Q1 2026 Smith Douglas Homes Corp Earnings Call

April 29, 2026

Speaker #2: Hello everyone. Thank you for joining us and welcome to Smith Douglas Homes First Quarter 2026 Earnings Call and Webcast. After today's prepared remarks, we will host a question-and-answer session.

Operator 2: Hello, everyone. Thank you for joining us. Welcome to Smith Douglas Homes Q1 2026 earnings call and webcast. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one on your keypad to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Joe Thomas, SVP of Accounting and Finance. Joe, please go ahead.

Operator: Hello, everyone. Thank you for joining us. Welcome to Smith Douglas Homes Q1 2026 earnings call and webcast. After today's prepared remarks we will host a question and answer session. If you would like to ask a question please press star one on your keypad to raise your hand. To withdraw your question press star one again. I will now hand the conference over to Joe Thomas, SVP of Accounting and Finance. Joe, please go ahead.

Speaker #2: If you would like to ask a question, please press star 1 on your keypad to raise your hand. To withdraw your question, press star 1 again.

Speaker #2: I will now hand the conference over to Joe Thomas, SVP of Accounting and Finance. Joe, please go ahead.

Speaker #3: Good morning and welcome to the Earnings Conference Call for Smith Douglas Homes. We issued a press release this morning outlining our results for the first quarter of 2026, 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.

Joe Thomas: Good morning, welcome to the Earnings Conference Call for Smith Douglas Homes. We issued a press release this morning outlining our results for Q1 2026, 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.

Joe Thomas: Good morning and welcome to the Earnings Conference Call for Smith Douglas Homes. We issued a press release this morning outlining our results for Q1 2026 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.

Speaker #3: 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.

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

Speaker #3: 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.

Speaker #3: 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 Russell Devendorf, our Executive Vice President and CFO. I'd now like to turn the call over to Greg.

Joe Thomas: 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 Russell Devendorf, our Executive Vice President and CFO. I'd now like to turn the call over to Greg.

Speaker #3: Hosting the call this morning are Greg Bennett, the company's CEO and vice chairman, and Russ Devendorf, our executive vice president and CFO. I'd now like to turn the call over to Greg.

Speaker #4: Good morning and thank you for joining us today to review our results for first quarter of 2026 and provide an update on our operations.

Greg Bennett: Good morning, thank you for joining us today to review our results for Q1 2026 and provide an update on our operations. Smith Douglas Homes generated $4.3 million in pre-tax income for the quarter, net income of $0.06 per share. We delivered 624 homes, which came in at the high end of our guidance range. While home closing gross margin exceeded expectations at 19.6% on a GAAP basis. For the quarter, we generated 981 net new orders, up 28% from a year ago and a new quarterly record for the company. While order activity remained choppy throughout the quarter, we experienced a sequential improvement in our sales pace each month of the quarter, culminating in a sales pace of 4 homes per community in the month of March.

Gregory S. Bennett: Good morning thank you for joining us today to review our results for Q1 2026 and provide an update on our operations. Smith Douglas Homes generated $4.3 million in pre-tax income for the quarter net income of $0.06 per share. We delivered 624 homes which came in at the high end of our guidance range while home closing gross margin exceeded expectations at 19.6% on a GAAP basis. For the quarter, we generated 981 net new orders up 28% from a year ago and a new quarterly record for the company.

Speaker #4: Smith Douglas Homes generated 4.3 million in pre-tax income for the quarter, net income of 6 cents per share. We delivered 624 homes, which came in at the high end of our guidance range.

Speaker #4: While home closing gross margin exceeded expectations at 19.6% on a GAAP basis. For the quarter, we generated 981 net new orders of 28% from a year ago, and a new quarterly record for the company.

Speaker #4: While order activity remained choppy throughout the quarter, we experienced a sequential improvement in our sales base each month for the quarter, culminating in a sales base of four homes per community in the month of March.

Gregory S. Bennett: While order activity remained choppy throughout the quarter we experienced a sequential improvement in our sales pace each month of the quarter culminating in a sales pace of 4 homes per community in the month of March. Financing incentives continues to be a key selling tool as buyers remain motivated to own a home, provided they can secure a monthly mortgage payment that fits their budget. We're encouraged by the price elasticity we experienced during the quarter as incremental adjustments in pricing led to an uptick in demand. We view this as an indicator that underlying demand remains intact across our markets despite broader macroeconomic uncertainty. From an operational standpoint, we remain focused on pace over price velocity, which means maintaining a consistent cadence of starts, driving efficient inventory turns, and driving towards a more presale-oriented backlog. Our average build time was 57 days during the quarter, consistent with prior periods, and we continue to view our ability to deliver homes quickly and reliably with an offering of home choice and personalization as a key competitive advantage. Our land-light strategy also remains central to how we operate.

Speaker #4: Financing incentives continued to be a key selling tool, as buyers remained motivated to own a home provided they can secure a monthly mortgage payment that fits their budget.

Greg Bennett: Financing incentives continues to be a key selling tool as buyers remain motivated to own a home, provided they can secure a monthly mortgage payment that fits their budget. We're encouraged by the price elasticity we experienced during the quarter as incremental adjustments in pricing led to an uptick in demand. We view this as an indicator that underlying demand remains intact across our markets despite broader macroeconomic uncertainty. From an operational standpoint, we remain focused on pace over price velocity, which means maintaining a consistent cadence of starts, driving efficient inventory turns, and driving towards a more presale-oriented backlog. Our average build time was 57 days during the quarter, consistent with prior periods, and we continue to view our ability to deliver homes quickly and reliably with an offering of home choice and personalization as a key competitive advantage. Our land-light strategy also remains central to how we operate.

Speaker #4: We're encouraged by the price of last TSD we experienced during the quarter, as incremental adjustments in pricing led to an uptick in demand. We view this as an indicator that underlying demand remains intact across our markets despite broader macroeconomic uncertainty.

Speaker #4: From an operational standpoint, we remain focused on pace over price philosophy, which means maintaining a consistent cadence of starts, driving efficient inventory turns, and driving towards a more pre-sale-oriented backlog.

Speaker #4: Our average build time was 57 days during the quarter, consistent with prior periods, and we continue to view our ability to deliver homes quickly and reliably with an offering of home choice and personalization as a key competitive advantage.

Speaker #4: Our landlocked strategy also remains central to how we operate. By relying on third-party lot developers, we're able to allocate capital efficiently and maintain flexibility through varying market conditions.

Greg Bennett: By relying on third-party lot developers, we're able to allocate capital efficiently and maintain flexibility through varying market conditions. We believe this approach positions us well to manage risk while continuing to scale the business. We also made progress on our growth initiatives during the quarter. Community count expanded to 108 active communities across our markets, up 24% from a year ago. We continued to ramp operations in our new markets such as Dallas, Chattanooga, Greenville, and Alabama Gulf Coast. Our experience in Houston continues to demonstrate that our operating model translates well beyond our legacy footprint. We remain focused on executing a disciplined and opportunistic expansion strategy over time. As we move through the spring selling season, we're encouraged by sales orders generated during the quarter, which helped rebuild backlog and provide momentum heading into Q2.

Gregory S. Bennett: By relying on third-party lot developers, we're able to allocate capital efficiently and maintain flexibility through varying market conditions. We believe this approach positions us well to manage risk while continuing to scale the business. We also made progress on our growth initiatives during the quarter. Community count expanded to 108 active communities across our markets, up 24% from a year ago. We continued to ramp operations in our new markets such as Dallas, Chattanooga, Greenville, and Alabama Gulf Coast. Our experience in Houston continues to demonstrate that our operating model translates well beyond our legacy footprint. We remain focused on executing a disciplined and opportunistic expansion strategy over time. As we move through the spring selling season, we're encouraged by sales orders generated during the quarter, which helped rebuild backlog and provide momentum heading into Q2.

Speaker #4: We believe this approach positions us well to manage risk while continuing to scale the business. We also make progress on our growth initiatives during the quarter.

Speaker #4: Community County expanded to 108 active communities across our markets, up 24% from a year ago, and we continue to ramp operations in our new markets such as Dallas, Chattanooga, Greenville, and Alabama Gulf Coast.

Speaker #4: Our experience in Houston continues to demonstrate that our operating model translates well beyond our legacy footprint, and we remain focused on execution of disciplined and opportunistic expansion strategy over time.

Speaker #4: As we move through the spring selling season, we're encouraged by sales orders generated during the quarter, which helps rebuild backlog and provide momentum heading into the second quarter.

Speaker #4: We have continued to see encouraging traffic and order activity early in the second quarter, although demand remains variable week to week. We will continue to evaluate pricing and incentives as community-level and adjust as needed to maintain the pace required to support our operating model.

Greg Bennett: We have continued to see encouraging traffic and order activity early in Q2, although demand remains variable week to week. We will continue to evaluate pricing and incentives at the community level and adjust as needed to maintain the pace required to support our operating model. While macro conditions remain dynamic, employment trends have been relatively resilient, and we continue to see motivated and engaged buyers in our markets. We believe our focus on attainable pricing, personalization, and value put us in a good position to compete for these buyers and drive market share gains over time. Finally, I'd like to thank all of our team members for the hard work during this quarter. We challenged everyone to focus on getting off to a strong start this year, and our results this quarter showed they were up to the challenge.

