- Pre-Tax Income: $25.9 million, translating to $0.40 per diluted share.
- Home Closings: 653 homes, a 17% increase over Q2 2023.
- Home Closing Revenue: $220.9 million.
- Home Closing Gross Margin: 26.7%.
- Net New Home Orders: 715, a 17% year-over-year increase.
- Cancellation Rate: 11.8% for the second quarter.
- Controlled Lots: 96% of unstarted controlled lots via option agreement.
- Revenue: $220.9 million on 653 closings, average sales price of $338,000.
- SG&A: 14.4% of revenue.
- Net Income: $24.7 million for the quarter.
- Adjusted Net Income: $19.4 million.
- One-Time Charge: $1.2 million related to purchase accounting adjustment.
- Total Controlled Lots: Over 15,800, an 81% increase over Q2 2023.
- Backlog: 1,173 homes with an average selling price of $345,000.
- Active Selling Communities: 75, up from 70 at the end of Q1.
- Cash: Approximately $17 million.
- Revolving Credit Facility: No borrowings under $250 million facility.
- Total Members and Stockholders' Equity: $344.6 million.
- Debt-to-Book Capitalization: 1.1%.
- Net Debt to Net Book Capitalization: Negative 4.1%.
- Available Credit: Approximately $220 million on unsecured credit facility.
- Q3 Home Closings Projection: Between 725 and 775 homes.
- Q3 Average Sales Price Projection: Between $340,000 and $345,000.
- Q3 Gross Margin Projection: 26% to 26.5%.
- Full Year 2024 Home Closings Projection: Between 2,650 and 2,800 homes.
- Full Year 2024 Average Sales Price Projection: Between $339,000 and $343,000.
- Full Year 2024 Gross Margin Projection: 26% to 26.75%.
- Full Year 2024 SG&A Expense Ratio Projection: 13.75% to 14.25%.
Release Date: August 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Smith Douglas Homes Corp (SDHC, Financial) reported pre-tax income of $25.9 million, translating to $0.40 per diluted share for the quarter.
- The company closed 653 homes during the quarter, a 17% increase over the second quarter of 2023, generating $220.9 million in home closing revenue.
- Net new home orders for the quarter were 715, representing a 17% year-over-year increase.
- Home closing gross margin came in above guidance at 26.7%, driven by solid demand, stable pricing, and cost containment.
- The company has a strong balance sheet with $17 million in cash and no borrowings under its $250 million revolving credit facility.
Negative Points
- The company experienced some delays with municipalities on permitting and plats, which could impact future projections.
- Demand trends were slightly below typical seasonality in July and August, indicating potential softness in the market.
- The Houston division saw a decrease in orders from 149 in the first quarter to 98 in the second quarter, reflecting potential volatility.
- The company noted an uptick in cancellations in the Houston market during the second quarter.
- Land costs have increased, contributing to margin erosion, with land costs up about 300 basis points as a percentage of revenue compared to last year.
Q & A Highlights
Q: Can you provide an update on community count growth and any initial thoughts for next year?
A: We expect to end the year with 76 to 79 active communities, slightly higher than the current count. We are experiencing some delays with municipalities on permitting and plats, but we will provide more guidance on next year's community count in the next quarter. - Russell Devendorf, CFO
Q: Can you discuss the demand trends over the last few months and how they compare to your expectations?
A: Current trends are slightly below typical seasonality. While demand remains strong, recent weeks have seen some interruptions due to seasonal factors like school starting and weather events. - Gregory Bennett, CEO
Q: How are the margins for the Devon Street division in Houston compared to the legacy business, and how is the integration progressing?
A: Integration is going well, with the team fully migrated onto our systems. Margins for Devon Street are around 25%, consistent with their legacy business and slightly higher than expected. - Russell Devendorf, CFO
Q: What is driving the increase in the gross margin outlook, and what are your assumptions for cost inflation in the second half of the year?
A: The increase is driven by better-than-expected margins on sales in the second quarter. We have been able to raise prices in excess of cost inflation, particularly on direct costs. Land costs are the primary driver of year-over-year margin erosion. - Russell Devendorf, CFO
Q: Can you clarify the current demand trends for July and August?
A: Current trends for July and August are slightly below typical seasonality, with traffic and lead generation indicators also slightly below expectations. - Gregory Bennett, CEO
Q: How do cycle times in Houston compare to your core operations, and what is the path to achieving consistency?
A: Houston's cycle times are currently in the mid-high 70s, but we aim to bring them closer to our core operations' cycle times of around 58-59 days by the end of the year. - Gregory Bennett, CEO
Q: What is the spec home mix for the second half of the year, and how might this impact incentives?
A: We have about 3% of our homes at drywall as spec homes. We track spec count weekly and adjust pricing to manage pace. Houston has a higher spec mix due to market competition. - Gregory Bennett, CEO and Russell Devendorf, CFO
Q: What are your current incentives, and how do they compare to larger builders?
A: Our incentives are in the 1.5% to 2% range, with most buyers taking credits towards closing costs rather than rate buy-downs. This is consistent with what we've seen in the first half of the year. - Russell Devendorf, CFO and Gregory Bennett, CEO
Q: How comfortable are you with potential expansions beyond Houston, given the success of the Devon Street integration?
A: The integration has gone well, and we are evaluating growth within Houston. However, our greatest opportunities currently lie within our existing divisions and expanding our land footprint. - Gregory Bennett, CEO
Q: Can you explain the fluctuation in orders for the Houston division between the first and second quarters?
A: The fluctuation is likely due to seasonal trends, with the first quarter performing better than expected and the second quarter reflecting typical seasonality. We also saw a slight uptick in cancellations in Houston during the second quarter. - Russell Devendorf, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
