Q2 2025 Smith Douglas Homes Corp Earnings Call

Time, Please press star followed by one on your telephone keypad. Thank you and then.

I'd like to hand, the call over to Joe Thomas You May now go ahead. Please.

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 second quarter of 2025, which we will discuss on today's call and which can be found on our website at investors Dot Smith Douglas dot 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.

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 would now like to turn the call over to Greg.

Thanks, Joe and good morning to everyone, let Douglas Holm turned in another strong operational performance in the second quarter of 2020.

Speaker #3: Three. Hello and welcome to Smith Douglas Homes Second Quarter 2025 Call and Webcast. Please note that this call is being recorded. After the speaker has prepared remarks, there will be a question and answer session.

Generated pre tax income of $17 2 million.

And an earnings of <unk> 26 per diluted share.

Home sales revenue was 224 million for the quarter on home closings at 669, which exceeded the guidance range, we gave last quarter.

Speaker #3: If you'd like to ask a question during that time, please press star, followed by one on your telephone keypad. Thank you. I'd like to hand the call over to Joe Thomas.

Home closing gross margin came in at the high end of our guidance range of 23, 2% and net new orders for the quarter totaled 736 home.

Speaker #3: You may now go ahead, please.

Speaker #4: 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 second quarter of 2025 which we will discuss on today's call and which can be found on our website at investors.smithdouglas.com.

Joe Thomas: Good morning, and welcome to the earnings conference call for Smith Douglas Homes Corp. We issued a press release this morning outlining our results for the second 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 filings.

Overall I'm proud of our company's performance this quarter, despite a challenging macroeconomic backdrop for homebuilding and believe it once again demonstrates the strength of our asset light operational model focused on turning inventory quickly.

Speaker #4: 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.

We expect and consistent demand trends during the quarter with stretches the solid order activity all about periods of softness.

Speaker #4: 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.

While we believe there is a strong desire and need for new homes in our markets affordability constraints declining consumer confidence.

Speaker #4: 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.

And lack of urgency from buyers continues to be a headwind for our industry.

As a result, we remain intensely focused on our operating elements that are within our control which include making our homes as affordable as possible, while given our buyers to choice and customization.

Speaker #4: 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.

Joe Thomas: 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 would now like to turn the call over to Greg.

Our average sales price on homes closed this quarter came in at 335000.

Speaker #4: 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 turn the call over to Greg.

Which is one of the lowest asp's.

Our peers.

We ended the second quarter with 92 active communities, a 23% increase over second quarter of 2024.

Speaker #5: Thanks, Joe. And good ning to everyone. Smith Douglas Homes turned in another strong, operational performance in the second quarter of 2025. Generating pretax income of $17.2 million and an earnings of $0.26 per diluted share.

Greg Bennett: Thanks, Joe, and good morning to everyone. Smith Douglas Homes Corp. turned in another strong operational performance in the second quarter of 2025, generating pre-tax income of $17.2 million and earnings of $0.26 per diluted share. Home sales revenue was $224 million for the quarter on home closings of 669, which exceeded the guidance range we gave last quarter. Home closing gross margin came in at the high end of our guidance range at 23.2%, and net new orders for the quarter totaled 736 homes. Overall, I am proud of our company's performance this quarter despite a challenging macroeconomic backdrop for home building, and believe it once again demonstrates the strength of our asset-led operational model focused on turning inventory quickly. We experienced inconsistent demand trends during the quarter, with stretches of solid order activity followed by periods of softness.

And improved our controlled lot count by 57% compared to a year ago almost 25000 lives.

Under our asset light strategy.

Which gives us the operational and financial flexibility to adjust the challenging market conditions.

Speaker #5: Home sales revenue was $224 million for the quarter on home closings of $669 which exceeded the guidance range we gave last quarter. Home closing gross margin came in at the high end of our guidance range at 23.2%.

Option loss accounted for 96% of our own started controlled log count at the end of the quarter.

We continue to focus on growing our operations in existing markets, while exploring strategic expansion opportunities, where we can deploy our operating model to further increase our overall market share of new home sales and achieve better economies of scale and operating leverage.

Speaker #5: And net new orders for the quarter totaled 736 homes. Overall, I'm proud of our company's performance this quarter despite a challenging macroeconomic backdrop for home building and believe it once again demonstrates the strength of our asset life operational model focused on turning inventory quickly.

To that end I'm happy to share that will be entering Dallas Fort worth.

And Gulf Coast of Alabama markets through Greenfield startups.

Speaker #5: We experienced inconsistent demand trends during the quarter with stretches of solid order activity followed by periods of softness. While we believe there's a strong desire and need for new homes in our markets, affordability constraints declining consumer confidence, and lack of urgency from buyers continue to be a headwind for our industry.

We have been working to secure several finished lot positions in DSW over the last six months and expect close in our first loss and start selling by year end.

Greg Bennett: While we believe there is a strong desire and need for new homes in our markets, affordability constraints, declining consumer confidence, and lack of urgency from buyers continue to be a headwind for our industry. As a result, we remain intensely focused on operating elements that are within our control, which include making our homes as affordable as possible while giving our buyers the choice and customization they desire. Our average sales price on homes closed this quarter came in at $335,000, which is one of the lowest ASPs of our peers. We ended the second quarter with 92 active communities, a 23% increase over the second quarter of 2024, and improved our controlled lot count by 57% compared to a year ago to almost 25,000 lots.

Additionally, we have been working on several opportunities to acquire logs and greater Baldwin County area of Southern Alabama, and expect to close on several land deals that would have us targeting communities opening in the second half of 2026.

Speaker #5: As a result, we remain intensely focused on operating elements that are within our control. Which include making our homes as affordable as possible while giving our buyers the choice and customization they desire.

We believe in long term growth prospects of these markets and they fit nicely into the geographic footprint.

Where we can continue to deliver first time homebuyers affordable high quality personalized homes.

Speaker #5: Our average sales price on homes closed this quarter came in at $335,000. Which is one of the lowest ASPs of our peers. We ended the second quarter with 92 active communities.

Construction efficiency continues to be another major focus area of our company.

Excluding Houston, our average cycle time at the end of the quarter was 54 days, which is down from 60 days in second quarter of 2024.

Speaker #5: A 23% increase over the second quarter of 2024. And improved our control a lot count by 57% compared to a year ago to almost 25,000 lots.

We continue to make headway in the quarter, bringing Houston Division onboard with these principles and look forward to them achieve and cycle times closer to the company average in the near future.

Speaker #5: Under our asset life strategy, which gives us operational and financial flexibility to adjust to challenging market conditions, option lots accounted for 96% of our unstarted controlled lot count at the end of the quarter.

Greg Bennett: Under our asset-led strategy, which gives us operational and financial flexibility to adjust to challenging market conditions, option lots accounted for 96% of our unstarted controlled lot count at the end of the quarter. We continue to focus on growing our operations in existing markets while exploring strategic expansion opportunities where we can deploy our operating model to further increase our overall market share of new home sales and achieve better economies of scale and operating leverage. To that end, I am happy to share that we will be entering Dallas-Fort Worth and Gulf Coast of Alabama markets through Greenfield Startups. We have been working to secure several finished lot positions in DSW over the last six months and expect to close our first lots and start selling by year-end.

Despite the challenging sales backdrop, we feel our balance sheet remains in great shape with a net debt to net book capitalization ratio coming in at 12, 1% at the end of the quarter.

Speaker #5: We continue to focus on growing our operations and existing markets while exploring strategic expansion opportunities where we can deploy our operating model to further increase our overall market share of new home sales and achieve better economies of scale and operating leverage.

The strength of our balance sheet allows us to operate from a position of strength and remain opportunistic when the market dislocations occur.

With our previously announced $50 million share repurchase authorization.

Speaker #5: To that end, I'm happy to share that we'll be entering Dallas Fort Worth and Gulf Coast of Alabama markets through Greenfield startups. We have been working to secure several finished lot positions in DFW over the last six months and expect closing our first lots and start selling by year end.

We also have the flexibility to buy our stock back should the opportunity present itself.

As we head into the second half of the year I feel good about our company's outlook, even as the macro economic and interest rate environment continues to remain uneven and uncertain.

We have many well located communities in some of the best markets in the country and deliver homes with an average selling price that represents a good value.

Speaker #5: Additionally, we've been working on several opportunities to acquire lots in greater Baldwin County area of Southern Alabama and expect to close on several land deals that would have us targeting communities opening in the second half of 2026.

Greg Bennett: Additionally, we've been working on several opportunities to acquire lots in the greater Baldwin County area of Southern Alabama and expect to close on several land deals that would have us targeting communities opening in the second half of 2026. We believe in the long-term growth prospects of these markets, and they fit nicely into the geographic footprint where we can continue to deliver first-time home buyers affordable, high-quality, personalized homes. Construction efficiency continues to be another major focus area of our company. Excluding Houston, our average cycle time at the end of the quarter was 54 days, which is down from 60 days in the second quarter of 2024. We continue to make headway in the quarter bringing Houston division on board with these principles and look forward to them achieving cycle times closer to the company average in the near future.

We continue to look for ways to curb cost and our build times continue to improve.

Which will help us turn our inventories faster.

Speaker #5: We believe in the long-term growth prospects of these markets and they fit nicely into the geographic footprint where we can continue to deliver first-time home buyers affordable, high-quality personalized homes.

Despite the uneven sales environment in the second quarter, our can rate was actually down year over year, 10% for the quarter.

Which is a testament to the appeal of our homes and the shortened time between sales and closings.

Speaker #5: Construction efficiency continues to be another major focus area of our company. Excluding Houston, our average cycle time at the end of the quarter was 54 days.

We also have several new communities opening at start of the third quarter, which will serve as a tailwind for our sales efforts.

Given these positive I remain optimistic about the future Smith Douglas homes.

Speaker #5: Which is down from 60 days in the second quarter of 2024. We continue to make headway in the quarter bringing Houston division on board with these principles and look forward to them achieving cycle times closer to the company average in the near future.

Now I'd like to turn the call over to Ross, who will provide more detail.

On our financial and operational performance this quarter and give an update on our outlook for third quarter.

Thanks, Greg I'll now walk through our financial results for the second quarter, and then provide an update on our outlook for the third quarter.

Speaker #5: Despite the challenging sales backdrop, we feel our balance sheet remains in great shape with our net debt to net book capitalization ratio coming in at 12.1% at the end of the quarter.