Gregory S. Bennett: We have continued to see encouraging traffic and order activity early in Q2, although demand remains variable week to week. We will continue to evaluate pricing and incentives at the community level and adjust as needed to maintain the pace required to support our operating model. While macro conditions remain dynamic, employment trends have been relatively resilient, and we continue to see motivated and engaged buyers in our markets. We believe our focus on attainable pricing, personalization, and value put us in a good position to compete for these buyers and drive market share gains over time. Finally, I'd like to thank all of our team members for the hard work during this quarter. We challenged everyone to focus on getting off to a strong start this year, and our results this quarter showed they were up to the challenge.

Speaker #4: While macro conditions remain dynamic, employment trends have been relatively resilient, and we continue to see motivated and engaged buyers in our markets. We believe our focus on attainable pricing, personalization, and value put us in a good position to compete for these buyers and drive market share gains over time.

Speaker #4: Finally, I'd like to thank all of our team members for the hard work during this quarter. We challenged everyone to focus on getting off to a strong start this year, and our results this quarter showed they were up to the challenge.

Speaker #4: With that, I'd like to turn the call over to Russ, who'll provide more color on our financial results this quarter and give an update on our outlook.

Greg Bennett: With that, I'd like to turn the call over to Russ, who will provide more color on our financial results this quarter and give an update on our outlook.

Gregory S. Bennett: With that, I'd like to turn the call over to Russ, who will provide more color on our financial results this quarter and give an update on our outlook.

Speaker #3: Thanks, Greg, and good morning. I'll highlight our results for the first quarter and then conclude my remarks with an update on what we are seeing so far this year and our outlook for the second quarter.

Russell Devendorf: Thanks, Greg, and good morning. I'll highlight our results for Q1 and then conclude my remarks with an update on what we are seeing so far this year and our outlook for Q2. We finished Q1 with $206.4 million in revenue on 624 closings at the high end of our guidance range, with an average sales price of $331,000. Our home closing gross margin was 19.6% on a GAAP basis, and adjusted home closing gross margin was 20.3%, which adds back impairments, interest in cost of sales, and purchase accounting adjustments. During the quarter, gross margin benefited by 170 basis points from the reduction of land development accruals on the closeout of several communities.

Speaker #3: We finished the first quarter with 206.4 million in revenue on 624 closings at the high end of our guidance range with an average sales price of $331,000.

Speaker #3: Our home closings gross margin was 19.6% on a GAAP basis and adjusted home closing gross margin was 20.3%, which adds back impairments interest and cost of sales, and purchase accounting adjustments.

Speaker #3: During the quarter, gross margin benefited by 170 basis points from the reduction of land development accruals on the closeout of several communities. Our margins continue to reflect the use of incentives and targeted pricing adjustments to support affordability and maintain sales pace.

Russell Devendorf: Our margins continue to reflect the use of incentives and targeted pricing adjustments to support affordability and maintain sales pace. During the quarter, closing costs, price discounts, and the cost of forward commitments totaled 730 basis points, which compared to 430 basis points in the year ago period and 680 basis points sequentially from the Q4 of 2025. Selling, general, and administrative expenses for the quarter were $35.9 million, or approximately 17.4% of revenue, up $2.9 million compared to the same period last year, reflecting continued investment on our growth markets as well as the impact of lower average sales price. Pre-tax income for the quarter was $4.3 million, resulting in net income of $0.06 per share.

Speaker #3: During the quarter, closing costs, price discounts, and the cost of forward commitments totaled $730 basis points, which compared to $430 basis points in a year-ago period and $680 basis points sequentially from the fourth quarter of 2025.

Speaker #3: Selling general and administrative expenses for the quarter were $35.9 million, or approximately $17.4% of revenue, up 2.9 million compared to the same period last year, reflecting continued investment on our growth markets as well as the impact of lower average sales price.

Speaker #3: Pre-tax income for the quarter was $4.3 million, resulting in net income of 6 cents per share. Given the nature of our upsea organizational structure, our reported net income reflects the allocation of earnings between Smith Douglas Homes Corp.

Russell Devendorf: Given the nature of our Up-C organizational structure, our reported net income reflects the allocation of earnings between Smith Douglas Homes Corp. and the non-controlling interest of Smith Douglas Holdings LLC. A significant portion of our earnings is attributable to LLC members and not taxed at the corporate level, the income tax impact reflected in our financial statements can differ from more traditional C corporations. For that reason, we also present adjusted net income, which assumes a blended federal and state effective tax rate of 26.6% as if we operated as a fully public C corporation, which we believe provides a more meaningful comparison to peers. For the quarter, adjusted net income was $3.2 million compared to $14.7 million in the same period last year.

Speaker #3: and the non-controlling interests of Smith Douglas Holdings, LLC. Because a significant portion of our earnings is attributable to LLC members and not taxed at the corporate level, the income tax impact reflected in our financial statements can differ from more traditional C corporations.

Speaker #3: For that reason, we also present adjusted net income, which assumes a blended federal and state effective tax rate of 26.6% as if we operated as a fully public C corporation, which we believe provides a more meaningful comparison to peers.

Speaker #3: For the quarter, adjusted net income was 3.2 million, compared to 14.7 million in the same period last year. Turning to orders, we generated $981 net new home orders during the quarter and increased it 28% versus the year-ago period.

Russell Devendorf: Turning to orders, we generated 981 net new home orders during the quarter, an increase of 28% versus the year ago period. We ended the quarter with 869 homes in backlog with an average sales price of $332,000. In addition to backlog, we also had 42 home reservations at the end of the quarter. These reservations allow our buyers to take advantage of buying a built-to-order home while also benefiting from a guaranteed mortgage rate when they close. We expect most of these reservations to convert to new home orders in Q2. Turning to the balance sheet, we remain in a strong financial position. We ended the quarter with $28 million of cash and $68.5 million of total debt, with approximately $195 million available under our revolving credit facility.

Speaker #3: We ended the quarter with $869 homes in backlog, with an average sales price of $332,000. In addition to backlog, we also had 42 home reservations at the end of the quarter.

Speaker #3: These reservations allow our buyers to take advantage of buying a build-to-order home while also benefiting from a guaranteed mortgage rate when they close. We expect most of these reservations to convert to new home orders in the second quarter.

Speaker #3: Turning to the balance sheet, we remain in a strong financial position. We ended the quarter with $28 million of cash and $68.5 million of total debt, with approximately $195 million available under our revolving credit facility.

Speaker #3: Our debt-to-book capitalization was 13.6%, and net debt-to-net-book capitalization was 8.5%, reflecting our continued conservative approach to leverage. Our landlight strategy remains a core component of our operating model, with the majority of our lots controlled through option agreements, allowing us to maintain flexibility and deploy capital efficiently.

Russell Devendorf: Our debt to book capitalization was 13.6%, and net debt to net book capitalization was 8.5%, reflecting our continued conservative approach to leverage. Our land-like strategy remains a core component of our operating model, with the majority of our lots controlled through option agreements, allowing us to maintain flexibility and deploy capital efficiently. As Greg previously mentioned, and I explained on our Q4 call, I want to reiterate that our pace over price philosophy continues to guide how we manage the business. In the current environment, our focus remains on maintaining absorption and inventory turns, even if that requires some pressure on margins in the short term. We believe maintaining sales pace allows us to preserve market share, generate cash flow, and continue investing in our community pipeline, which ultimately drives scale and stronger returns over the full housing cycle.

Speaker #3: As Greg previously mentioned, and I explained on our fourth-quarter call, I want to reiterate that our pace over price velocity continues to guide how we manage the business.

Speaker #3: In the current environment, our focus remains on maintaining absorption and inventory turns, even if that requires some pressure on margins in the short term.

Speaker #3: We believe maintaining sales pace allows us to preserve market share, generate cash flow, and continue investing in our community pipeline, which ultimately drives scale and stronger returns over the full housing cycle.

Speaker #3: From a broader macro perspective, the housing market continues to operate in a challenging environment, driven primarily by affordability pressures and elevated mortgage rates. Recent economic data has been mixed, and geopolitical developments continue to contribute to uncertainty.

Russell Devendorf: From a broader macro perspective, the housing market continues to operate in a challenging environment, driven primarily by affordability pressures and elevated mortgage rates. Recent economic data has been mixed and geopolitical developments continue to contribute to uncertainty. We are also monitoring labor market trends closely as employment remains a key driver of housing demand. Our capital allocation priorities remain unchanged. We will continue to prioritize investing in our land pipeline and community growth while maintaining a conservative balance sheet. We will also remain opportunistic with share repurchases. During Q1, we began executing on our share repurchase authorization and continued to repurchase shares into Q2. Including repurchases completed in April, we have repurchased approximately $10 million of stock at an average price of $13.28 per share.

