins, good terms expected as

mid-XXs, XX% hitting gross margin. They're the

bit legacy think to I honest. than their probably and a consistent we expected be higher have with would little And that's business

to and we think past, and in push we come thought going little try because a of were going a expense more the that at to had done the I was more they volume than little margin.

But yeah, been it's good.

half -- of first was first year quarter The great. the the

and demand great. was Sales

again, think, followed bit the pattern in also they of But second quarter. typical little the a I seasonal

well. But yes, it's going

helpful. really That's

just you the then margin end gross of low outlook. the And raised

that increase? talk about driving you Can what's

second the are you land the assuming year? stick and for what cost and And brick half of for inflation

Yes.

for our better been raised second it because in margins We quarter. coming in have sales the

in cost side. function excess direct it's to we've So and been the able a of prices inflation, cost really that's just of really more raise on

Our land cost cost driving erosion, what's year-over-year right? is what's driving is the really land margin

our think land points XXX versus up percentage a as maybe about cost, I basis it's last year. revenue

the driver. that's But big

of in have front the me. percentages don't I

talk costs, erosion. which that I mean, land it's margin is can we the all maybe offline, but driving in

But about as is I mentioned, our backlog XX%. margin and

for I So a what safe think -- -- that yes, at backlog is think six the months of we're XX% first the pretty through XX%, half with to XX.X% and range. XX.XX% year, the I first

That's you. Thank helpful.

Sure.

line RBC of And Markets. with comes the from your next question Mike Dahl Capital

open. is line Your

taking for thanks questions. Hey, my

backlog on I gates, backlog just minus think where maybe margins, Russ, comment current giving your coming sits. you've that around out range been the follow-up to a plus or of on margin

you're And if correctly, heard backlog XQ. current to is XX% your if I for at XX.X% XX%, margin you guiding

like, end. not erosion incremental assuming, really you're low at So necessarily the

or going in Maybe how kind backlog just it's what's to of whether margin. thinking that mix versus help XQ deliver us through you're understand otherwise,

you've think It's more got related, way mix the Yes. trending. just I it's

hitting a -- gross I recall than I you're margin, probably little you've QX, correctly. QX got in higher bit if think

-- more that's it's just So a -- that's I think mix. of

to to end And of kind low terms that baked closing in we're of trying number. get pretty

closings standpoint. our a nothing our When at you look right, backlog year, cancellation close out, and scheduled this assumes from that plus falls that to

about to we pretty feel mean, good I XX.XX%. getting that

month a of we just continue. where, can margin how We're to got in point where and sell trends year we've another in year, see getting of the to kind close and need so we the we or the maybe --

the specs in can that year. close some ground also this got We've

to maybe some have do are And part much specs. going just of to those that's of move discounting how to we

-- why the that's So for the reason that's range.

at year at there. mix there's though XX%, XX.X% I the in for and backlogs some think we're Even

of And will some then can what can on these trends demand we month margin. it some and what like we next the look maybe at how and in specs hold depends the move just of

Yes.

That's Okay. helpful.

and that back around Greg clear. make sure to want the I made then trends, comments And both demand to I'm you the

Greg, seasonality. you I think, trends talked typical below current about

May, April, about when June. Russ, specifically and Then added talked your comments, you you more

when what So Greg, I you've trends, in seasonality? current you've referenced July seen being typical and wanted to is clarify, that that talking you're below still to-date about August

correct. That's

but is July and numbers. Yes, -- below and we're our we're saw current where and that traffic back typical slightly our our and we leading expect to is it's indicators lead seasonality, would generation, seasonality, we August closer

Okay. Appreciate both. that. Thank you

Thanks, Yes. Mike.

And Reid comes Wells your question line from of with Sam the next Fargo.

line is Your open.

a follow-up wanted guys. Thanks, to on quick Street I Devon do here.

in times relative Just your current today are maybe talk through core operations. where cycle to Houston

maybe of something path your help to with of more to us bridge then And the core kind getting business. sort consistent

Thanks.

Yes.

for question. thanks the Sam, So

cycle benchmarking all and our trends our of We're right now time.