Greg Bennett: Despite the challenging sales backdrop, we feel our balance sheet remains in great shape with our net debt to net book capitalization ratio coming in at 12.1% at the end of the quarter. The strength of our balance sheet allows us to operate from a position of strength and remain opportunistic when the market dislocations occur. With our previously announced $50 million share repurchase authorization, we also have the flexibility to buy our stock back should the opportunity present itself. As we head into the second half of the year, I feel good about our company's outlook, even as the macroeconomic and interest rates environments continue to remain uneven and uncertain. We have many well-located communities in some of the best markets in the country and deliver homes at an average selling price that represents a good value.

We closed 669 homes during the second quarter up 2% from 653 closings in the same quarter last year.

Homebuilding revenue was $2 $23 9 million, an increase of 1% over the prior year.

Speaker #5: The strength of our balance sheet allows us to operate from a position of strength and remain opportunistic when the market dislocations occur. With our previously announced $50 million share repurchase authorization, we also have the flexibility to buy our stock back should the opportunity present itself.

Our average sales price was approximately 335000, which is down slightly year over year due to slightly higher discounts and shifts in geographic and product mix.

Gross margin came in at 23, 2%, which was at the high end of our guidance range and compares to 26, 7% in the prior year.

Speaker #5: As we head into the second half of the year, I feel good about our company's outlook even as the macroeconomic and interest rate environments continue to remain uneven and uncertain.

Our lower year over year margin reflects the impact of higher average lot cost, which were 26% in the current quarter versus 23, 9% of revenue in the year ago period, as well as rising incentives and promotional activity, which totaled four 8% of revenue this quarter up slightly from four 2% a year ago.

Speaker #5: We have many well-located communities in some of the best markets in the country. And deliver homes at an average selling price that represents a good value.

SG&A was up $2 9 million versus prior year and was 15, 5% of revenue compared to 14, 5% last year, driven primarily by increased payroll and associated expenses with a sizable portion of the increase coming from the opening of new divisions over the last few quarters.

Speaker #5: We continue look for ways to curb cost and our build times continue to improve. Which will help us turn our inventories faster. Despite the uneven sales environment in the second quarter, our CAN rate was actually down year over year at 10% for the quarter.

Greg Bennett: We continue to look for ways to curb cost, and our build times continue to improve, which will help us turn our inventories faster. Despite the uneven sales environment in the second quarter, our CAN rate was actually down year over year at 10% for the quarter, which is a testament to the appeal of our homes in the shortened time between sales and closings. We also have several new communities opening at the start of the third quarter, which will serve as a tailwind for our sales efforts. Given these positives, I remain optimistic about the future of Smith Douglas Homes Corp. Now I'd like to turn the call over to Russ Devendorf, who will provide more detail on our financial and operational performance this quarter and give an update on our outlook for the third quarter.

Net income for the quarter was $16 4 million compared to $24 7 million in the prior year and pretax income was $17 2 million versus $25 9 million.

Speaker #5: Which is a testament to the appeal of our homes and the shortened time between sales and closings. We also have several new communities opening at the start of the third quarter.

Adjusted net income was $12 9 million compared to $19 4 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 four 3% this quarter, which is attributable to the approximate 18% economic ownership held by the public shareholders through Smith Douglas homes Corp.

Speaker #5: Which will serve as a tailwind for our sales efforts. Given these positives, I remain optimistic about the future of Smith Douglas Homes. Now I'd like to turn the call over to Russ who will provide more details on our financial and operational performance this quarter and give an update on our outlook for the third quarter.

Smith Douglas Holdings LLC.

Speaker #6: Thanks, Greg. I'll now walk through our financial results for the second quarter and then provide an update on our outlook for the third quarter.

The majority of our earnings are allocated to our class B numbers, 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, 9% and blended federal and state effective tax rate.

Russ Devendorf: Thanks, Greg. I will now walk through our financial results for the second quarter and then provide an update on our outlook for the third quarter. We closed 669 homes during the second quarter, up 2% from 653 closings in the same quarter last year. Home building revenue was $223.9 million, an increase of 1% over the prior year. Our average sales price was approximately $335,000, which is down slightly year over year due to slightly higher discounts and shifts in geographic and product mix. Gross margin came in at 23.2%, which was at the high end of our guidance range and compares to 26.7% in the prior year.

Speaker #6: We closed $669 homes during the second quarter up 2% from $653 closings in the same quarter last year. Home building revenue was $223.9 million.

We believe this measure is helpful in evaluating our results relative to peers with more traditional C Corp structure.

Speaker #6: An increase of 1% over the prior year. Our average sales price was approximately $335,000. Which is down slightly year over year due to slightly higher discounts and shifts in geographic and product mix.

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 $16 8 million in cash and had approximately $70 million outstanding on our unsecured revolver with a $189 million available to draw.

Speaker #6: Gross margin came in at 23.2%. Which was at the high end of our guidance range and compares to 26.7% in the prior year. Our lower year over year margin reflects the impact of higher average lot costs which were 26% in the quarter versus 23.9% of revenue in the year ago period as well as rising incentives and promotional activity which totaled $4.8% of venue this quarter up slightly from $4.2% a year ago.

As I mentioned on our last earnings call, we finalized the amendment to our credit facility, which included among other things an increase in total size to $325 million in.

Russ Devendorf: Our lower year-over-year margin reflects the impact of higher average lot costs, which were 26% in the current quarter versus 23.9% of revenue in the year-ago period, as well as rising incentives and promotional activity, which totaled 4.8% of revenue this quarter, up slightly from 4.2% a year ago. SG&A was up $2.9 million versus prior year and was 15.5% of revenue compared to 14.5% last year, driven primarily by increased payroll and associated expenses, with a sizable portion of the increase coming from the opening of new divisions over the last few quarters. Net income for the quarter was $16.4 million compared to $24.7 million in the prior year, and pre-tax income was $17.2 million versus $25.9 million. Adjusted net income was $12.9 million compared to $19.4 million in the prior year.

And extended the maturity to May 2029.

Our debt to book capitalization was 15, 2% and our net debt to net book capitalization was 12, 1%.

Backlog at the end of the quarter was 858 homes with an average sales price of 341000, and an expected gross margin of approximately 21, 5%.

Speaker #6: SG&A was up 2.9 million versus prior year and was 15.5% of revenue compared to 14.5% last year. Driven primarily by increased payroll and associated expenses with a sizable portion of the increase coming from the opening of new divisions over the last few quarters.

Sales per community went from $2 eight in April to $2 for ne and two eight in June and July we saw that average to get back to approximately two five sales per community.

Speaker #6: Net income for the quarter was $16.4 million compared to $24.7 million in the prior year. And pretax income was $17.2 million versus $25.9 million.

Affordability remains a key challenge for our buyers and we continue to lean into targeted incentives to support sales.

Continuing our program from late March utilized forward commitments to buy down interest rates, which we believe help boost conversion rates during.

Speaker #6: Adjusted net income $12.9 million compared to $19.4 million in the prior year. As a reminder, given the nature of our upsee organizational structure, our reported net income reflects an effective tax rate of 4.3% this quarter.

Russ Devendorf: As a reminder, given the nature of our upsee organizational structure, our reported net income reflects an effective tax rate of 4.3% this quarter, which is attributable to the approximate 18% economic ownership held by the 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 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.

During the quarter, we recognized <unk> 9 million of costs on forward commitments, which is recorded as an offset to revenue.

We expect to continue to utilize these rate buy downs through the end of the year as we focus on a pace over price philosophy.

Speaker #6: Which is attributable to the approximate 18% economic ownership held by the 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 non-controlling interest 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.

Turning to our third quarter outlook, we expect to close between $725 to 775 homes with an average sales price between 330000 and 335000 gross.

Gross margin is projected to be in the range of 25% to 21, 5%.

While incentives will continue to pressure margins, we're maintaining discipline on how and where we deploy them.

Speaker #6: 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 cial statements.

We ended the second quarter was <unk> 92 active communities unexpected 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.

Speaker #6: Turning to the balance sheet, we ended the quarter with $16.8 million in cash and had approximately $70 million outstanding on our unsecured revolver with $189 million available to draw.

Russ Devendorf: Turning to the balance sheet, we ended the quarter with $16.8 million in cash and had approximately $70 million outstanding on our unsecured revolver, with $189 million available to draw. As I mentioned on our last earnings call, we finalized the amendment to our credit facility, which included, among other things, an increase in total size to $325 million and extended the maturity to May 2029. Our debt-to-book capitalization was 15.2%, and our net debt-to-net book capitalization was 12.1%. Backlog at the end of the quarter was 858 homes with an average sales price of $341,000 and an expected gross margin of approximately 21.5%. Monthly sales per community went from 2.8 in April to 2.4 in May and 2.8 in June. In July, we saw that average dip back to approximately 2.5 sales per community.

Before I conclude I want to reiterate that while we're pleased with our results through the first half of the year. Our outlook does include several risks as always our ability to achieve these results will depend on maintaining an adequate pace sales, bringing new lots and communities online as scheduled and managing cost pressures, particularly in labor materials. Additionally.

Speaker #6: As I mentioned on our last earnings call, we finalized the amendment to our redit facility which included among other things an increase in total size to $325 million and extended the maturity to May 2029.

Speaker #6: Our debt to book capitalization was 15.2% and our net debt to net book capitalization was 12.1%. Backlog at the end of the quarter was $858 homes with an average sales price of $341,000 and an expected gross margin of approximately 21.5%.

Additionally, broader macroeconomic factors, such as inflation employment trends interest rates and consumer confidence could create headwinds to demand and impact the timing of our 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.

Speaker #6: Monthly sales per community went from $2.8 in April to $2.4 in May and $2.8 in June. In July, we saw that average dip back to approximately $2.5 sales per community.

You are now opening the floor for question and answer session. If you'd like to ask a question. Please press star followed by one on your telephone keypad.

Speaker #6: Affordability remains a key challenge for our buyers and we continue to lean into targeted incentives to support sales. Continuing ur program from late March, we utilized forward commitments to buy down interest rates which we believe helped boost conversion rates.

Russ Devendorf: Affordability remains a key challenge for our buyers, and we continue to lean into targeted incentives to support sales. Continuing our program from late March, we utilized forward commitments to buy down interest rates, which we believe helped boost conversion rates. During the quarter, we recognized $0.9 million of costs on forward commitments, which is recorded as an offset to revenue. We expect to continue to utilize these rate buy downs through the end of the year as we focus on a pace over price philosophy. Turning to our third 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 20.5% to 21.5%. While incentives will continue to pressure margins, we are maintaining discipline in how and where we deploy them.

Please keep your question to one question and one follow up.

Your first question comes from the line of Sam Reid of Wells Fargo. Your line is now open.

Speaker #6: During the quarter, we recognized 0.9 million of costs on forward commitments which is recorded as an offset to revenue. We expect to continue to utilize these rate buy downs through the end of the year as we focus on a pace over price philosophy.

Awesome. Thanks, so much.