Speaker #3: We are also monitoring labor market trends closely, as employment remains a key driver of housing demand. Our capital allocation priorities remain unchanged. We will continue to prioritize investing in our land pipeline and community growth while maintaining a conservative balance sheet and we will also remain opportunistic with share repurchases.

Speaker #3: During the first quarter, we began executing on our share repurchase authorization and continued to repurchase shares into the second quarter. Including repurchases completed in April, we have repurchased approximately $10 million of stock at an average price of $13.28 per share.

Speaker #3: We believe these repurchases represent an attractive and disciplined use of capital, without limiting the financial flexibility to support our long-term growth strategy. For the second quarter, we currently expect closings between $725 and $800 homes, average sales price between $325,000 and $330,000, and gross margin between 17% and 17.5%.

Russell Devendorf: We believe these repurchases represent an attractive and disciplined use of capital without limiting the financial flexibility to support our long-term growth strategy. For Q2, we currently expect closings between 725 and 800 homes, average sales price between $325,000 and $330,000, and gross margin between 17% and 17.5%. Given the continued variability in demand conditions, we are not providing full year guidance at this time. We believe the primary risks to our outlook remain tied to macroeconomic conditions, including mortgage rates, consumer confidence, and employment trends. That said, we believe our affordable product offering, land-like strategy, and disciplined operating model position us well to continue gaining market share over time. With that, I'll turn the call over to the operator for instructions on Q&A.

Speaker #3: Given the continued variability in demand conditions, we are not providing full-year guidance at this time. We believe the primary risk to our outlook remains tied to macroeconomic conditions, including mortgage rates, consumer confidence, and employment trends.

Speaker #3: That said, we believe our affordable product offering, landlight strategy, and disciplined operating model position us well to continue gaining market share over time. With that, I'll turn the call over to the operator for instructions on Q&A.

Speaker #1: We will now begin the Q&A session. A reminder: if you would like. To ask a question, please press star one to raise your hand.

Operator 2: Your first question comes from the line of Michael Rehaut with JPMorgan. Michael, your line is open. Please go ahead.

Speaker #1: To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Michael Rahat with JPMorgan.

Operator: Your first question comes from the line of Michael Rehaut with JPMorgan. Michael, your line is open. Please go ahead.

Speaker #1: Michael, your line is open. Please go ahead.

Speaker #4: Hey, guys. It's Nick Kalra on for Michael. Good morning. Thanks for taking questions. I wanted to start by asking on the gross margin piece, you called out some moving pieces, but would really appreciate any extra color that you have either on the incentive environment and pricing considering ASPs for the first quarter, for the lower end of your guide, as well as on the cost side would be really helpful, any color you can provide on construction costs, labor, etc.

Nick Kalra: Hey, guys. It's Nick Kalra on for Michael. Good morning. Thanks for taking the question. I wanted to start by asking on the gross margin piece. You called out some moving pieces, but would really appreciate any extra color that you have either on the incentive environment and pricing, considering like ASPs for Q1 toward the lower end of your guide, as well as on the cost side would be really helpful. Any color you can provide on construction costs, labor, et cetera.

[Analyst] (JP Morgan): Hey, guys. It's Nick Kalra on for Michael. Good morning. Thanks for taking the question. I wanted to start by asking on the gross margin piece. You called out some moving pieces, but would really appreciate any extra color that you have either on the incentive environment and pricing, considering like ASPs for Q1 toward the lower end of your guide, as well as on the cost side would be really helpful. Any color you can provide on construction costs, labor, et cetera.

Speaker #3: Guidance on a gap basis? Came in at the high-end of guidance on a gap basis and we had 170 basis points, as I mentioned, that and it's the way land development works.

Russell Devendorf: Guidance on a GAAP basis came in at the high end of guidance on a GAAP basis. We had 170 basis points, as I mentioned. It is the way land development works. When we close out communities, we typically have a reserve in land development for anything that, you know, over the next 3 to 6 months, may come in, you know, from a cost perspective. We had closed out some communities in Q4, you know, towards the end of last year. Those accruals that we had got reversed in the quarter. That contributed to 170 basis point positive impact to margin.

Speaker #3: So when we close out communities, we typically have a reserve in land development for anything that over the next three to six months may come in from a cost perspective.

Speaker #3: We had closed out some communities in the fourth quarter towards the end of last year, and so those accruals that we had got reversed in the quarter.

Speaker #3: So that contributed to 170 basis point positive impact to margin. So if you back that out, we would have been right around, I think, 18.1% was which I think still was right in line with guidance or in the high-end of our guidance range.

Russell Devendorf: If you back that out, we would have been right around, I think 18.1% was, which I think still is right in line with guidance or in the high end, of our guidance range. Then from just some additional costs, as we mentioned, there's 730 basis points that were impacted by, like I said, not impairments, excuse me. Closing costs, the incentives for forward commitments, so the cost there, and price discounts. Just to remind everybody, the price discounts and the forward incentives, that's a reduction to revenue. ASP, that kind of drives ASP down a little bit, then closing costs run through our cost of goods.

Speaker #3: And then from just some additional costs, as we mentioned, there's $730 basis points that were impacted by, like I said, impairment not impairments, excuse me, closing costs.

Speaker #3: The incentives for forward commitments, so the cost there, and price discounts and just to remind everybody, the price discounts and the forward incentives that's a reduction to revenue so ASP, that kind of drives ASP down a little bit and then closing costs run through our cost of goods.

Russell Devendorf: That, that was up sequentially, as I mentioned, and up year over year. You know, from a just from a cost perspective, you know, we're actually getting some benefit on the direct cost side. That's coming in a little bit better year over year. The big driver still for us in kind of margin degradation is the lot cost. Lot costs were as a percentage of revenue, it's up about 300 basis points versus last year. That's just the impact of, you know, the higher basis for land deals that we entered into in the last couple of years.

Speaker #3: So that was up sequentially, as I mentioned, and up year over year. And then from a just from a cost perspective, we're actually getting some benefit on the direct cost side so that's coming in a little bit better year over year.

Speaker #3: But the big driver still for us in kind of margin degradation is the lock cost. So lock costs were as a percentage of revenue, it's up about 300 basis points versus last year.

Speaker #3: So that's just the impact of the higher basis for land deals that we entered into in the last couple of years.

Speaker #4: Got it. Helpful. Thank you. And then, on anything you could provide—I think you mentioned in your prepared remarks that demand is still looking a little choppy, week to week.

Nick Kalra: Got it. Helpful. Thank you. Anything you could provide, you know, I think you mentioned in your prepared remarks that demand is still looking a little choppy week to week. Any color you can provide on that, either on a sequential basis, you know, just a couple of weeks in, but relative to March or anything you could provide on April to date, that'd be helpful from a demand perspective.

[Analyst] (JP Morgan): Got it. Helpful. Thank you. Anything you could provide, you know, I think you mentioned in your prepared remarks that demand is still looking a little choppy week to week. Any color you can provide on that, either on a sequential basis, you know, just a couple of weeks in, but relative to March or anything you could provide on April to date, that'd be helpful from a demand perspective.

Speaker #4: Any color you can provide on that? Either on a sequential basis, just a couple of weeks in, but relative to March, or anything you could provide on April to date—that'd be helpful from a demand perspective.

Speaker #3: Yeah, thanks for the question. We're seeing seasonal traffic. We had good, strong traffic through March. April has been a slight decline, but still seasonally good.

Greg Bennett: Yeah. Thanks for the question. We, you know, we're seeing seasonal traffic. We had good strong traffic through March. April has been a slight decline, but still seasonally good. You know, we've gone through all the spring break and all the disruptions there. It's held pretty steady, maybe down 6% to 8% over what we were seeing earlier.

Gregory S. Bennett: Yeah. Thanks for the question. We, you know, we're seeing seasonal traffic. We had good strong traffic through March. April has been a slight decline, but still seasonally good. You know, we've gone through all the spring break and all the disruptions there. It's held pretty steady, maybe down 6% to 8% over what we were seeing earlier.

Speaker #3: We've gone through all the spring break and all the disruptions there. It's held pretty steady, maybe down all 6, 8 percent over what we were seeing earlier.

Speaker #4: Got it. Super helpful. Appreciate it, guys. I'll pass it on.

Nick Kalra: Got it. Super helpful. Appreciate it, guys. I'll pass it on.

[Analyst] (JP Morgan): Got it. Super helpful. Appreciate it, guys. I'll pass it on.

Speaker #3: Thanks.

Greg Bennett: Thanks.

Gregory S. Bennett: Thanks.

Speaker #1: Your next question comes from the line of Mike Dahl with RBC Capital. Mike, your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Mike Dahl with RBC Capital. Mike, your line is open. Please go ahead.

Operator: Your next question comes from the line of Mike Dahl with RBC Capital. Mike, your line is open. Please go ahead.

Speaker #5: Hi, everyone. You've actually got Stevie Mia on for Mike Dahl today. Thanks for taking my questions. I was hoping we could talk a little bit on the SG&A side of things.