In had a of time harder legacy, master the communities plan where we that. product Houston, changing had little some some over we

got month last and all to the we'll times there. the over or the so, of cycle up the plugged of next weeks, we've couple the over in and system, benchmark units able be got all probably just now We've

mid-high-XXs. guessing on putting if numbers I'm in without the it, we're -- They're probably

job place. but everything, a got great time, doing team's cycle we've schedules place our on We're in in there on now and

launched We've those meetings.

have in-person I their trade to and there Tom meetings. been

the Russ transitions. great things said, going as are all with And

able So forward. to set being moving now it's a benchmarks matter of

time. high-XXs, We end all by XX, to we're looked cycle be near of we in the that the would of the hope XX, our across that if our numbers, year today, footprints

No. helpful. Greg. Thanks, That's

just one question I then mix had here. And on

is business. there you guys know in to predominantly but build spec some your order, I

of spec second into the of half year. the kind curious looks Just how mix that

Just incentives potential specs. those mindful of on

looks So curious what like. the mix

Thanks.

much Our spec, we've spec, always than don't had different and that typical. so some that it's I know

operate business. we a and focus as So manufacturing

We make lose less more; capacity. full we at

a we'll stated presale don't a If we start have slot a we get home. ready, and

spec I of at about at WIP, percent our that we a are X% homes WIP, Our of are are as think drywall homes.

So it's sampling. a small

the able most those get think to of sold moved and I to. we prior are

schedule sale. And It we we time. sand, line call its the that at it that look when still a around on in we original convert closes is can drywall still,

other got. just the I'm thing, and sitting I The Sam, would add we've at here is, today, numbers looking

had this we As -- had specs. only we week, XX finished of

through evenly divisions. that And pretty our distributed was

by count track We week. spec community every

of kind at We trends look the what see and that sales are.

I trying day. and mean, meter, to to point, to one a keep to get But we're pace teams adjusting start our Greg's for that going, the price machine kind we'll of

when to you thing XXX are maybe then one keep look And so in it's up year-over-year, just about year. specs -- last about at mind, specs, the probably versus

that comes Houston. Now, of over that -- half half of from

Houston's So you got spec market. probably to of remember, more a

And in about you're other four where primarily in because market, master builders. are competing XX% we're communities plans competing, that you've think of -- and our or with got I five

way you've just of kind to And the it's got there. compete

in spec So Houston. we've little a got more

way doing Douglas -- pointed them We mean, as Smith the getting Greg I out, things. are we're of integrated,

them presale. a more We get are little trying more to focused on

always But it other you to be kind going I in are of business Houston compare markets. to our of think part when specs that

Thanks, Russ.

And home too, for there need day identify a us becomes to spec, add for note permitting. one to the the spec go we into a

we if permitting elongated of it's cycles. to within system the a early very spec of So because be law got identify our

right. That's

No, guys, that's helpful. very

Thanks so much.

Sam. Thanks, Sure.

McCanless comes And from the Securities. line with next of Wedbush Jay your question

line is open. Your

Hey, everyone. good morning,

I So from or competitive going land expecting gross talking a think guess, I the larger said of costs year-end? Russ, are more pressure maybe all versus margin, little builders about XQ, into you higher that is probably in all some XQ the you

margin mean, closings, on Yes. that's right? It's -- gross I the our

that's just lot baked. of a So

and what's going of just close. mix just timing to kind of it's So

And I of just seen a where think we've you. that's reflection just

margins first of quarter, back half think kind quarter. the you in the going closings, the of that end was in those to So that's that close the year, second that was of sales

land through of it's it's where move terms it's mix, think just we in So just mostly costs, we've just -- costs. seen as just I communities, it's

it's more kind of just really just So of what's closing. timing

Okay.