Definitely great to see the gross margin come in at the high end of the guide for the second quarter.

Just curious what youre seeing from a taken break labor standpoint, we're either it does tailwind relative to expectations in the quarter and then looking to your third quarter guide. It does look like the homes, you're planning to sell and close intra quarter, we'll be carrying a lower margin relative to your backlog I'm just curious what's embedded in your <unk>.

Speaker #6: Turning to our third 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 20.5% to 21.5%.

Speaker #6: While incentives will continue to pressure margins, we are maintaining discipline in how and where we deploy them. We ended the second quarter with 92 active communities and expect to see that number continue to grow modestly throughout the remainder of the year.

Gross margin assumptions from an incentive standpoint, especially as it sounds like you're stepping up finance incentives.

Russ Devendorf: We ended the second quarter with 92 active communities and expect to see that number continue to grow modestly throughout the remainder of the year. We are 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 are pleased with our results through the first half 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 of our volume of sales and closings.

Okay.

Yes, good morning, Sam.

Speaker #6: 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 half the year, our outlook does include several risks.

Sticks and bricks.

Flat.

In Q2.

They are down year to date a little.

I'll, let russ it a little bit on the gross margin pressure.

Speaker #6: As always, our ility 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.

Yes, so what we assume for Q3.

<unk> continued incentives.

Particularly on the forward commitments. So we've had some success.

Speaker #6: Additionally, broader macroeconomic factors such as inflation, employment trends, interest rates, and consumer confidence could create headwinds to demand and impact the timing of our volume of sales and closings.

With the rate buy downs. So we implemented we started really back at the end of the first quarter.

And carried it through second quarter. So we've we've seen that it's a pretty good traffic driver. So we've been buying rates down too.

Speaker #6: We remain focused on executing at we can control and believe our landlight model steady operations and financial strength position us well to navigate these challenges over the long term.

Russ Devendorf: 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 will turn the call over to the operator for questions.

On a fixed basis to 499, we started to implement a five one arm at a $3 99, and it's been pretty good from a traffic standpoint. So that's that's really the expectation is we will at least continue that through the third quarter and really just kind of monitor it.

Speaker #6: With that, I'll turn the call over to the operator for questions.

Speaker #7: There are no opening the floor for question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad.

Speaker 8: We are now opening the floor for question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. Please keep your question to one question and one follow-up. Your first question comes from the line of Sam Reed of Wells Fargo. Your line is now open.

Yes.

As we move along the nice thing is we did see a little bit of a tick down in rates and certainly the cost of the forward. So that was nice this past week, but that's that's kind of our our assumptions.

Speaker #7: Please keep your question to one question and one follow-up. Your first question comes from the line of Sam Reid of Wells Fargo. Your line is now open.

Going forward.

No. That's helpful. And then maybe switching gears just touching on lots. So it looks like you are controlled lot position is up almost about 60 or so percent year over year.

Speaker #8: Awesome. Thanks so much. you know, definitely great see the gross margin come in at the high end of the guide for the second quarter.

Sam Reed: Awesome. Thanks so much. Definitely great to see the gross margin come in at the high end of the guide for the second quarter. Just curious what you are seeing from a stick and break labor standpoint, or either of those tailwinds relative to expectations in the quarter. Looking to your third quarter guide, it does look like the homes you are planning to sell and close into your quarter will be carrying a lower margin relative to your backlog. I am just curious what is embedded in your gross margin assumptions from an incentive standpoint, especially as it sounds like you are stepping up finance incentives.

Speaker #8: just curious, you know, what you're seeing a stick and break labor standpoint, or either of those, you ow, tailwinds relative to expectations in the quarter.

Maybe just break out kind of what that looks like.

In your existing markets versus how much of that might have come from some of the newer markets that you are looking to enter it like Dallas and the Gulf Coast.

Speaker #8: And then looking to your third quarter guide, it does look like, the homes you're planning to sell and close into your quarter will be carrying a lower margin relative to your backlog.

We can kind of contextualize, what that looks like in the context of your existing operations.

Speaker #8: just curious what's embedded in your gross margin assumptions from an incentive standpoint. especially as it sounds like you're pping up finance incentives.

Sure Yes.

Not nothing nothing yet from the Gulf Coast.

But for Dallas, we're probably 600 or so lots I believe in there and then we had a significant bump in Chattanooga over the last.

Speaker #9: Yeah. Good morning, Sam. The, sticks and bricks were flat. During Q2, they're down year to date a little. I'll let Russ hit a little bit on the gross margin.

Greg Bennett: Yeah. Good morning, Sam. The sticks and bricks were flat during Q2. They're down year to date a little. I'll let Russ hit a little bit on the gross margin pressure.

Six months to 12 months, which which is part of our Atlanta division, but but really it's.

It's something that we're looking at as a possible Standalone division in the future. So we've got some growth in their central Georgia, as well, which we also mentioned about six months ago, We da visualize that that's kind of another split from Atlanta because of the continued growth.

Speaker #9: Pressure.

Speaker #6: Yeah. So what we assume for Q3, is continued incentives, particularly on the forward commitments. So we've had some success, with the, the rate buy down.

Russ Devendorf: Yeah. So what we assume for Q3 is continued incentives, particularly on the forward commitments. We have had some success with the rate buy down. We implemented, we started really back at the end of Q1 and carried it through Q2. We have seen that it is a pretty good traffic driver. We have been buying rates down to, you know, on a fixed basis to 499. We have started to implement a 5-1 arm at a 399, and it has been pretty good from a traffic standpoint. That is really the expectation is we will at least continue that through Q3 and really just kind of monitor it as we move along. The nice thing is we did see a little bit of a tick down in rates and certainly the cost of the forward. That was nice this past week. That is kind of our assumptions going forward.

And in our largest division, but middle Georgia Central Georgia is.

Speaker #6: So we, we implemented, we, we started really back at the end of the first quarter, and carried it through second quarter. So we've, we've seen that it's a, it's a pretty good traffic driver.

Making that.

Really really kind of south of <unk>, if you know the Atlanta market and so we've picked up quite a few lot positions and then obviously Greenville.

Speaker #6: So we've been buying rates down to, you know, on a fixed basis to 4.99. We've, we've started to implement a, a 5.1 arm at a 3.99 and it's, it's been pretty good from a traffic standpoint.

It was another division that we opened last year and we continue to pick up a lot. So it's coming I mean, it's actually a pretty good.

Speaker #6: So that's, that's really the expectation is we'll at least continue that through the third quarter and really just kind monitor it, as, as we move along.

Spread across the footprint of the company Houston clearly, we continue to drive growth, we think gone from close to 400 closings last year, we've got a.

Speaker #6: The, the nice ing is we did see a little bit of a tick down in, in rates and certainly the cost of the forward.

Speaker #6: So that was nice this past week. But that's, that's kind of our, our assumptions. going forward.

Our view that that can be another 1000 unit market for us in the next next few years. So we continue to add lot position. So.

Speaker #8: No, that's helpful. And then, maybe switching gears just touching on lots. So it looks like your controlled lot position is up, you know, almost about 60 or so percent year over year.

Sam Reed: Yeah, that's helpful. Then maybe switching gears, just touching on lots. So it looks like your controlled lot position is up, you know, almost about 60% or so year over year. Maybe just break out, you know, kind of what that looks like in your existing markets versus how much of that might have come from some of the newer markets that you're looking to enter, like Dallas and the Gulf Coast, just so we can kind of contextualize what that looks like, you know, in the context of your existing operations. Thanks.

It is spread across the company, but hopefully that gives you a little bit of color in some of the newer spots.

We're entering.

Speaker #8: maybe just break out, you know, kind of what that looks like, in your existing markets versus how much of that might have come from some of the newer markets that ou're looking to enter like Dallas, and the Gulf Coast.

Thanks Sam.

Oh go ahead.

No.

Yes.

Awesome. Thanks, so much guys really appreciate it I'll pass it on.

Thanks.

Your next question comes from the line of Mike Dahl.

Speaker #8: just so we can kind of contextualize what that looks like, you know, in the context of your existing operations. Thanks.

RBC capital markets. Your line is now open.

Hey, good morning, everyone, you've actually got to see them be on for Mike Dahl today, Thanks for taking my questions.

Speaker #6: Sure. yeah. Not, nothing, nothing yet from the Gulf Coast. but for Dallas, we're, we're probably 600 or so lots, I believe, in there. And then, we had a significant bump in Chattanooga over the last, you know, 6 to 12 months.

Russ Devendorf: Sure. Yeah, nothing yet from the Gulf Coast. For Dallas, we are probably 600 or so lots, I believe, in there. Then we had a significant bump in Chattanooga over the last 6 to 12 months, which is part of our Atlanta division, but really, it is something that we are looking at as a possible standalone division in the future. We have got some growth in there. Central Georgia as well, which we also mentioned about six months ago, we divisionalized that. That is kind of another split from Atlanta because of the continued growth in our largest division. Middle Georgia, Central Georgia is Perry, making that is really, really kind of south of I-20, if you know the Atlanta market. We have picked up quite a few lot positions. Then obviously, Greenville was another division that we opened last year, and we continue to pick up lots.

Wanted to start by kind of checking in on your thoughts for the full year, Obviously third guide.

Third quarter guide Super helpful and while I fully respect the volatility in the current macro with.

Speaker #6: which, which is part of our Atlanta division, but, but really it's, it's, it's, it's something that we're looking at as, as a possible standalone division in the future.

Everything going on out there, but I was kind of hoping you could share with us how you're thinking about.

3000, as at 3100 ish homes trying to you gave us last quarter and kind of what.

Speaker #6: So, you ow, we've got some growth in there. Central Georgia as well, which we also mentioned, about six months ago we divisionalized that. That's kind of another split from Atlanta because of the continued growth, in, in our largest division.

Man changed if that is still a good guideposts and if theres any more details you could give us on how you're thinking about the balance of the year that'd be helpful. Thanks.

Sure.

Yes, obviously, we feel a lot better about giving Q3 guidance.

Speaker #6: but Middle Georgia, Central Georgia is, you know, Perry making that, you know, as really, really kind of south of I-20 if you know the Atlanta market.

Just given the environment, it's pretty difficult to forecast too.

Speaker #6: And so we've, 've picked up, quite a few lot positions and then obviously Greenville, was another division that we, opened last year and we continue to, to pick up lots.

Too far out obviously.

We put out 3000.

That's a goal for us as a company it's definitely achievable, we certainly have the lot positions.

Speaker #6: So it's, it's coming, I mean, it's, it's actually a, a pretty good, spread across the footprint of the company. You know, Houston clearly we, we continue to, to, to drive growth.