Stephen S. St. Marie Jr.: Hi, everyone. You've actually got Steve St. Marie on for Mike Dahl today. Thanks for taking my questions. I was hoping we could talk a little bit on the SG&A side of things. I totally understand y'all are in a big kind of growth phase, and there's life cycle charters in there as you're opening up your new divisions and kind of getting all heads in place in there. I was just kind of wondering if you could give us a little more of an overview on where you are in those life cycles. Is that gonna keep ramping, or is that something that might start to moderate a little bit in the coming quarters? Just kind of a qualitative overview there. Thanks.

[Analyst] (RBC Capital Markets): Hi, everyone. You've actually got Steve St. Marie on for Mike Dahl today. Thanks for taking my questions. I was hoping we could talk a little bit on the SG&A side of things. I totally understand y'all are in a big kind of growth phase, and there's life cycle charters in there as you're opening up your new divisions and kind of getting all heads in place in there. I was just kind of wondering if you could give us a little more of an overview on where you are in those life cycles. Is that gonna keep ramping, or is that something that might start to moderate a little bit in the coming quarters? Just kind of a qualitative overview there. Thanks.

Speaker #5: I totally understand y'all are in a big kind of growth phase and there's life cycle charges and there's your opening up your new divisions and kind of getting all heads in place in there.

Speaker #5: I was just kind of wondering if you could give us a little more of an overview on where you are in that life are in those life cycles, or is that going to keep ramping, or is that something that might start to moderate a little bit in the coming quarters?

Speaker #5: Just kind of a qualitative overview there. Thanks.

Speaker #3: Sure. Yeah. I think as a percentage of revenue, it should definitely start to moderate because when you look at the gross dollars, we were only up 2, $3 3 million in that range.

Russell Devendorf: Sure. Yeah, I think as a percentage of revenue, it should definitely start to moderate. 'Cause when you look at the gross dollars, we were only up $2, 3 million, you know, in that range. It's more a reflection of, you know, our ASP is coming down. Again, part of that is, you know, increased incentives. Like I mentioned, forwards and price discounts are pushing that ASP down. It's pushing that top-line revenue. Some of that percentage increase is because of the top-line revenue. You know, it is, you know, the gross dollars. You know, the increase is actually not that bad in my, you know, from our perspective, because we did open, as you recall.

Speaker #3: So it's more a reflection of our ASP is coming down. And again, part of that is increasing incentives. Like I mentioned, forwards and price discounts are pushing that ASP down.

Speaker #3: And so it's pushing that top-line revenue. So some of that percentage increase is because of the top-line revenue. But it is the gross dollars the increase is actually not that bad in my from our perspective.

Speaker #3: Because we did open as you recall so Dallas was a new division last year. We divisionalized Chattanooga. We're opening up the Gulf Coast, which we hope to have some sales here in the next few months.

Russell Devendorf: Dallas was a new division last year. We divisionalized Chattanooga. We're opening up the Gulf Coast, which we hope to have some sales here in the next few months. We've got a lot of, you know, new fresh G&A that's hitting the books without any volume. That again, just reflects our continued, you know, growth and scale. When you start to see, you know, some of that revenue come through, I think it'll moderate, right? You know, again, even if you go back a couple of years, Greenville's a fairly new division. We divisionalized Central Georgia, we have expanded the footprint, you know, again, in the drive for additional scale.

Speaker #3: And so we've got a lot of new fresh G&A that's hitting the books without any volume. And so that, again, just reflects our continued growth and scale.

Speaker #3: And so when you start to see some of that revenue come through, I think it'll moderate, right? And again, even if you go back a couple of years, Greenville's a fairly new division.

Speaker #3: We centralized or we divisionalized Central Georgia and so we have expanded the footprint. Again, in the drive for additional scale. So it's just it's kind of a timing thing.

Russell Devendorf: It's just, you know, it's kind of a timing thing.

Speaker #5: No, totally makes sense. Appreciate the response. And secondly, understanding that you're not providing fully your guidance, but if there's anything y'all could share with us on areas where you may have a little more visibility like put your thoughts on your perhaps pace or cadence of community counts and how you're looking at kind of hopping on the previous question incentives within kind of within the guide and just kind of more broadly going forward would be helpful.

Stephen S. St. Marie Jr.: No, totally makes sense. Appreciate the response. Secondly, understanding that you're not providing full year guidance, but if there's anything y'all could share with us on areas where you may have a little more visibility, like your thoughts on your perhaps pace or cadence of community counts and how you're looking at hopping on the previous question and sentence, within the guidance, just more broadly going forward would be helpful. Thank you.

[Analyst] (RBC Capital Markets): No, totally makes sense. Appreciate the response. Secondly, understanding that you're not providing full year guidance, but if there's anything y'all could share with us on areas where you may have a little more visibility, like your thoughts on your perhaps pace or cadence of community counts and how you're looking at hopping on the previous question and sentence, within the guidance, just more broadly going forward would be helpful. Thank you.

Speaker #5: Thank you.

Speaker #3: Sure. Yeah. We don't like to give full year now. I mean, maybe as we wrap up the second quarter and we're kind of halfway through the year, we will give some more clarity.

Russell Devendorf: Sure. Yeah, we don't like to give full year now. I mean, maybe as we wrap up Q2 and we're kind of halfway through the year, we will give some more clarity. I mean, it's not like we don't have, you know, our internal targets. It's just given the environment, we just don't think it's prudent to provide any, you know, full year guidance. I mean, especially when it comes to margin or income, I mean, it's such a wild card. You know, we're gonna continue to push pace. We feel pretty good, especially coming off of March and the quarter. I mean, we had a really good beat, you know, exceeded our internal expectations on sales.

Speaker #3: I mean, it's not like we don't have our internal targets. It's just given the environment, we just don't think it's prudent to provide any full-year guidance.

Speaker #3: I mean, again, especially when it comes to margin or income, I mean, it's such a wild card we're going to continue to push pace.

Speaker #3: We feel pretty good, especially coming off of March and the quarter. I mean, we had a really good beat exceeded our internal expectations on sales.

Russell Devendorf: You know, that's a reflection of us doing, you know, some additional price discovery in our communities, really driving our sales folks, you know, credit to them in the field for really pushing on pace. Turned out to be a good quarter in sales, which obviously the increase in backlog, it's gonna you know, set us up for, you know, hopefully it starts to set us up for a good H2 of the year in terms of closings. I think I mentioned on the last call, you know, we were expecting anywhere from, you know, 10% to 20% in community count growth for the year.

Speaker #3: That's a reflection of us doing some additional price discovery in our communities really driving our sales folks credit to them in the field for really pushing on pace.

Speaker #3: And so it turned out to be a good quarter in sales, which obviously the increase in backlog, it's going to set us up for hopefully it starts to set us up for a good back half of the year in terms of closings.

Speaker #3: I think I mentioned on the last call, we were expecting anywhere from 10 to 20 percent in community count growth for the year. And so you can kind of translate that into what you might expect or as you run your model what you might expect for closings.

Russell Devendorf: You can kind of translate that into, you know, what you might expect or as you run your model, what you might expect for closings. Clearly we're focused on growing closings year over year. We've got some pretty good internal targets, but you can kind of back into the numbers based on what I just told you.

Speaker #3: But clearly, we're focused on growing closings year over year. So we've got some pretty good internal targets, but you can kind of back into the numbers based on what I just told you.

Speaker #5: That's logical. Thanks. Thanks for all the calls.

Stephen S. St. Marie Jr.: That's logical. Thanks. Thanks for all the color.

[Analyst] (RBC Capital Markets): That's logical. Thanks. Thanks for all the color.

Speaker #3: Sure. Sure.

Russell Devendorf: Sure. Sure.

Speaker #1: Your next question comes from the line of Trevor Allison with Wolf Research. Trevor, your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Tyler Allinder with Wolfe Research. Tyler, your line is open. Please go ahead.

Operator: Your next question comes from the line of Tyler Allinder with Wolfe Research. Tyler, your line is open. Please go ahead.

Speaker #6: Hi. Good morning. Thank you for taking my questions. First one's on your expectation for vertical costs going forward. Obviously, oil prices up quite a bit, fuel prices up, some building product materials.

Tyler Allinder: Hi, good morning. Thank you for taking my questions. First one's on your expectation for vertical costs going forward. Obviously had oil prices up quite a bit, fuel prices up, some building product material have seen price increase announcements. What are you expecting for vertical costs going forward? In terms of some of these price increase announcements from the manufacturers, are you currently taking on any of those price increases, or have you been able to successfully push back against those?

Trevor Allinson: Hi, good morning. Thank you for taking my questions. First one's on your expectation for vertical costs going forward. Obviously had oil prices up quite a bit, fuel prices up, some building product material have seen price increase announcements. What are you expecting for vertical costs going forward? In terms of some of these price increase announcements from the manufacturers, are you currently taking on any of those price increases, or have you been able to successfully push back against those?

