Smith Douglas Homes Q3 2025 Earnings Report

Smith Douglas Homes EPS Results

• Actual EPS: -$0.12
• Consensus EPS: $0.26
• Beat/Miss: Missed by -$0.38
• One Year Ago EPS: N/A

Smith Douglas Homes Revenue Results

• Actual Revenue: $262.04 million
• Expected Revenue: $251.41 million
• Beat/Miss: Beat by +$10.63 million
• YoY Revenue Growth: N/A

Smith Douglas Homes Announcement Details

• Quarter: Q3 2025
• Date: 11/5/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, November 5, 2025
• Conference Call Time: 8:30AM ET

Smith Douglas Homes (NYSE:SDHC), together with its subsidiaries, engages in the design, construction, and sale of single-family homes in the southeastern United States. It also provides closing, escrow, and title insurance services. The company sells its products to entry-level and empty-nest homebuyers. Smith Douglas Homes Corp. was founded in 2008 and is headquartered in Woodstock, Georgia.

Smith Douglas Homes Q3 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: In Q3 the company delivered predictable results with pre-tax income of $17.2M, EPS $0.24, $262M in home revenue on 788 closings and gross margins of 21% at the midpoint of guidance.
• Negative Sentiment: Margins were compressed by higher lot costs and increased incentives—closing-cost incentives rose to ~$9,500 per closing and the company recognized $3.9M of forward-commitment costs this quarter.
• Neutral Sentiment: Net orders rose 15% year‑over‑year to 690 homes, but management emphasized that overall demand remains soft and buyer confidence is the primary near‑term headwind.
• Positive Sentiment: Management highlighted a strong balance sheet and land‑light model with net debt-to-book capitalization down to 8.4%, continued controlled‑lot growth and market expansion (Greenville, Dallas, Gulf Coast) supporting planned community growth.
• Negative Sentiment: Q4 guidance calls for 725–775 closings with an average sales price of $330K–$335K and gross margin guidance of 18.5%–19.5%, signaling continued margin pressure into year‑end.

Presentation

[Operator]

Good morning and welcome to the Smith Douglas Homes third quarter 2025 earnings call and webcast. All participants are in a listen only mode. After the speaker's remarks, we will conduct a question and answer session. To ask a question at this time you will need to press star followed by the number one on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the call over to Joe Thomas, Senior Vice President, Accounting and Finance. Thank you. Please go ahead sir.

[Joe Thomas, Senior VP of Accounting and Finance at Smith Douglas Homes]

Good morning and welcome to the earnings conference call for Smith Douglas Homes. We issued a press release this morning outlining our results for the third quarter of 2025, which we will discuss on today's call and which can be found on our website at investors.smithdouglas.com or by selecting the Investor Relations link at the bottom of our homepage. Please note this call will be simultaneously webcast on the Investor Relations section of our website. Before this call begins, I would like to remind everyone that certain statements made on this call which are not historical facts, including statements concerning future financial and operating goals and performance, are forward-looking statements. Actual results could differ materially from such statements due to known and unknown risks, uncertainties, and other important factors as detailed in the company's SEC filings.

[Joe Thomas, Senior VP of Accounting and Finance at Smith Douglas Homes]

Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be found in our press release located on our website and our SEC filings. Hosting the call this morning are Greg Bennett, the company's CEO and Vice Chairman, and Russ Devendorf, our Executive Vice President and CFO. I'd now like to turn the call over to Greg.

[Greg Bennett, CEO and Vice Chairman at Smith Douglas Homes]

Thanks Joe and good morning to everyone on the call today. In the third quarter of 2025, Smith Douglas Homes continued to execute on its long term strategic plan of being the builder of choice for home buyers in key markets throughout the South. Our operating philosophy is straightforward but hard to replicate thanks to our operating discipline and culture. We focus on providing our customers with quality homes at an affordable price while maintaining tight cost controls and leading cycle times. We also avoid much of the risk associated with home building by controlling most of our lots and land through option agreements and by sustaining a strong balance sheet. These are key elements of Smith Douglas strategy and we believe they lead to superior shareholder returns over the long term.

[Greg Bennett, CEO and Vice Chairman at Smith Douglas Homes]

For the third quarter of 2025 we generated pre-tax income of $17.2 million and earnings of $0.24 per share. Home sales revenue came in at $262 million on home closings of 788 and an average selling price of $333,000. Gross margins on homes closed averaged 21% for the quarter. These results were largely in line with our previous guidance and demonstrate our ability to accurately forecast and execute on our stated objectives. Net orders for the quarter increased 15% year-over-year to 690 homes on a sales pace of 2.4 homes per community per month. Despite some tailwinds with mortgage rates trending down in the quarter, overall demand stayed soft, which we believe is an indication that the buyer psyche and consumer confidence are the main headwinds facing our industry.

[Greg Bennett, CEO and Vice Chairman at Smith Douglas Homes]

Financing incentives remain an important sales tool in getting buyers to move forward and purchase and we expect this to continue into the fourth quarter. We continue to emphasize our approach of pace over price as we believe our operations run more efficiently at or near full capacity. We made further progress establishing the foothold in our new markets in the third quarter. We began vertical construction on homes in Greenville market, started generating interest lists for our communities in Dallas market, and expect Gulf Coast market to be up and running in the middle of next year. These markets fit nicely into our business model and will be key contributors to our volume goals in the coming years. Cycle times in the third quarter were consistent with the second quarter at 54 days excluding our Houston division.