Russ Devendorf: It is coming, it is actually a pretty good spread across the footprint of the company. Houston, clearly, we continue to drive growth. We think going from close to 400 closings last year, we have got a view that that can be another thousand-unit market for us in the next few years. We continue to add lot positions. It is spread across the company, but hopefully, that gives you a little bit of color in some of the newer spots that we are entering. Thanks, Sam.

We've got the community count so it's really going to depend on on demand for us and look where as Greg mentioned I mean, we've got a pace over price philosophy. So for us it's really just finding that price at which we can continue to clear.

Speaker #6: We, we think, you ow, going from, you know, close to 400 closings last year, you know, we've got a, a view that, that that can be another 1,000-unit market for us in the next, next few years.

Inventory and continue to push sales, but 3000 is in our sights 3000, plus would be great and so.

Speaker #6: So we continue to add lot positions. So, it's, it is spread across the company, but, you know, hopefully that gives you a little bit of color in, in some of the newer spots that we're, we're entering.

It's really.

Going to depend on the on the demand and more of the macro environment. If we can get there. We did we felt like we we.

Speaker #8: Thanks, Sam. No, thanks so much. Oh, go on.

Sam Reed: No, thanks so much. Go on.

We had a pretty good balance this quarter and we've started using incentives and driving traffic in.

Speaker #6: No, that was it. That was it.

Russ Devendorf: No, that was it. That was it.

Speaker #8: Awesome. No, thanks so much, guys. Really appreciate it. I'll pass it on.

Sam Reed: Awesome. No, thanks so much, guys. Really appreciate it. I will pass it on.

The nice thing is is just this past week we had.

Speaker #6: Thanks.

Russ Devendorf: Thanks.

Speaker #7: Your next question, comes from the line of Mike Dull. Of RBC Capital Markets, your line is now open.

Don't know if it was.

Speaker 8: Your next question comes from the line of Mike Dahl of RBC Capital Markets. Your line is now open.

A contribution of kind of where rates moved last week, but we.

You did see a nice uptick in traffic and had a pretty good week of sales.

Speaker #10: Hey, good morning, everyone. You've actually got Steven Mia on from Mike Dull today. Thanks for taking my estions. wanted to start by kind of checking in on your thoughts for the outlook for the full year.

Stephen Mea: Hey, good morning, everyone. You've actually got Stephen Mea on for Mike Dahl today. Thanks for taking my questions. Wanted to start by kind of checking in on your thoughts for the outlook for the full year. Obviously, Q3 guide, Q3 guide, super helpful, and want to fully respect the volatility in the current macro with everything going on out there. But I was kind of hoping you could share with us how you're thinking about the kind of 3,000 to 3,100-ish homes target you gave us last quarter and kind of what may have changed with that, if that's kind of still a good guidepost. If there's any more details you could give us on how you're thinking about the balance of the year, that'd be helpful. Thanks.

This past week, so we'll see but it's still it's still a target of ours.

That's super helpful. Appreciate the context there.

Speaker #10: Obviously, third guide, third, third quarter guide, super helpful. And want to fully respect the volatility in the current macro with everything going on out there.

Secondly, I had a question on the land side you'd mentioned last quarter that you were starting to see some cracks and sell it and sellers out there. So just wondering kind of from a higher level. What your current view of the <unk>.

Speaker #10: I was kind of hoping you could share with us how you're thinking about the kind of 3,000 of the 3,100-ish homes target you gave us last quarter and kind of what may have changed if that, if that's kind of still a good guidepost and if there's any more details you could give us on how you're thinking about the balance of the that'd be helpful.

Land landscape.

What may have changed from last quarter to this quarter.

Overall views on that thanks.

Yes, thanks up type bid.

Speaker #10: Thanks.

We are seeing some softness in the land.

Speaker #6: Sure. yeah. Obviously, we feel a lot better about, you know, giving Q3 guidance. It's, it's, you know, just given the environment, it's, it's pretty difficult to forecast, you know, too far out.

Russ Devendorf: Sure. Yeah, obviously, we feel a lot better about, you know, giving Q3 guidance. It is, you know, just given the environment, it is pretty difficult to forecast, you know, too far out. Obviously, you know, we put out 3,000. That is a goal for us as a company. It is definitely achievable. We certainly have the lot positions. You know, we have got the community count. So it is really going to depend on demand for us. Look, we are, as Greg Bennett mentioned, I mean, we have got a pace over price philosophy. So for us, it is really just finding that price at which we can continue to clear, you know, inventory and continue to push sales. But, you know, 3,000 is in our sights. You know, 3,000 plus would be great.

Sure.

It's.

Really not a lot of pull back on price.

We are seeing the ability to go back on some terms then.

Speaker #6: obviously, you know, we, we, we put out 3,000. That, that's a, that's a goal for us as a company. it's definitely achievable. we certainly have the lot positions you ow, we've got the community count.

And more favorable.

<unk>.

Negotiating but on the land itself, it's still still holding but there is there is a fair amount of re trading going on currently in and I think we'll see that continue from the Susan ended the year yet.

Speaker #6: So it's really going depend on, on demand for us and, and look, we're, as, as Greg mentioned, I mean, we, we've got a, a, a pace over price philosophy.

Got it Super helpful guys I'll pass it on thanks.

Speaker #6: So for us, it's really just finding that price in which we can continue to clear you know, inventory and continue to push sales. But, you know, 3,000 is in our sights.

Yeah.

Next question comes from the line of Andrew <unk> of Jpmorgan. Your line is now open.

Speaker #6: You know, 3,000 plus would be great. And so, you know, it, it really, you know, going depend on the, on the demand and more the macro environment.

Russ Devendorf: So, you know, it really, you know, is going to depend on the demand and more of the macro environment if we can get there. You know, we did, we felt like we had a pretty good balance this quarter, and we have started using incentives and driving traffic. You know, the nice thing is, is just this past week we had, and I do not know if it was a contribution of kind of where rates moved last week, but we did see a nice uptick in traffic and had a pretty good week of sales this past week. So we will see, but it is still a target of ours.

Hi, guys. Thank you for taking my question I appreciate the time here.

Would love to kind of focus in on.

Speaker #6: If we can get there, you know, we did, we, we felt like we, we, we had a pretty good balance this quarter and we've started using incentives and driving traffic and, you know, the nice thing is, is just this past week we had, I don't know if it was a con, a contribution of, of kind of where rates moved last week, but, we, we did see a nice uptick in, in traffic and, had a pretty good week sales, this past week.

Maybe get an update for how are you thinking about community count growth I mean, I'd say with obviously I don't think you necessarily guidance of 3000.

If that were the case that would imply.

A nice year over year growth in closings in <unk>. So just wanted to see if you guys can expand on that any any further thank you.

Sure Yes.

Speaker #6: So, we'll see. But it's, it's still, it's still a, a target of ours.

Yes, it was.

Clearly that was a little bit of a soft guide I gave on the last the last question, but like I said, it's good to have goals right. So that three thousands.

Speaker #10: No, that's super helpful. I appreciate the context there. Secondly, I have a question on the land side. You mentioned last quarter that you were starting to see some cracks in sellers out there.

Stephen Mea: No, that is super helpful. Appreciate the context there. Secondly, I had a question on the land side. You mentioned last quarter that you were starting to see some cracks in sellers out there. So I was wondering kind of from a higher level what your current view of the land landscape is and what may have changed from last quarter to this quarter and just your overall views on that. Thanks.

A target for us we'd like to get there.

As far as community count So like I said, we've got the community count.

Speaker #10: So I was wondering kind of from a higher level what your current view of the kind of land landscape is and what may have changed from last quarter to this quarter and just, you know, your overall views on that.

The other thing to keep in mind with some of our community the way we count it we've got a few communities in Houston, where we've got some different lot sizes more or less the same same products. So there's there's probably our community counts may be overstated or it includes really like probably three communities, where where you've got a couple of <unk>.

Speaker #10: Thanks.

Speaker #6: Yeah, thanks. I'll, I'll take that. We're, you know, we, we are seeing some softness in the land. it's, really not a lot of pullback on price.

Greg Bennett: Yeah, thanks. I'll take that. We're, you know, we are seeing some softness in the land. It's really not a lot of pullback on price. We are seeing the ability to go back on some terms and more favorable negotiating. But on the land itself, it's still holding. But there is a fair amount of retrading going on currently, and I think we'll see that continue probably through the end of the year yet.

But we do count them as separate community. So.

Speaker #6: we are seeing the ability to go back on some terms and, and more favorable, negotiating. But on the land, it's, it's safe. It's still, still holding.

You typically don't get the same absorption pace.

Where you've got a couple of.

Different single family lot sizes, so I just want to.

At least highlight that but yes, we think that there'll be some some moderate growth.

Speaker #6: But there is, there's a fair amount of retrading going on currently and, and I think we'll see that continue probably through the end, end of the year yet.

With community Count.

Through the back half of the year and and you are right I mean fourth quarter. We've got some some expectations. We've got the inventory in the ground. When you look at R. R.

Speaker #10: Got it. That's super helpful, guys. 'll pass it on. Thanks.

Stephen Mea: Got it. That's super helpful, guys. I'll pass it on. Thanks.

Spec levels today, they're a little more elevated than than we normally have.

Speaker #7: Your next question comes from the line of Andrew Azzi of JP Morgan. Your line is now open.

Speaker 8: Your next question comes from the line of Andrew Ozzi of JPMorgan. Your line is now open.

Primarily a presale builder.

Speaker #11: Hi, guys. Thank you for taking my question. appreciate the time here. would love to kind of focus in on, you ow, maybe get an update for how you're thinking about community count growth.

Sam Reed: Hi, guys. Thank you for taking my question. I appreciate the time here. I would love to focus in on, maybe get an update for how you are thinking about community account growth. I mean, I think with, obviously, I do not think you necessarily got it to 3,000, but if that were the case, that would imply a nice year-over-year growth and closings in four tiers. Just wanted to see if you guys can expand on that any further. Thank you.

But with the way that we operate from a really an assembly line manufacturing approach, we continue to watch our inventory levels, but we're pushing we're pushing pace and pushing incentives so that we can.

Speaker #11: I mean, I, I think with, obviously, I don't think you necessarily got it to 3,000, but, if that were the case, that would imply a, a nice year over year growth and, and closings in four Qs.

Target or are.

Absorptions.

Try and get to our closing number so.

Hopefully that gives you a little color.

Speaker #11: So just wanted to see if you guys can expand on that, any, any further. Thank you.

Thanks, So that's always helpful.

I guess for my second question as far as they expand on.

Speaker #6: Sure. Yeah. Look, look, that it , it's, clearly that was a little bit of a soft guide. I gave on, on the last, the last question, but like said, it's, it's good have goals, right?