Speaker #6: I have seen price increase announcements. So what do you expecting for vertical costs going forward? And then in terms of some of these price increase announcements from the manufacturers, are you currently taking on any of those price increases, or have you been able to successfully push back against those?

Speaker #3: Yeah. Thanks for the question. We've been pretty successful in pushing a lot of those increases off. We're our costs are down year over year.

Greg Bennett: Thanks for the question. We've been pretty successful in, you know, pushing a lot of those increases off. We're, you know, our costs are down year over year. We know that if this fuel situation stays higher for longer, we're gonna get, you know, hit with fuel surcharges and some of those things. We show up diligent every day to work on our cost and our efficiency. We'll continue to do that. You know, the market's not allowing us price and, you know, that message is going through to our trade and our suppliers to say, Look, you know, we don't have ability to take price and so we can't pass that through. We're holding a pretty tough line on that.

Gregory S. Bennett: Thanks for the question. We've been pretty successful in, you know, pushing a lot of those increases off. We're, you know, our costs are down year over year. We know that if this fuel situation stays higher for longer, we're gonna get, you know, hit with fuel surcharges and some of those things. We show up diligent every day to work on our cost and our efficiency. We'll continue to do that. You know, the market's not allowing us price and, you know, that message is going through to our trade and our suppliers to say, Look, you know, we don't have ability to take price and so we can't pass that through. We're holding a pretty tough line on that.

Speaker #3: We know that if this fuel situation stays higher for longer, we're going to get hit with fuel surcharges and some of those things. But we show up diligent every day to work on our cost and our efficiencies.

Speaker #3: So we'll continue to do that. And the market's not allowing us price and that message is going through to our trade and our suppliers to say, "Look, we don't have ability to take price and so we can't pass that through." So we're holding a pretty tough line on that.

Speaker #6: Okay. Makes sense. Appreciate that color. And then on your lot portfolio, I mean, clearly, the majority of your lots are held off balance sheet.

Tyler Allinder: Okay. Makes sense. Appreciate that color. On your lot portfolio, I mean, clearly the majority of your lots are held off balance sheet. Can you talk about what portion of those lots are held by land banks and then shed any light on the structure of your land bank agreements, perhaps in terms of deposit rates, option maintenance fees, as well as your ability to potentially walk away from deals that no longer pencil? Thanks.

Trevor Allinson: Okay. Makes sense. Appreciate that color. On your lot portfolio, I mean, clearly the majority of your lots are held off balance sheet. Can you talk about what portion of those lots are held by land banks and then shed any light on the structure of your land bank agreements, perhaps in terms of deposit rates, option maintenance fees, as well as your ability to potentially walk away from deals that no longer pencil? Thanks.

Speaker #6: Can you talk about what portion of those lots are held by land banks and then shed any light on the structure of your land bank agreements, perhaps in terms of deposit rates, option maintenance fees, as well as your ability to potentially walk away from deals that no longer pencil?

Speaker #6: Thanks.

Speaker #3: Sure. So of the total portfolio, we have about 30% of our lots under option are with land bankers. Then there's about 40% of our lots under option are with developers.

Russell Devendorf: Sure. So of the total portfolio, we have about 30% of our lots under option are with land bankers. Then there's about 40% of our lots under option are with developers, there's 70%. The balance, the other 30%, are still deals that are with the underlying land seller. So where we have a contract that we may be in various stages of due diligence, but we control it with, you know, varying deposits. Usually those are pretty small. But just from a land bank perspective and a structure perspective, we are pretty much. On average, it's about a 10% deposit that we have with the land bankers.

Speaker #3: And so there's 70%. And then the balance, the other 30% are still deals that are with the underlying land seller. So where we have a contract that we may be in various stages of due diligence, but we control it with varying deposits.

Speaker #3: And usually, those are pretty small. But just from a land bank perspective and a structure perspective, we are pretty much, on average, it's about a 10% deposit that we have with the land bankers.

Speaker #3: And then there's typically a walk-away fee that if you bust out of the option, then you pay another 10% walk-away fee. And we disclose that in our financials but we don't on all of our new land bank deals, we do not cross-collateralize.

Russell Devendorf: There's typically like a walkaway fee that if you bust out of the option, then you pay another 10% walkaway fee. We disclose that in our financials. We don't on all of our new land bank deals, we do not cross-collateralize. We have some finished lot bank where we'll stick some lots when we have some bulky takedowns on active communities that we'll put into a finished lot bank, and we may, you know, within a division, cross-collateralize. Honestly, that's we don't view that as any real issue. It's pretty simple the way we think about it.

Speaker #3: We have some finished lot bank where we'll stick some lots when we have some bulky takedowns on active communities that we'll put into a finished lot bank.

Speaker #3: And we may within a division cross-collateralize, but honestly, it's don't view that as any real issue. So it's pretty simple. The way we think about it.

Speaker #6: Yep. Thanks for that, Ralph. And I appreciate all the color. Good luck moving forward.

Tyler Allinder: Yep. Thanks for that, Russ. I appreciate all the color. Good luck moving forward.

Trevor Allinson: Yep. Thanks for that, Russ. I appreciate all the color. Good luck moving forward.

Speaker #3: Thank you.

Russell Devendorf: Thank you.

Speaker #1: Your next question comes from the line of Ryan Gilbert with BTIG. Ryan, your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Ryan Gilbert with BTIG. Ryan, your line is open. Please go ahead.

Operator: Your next question comes from the line of Ryan Gilbert with BTIG. Ryan, your line is open. Please go ahead.

Speaker #7: Hi. Thanks. Good morning, guys. On the 2Q26 margin guidance, can you talk about how much of the step down is from higher incentives in the quarter versus higher lot costs or if there's anything else that we should call out?

Ryan Gilbert: Hi. Thanks. Good morning, guys. On the Q2 2026 margin guidance, can you talk about how much of the step down is from higher incentives in the quarter versus higher lot costs, or if there's anything else that we should call out?

Russell Devendorf: We're assuming the incentives are probably about flat sequentially, you know, maybe up or down 10, 20 basis points. We're still seeing the same, and it's been pretty consistent. We're seeing the same percentage of forwards, the use of forwards. That's probably, you know, pretty consistent. It's really. You know, I think there's a little step down in ASP. You know, that again, is probably coming from the forwards. It's lot cost. You know, again, I think lot cost, you're gonna continue to see that trend, year over year, where that's, you know, about 300 basis points up. It's.

Speaker #3: We're assuming the incentives are probably about flat sequentially, maybe up or down 10, 20 basis points. We're still seeing the same and it's been pretty consistent.

Speaker #3: We're seeing the same percentage of forwards the use of forwards. So that's probably pretty consistent. But then it's really I think there's a little step down in ASP that, again, is probably coming from the forwards.

Speaker #3: But it's lot cost. Again, I think lot cost, you're going to continue to see that trend year over year where that's about 300 basis points up.

Speaker #3: So it's lot cost is driving it. And then part of the variable in there is how much to the earlier question, what Greg said, how much are we able to hold on vertical costs?

Russell Devendorf: Lot cost is driving it, and then, you know, part of the variable in there is, you know, how much to the earlier question, what Greg said, you know, how much are we able to hold on, you know, vertical costs? Right now, we've done a pretty good job year over year. The average sticks and bricks costs are down a bit, but, you know, there's some variability there.

Speaker #3: Right now, we've done a pretty good job year over year. The average sticks and bricks costs are down a bit. But there's some variability there.

Speaker #7: Okay. Got it. And can you update us on what you're seeing in terms of, I guess, spot land prices for the deals that you're signing up today and then if you're getting any relief on pricing?

Ryan Gilbert: Okay. Got it. Can you update us on what you're seeing in terms of, I guess, spot land prices for the deals that you're signing up today, and then if you're getting any relief on pricing, how long that would take to flow through into your income statement?

Speaker #7: How long would that take to flow through into your income statement?

Russell Devendorf: Yeah. It's starting to turn. I think we've been mentioning this for the last 2 quarters. We're definitely seeing land prices start to moderate. We're starting to feel like we have more negotiating power, right? Starting to flip from a seller's market to a buyer's market. That, you know, obviously, any new deals that we put under contract, you know, in the typical fashion, excluding, you know, where we can pick up some finished lots from others that have walked. You know, it takes 18 months to flow through typically, right? Because you got development for 1 year, then you've got, you know, several months of vertical construction, it takes some time.

Speaker #3: Yeah. It's starting to turn. I think we've been mentioning this for the last couple of quarters. We're definitely seeing land prices start to moderate we're starting to feel like we have more negotiating power, right, starting to flip from a seller's market to a buyer's market.

Speaker #3: And that obviously, any new deals that we put under contract in the typical fashion—excluding where we can pick up some finished lots from others that have walked—it takes 18 months to flow through, typically, right? Because you've got development for a year, and then you've got several months of vertical construction.

Speaker #3: So it takes some time. So we don't expect the increase in lot cost to moderate for at least a couple of years, right, in any material level.