I'm higher, So mortgage when that's I assuming guess, were yes, that makes sense cetera. rates because et

a You side. the little down on probably more buy do

what could larger guess, and you're to about from now I are do you talk you having the of seeing what builders. for incentives some

the what would I in jump half can pretty too, say, consistent Yes. first and of year the seen first it's we've in but Greg or with quarter.

kind of choice offering your incentive still our We're a, for buyers.

closing been hasn't incentive The -- have much actual most credit a and costs downs. I'd versus changed percentage -- taking too buy it's still say are towards still

of small just dollar in a million maybe forward breakdown. We our a one did buying we contract a a couple forward markets in where did

our And of incentive. to more couple it took like buyers us, I taking think a were, said, months closing cost actually fill that it because I

a believe And refi going I credit of of the expectation now mortgage for hey, the just coming in folks a me let take because ultimately it's to is because lot couple rates my years I'm down. like, feel

morning. good Jay, accurate. that's Yes,

X.X%, I X% And say, incentives would are currently. range average our on

guess, I I there, with Got potentially I other comfortable how you. guess the looking and mark passed Houston, had, the Street And you one at then how question expansions? just about last given thinking that you -- year Devon are

team, with had need you've or feel existing implement like that, could more the you time you organization, far that another do evaluate? learnings this like so to some you into you do our And feel

implementation think great. has I gone the

And I continue go don't is Houston. how reservations doubt have about well going or any at to this to

Houston beyond within and I the may think we and now evaluating then that there. timing expand when for step growth out market is

But of at there's no of any immediate need those to type look transactions.

the have in our expanding our past, divisions all across our stated and markets. we've as land think I those in as opportunities with greatest current we

it. Thanks, Okay. guys. Appreciate Great.

you. Thank

Instructions]. [Operator

line the Housing Your Center. with Research next question from Alex of Barron comes

Your line is open.

you, gentlemen. Yes. Thank Good morning.

division. I about Houston ask wanted to the

the the quarter, first Orders quarter. second XX were in in XXX

more those right a is two bit a rate be to likely now? run talk which about of little you Can

from what guess, And one happened quarter to the I -- what next?

it's think I Look, Houston, seasonal trends. Yes. it's -- think of kind in I still

than the think we season. So but it just better first kind quarter probably was of I expected,

out. getting to you hit now get into starting summer you're And of quarter, school second months, kind

sit following can't that don't trend. normal here wasn't So it I I and -- a say just

second a an bit we see did in in cancellations of So quarter. Houston uptick little in

bit But blip just just typical. that's a anything I if kind just little or can't a than of more say of

ourselves. this our with -- first Again, Houston half our first was year year

how So we're kind market, there. feeling fit out of the we of just still seeing kind

I we we had better anticipated. than no, everything is think But well, said real going like

I projections Houston, our in exceed And year so. we full think the I for internal they're from as just going to internal projections, look think our

Great. Okay.

And as I going far as up your mean, land position, aggressively. it's pretty been

ahead trying opportunities just of get growth? feel now you right you're like seeing expected to you're just Do or

Yes. as We're committee mentioned, investment seeing busy. -- very we is -- I corporate our

us. the four are one seeing or to deals that five divisions a to from We're presenting anywhere week

we're active. So very

market The is competitive, right? very still

we're are deals. of share fair our mean, getting I but -- we

As outside with through capital raising of show, our specifically we the to the one is continue during mentioned operations, main the Atlanta. scale of road goals drive to here

we're top Atlanta. builder three Atlanta -- in

scale a in seeing been So in we've focusing on driving we're great Atlanta. really but lot other of deals markets,

I the we last mean, on we up call, started into mentioned footprint, pushing just Chattanooga. across as the

I in So we think we contract -- couple deals put another under put of Chattanooga.

we there. to north So continue push

some there's transition. the more So with opportunity

Eddy, -- just a transitioned VP newly Finance, role, we We our with Central of that's Georgia created mentioned just DP into division.

out middle to our looking Atlanta into further more Georgia. we're footprint So expand from

So that just opportunities seeing. these we're are more

opportunistic. we're yes, So being

last and across I we -- to we've our seen, just will come thing say see is continue We've desk. M&A the opportunities

But honestly, I approach we're there. wait just see taking a think and

right to price. got be got be the It's right the at to It's at fit.

-- aren't things cheap. I things are think

the side, are both side think think on I things I and Again, M&A land the expensive.

But share our land yes, look, of deals. getting still fair we're

Thank you. of luck. Best Okay.

All Alex. right. Thanks,

And further at time. no questions this there are

turn I Bennett. back Greg over now the call will to

Thank you.

call. for joining our Thanks, quarterly everyone, on

week. great day, great has everyone Hope

concludes conference call. today's this And

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