Russ Devendorf: Sure. Yeah, look, it was, it's clearly that was a little bit of a soft guide I gave on the last question. But like I said, it's good to have goals, right? That 3,000 is a target for us. We would like to get there. As far as community count, so like I said, we've got the community count. The other thing to keep in mind with some of our community, the way we count it, we've got a few communities in Houston where we've got some different lot sizes, more or less the same product. There's probably our community counts may be overstated, or it includes really like probably three communities where you've got a couple lot sizes, but we do count them as separate communities. You typically don't get the same absorption pace in where you've got a couple of different single-family lot sizes.

Maybe if you can expand on the decision to enter DSW.

Obviously, I think that's positive a net positive.

Given the size of the inventory dynamics there.

Speaker #6: So, you know, that 3,000's, a, a target for us, we, we, we'd like to get there. you know, as far as community count, so like said, we've got the community count.

Some oversupply of what drove that decision and kind of your strategy going forward for Greenfields, there and I saw there are markets in the future.

Speaker #6: you know, the other, the other thing to, to keep in mind with some of our community, the way we count it, we've got a few communities in Houston where we've got some different lot sizes.

Yes.

That we are.

If we entered Houston part of that message was kind of it.

As a launch pad for us across Texas with DFW being in the SaaS.

Speaker #6: more or less the same, same product. So there's, you know, there's probably our community counts may be overstated or, it, it includes really like probably three communities where, where, where you've got a couple lot sizes, but we do count them as separate communities.

We've actually been on the ground in DSW for several months now.

Working on some opportunities in and trying to be opportunistic where we are.

Speaker #6: So, you, you typically don't get the same absorption pace, in where, where you've got, a couple of, you know, different single-family lot sizes. So I just ant to, you ow, at least highlight that.

If it was available and.

I feel like we've got some really good positions there we understand.

Russ Devendorf: So I just want to at least highlight that. But yeah, we think that there will be some moderate growth with community count through the back half of the year. You're right. Fourth quarter, we've got some expectations. We've got the inventory in the ground. When you look at our spec levels today, they're a little more elevated than we normally have. We're primarily a pre-sale builder. But with the way that we operate from a really an assembly line manufacturing approach, we continue to watch our inventory levels, but we're pushing pace and pushing incentives so that we can target our absorptions and try and get to our closing number. Hopefully, that gives you a little color.

The dynamics in that market presently, but we have a lot.

Speaker #6: But yeah, we, we think that, there'll be some, some moderate growth, with, with community count. you ow, through the back half of the year, and, and you're right.

As in any of our markets. We're in we're in a good place with those those loss it was secured.

Yes, the only other thing I'd add there is obviously with our our business model, we maintain a pretty conservative balance sheet.

Speaker #6: I mean, fourth quarter, you know, we've got some, some expectations. We've the inventory in the ground, you ow, when you look at our, our, you know, spec levels, today, they're a little more elevated than, than we normally have.

And there was a really good opportunity to pick up finished lots and were definitely seeing.

Speaker #6: know, we're, we're primarily a presale builder. but, you know, with the way that we, we operate from a really an assembly line manufacturing approach, you know, we, continue to, to watch our inventory levels, but we're pushing, we're ushing pace and pushing incentives so that we can, you know, target our, our, you ow, absorptions and, and, you know, try and get to our, our closing number.

Some dislocation in the market there and like you said I think there's there are some builders that are struggling.

Our hope is that clearly we're we're getting it at a time, where we think theres opportunity.

Could there be some continued softness sure but.

We just feel like with our balance sheet and really our long term philosophy, we're going to we know we're going to be there.

Speaker #6: So, hopefully that gives you a little, little color.

Just felt like the right time, and we can pick up finished lots.

Speaker #11: Thanks, Russ. Always pful. I, I, I guess from a second question, I just wanted to expand on, maybe if you can expand on the decision to enter DFW, obviously, I think 's, that's positive.

Sam Reed: Thanks, Russ. Always helpful. For my second question, I just wanted to expand on, maybe if you can expand on the decision to enter DSW. Obviously, I think that's positive, a net positive, but given kind of the inventory dynamics there and potentially some oversupply, what drove that decision and kind of your strategy going forward for Greenfield there and into other markets in the future?

Some pretty low deposits and so really really limits the risk, but that's a good time for us to start.

The advantage of some opportunities.

Yeah.

So that makes a lot of sense I appreciate the color guys.

Speaker #11: A net positive, but, given kind of the inventory dynamics there and, and potentially some oversupply, what, what drove that decision and, and kind of your strategy going forward for Greenfield there and, and into other markets in the future?

Thanks.

Question comes from the line of Jeff Johnson Shake.

Bank of America. Your line is now open.

Great. Thank you hi, good morning, Thanks for taking my questions.

Speaker #6: Yeah. I'll, I'll take that. We, you know, if we entered Houston, part of that message was kind of it's, h, it's a launch pad for us across Texas with DFW being in the sights.

Greg Bennett: Yeah, I'll take that. We, you know, if we entered Houston, part of that message was kind of it's a launchpad for us across Texas with DSW being in the sights. We've actually been on the ground in DSW for several months now, working on some opportunities and trying to be opportunistic where it, you know, it was available. I feel like we've got some really good positions there. We understand, you know, the dynamics in that market presently, but feel like as in any of our markets, we're in a good place with those lots that we've secured.

Good morning, Rick.

Good morning.

The first wanted to ask just with the DFW and Gulf Coast.

And trees.

Speaker #6: We've, we've actually been on the ground in, in DFW for several months now. working on some opportunities and, and trying to be opportunistic where, where it, you know, it, it, it was available and, and feel like we've got some really good positions there.

How do we think about just the SG&A run rate from here is there any sort of incremental investment as you as you ramp up into some new markets here and then how do we think about you have a.

Speaker #6: We understand, you know, the dynamics in market presently, but feel like, as in any of our markets, we're in a, we're in a od place with those, those lots that we've secured.

Building strategy, which is very efficient how do we think about when those markets are able to get scale and you're able to like implement your our team at what level of deliveries you need to get to before that hits that.

Speaker #11: Yeah. The, the only other thing I'd add there is obviously with our, our business model, we, we maintain a pretty conservative balance sheet. and there was a, a, a really good opportunity to pick up finished lots and we're definitely seeing, some dislocation in the market there.

Russ Devendorf: Yeah, the only other thing I would add there is obviously with our business model, we maintain a pretty conservative balance sheet. There was a really good opportunity to pick up finished lots, and we are definitely seeing some dislocation in the market there. Like you said, I think there are some builders that are struggling. Our hope is that clearly we are getting in at a time where we think there is opportunity. Could there be some continued softness? Sure. But we just feel like with our balance sheet and really our long-term philosophy, we knew we were going to be there. It just felt like the right time, and we can pick up finished lots with some pretty low deposits. So it really, really limits the risk, but it is a good time for us to start taking advantage of some opportunity.

Run rate.

Sure.

We mentioned in the prepared remarks, probably about half of where we saw the the year over year increase in SG&A was was really from some of these new divisions and so it's.

Speaker #11: And like you said, I think there's, there's some builders, that are struggling. You know, our, our hope is that clearly we're, we're, we're getting in at a time where we think there's opportunity, you know, could there be some continued softness?

It's really payroll, which head count costs, that's the big driver and when Youre doing a greenfield startup is just putting some some boots on the ground there.

So yes, I think look the cost is there is a cost it's moderate but maybe million couple of million dollars in the first year to really get a division going.

Speaker #11: Sure. But, you know, we just feel like with our ance sheet and, and really our long-term philosophy, you know, we're going to, we, we knew we were going to be there.

Speaker #11: it just felt like the, the right time and we can pick up finished lots with some pretty low deposits. And so, really, really limits the risk, but, but it's a good time for us to, to start, taking advantage of some opportunity.

Before you start seeing some.

Significant sales closings, but when we do a greenfield startup.

<unk> is.

Is within within the first two years, we'd like to get in the way that we do business with our our team model kind of our geographic pause split within the first two years. The plan is always to get to a run rate of about that 200 closings, which was one one full our teams. So it's it's usually about two years before you start seeing some.

Speaker #11: That, that makes a lot of sense. I appreciate the color, guys. I'll pass it on.

Sam Reed: That makes a lot of sense. I appreciate the color, guys. I'll pass it on.

Speaker #6: Thanks.

Russ Devendorf: Thanks.

Speaker #7: Next question comes from the line of Rafe Jadrosek of Bank of America. Your line is now open.

Speaker 8: Question comes from the line of Rafe Jadrosich of Bank of America. Your line is now open.

Speaker #12: Great. Thank you. Hi. Good morning. Thanks for taking my questions. good morning, Rafe. Good morning. I, the, the first one I want to ask just with the DFW and Gulf Coast, entries, how do we think just the SG&A run rate from here?

Stephen Mea: Great. Thank you. Hi. Good morning. Thanks for taking my questions. Good morning, Rick. Good morning. I first wanted to ask, just with the DSW and Gulf Coast entries, how do we think about just the SG&A run rate from here? Is there any sort of incremental investment as you ramp up into some new markets here? Then how do we think about, you know, you have a building strategy, which is very efficient. How do we think about when those markets are able to get scale and you are able to implement your RTM at what level of, you know, deliveries you need to get to before that hits that run rate?

Some generating some profits the hope is that those first 12 months to 18 months.

Youre going to get to kind of a.

And then kind of you get that run rate of 200 and.

Then every call it 18 months or so youre, adding you'd like to see adding another our team. So another 200 units and get to 400 I mean, that's our approach is that we want to enter markets, where we can get at least two full our teams and.

Speaker #12: Is there any sort of incremental investment, as you, as you ramp up into, into some new, new markets here? and then how do we think about, you know, you have a, a, a, a building a strategy which is very efficient.

And certainly with Dallas.

The largest market in the country.

That's a market where we'd love to see five five years plus 1000, we hope that we can get to 1000.

Speaker #12: How do we think about when those markets are able to, to get scale and you're able to, like, implement your, your R team at, at what level of, you know, deliveries do you need to get to before that, that hits that run rate?

Deliveries, there just kind of like where we're targeting in Houston, when we did that acquisition. So.

That's really the thought process and how that math works for us.

Speaker #6: Sure. like we mentioned in the prepared remarks, probably about half of, of where we saw the, the year over year increase in, in SG&A was, was really from some of these new divisions.

Russ Devendorf: Sure. As we mentioned in the prepared remarks, probably about half of where we saw the year-over-year increase in SG&A was really from some of these new divisions. It is really payroll, it is headcount costs. That is the big driver when you are doing a Greenfield startup is just putting some boots on the ground there. I think, look, the cost is, there is a cost. It is moderate, but maybe a couple million dollars in the first year to really get a division going before you start seeing some significant sales closings. When we do a Greenfield startup, the plan is within the first two years, we would like to get, and the way that we do business with our RTM model, kind of our geographic pause.