Russell Devendorf: We don't expect the increase in lot cost to moderate for at least a couple of years, right? At any material level. When we went public, we knew. We were guiding everybody. I mean, lot costs were going up just because we knew what we were doing deals at. Now you're starting to see that reverse a little bit. That's also, as we talked about on our call and our pace over price philosophy, that's why it's real important for us to continue to move inventory through the pipeline so that we don't get, you know, gummed up with these lots. We can continue to move it through the pipeline so we can start taking advantage of a reset in land basis, to land prices.

Speaker #3: And when we went public, we knew. We were guiding everybody. I mean, lot costs were going to be we're going up just because we knew what we were doing deals at.

Speaker #3: But now you're starting to see that reverse a little bit. But that's also as we talked about on our call and our pace over price philosophy.

Speaker #3: That's why it's real important for us to continue to move inventory through the pipeline so that we don't get gummed up with these lots.

Speaker #3: We can continue to move it through the pipeline so we can start taking advantage of a reset in land basis to land prices. And so that's kind of how we're thinking about it.

Russell Devendorf: That's kinda how we're thinking about it.

Speaker #7: Got it. Makes sense. Just one more for me.

Ryan Gilbert: Got it. Makes sense. Just one more from me.

Russell Devendorf: One last thing. Yeah, one last thing there. Joe just pointed it out, and he's right. This is part of the reason why we think it's a reasonable opportunity to enter some of these new markets, because we're able to, you know, start fresh and take advantages of some of these reset bases.

Speaker #3: And one last thing. Yeah, one last thing there. And Joe just pointed it out, and he's right. This is part of the reason why we think it's a reasonable opportunity to enter some of these new markets, because we're able to start fresh and take advantage of some of these reset bases, so.

Speaker #7: Got it. Yeah. That makes sense. Yeah. Just one more for me. It seems like you and the other publics and, I guess, the industry overall, based on the starts number earlier this morning, it seems like there's a reacceleration in starts.

Ryan Gilbert: Got it. Yeah, that makes sense. Yeah, just one more from me. It seems like you and the other publics and I guess the industry overall, based on the starts number earlier this morning, it seems like there's a re-acceleration in starts. I'm just wondering how inventory looks in your markets and if you're seeing any impact from, I guess, the recent increase in starts volume.

Speaker #7: I'm just wondering how inventory looks in your markets and if you're seeing any impact from, I guess, the recent increase in starts volume.

Russell Devendorf: There hasn't been anything materially different or that we're hearing from our divisions. I know some of the builders. I mean, when you look year-over-year, a lot of the public's spec counts are down. You know, they may be starting, you know, and that could just be relative to maybe some better, you know, slightly better sales. I mean, we had better sales than expected this Q1. We were up pretty good, so obviously our starts are gonna be up. No, from an overall pure inventory standpoint, not seeing any real impact there.

Speaker #3: There hasn't been anything that we've seen materially different or that we're hearing from our divisions. I know some of the builders I mean, I think when you look year over year, a lot of the publics spec counts are down.

Speaker #3: They may be starting, and that could just be relative to maybe some slightly better sales. I mean, we had better sales than expected this first quarter.

Speaker #3: We were up pretty good. So obviously, our starts are going to be up. But no, from an overall pure inventory standpoint, not seeing any real impact there.

Speaker #7: Okay. Great. Thanks so much.

Ryan Gilbert: Okay, great. Thanks so much.

Speaker #1: Your next question comes from the line of Natalie Kulasicara from Zelman & Associates. Natalie, your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Natalia Koulikova from Zelman & Associates. Natalia, your line is open. Please go ahead.

Operator: Your next question comes from the line of Natalia Koulikova from Zelman & Associates. Natalia, your line is open. Please go ahead.

Speaker #8: Hey. Good morning. Thank you for taking my question. So could you talk a little bit about how your incentives trended as the quarter progressed?

Natalia Koulikova: Good morning. Thank you for taking my question. Could you talk a little bit about how your incentive trended as the quarter progressed. I know you said it was 730 basis points for the whole quarter on average, but I'm just wondering if March was higher than January and February, and, you know, if you had to kind of push incentives to achieve that pace of, you know, for sales per community.

Natalie Kulasekere: Good morning. Thank you for taking my question. Could you talk a little bit about how your incentive trended as the quarter progressed. I know you said it was 730 basis points for the whole quarter on average, but I'm just wondering if March was higher than January and February, and, you know, if you had to kind of push incentives to achieve that pace of, you know, for sales per community.

Speaker #8: I know you said it was 730 basis points for the whole quarter on average, but I'm just wondering if March was higher than January and February and if you had to kind of push incentives to achieve that pace of for sales per

Speaker #3: Yeah. And I don't have the exact numbers in front of me. And keep in mind, the 730 basis points, that's incentives and discounts that would have mostly come through in Q3, Q4 of last year that are hitting the books.

Russell Devendorf: Yeah. I don't have the exact numbers in front of me. Keep in mind, the 730 basis points, that's incentives and discounts that would've mostly come through in, you know, Q3, Q4 of last year that are hitting the books. From incentives on sales through the quarter, yeah, I would just generally say that as we ramped up our pace and, you know, pushed for a little bit more price discovery, you know, we probably saw it up a little bit. Honestly, I think we were pleasantly surprised that it didn't, it wasn't a huge hit. It does show that there is some, you know, price elasticity. It does.

Speaker #3: And then from incentives on sales through the quarter, yeah, I would just generally say that as we ramped up our pace and pushed for a little bit more price discovery, we probably saw it up a little bit.

Speaker #3: But honestly, we were I think we were pleasantly surprised that it didn't it wasn't a huge hit but it does show that there is some price elasticity.

Speaker #3: It does you can see it ties into increase in volume, so.

Russell Devendorf: You can see it ties into, you know, increase in volume.

Speaker #8: All right. Thank you. And what share of your closings this quarter were driven by spec sales and where in terms of getting to a more free sale-heavy business?

Natalia Koulikova: All right. Thank you. What share of your closings this quarter were driven by spec sales? You know, where are you in terms of getting to a more presale-heavy business?

Natalie Kulasekere: All right. Thank you. What share of your closings this quarter were driven by spec sales? You know, where are you in terms of getting to a more presale-heavy business?

Speaker #3: Yeah. I mean, that presale is a huge driver or a huge focus of ours. Because traditionally, you're going to make more money on presales and because of our business model, we really focus on personalization and choice.

Russell Devendorf: Yeah. I mean, that's that presale is a huge driver or a huge focus of ours. Because, you know, traditionally, you're gonna make more money on presales. You know, because of our business model, we really focus on personalization and choice for our buyer, and we have a quick turn, you know, from a cycle time perspective. Really for us, we're trying to drive that message to the divisions, you know, and because we do think that ultimately that's gonna help drive higher margins, but it also gives our buyers a different buying experience than when you go to some other entry-level builders that are more, you know, hey, you get, you know, vanilla, chocolate, strawberry type of choice.

Speaker #3: For our buyer, and we have a quick turn, from a cycle time perspective. So really, for us, we're trying to drive that message to the divisions because we do think that ultimately, that's going to help drive higher margins, but it also gives our buyers a different buying experience than when you go to some other entry-level builders that are more hey, you get a vanilla chocolate strawberry type of choice but we've been averaging it's probably still 40, 60 presale versus spec every week.

Russell Devendorf: We've been averaging, you know, it's probably still, you know, 40/60 presale versus spec every week. More importantly, we're getting the contract. We saw an uptick in getting a sale on a spec home before it hits what we call line in the sand, so kind of before it hits drywall stage. That's really today very important because, you know, we're still using forward commitments, incentives, and, you know, to put an interest rate lock out there for more than 60 days is almost cost prohibitive. The incentives are still a big driver for some of these buyers in figuring out payment.

Speaker #3: But more importantly, we're getting the contract we saw an uptick in getting a sale on a spec home before it hits what we call line in the sand.

Speaker #3: So kind of before it hits drywall stage. So that's really today very important because we're still using forward commitments incentives. And the interest to put an interest rate lock out there for more than 60 days is almost cost prohibitive.

Speaker #3: So the incentives are still a big driver for some of these buyers in figuring out payment. So even if we have those starts as long as we're within kind of 60 days and they can get some choice before we hit drywall stage, getting that sale before drywall stage is important.

Russell Devendorf: Even if we have those starts, you know, as long as we're within kind of 60 days and they can get some choice before we hit drywall stage, you know, getting that sale before drywall stage is important. We're doing a pretty good job there. I'd say we're probably 70% and 80% before drywall stage has got a sale. Our spec inventory has been coming down. It's still a battle, but that's, you know, that's our focus is driving more presale going forward.

Speaker #3: So we're doing a pretty good job there, I'd say. We're probably 70, 80 percent before drywall stage has got a sale and our spec inventory has been coming down.

Speaker #3: So it's still a battle, but that's our focus is driving more presale going forward.

Speaker #8: All right. Thank you.

Natalia Koulikova: All right. Thank you.

Natalie Kulasekere: All right. Thank you.

Speaker #3: Sure.

Russell Devendorf: Sure.