That's really helpful and then.

But we look at the backlog is obviously down.

Yeah.

I'm quite quite a bit year over year.

Speaker #6: And so we, you know, it's, it's, you ow, it's really payroll. It's headcount cost. That's, that's the big driver when you're doing a Greenfield startup is, is just putting some, some boots on the ground there.

Right.

How do you think about the.

Percentage of spec.

Going forward here like where has it been storage.

Where was it in the quarter and like how do we think about it going forward and like your comfort level in spec are shifting to a little bit more spec.

Speaker #6: so yeah, I, I, I think, ok, the, the cost is there, there's a cost. It's, it's moderate, but, you ow, maybe a million a uple million dollars, in the first year to, to really get a, a division going.

Versus curses Bgs.

Yes historically.

Speaker #6: before you start seeing some, significant, you know, sales closings. But when we do a Greenfield startup, you know, the, the plan is, is within, within the first two years, we'd like to get and, you know, the way that we, we do business with our R team model kind of our geographic pause.

Really really pre COVID-19.

We really are 70 plus percent presale versus versus spec and before we hit drywall, which we call line in the sand, where normally 90 plus percent of our our homes have a contract on it. So again, we are we continue to be focused heavily focused on pre sale. It's just.

Speaker #6: But within the first two years, the plan is always to get to a run rate, of about that 200 closings, which is one, one full R team.

Russ Devendorf: But within the first two years, the plan is always to get to a run rate of about that 200 closings, which is one full RTM. So it is usually about two years before you start seeing some generating some profits. The hope is that those first 12 to 18 months, you are going to get to kind of a breakeven and then kind of you get that run rate of 200. Then every, call it 18 months or so, you would like to see adding another RTM, so another 200 units and get to 400. That is our approach is that we want to enter markets where we can get at least two full RTMs. Certainly with Dallas, that is the largest market in the country. That is a market where we would love to see within five years plus, a thousand.

Speaker #6: So it's, it's usually about two years, before you start seeing some, some generating some profits. You know, the hope is that those first, you ow, 12 to 18 months, you're going to to, you know, kind of a break-even and then kind of you get that run rate of 200 and, and then every, you know, call it 18 months or so, you're adding, you, you'd like to see adding another R team.

Really it's the market, that's kind of driving a little higher spec levels for us and what we're seeing in our new home competitors.

Just with the specs on the ground.

And that's where a lot of the opportunities are for buyers from an incentive standpoint, so we're probably closer to 50%, 60% right now, but we are we continue to push in and have some ideas to try and continue to push more presale.

Speaker #6: So another 200 units and get to 400. I mean, that, that's our approach is that we, we want to enter markets where we can get at least two full R teams.

Speaker #6: And certainly with Dallas, you ow, that's the largest market in the country. you know, that's, that's a market where we'd love to see within, you know, five, five years plus, you know, a ousand we, we, we hope that we can get to a thousand, deliveries there just kind of like where we're, we're targeting in Houston, when we did that acquisition.

Obviously, a focus but we've been successful.

We do have some higher levels of inventory so while the backlog is down you will see our inventories up up a bit but again.

Russ Devendorf: We hope that we can get to a thousand deliveries there, just kind of like where we are targeting in Houston when we did that acquisition. So that is really the thought process and how that math works for us.

We've just been selling at a higher spec rate so.

Backlog turnover is obviously.

Speaker #6: So, that's really the, the thought process and how that math works for us.

<unk> increased.

But we're getting some higher spec sale, so again, given our guidance for the third quarter and a little bit of that soft guidance again for the back half of the year feel like we can get to our numbers but.

Speaker #11: That, 's really helpful. And then, when we look at the, the backlog is obviously down, down quite, quite a year over year. like, how do you think the percentage of spec, going forward here?

Stephen Mea: That is really helpful. When we look at the backlog, it is obviously down quite a bit year over year. How do you think about the percentage of spec going forward here? Where has it been historically? Where was it in the quarter? How do we think about it going forward and your comfort level in spec shifting to a little bit more spec versus BTL?

Our focus is and always will be pre sales, but it's just it's really kind of the market that's driving a little bit of that that shift right now and we're focused on getting back to higher presale levels when when the market starts to.

Speaker #11: Like, where has it been historically? Where was it in the quarter? like, how do we think about it go, going forward? and like your comfort level in, in spec, shifting to a little bit more spec.

Hopefully move in our direction.

Great. Thank you I appreciate it sure.

Speaker #11: versus, versus BTO.

Sure.

And your next question comes from the line of James James Mccanless Wedbush. Your line is now open.

Speaker #6: Yeah. Historically, you know, really, really pre-COVID, we, we really are, you ow, 70 plus percent presale versus, versus spec. And before we hit drywall, we call line in the sand, we're normally, you know, 90 plus percent of our, our homes have a contract on it.

Russ Devendorf: Yeah, historically, you know, really, really pre-COVID, we really are, you know, 70% plus pre-sale versus spec. Before we hit drywall, which we call line in the sand, normally, you know, 90% plus of our homes have a contract on it. So again, we are, we continue to be focused, heavily focused on pre-sale. It's just really, it's the market that's kind of driving a little higher spec levels for us and what we're seeing in our new home competitors, just with the specs on the ground. That's where a lot of the opportunities are for buyers, you know, from an incentive standpoint. So we're probably closer to, you know, 50%, 60% right now. But we are, we continue to push and have some ideas to try and continue to push, you know, more pre-sale. I mean, that's obviously a focus, but we've been successful.

Yeah.

Yeah.

Hey, Jay.

Jay you there on mute.

Speaker #6: So again, we are, we continue to be focused, heavily focused on presale and it's just, really it's the market that's kind of driving a little higher spec levels for us and, and what we're seeing in our new home competitors.

[laughter].

Oh, there we go and your language so that when the need set on.

Oh, sorry about that no worries. So Russ if you don't mind I heard the June and the July absorption numbers, which could you give the April and May please.

Speaker #6: just with the specs on the ground, and, and, and that's where a lot of the opportunities are for, for buyers you know from an incentive standpoint.

Jos.

Pulling it up I think April was three.

Speaker #6: So we're probably closer to, ou know, 50, 60 percent right . but we are, we, we continue to push and, and have some ideas to try and, continue to push, you know, more presale.

If I recall, because I think we gave that on the last thing was $2 eight in two product yes.

Yes.

Yes, it was higher in April and trended down to maybe flat in May and then kind of as we move through the summer but.

Speaker #6: I mean, that's, that's obviously a focus, but we've been successful. you know, we do have some higher levels of inventory. So, while, while the backlog's down, you will see our inventories up, up a bit, but again, we've just been selling, you know, at a higher, you know, spec rate.

Russ Devendorf: You know, we do have some higher levels of inventory. So while the backlog's down, you will see our inventory is up a bit. But again, we've just been selling, you know, at a higher, you know, spec rate. So, you know, backlog turnover is obviously, you know, increased, but we're getting, you know, some higher spec sales. So again, given our guidance for the third quarter and, you know, a little bit of that soft guidance I gave for the back half of the year, I feel like we can get to our numbers. Our focus is and always will be pre-sales. It's just, it's really kind of the market that's driving a little bit of that shift right now. We're focused on getting back to, you know, higher pre-sale levels when the market starts to, you know, hopefully move in our direction.

Can't get good help Jake it's taken Joe while to pull up numbers, we'll circle when Joe Barrett will sort of follow up yeah I'll follow up afterwards.

No problem on that.

Speaker #6: So, you know, backlog turnover is obviously, you know, increased. and, and, but we're getting, you know, some higher spec sales. So again, given our guidance for the, for the third quarter and, you know, a little bit of that soft guidance I gave for the, the back half the year, feel like we can get to our numbers, but, our focus is and, and always will be, presales, but it's just, it's really kind of the market that's driving, a little bit of that, that shift right now and, and we're focused getting back to, you ow, higher presale levels when, when the market starts to, you know, opefully move in our direction.

And then.

Yes.

Next question I had so.

The lease kind of 3000 closing number you called out that's what almost $9 79 to 83.

You're going to need to close.

In the fourth quarter is up still achievable.

Do you think youre going to have to lean into the incentives and hit the gross margin to sell some of this excess spec inventories.

Kind of how you guys are thinking about the rest of the year.

Yes for sure I mean look again, we are.

Pace over price. So it's clearly a matter of just leaning into incentives to the extent that it's needed to drive that that pace.

Speaker #11: Great. Thank you. Appreciate .

Stephen Mea: Great. Thank you. Appreciate it.

Speaker #6: Sure.

Russ Devendorf: Sure.

Speaker #7: Your, your next question comes from the line of Jake McJane McCandless of Wedbush. Your line is now open.

As I've mentioned, it's not a it's not a community count issue.

Speaker 8: Your next question comes from the line of Jay McCanless of Wedbush. Your line is now open.

It's not a it's not in a construction issue our cycle times actually continue to improve so credit too.

Speaker #12: Hey, Jake. Jay, you there? On mute. Oh, there we go. Works

Our operators out in the field, it's really it's really just trying to.

Russ Devendorf: Hey, Jay. Jay, are you there? On mute? Oh, there we go.

Hit a price that can get that demand going so.

Again, our goal is 3000 could it be 2900 sure. It's just.

Speaker #7: You're lining up.

Speaker 8: Jay, your line is now.

Speaker #12: better when the mute's not on.

Stephen Mea: Works better when the mute's not on.

A lot of it is just going to depend on pricing and incentives in.

Speaker #6: There you go.

Russ Devendorf: Sorry about that.

Speaker #12: Sorry about that.

Speaker #6: No worries.

Stephen Mea: No worries.

Speaker #12: So, Russ, if you don't mind, I, I heard the June and the July absorption numbers, but could you give the April and May, please?

Greg Bennett: So, Russ, if you do not mind, I heard the June and the July absorption numbers, but could you give the April and May, please?

And that's why I Havent touch margin.

Who.

It's real difficult to figure out where that margin is going to be to get that pace, but that's our that's our focus.

Speaker #6: Joe's calling back. Pulling it up. I ink April was three. In fact, if I recall, because I think we gave that on the last.

Russ Devendorf: Joe's pulling it up. I think April was three, if I recall, because I think we gave that on the last.

Okay.

I think it's worth calling out and Jay let's start going back there with Q2.

Speaker #5: I think it was 2.8 and 2.5 or.

Greg Bennett: I think it was 2.8 and 2.5.

Speaker #6: Yeah.

Russ Devendorf: Yeah.