Speaker #1: Your next question comes from the line of Rafe Jadrosich from Bank of America. Rafe, your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Rafe Jadrosic from Bank of America. Rafe, your line is open. Please go ahead.

Operator: Your next question comes from the line of Rafe Jadrosic from Bank of America. Rafe, your line is open. Please go ahead.

Rafe Jadrosich: Hi. Hi, good morning. Thanks for taking my question.

Speaker #9: Hi. Good morning. Thanks for taking my question.

Speaker #3: Sure.

Russell Devendorf: Sure. Sure.

Rafe Jadrosich: Can you... I know you walked through it a little bit, just the gross margin. Sure, it's good to see the backlog sort of stabilize and stack up, step up here. The gross margin sequentially flat quarter-over-quarter in Q1. Just can you help me just understand the accrual call-out that you had there and bridge like maybe on a like-for-like basis Q1 to Q2?

Speaker #9: Just can you I know you walked through it a little bit. Just the gross margin is good to see the backlog sort of stabilize and stack up here.

Speaker #9: The gross margin sequentially flat quarter over quarter and one Q, just can you help me just understand the accrual callout that you had there and bridge maybe on a like-for-like basis one Q to two Q?

Russell Devendorf: Yeah. We had 170 basis points roughly of a benefit because we reversed some land development accruals on closeout communities. These were several communities that closed out in kind of Q3, Q4. Our internal policy is, you know, we start to ratchet down accruals over, you know, 3 to 6 months, just in case there's any stragglers or any costs out there, once we close a community. That was 170 basis points to margin.

Speaker #3: Yeah. So if you so we had 170 basis points roughly of a benefit because we reversed some land development accruals on close-out communities. So these were several communities that closed out in kind of Q3, Q4.

Speaker #3: And so our internal policy is we keep we start to ratchet down accruals over three to six months just in case there's any stragglers or any costs out there once we close a community.

Speaker #3: And so that was 170 basis points to margin. So basically, if you just look operationally, take our margin for the quarter, back out 170 basis points, and that's kind of where you would start with your gross margin.

Russell Devendorf: Basically, if you just look operationally, take our margin for the quarter, back out 170 basis points, and that's kind of where you would, you would start with your, you know, your gross margin to take out the noise. You know, we had a little bit of impairment in there, so, you know, strip that out. I don't know how many basis points that accounted for.

Speaker #3: To take out the noise, we had a little bit of impairment in there. So strip that out. I think that was 30 I don't know how many basis points that accounted for.

Speaker #9: 70.

Joe Thomas: Seventy.

Speaker #3: 70 basis points. So there were 70 basis points of impairment that was a negative impact to margin. Again, you want to strip that out.

Joe Thomas: 70 basis points. There were 70 basis points of impairment that was a negative impact to margin. You know, again, you wanna strip that out. When you see our filing, you'll be able. I think it's in the notes, it's in the back half of the press release. When you look at the adjusted margins, you'll be able to see some of that stuff. That's why when you strip out all the noise, I think sequentially, we're basically calling for about a 50 basis point decline in margin from Q1 to Q2.

Russell Devendorf: 70 basis points. There were 70 basis points of impairment that was a negative impact to margin. You know, again, you wanna strip that out. When you see our filing, you'll be able. I think it's in the notes, it's in the back half of the press release. When you look at the adjusted margins, you'll be able to see some of that stuff. That's why when you strip out all the noise, I think sequentially, we're basically calling for about a 50 basis point decline in margin from Q1 to Q2.

Speaker #3: So when you see our when you see our filing, you'll be able and I think it's in the notes. It's in the back half of the press release.

Speaker #3: But when you look at the adjusted margins, you'll be able to see some of that stuff. So that's why, when you strip out all the noise, I think sequentially we're basically calling for about a 50-basis-point decline in margin from Q1 to Q2.

Rafe Jadrosich: Got it.

Speaker #3: And again, there was a lot there, but we can walk through any detail if it's once you see the numbers, it's do you have any confusion?

Russell Devendorf: Again, there was a lot there, but we can walk through any detail if once you see the numbers, you have any questions.

Greg Bennett: Any confusion?

Russell Devendorf: Any confusion?

Speaker #9: Okay. That actually that's very helpful. It makes sense. And the sequential from one Q to Q, you still have land inflation, but incentives sort of flash, and that's getting to it.

Rafe Jadrosich: Okay. That actually did. That's very helpful. It makes sense. That's the sequential from Q1 to Q. You still have land inflation, incentives sort of.

Greg Bennett: Yeah

Russell Devendorf: Yeah

Rafe Jadrosich: -up flash. That's getting to the-

Greg Bennett: That's right. Yeah.

Russell Devendorf: That's right. Yeah.

Speaker #9: Okay, all right. And then on the SG&A side, you said something that was really interesting. And obviously, the dollars have stepped up here and continue to grow, but you're expanding communities.

Rafe Jadrosich: Okay. All right. Then on the SG&A side, you said something that was really interesting and, obviously, the dollars have stepped up here and continue to grow, but you're expanding communities. You're also moving into new markets. Of the markets that you operate in today, what would you consider to be like at scale versus what you're still trying to get the scale up and are sort of below where you'd expect it to be longer term?

Speaker #9: You're also moving into new markets. Of the markets that you operate in today, what would you consider to be at scale versus what you're still trying to get the scale up and are sort of below where you'd expect it to be longer term?

Speaker #3: Yeah. Thanks, Rafe. I think that we're in still infancy, I would say, in Greenville. The same in Dallas, Fort Worth, Gulf Coast. And we're kind of over that hump in Chattanooga.

Greg Bennett: Yeah, thanks, Rafe. I'll take that. We, we're in still infancy, I would say, in Greenville. We're the same in Dallas-Fort Worth, Gulf Coast. You know, we're kinda over that hump in Chattanooga, made a lot of growth strides there in the last year. Central Georgia would be another that we're still building scale in. It's just kinda a spin-off of Atlanta, without any real community count as we spun that out. Those are, again, not to scale would be Central Georgia, Greenville, Dallas-Fort Worth, and Gulf Coast.

Gregory S. Bennett: Yeah, thanks, Rafe. I'll take that. We, we're in still infancy, I would say, in Greenville. We're the same in Dallas-Fort Worth, Gulf Coast. You know, we're kinda over that hump in Chattanooga, made a lot of growth strides there in the last year. Central Georgia would be another that we're still building scale in. It's just kinda a spin-off of Atlanta, without any real community count as we spun that out. Those are, again, not to scale would be Central Georgia, Greenville, Dallas-Fort Worth, and Gulf Coast.

Speaker #3: Made a lot of growth strides there in the last year. And then Central Georgia would be another that we're still building scale in. It's just kind of a spinoff of Atlanta, but without any real community count as we spun that off.

Speaker #3: So those are again, not to scale would be central Georgia, Greenville, Dallas, Fort Worth, and Gulf Coast.

Speaker #9: Yeah. And the only what I'd add to that as well is while we have we always are targeting a minimum of two what we call R teams.

Russell Devendorf: Yeah. What I'd add to that as well is, while we have, you know, we always are targeting a minimum of 2, what we call R teams, you know, and that's roughly 208 starts per R team. We wanna have a minimum 2 R teams in every division. We're not quite there in a couple of our legacy divisions like Charlotte, Nashville, we're not there yet. At a minimum, we wanna get there. That's just the minimum, but we really feel like in some of those legacy divisions, we should be closer to 3 R teams, 600 closings, specifically Raleigh. I do think Charlotte can get there, 600 plus.

Speaker #9: And that's roughly 208 starts per R team. We want to have a minimum two R teams in every division. And so we're not quite there in a couple of our legacy divisions like Charlotte, it's Nashville.

Speaker #9: We're not there yet. So at a minimum, we want to get there and then that's just the minimum. But we really feel like in some of those legacy divisions, we should be closer to three R teams, 600 closings, specifically Raleigh.

Speaker #9: I do think Charlotte can get there, 600-plus. We're not there yet. Nashville should be 400-plus. And then obviously, Atlanta and Houston right now are two big from a permit count, right, two of the largest markets that we're in.

Russell Devendorf: We're not there yet. Nashville should be, you know, 400 plus. Obviously, Atlanta and Houston right now are, you know, 2 big, you know, from a, from a permit count, right? 2 of the largest markets that we're in. Atlanta, because we peeled out Chattanooga, which was really kinda North, you know, Georgia, pulled back a little bit. Again, Atlanta proper should be, you know, close to 1,000, you know, units on a, on a run rate. Houston for us, you know, we entered that. We're making a lot of good strides in getting them, what I would say is like Smith Douglas-ized, you know, from a, from a turns and they've been great. You know, we're only doing 400 plus or minus closings there.

Speaker #9: Atlanta, because we peeled out Chattanooga, which was really kind of north Georgia, pulled back a little bit. But again, Atlanta proper should be close to 1,000 units on a run rate.

Speaker #9: And then Houston for us, we entered that. We're making a lot of good strides in getting them what I would say is like Smith Douglas-sized from a turns and they've been great.