Two four in May.

Speaker #5: Yeah.

Speaker #6: Yeah. It was higher in April and trended down to maybe flat in May and then kind of, you know, as we moved through the summer.

Greg Bennett: Yeah.

Russ Devendorf: Yeah, it was higher in April. It trended down to maybe flat in May, then kind of, as we moved through the summer. But can't get good help, Jay McCanless. You know, it's taken Joe Thomas a while to pull up numbers. We'll circle when Joe gets it.

And in June it looks like you too.

$2 eight in June so tick back up in June and then.

Speaker #6: But I can't get good help, Jake. You know, it's taken Joe a while to pull up numbers. we'll, we'll circle. But when, when Joe gets it, we'll circle.

You have the numbers, we gave for July and August.

Sure.

Okay.

Yes, I'd love to have the August number already picked up that that would be a good one.

Speaker #6: I'll follow up. Yeah. I'll up afterwards. Yep.

Greg Bennett: Yeah, I will follow it backwards.

Russ Devendorf: Yep.

Speaker #11: Yeah. No problem. No problem on that. and then I guess the, the, the next question I had, so with the loose kind of 3,000 closing number you called out, that's what almost 970, 980 you're going to need to close.

Greg Bennett: Yeah, no problem. No problem on that. I guess the next question I had, with the loose kind of 3,000 closing number you called out, that's what? Almost 970, 980 you are going to need to close in Q4. Does that feel achievable? Do you think you are going to have to lean into the incentives and hit the gross margin to sell some of this excess spec inventory? Is that kind of how you guys are thinking about the rest of the year?

So it's actually encouraging I think that you guys are saying that if you give a little more on incentives that the consumers responding because some of your larger competitors have talked about how even if they didn't lean in and put more incentives.

Speaker #11: And in the fourth quarter, does that feel achievable? And do ou think you're going to have to lean into the incentives and, hit the gross margin to sell some of this excess spec inventory?

It is not making the consumer react so maybe talk a little bit if you could about.

What type of uptick you're seeing when you do lean into the incident, because that's that's different from what we've been hearing from some of your larger competitors.

Speaker #11: Is that kind of, kind of how you guys are thinking about the rest of the year?

Speaker #6: Yeah, for sure. I mean, look, again, we are, we are, we're pace over price. so it's clearly a matter of just leaning into incentives to the extent that it's needed to, to drive that, that pace.

Russ Devendorf: Yeah, for sure. I mean, look, again, we are, we are pace over price. So it is clearly a matter of just leaning into incentives to the extent that it is needed to drive that pace. Like I mentioned, it is not a community count issue. It is not a construction issue. Our cycle times actually continue to improve. So, you know, credit to our operators out in the field. It is really just trying to hit a price that can get that demand going. So, again, our goal is 3,000. Could it be 2,900? Sure. It is just, a lot of it is just going to depend on price and incentives. That is why I have not touched margin because it is real difficult to figure out where that margin is going to be to get that pace. But that is our focus.

Yeah look it at least for us.

It's definitely so we werent a big user.

We really did our first forward commitments.

Speaker #6: like I mentioned, it's not a, it's not a community count. Issue. it's not a, it's not an, construction issue or, cycle times actually continue to improve.

At the end of Q1.

We pushed it into Q2, because we did see an uptick in traffic and we.

Speaker #6: So, you ow, credit to, you know, our, our operators out in the field. it's really, it's really just trying , you know, hit a price that, that can get that demand going.

We do feel like we're getting a little bit better conversion rate.

So it's.

I can't quantify exactly but we.

Speaker #6: So, you know, again, our goal is 3,000. You know, could it be 2,900? Sure. It's just, you know, a lot of it's just going to depend on price and, and incentives and, you know, that's why I haven't touched margin.

To monitor we talk when we talk to the field on a regular basis and just try to figure out what's working really try to continue to educate our sales folks on.

These are the positives of using these incentives.

Speaker #6: because, you ow, who, who it's, it's real difficult to, to, to figure out, you know, where, where that margin's going to be to get that pace, but that's our, that's our focus.

We implemented kind of that arm product this.

This.

And the last several weeks because we had a 399 rate.

Getting folks to be able to qualify at that 399, right is a big deal, especially for our buyer.

Speaker #11: That's good. and I think it's worth calling out.

Stephen Mea: That's good. And I think it's worth calling out.

Speaker #6: And Jay, just circling back, it was 2.8 in April, 2.4 in May. And, and.

Russ Devendorf: Jay, just circling back, it was 2.8 in April, 2.4 in May.

For us, it's our buyers, it's really figuring out that payment.

Stephen Mea: And 2.8.

Speaker #11: Perfect. anks, Jake. Looks

Speaker #6: In June, June.

Speaker #11: like it, yeah. Yeah. 2.8 in June. So tick back up in June and then you have the, the numbers we gave for July and August.

We're still giving closing costs. So we're also given.

Russ Devendorf: Looks like, yeah.

Stephen Mea: Yeah, 2.8% in June. So tick back up in June, then you have the numbers we gave for July and August, or July.

Zero closing costs, plus that 399, it's a really attractive opportunity.

Speaker #11: Or, July. Sorry. yeah. I'd love have that hockey stump already if you've got that. That'd be a od one. so it's actually encouraging, I think, that you guys are saying that if, if you give a little more on incentives, that the consumers responding because some of your larger competitors have talked about how even if they did lean in and put more incentives in, it's not making the, the consumer react.

And so it's.

Like we said last quarter.

Greg Bennett: Yeah, I'd love to have that August number already. If you got that, that'd be a good one. So it's actually encouraging, I think, that you guys are saying that if you give a little more on incentives, that the consumer is responding because some of your larger competitors have talked about how even if they did lean in and put more incentives in, it's not making the consumer react. Maybe talk a little bit, if you could, about what type of uptick you're seeing when you do lean into the incentive because that's different from what we've been hearing from some of your larger competitors.

Some of what's happening in the market I feel is a confidence issue by consumers but.

Hopefully as theres not as much noise.

I'll start feeling good into the back half of the year.

Like I said these incentives feel like they're working for us and so we will continue to monitor them and continue to push it to the extent that.

Speaker #11: So maybe talk a little bit if you could about what type of uptick you're eing when you do lean into the incentive because that's, that's different from what we've been hearing from some of your larger competitors.

We feel like it's helping out.

Okay. That's great. Thank you and then the last one for me I know you will.

You all talked about your stick and brick sounds like that's a little better but.

I think there is the looming throughout potentially of higher lumber prices, depending on what happens with this Canadian softwood lumber agreement I guess are you all seeing any pricing letters from your suppliers are starting to.

Speaker #6: Yeah. Look, at least for us, it's, it's definitely so we weren't a big user, you ow, we, we really did our first forward commitments, in at the end of Q1.

Russ Devendorf: Yeah, look, at least for us, it's definitely, we weren't a big user. We really did our first forward commitments at the end of Q1, and we pushed it into Q2 because we did see an uptick in traffic. We do feel like we're getting a little bit better conversion rate. It's, I can't quantify exactly, but we continue to monitor. We talk to the field on a regular basis and just try to figure out what's working, really try to continue to educate our sales folks on, hey, these are the positives of using these incentives. We implemented kind of that ARM product this last several weeks because at a 3.99% rate, getting folks to be able to qualify at that 3.99% rate is a big deal, especially for our buyer. For us, it's our buyers, it's really figuring out that payment.

Speaker #6: And, we, we pushed it into, to Q2 because we did see an uptick in, in traffic and, you know, we, we do feel like we're getting, a little bit better conversion rate.

Anecdotally any signs of lumber prices starting to move up.

So when do you think it might get you also income statement.

Jay This is Greg good morning, we've not seen any letters.

Speaker #6: so, it's, you know, I, I can't quantify exactly, but, we continue to monitor. You know, we talk, we talk to the field on a regular basis and just, you know, try to figure out what's working, really try to continue to educate, you know, our sales folks on, hey, these, these are the positives of using these incentives.

Presently so.

There's a lot of discussion around tariffs, there's a lot of discussion about that.

Potential.

But.

Present moment, we have not had any notification of impact.

Speaker #6: you ow, we, we implemented kind of that ARM product this, this, you know, last several weeks because, you know, at a 3.99 rate, getting folks to, to be able to qualify at that 3.99 rate is, is a big deal, especially for our buyer.

Okay. That's great. Thanks, guys appreciate it.

Thanks Jay.

A question. Please press star followed by one on your telephone keypad Nexstar, followed by one on your telephone keypad.

Speaker #6: you know, for us, it's our buyers, it's really a figuring out that payment, we're giving closing costs. So we're, we're also giving, you ow, you know, zero closing costs plus that 3.99.

Next question comes from the line of Alex Barron of housing Research Center.

Russ Devendorf: We're still giving closing costs, so we're also giving zero closing costs plus that 3.99%. It's a really attractive opportunity. It's, like we said last quarter, some of what's happening in the market, I feel, is a confidence issue by consumers. Hopefully, as there's not as much noise, people start feeling good into the back half of the year. Like I said, these incentives feel like they're working for us. We'll continue to monitor and continue to push it to the extent that we feel like it's helping out.

English is now open.

Speaker #6: It's a really attractive opportunity, and, and so it's, you know, it, like we said last quarter, you know, it's some, some of what's happening in the market I feel is, is, a confidence issue by consumers, but, hopefully is, is there's not as much noise, you ow, people start feeling good into the back half of the year and, like I said, these incentives, feel like they're working for us and, and so we'll continue monitor and, and continue to push it, to extent that, we feel like it's helping out.

Thank you good morning, guys and congratulations on the reduction in the.

The Bill times I was curious on that subject.

If there is anything you can share on how you've been able to achieve that.

Those reductions and do you feel like there is any further potential or do you feel like that's as good as it gets.

Okay.

Good morning, Yes, we've got we've got a stated goal companywide.

We want to be at 46.

Speaker #11: Okay. That's great. Thank you. And then the last one for me, you ow, I know you'll, you'll talk about your stick and break. Sounds like that's a ittle better, but, I think there is the, the looming threat potentially of, of higher lumber prices depending on what happens with this Canadian softwood lumber agreement.

Stephen Mea: Okay, that's great. Thank you. The last one for me. I know y'all talked about your stick and break. Sounds like that's a little better, but I think there is the looming threat potentially of higher lumber prices depending on what happens with this Canadian softwood lumber agreement. I guess, are y'all seeing any pricing letters from your suppliers? Are y'all starting to see anecdotally any signs of lumber prices starting to move up? If so, when do you think it might hit y'all's income statement?

Days on a bill so so yes, we still believe there is opportunity.

The pace over price is as our labor that we used with our trades to help drive our waste.