Speaker #9: But we're only doing 400 plus or minus closings there. I mean, that should be double, right, within five years. We need to I mean, that's such a big market.

Russell Devendorf: I mean, that should be double, right? Within 5 years, you know, I mean, that's such a big market. We've had some headwinds, that should be double. You know, what's really shining for us is our Alabama division. You know, they're at pretty good scale between Birmingham and Huntsville, you know, kind of ±600. We've got some work to do in scaling up some of the legacy divisions. Like Greg said, you know, a lot of these new ones are just getting going. That's why you see the G&A, right? When you look at the G&A relative to the community count increase, right? Our community count was up 24%, our G&A was only up $2.9 million on a gross dollar basis.

Speaker #9: We've had some headwinds, but that should be double. And then what's really shining for us is our Alabama division. They're at pretty good scale.

Speaker #9: Between Birmingham and Huntsville, kind of plus or minus 600. So we've got some work to do in scaling up some of the legacy divisions.

Speaker #9: But, like Greg said, a lot of these new ones are just getting going. But that's why you see the G&A, right? When you look at the G&A relative to the community count increase, our community count was up 24%.

Speaker #9: And our G&A was only up 2.9 million on gross dollar basis. So to me, that's pretty efficient. Great. That's really helpful. Thank you.

Russell Devendorf: To me, that's pretty efficient.

Rafe Jadrosich: Great. That's really helpful. Thank you.

Speaker #3: Yep.

Russell Devendorf: Yep.

Speaker #1: Your next question comes from the line of Jay McCandless from Citizens Bank. Jay, your line is open. Please go ahead.

Operator 2: Your next question comes from the line of Jay McCanless from Citizens Bank. Jay, your line is open. Please go ahead.

Operator: Your next question comes from the line of Jay McCanless from Citizens Bank. Jay, your line is open. Please go ahead.

Speaker #10: Hey, good morning, guys. First question I had, we've seen some articles in the mainstream press about affordability being even worse than some of the larger cities now, which is forcing some migration out.

Jay McCanless: Hey, good morning, guys. First question I had, you know, we've seen some articles in the mainstream press about affordability being even worse in some of the larger cities now, which is forcing some migration out. I guess my question is, are you guys seeing better demand in your smaller markets, whether it's, you know, absorption, traffic, however you wanna measure it, versus maybe some of the larger markets like a Raleigh and Atlanta?

Speaker #10: So I guess my question is, are you guys seeing better demand in your smaller markets? Whether it's absorption, traffic, however you want to measure it, versus maybe some of the larger markets like a Raleigh and Atlanta?

Russell Devendorf: Yeah, look, Alabama has done really well, and I would consider that relative, obviously, Birmingham, Huntsville, relative to Houston, for instance. Yeah, we've seen some better demand trends. Again, Texas is its own animal. Yeah. I think it's also just we're so used to in the Alabama markets, they didn't have the kind of spike up post-COVID. I mean, it was good, but it wasn't like you had some of these other markets. I almost feel like we're just used to hand-to-hand combat there, it's just the way we operate. Yeah, we saw some better demand there.

Speaker #3: Yeah. Look, Alabama has done really well. And I would consider that relative obviously Birmingham, Huntsville relative to a Houston, for instance. Yeah, we've seen some better demand trends.

Speaker #3: And again, Texas is its own animal. So, yeah, I think it's also just—we're so used to, in the Alabama markets, they didn't have the kind of spike up post-COVID.

Speaker #3: I mean, it was good, but it wasn't like you had some of these other markets. So I almost feel like we're just used to hand-to-hand combat there.

Speaker #3: And it's just the way we operate. So yeah, we saw some better demand there. But outside of that, there's nothing that I would say really sticks out with our footprint.

Russell Devendorf: Outside of that, like there's nothing that I would say really sticks out with our footprint. I think we're in some pretty good markets, you know, kind of in the Southeast and Central US, which is, you know, that's by design. Nothing really that I can say sticks out. I don't know, Greg, if you-

Speaker #3: I think we're in some pretty good markets kind of in the southeast and central US, which is that's by design. But nothing really that I can say sticks out.

Speaker #3: I don't know, Greg, if you.

Greg Bennett: You, you know, the only thing, Jay, I'll add to that is the in-migration in some of the bigger metro locations we're in is down. I mean, that's been reported a lot. You know, you feel that a little more in some of those smaller markets are not as sensitive to that.

Gregory S. Bennett: You, you know, the only thing, Jay, I'll add to that is the in-migration in some of the bigger metro locations we're in is down. I mean, that's been reported a lot. You know, you feel that a little more in some of those smaller markets are not as sensitive to that.

Speaker #9: The only thing, Jay, I'll add to that is the in-migration in some of the bigger metro locations we're in is down. I mean, that's been quartered a lot.

Speaker #9: And so you feel that a little more in some of those smaller markets are not as sensitive to that.

Speaker #10: Got it. Okay. Thanks, guys. And then the second question I had, ARMS, are you guys still trying to push on those? Is that still having good success with customers?

Jay McCanless: Got it. Okay. Thanks, guys. The second question I had, ARMs, are you guys still trying to push on those? Is that still having good success with customers? Maybe what your ARM percentage was this Q.

Speaker #10: And maybe what your ARM percentage was this quarter?

Speaker #3: Yeah. We shifted really towards the end of the quarter. And into April, we moved from a 4.99 incentive that we kind of marketing across the footprint a 30-year fixed we moved to a just to change it up a little bit and the costs were kind of almost in line.

Russell Devendorf: Yeah. We shifted really towards the end of the quarter and into April. We moved from a 4.99 incentive that we're kind of marketing across the footprint, you know, 30-year fixed. Just to change it up a little bit and the costs were kind of almost in line. We moved to a 3.99 5/1 ARM towards the end of the quarter and, you know, really into April. If you go to our website, I think that's what you'll see at the top of the page. We're still offering both. We're marketing the 3.99. A lot of it really is more a traffic driver.

Speaker #3: We moved to a 3.99%, 5/1 ARM towards the end of the quarter, and really into April. And if you go to our website, I think that's what you'll see at the top of the page.

Speaker #3: So, we're offering—really, we're still offering both. We're marketing the $3.99, and a lot of that is, a lot of it really is, it's more a traffic driver.

Russell Devendorf: It's also designed to give our salespeople as much flexibility, right? Because with a 3.99 5/1 ARM, the buyers can qualify off of that payment that calculates off the 3.99. You know, for our buyer, that's definitely helpful. We kind of give them some optionality there. You know, we're just trying, you know, seeing what the market's doing, you know, trying to at least, you know, compete at that level, and give buyers as much affordable options as possible.

Speaker #3: But it's also designed to give our salespeople as much flexibility, right, when because with a 3.99, 5.1 ARM, , the buyers can qualify off of that payment that calculates off the 3.99.

Speaker #3: So for our buyer, that's definitely helpful. So we kind of give them some optionality there. But we're just trying seeing what the market's doing.

Speaker #3: Trying to at least compete at that level and give buyers as much affordable options as possible.

Speaker #10: And we're seeing more usage of the 4.99.

Greg Bennett: We're seeing more usage of the 4.99s.

Gregory S. Bennett: We're seeing more usage of the 4.99s.

Speaker #3: Yeah. 4.99, the 30-year fixed 4.99 is still probably taking the most of the incentive.

Russell Devendorf: Yeah. 4.99%, the thirty-year fixed 4.99% is still probably taking the most of the incentive.

Speaker #10: Okay. Got it. Great. Thanks, guys. Appreciate it.

Jay McCanless: Okay. Got it. Great. Thanks, guys. Appreciate it.

Speaker #3: Yep. Thanks, Jay.

Greg Bennett: Yep. Thanks, Jay.

Russell Devendorf: Yep. Thanks, Jay.

Speaker #1: We have reached the end of the Q&A session. I will now turn the call back to Greg Bennett for closing remarks.

Operator 2: We have reached the end of the Q&A session. I will now turn the call back to Greg Bennett for closing remarks.

Operator: We have reached the end of the Q&A session. I will now turn the call back to Greg Bennett for closing remarks.

Speaker #9: Thank you for joining us on our Q1 results call. Hope everyone has a great day.

Greg Bennett: Thank you for joining us on our Q1 results call. Hope everyone has a great day.

Gregory S. Bennett: Thank you for joining us on our Q1 results call. Hope everyone has a great day.

Speaker #1: This concludes today's call. Thank you for attending. You may now disconnect.

Operator 2: This concludes today's call. Thank you for attending. You may now disconnect. This event has now concluded. Thank you for joining Smith Douglas Homes First Quarter 2026 Earnings Call and Webcast. The line will disconnect automatically.

Operator: This concludes today's call. Thank you for attending. You may now disconnect. This event has now concluded. Thank you for joining Smith Douglas Homes First Quarter 2026 Earnings Call and Webcast. The line will disconnect automatically.

Q1 2026 Smith Douglas Homes Corp Earnings Call

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