Speaker #11: I guess, are y'all seeing any pricing letters from, from your suppliers? Are y'all starting to, to see anecdotally any signs of, of lumber prices starting to move up?

And our cost.

So they know they're getting a commitment of starts.

And and that allows us to be more reliable.

Speaker #11: And if so, what, when do you think it might hit y'all's income statement?

Similar process.

Speaker #6: Jake, this is Greg. good ning. We've not seen any letters. presently, so, you, you know, there's a lot of discussion around tariffs. There's a lot of discussion about potential, but, but as of, you know, present moment, we've not had any notifications of, of impact.

Greg Bennett: Jay, this is Greg. Good morning. We've not seen any letters presently. There's a lot of discussion around tariffs. There's a lot of discussion about potential. But as of the present moment, we've not had any notifications of impact.

Got it.

Thank you so much.

Thanks, Alex.

Your next question comes from the line of Paul <unk>.

Wolfe Research your line is now open.

Thanks, Good morning, everyone I guess, you've got the two new Greenfields you just sedans, but could you give us an update on what youre seeing with.

Speaker #11: Okay. That's great. Thanks, guys. Appreciate it.

Stephen Mea: Okay, that's great. Thanks, guys. Appreciate it.

With respect to the M&A environment and your appetite for M&A given current current volatility and how you would even go about underwriting a deal given the unknowns out there.

Speaker #6: Thanks, Jake.

Russ Devendorf: Thanks, Jay.

Speaker #7: And a question, please press star followed by one on our telephone keypad. That's star followed by one on your telephone keypad. Your next question comes from the line of Alex Barron of Housing Research Center.

Speaker 8: To ask a question, please press star followed by one on your telephone keypad. That is star followed by one on your telephone keypad. Your next question comes from the line of Alex Barron of Housing Research Center. Your line is now open.

Yes.

Good question. There is there is definitely M&A opportunities out there.

Speaker #7: Your line is now open.

We.

Speaker #12: Thank ou. Good morning, guys. And, congratulations on the reduction in the, the build times. I, I was curious on that subject. if there's anything you can share on how, how you've been able to, to achieve those reductions and do you feel like there's any further potential or do you el like that's as good as it gets?

We absolutely we're always looking we.

Russ Devendorf: Thank you. Good morning, guys, and congratulations on the reduction in the build times. I was curious on that subject. If there's anything you can share on how you've been able to achieve those reductions, and do you feel like there's any further potential, or do you feel like that's as good as it gets?

We evaluate opportunities.

But but again for us it's.

All but Houston.

<unk> gone through a greenfield, we feel really confident and comfortable in our ability to.

To open.

New divisions through Greenfields.

Obviously, it takes a little bit longer to get ramped up.

Speaker #6: good morning. Yeah. We've got, we've got a stated goal company-wide that we want to be at 46 days on our build. So, so yeah, we still believe there's, there's opportunity.

Greg Bennett: Good morning. We have a stated goal company-wide that we want to be at 46 days on our build. We still believe there is opportunity. The pace over price is our lever that we use with our trades to help drive our waste and our cost. They know they are getting a commitment of starts, and that allows us to be more reliable in our assembly process.

But we're okay with that we're patient.

<unk> our majority shareholders are patient we're not looking at this as a as a sprint.

This is this is a long term play long term view that we're taking in and really the the objective. The main objective is to build a durable company and stick to the to the culture and and the things that have made us really good and it's easier to do that through through Greenfields and.

Speaker #6: you know, the, the pace over price is, is, is our lever that we use with our, our trades to help drive our waste. And, and, and our cost.

Speaker #6: so, so they know they're getting a commitment of, of starts and, and, and that allows us to be more reliable in our assembly process.

<unk>.

The one thing we didn't mention but the two folks that are going to be heading up. These these operations our internal folks that had been at the corporate level for a long time and really get.

Speaker #12: Got it. Thank you so much.

Russ Devendorf: Got it. Thank you so much.

Speaker #6: Thanks, Alex.

Stephen Mea: Thanks, Alex.

Speaker #7: Your next question comes from the line of Paul Friesbeck of Wolf Research. Your line is now open.

How we do things so we're really fortunate and thats, how we look like we always look to promote internally.

Speaker 8: Your next question comes from the line of Paul Friesbeck of Wolf Research. Your line is now open.

And we feel like that's the best way to do it now that said if there was a really good opportunity. There that we can we felt like we were getting a really good deal for sure I mean, we look at it like I said there is there is opportunities out there but.

Speaker #11: Thanks. Good morning, everyone. I guess, you know, you've got the, the, the two new Greenfields, you, you just announced, but could you ive us an update on, on what you're seeing?

Stephen Mea: Thanks. Good morning, everyone. I guess, you know, you've got the two new Greenfields you just announced, but could you give us an update on what you're seeing with respect to the M&A environment and your appetite for M&A given current volatility and how you would even go about underwriting a deal given the unknowns out there?

Speaker #11: You know, with respect to the M&A environment and, and your appetite for M&A given current, current volatility and, and how you would even go about underwriting a deal, you ow, given the unknowns out there.

It's tough to want to pay a big premium in todays environment its still.

Speaker #6: Yeah. No, I, good question. There's, there's definitely, M&A, opportunities out there. you know, we, we absolutely, we're, we're always looking, we evaluate opportunities. but, but again, for us, it's, you ow, all but Houston, we've, we've done through a Greenfield.

Russ Devendorf: Yeah, no, good question. There's definitely M&A opportunities out there. We absolutely, we're always looking. We evaluate opportunities. But again, for us, it's, all but Houston, we've done through a Greenfield. We feel really confident and comfortable in our ability to open new divisions through Greenfields. It's, obviously, it takes a little bit longer to get ramped up. But we're okay with that. We're patient. Our majority shareholders are patient. We're not looking at this as a sprint. This is a long-term play, long-term view that we're taking. And really, the main objective is to build a durable company and stick to the culture and the things that have made us really good. And it's easier to do that through Greenfields.

I would say M&A is still not.

<unk> I think things are getting a little more realistic but.

There may be a time and a place for it for us but.

For now we feel we feel pretty good about the direction, we're taking on on the growth.

Side of things.

And then I guess kind of related to that have you made any changes to your.

Speaker #6: We feel really confident and comfortable in, on our ability to, to open, new, new divisions through Greenfields. It's, you know, obviously, it takes a little bit longer to, to get ramped up.

Current land underwriting standards are you you've pushed up your hurdle rates and along with that have you seen any change in financing costs given the volatility from.

It keeps up off balance sheet.

Speaker #6: but we're okay with that. You know, we're patient. our, our majority shareholders, are, are patient. You know, we're not looking at this as a, as a sprint.

Yeah.

Yes.

On the ladder.

Really not a lot of term changes, but we are.

Speaker #6: you ow, this is, this is a long-term play, long-term view that we're taking and, and really the, objective, the main objective is to build a durable company and, and stick to the, to the culture and, and the things that have made us really good and, and it's, it's easier to do that through, through Greenfields and, and, you ow, the one thing we didn't ion, but the, the two folks that are going to be heading up these, these operations are internal folks that have been at the corporate level for a long time and, and really get, you know, how we do things.

We are focused on.

Our mature divisions.

We want to maintain pace.

We're underwriting based on our ability to maintain pace and in market share.

And then on our newer.

Divisions.

Russ Devendorf: The one thing we didn't mention, but the two folks that are going to be heading up these operations are internal folks that have been at the corporate level for a long time and really get how we do things. So we're really fortunate. And that's how we look. We always look to promote internally. And we feel like that's the best way to do it. Now, that said, if there was a really good opportunity that we felt like we were getting a really good deal, sure. I mean, we'd look at it. Like I said, there's opportunities out there, but it's tough to want to pay a big premium in today's environment. It's still, I'd say M&A is still not cheap. I think things are getting a little more realistic, but there may be a time and a place for it for us.

Our underwriting.

Touch softer, but we're still very conservative.

We look to new markets and one that we've got a ramp up so.

Not any real change overall to underwriting but.

Speaker #6: So, we're ally fortunate and, and 's how we look like. We always ok to promote, internally. and, and we, we feel like that's, that's the best way to, to do it.

Yes.

Totally aware of the market conditions.

Okay, Great I appreciate it thank you.

Thanks, Paul.

Thank you.

Speaker #6: Now, that said, if, if there was a, a really good opportunity that, that we can, you know, we felt like we were getting a, a, a really od deal, sure.

Yes.

The call back to Greg Bennett for final remarks.

Thank you everyone for joining us today.

Speaker #6: I mean, we'd look at it. like said, there's, there's opportunities out there, but, you know, it's, it's tough to want to pay a, a, a big premium in today's environment.

On behalf of Smith, Douglas and the whole management group.

We appreciate your interest in <unk>.

And your involvement today Greg.

Speaker #6: it's still, you know, I'd say M&A is still not cheap. I think things are getting a little more realistic, but, you know, there, there, there may be a time and a place for it, us, but, for now, we feel, we feel pretty good about, you know, the direction we're taking on, on the growth, side of things.

Thank you for attending today's call you may now disconnect Goodbye.

Russ Devendorf: But for now, we feel pretty good about the direction we're taking on the growth side of things.

Yeah.

Yeah.

Yeah.

Yeah.

Speaker #11: Okay. And then I, I guess kind of related to that, have you made any changes to your, your, you know, current land underwriting standards?

Stephen Mea: Okay. And then I guess kind of related to that, have you made any changes to your current land underwriting standards? Have you pushed up your hurdle rates? Along with that, have you seen any change in financing costs given the volatility from the keeps up off balance sheet?

Yeah.

Okay.

Yeah.

Speaker #11: Have you, you pushed up your hurdle rates? And along with that, have you seen any change in, in financing costs given the volatility from, you know, the, the keeps up off balance sheet?

Greg Bennett: Yeah, on the latter part, really not a lot of term changes, but we are focused on, you know, our mature divisions. We want to maintain pace, and we are underwriting based on our ability to maintain pace and market share. Then on our newer divisions, you know, maybe our underwriting is a touch softer, but we are still very conservative as we look at those new markets, knowing that we have got to ramp up. So yeah, not any real change overall to underwriting, but yeah, we are totally aware of the market conditions.

Russ Devendorf: Great. Appreciate it. Thank you.

Stephen Mea: Thanks, Paul.

Speaker 8: Thank you. With that, I would now like to hand the call back to Greg Bennett for final remarks.

Greg Bennett: Thank you, everyone, for joining us today on behalf of Smith Douglas Homes Corp. and the Home Management Group. We appreciate your interest and your involvement today. Have a great day.

Speaker 8: Thank you for attending today's call. You may now disconnect. Goodbye.