[Greg Bennett, CEO and Vice Chairman at Smith Douglas Homes]

The efficiency of our operations is a key differentiator for our company and it is the discipline we practice every day. It is a system senior management has developed and refined over decades in the home building business and one that requires the coordination of our employees, suppliers and trade partners. Overall, I am pleased with how our company performed in the third quarter and believe we've made further progress towards becoming a large scale builder in the Southeast and Southern United States. Our balance sheet is in great shape and we have several new communities slated to open in the coming months that should give our sales efforts a boost as we head into our spring selling season. Finally, I would like to thank our team members for their continued hard work.

[Greg Bennett, CEO and Vice Chairman at Smith Douglas Homes]

Home building is a very competitive business, particularly in uncertain times like the ones we're in today and you've shown a willingness to go the extra mile for our home buyers and our company's success. I truly appreciate all that you've done to make Smith Douglas a leading builder. With that, I'd like to turn the call over to Russ who will provide more detail on our results for this quarter and give an update on our outlook for fourth quarter.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Thanks Greg. I'll now walk through our financial results for the third quarter and then provide an update on our outlook for the balance of the year. We closed 788 homes during the third quarter, down 3% from 812 closings in the same quarter last year. Home closing revenue was $262 million, a 6% decrease from $277.8 million in the prior year. Our average sales price was approximately $333,000, down 2.6% year-over-year due to slightly higher discounts and shifts in geographic mix. Gross margin came in at 21% which was at the midpoint of our guidance range and compares to 26.5% in the prior year. Our lower year-over-year margin reflects the impact of higher average lot costs which were 27.8% of revenue in the current quarter versus 24.8% in the year ago period. Additionally, rising incentives and promotional activity further compressed margins.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Closing cost incentives, which are included in cost of sales, total approximately $9,500 per closing, up from $6,600 in the year ago period and pricing discounts were 1.8% of revenue up from 1.2% last year. We utilized forward commitment programs to buy down interest rates which we believe help boost conversion rates during the quarter. We recognized $3.9 million in costs on forward commitments which is recorded as an offset to revenue versus $185,000 in the year ago period and $0.9 million in the second quarter this year. We expect to continue to utilize these rate buy downs through the end of this year to drive sales velocity as we remain committed to our pace over price philosophy.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

SG&A was up approximately $2 million versus prior year and was 13.8% of revenue compared to 12.3% last year, driven primarily by lower revenue this quarter and increased payroll and associated expenses, with a sizable portion of the increase coming from the opening of our new divisions. Net income for the quarter was $16.2 million compared to $37.8 million in the prior year, and pre-tax income was $17.2 million versus $39.6 million. Our pre-tax income this period includes a $1.6 million charge related to the abandonment of a lot option deal with a land seller, which is included in other income and expense. Adjusted net income was $13 million compared to $29.9 million in the prior year.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

As a reminder, given the nature of our Up-C organizational structure, our reported net income reflects an effective tax rate of 5.9% this quarter which is attributable to the approximate 17.5% economic ownership held by public shareholders through Smith Douglas Homes 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 24.6% blended federal and state effective tax rate. We believe this measure is helpful in evaluating our results relative to peers with more traditional C corporation structures. Additional details on our structure and related income tax treatment can be found in the footnotes to our financial statements.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Turning to the balance sheet, we ended the quarter with $14.8 million in cash and had $49 million outstanding on our unsecured revolver with $201 million available to draw. Our debt to book capitalization was 11.2% and our net debt to book capitalization was 8.4%, down 370 basis points sequentially from the second quarter. This improvement reflects our continued discipline in managing leverage and our commitment to maintaining a strong and flexible balance sheet in a period marked by persistent macroeconomic uncertainty. We remain focused on fortifying our financial position to ensure we can navigate market volatility and capitalize on strategic opportunities as they arise. Backlog at the end of the quarter was 760 homes with an average sales price of approximately $340,000 and an expected gross margin of approximately 20%.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Monthly sales per community went from 2.5 in July to 2.8 in August and 2.0 per community in September. In October, we saw that average stay constant at 2.0 sales per community. Turning to our fourth quarter outlook, we expect to close between 725 and 775 homes with an average sales price between $330,000 and $335,000. Gross margin is projected to be in the range of 18.5%-19.5%. While incentives will continue to pressure margins, we are maintaining discipline in how and where we deploy them. We ended the third quarter with 98 active communities and expect to see that number remain approximately in line during the fourth quarter. We're actively opening new communities across multiple divisions and remain focused on supporting a stable and scalable growth platform.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Before I conclude, I want to reiterate that while we're pleased with our results through the first three quarters of the year, our outlook does include several risks. As always, our ability to achieve these results will depend on maintaining an adequate pace of sales, bringing new lots and communities online as scheduled, and managing cost pressures, particularly in labor and materials. Additionally, broader macroeconomic factors such as inflation, employment trends, interest rates, and consumer confidence could create headwinds to demand and impact the timing or volume of sales and closings. We remain focused on executing what we can control and believe our land light model, steady operations, and financial strength position us well to navigate these challenges over the long term. With that, I'll turn the call over to the operator for questions.

[Operator]

Thank you. As a reminder to ask a question, please press star followed by one on your telephone keypad. In the interest of time, we ask that you please limit yourselves to one question and one follow up. Thank you. Our first question comes from Sam Reid from Wells Fargo. Please go ahead. Your line is open.

[Sam Reid, Analyst at Wells Fargo]

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

[Sam Reid, Analyst at Wells Fargo]

Thanks.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Yep, good question. We continue to push on incentives into year end, really in an effort to keep that pace over price philosophy. I mean, obviously we're really deliberate about, you know, keeping that pace. It's real important for the, you know, our operating philosophy. You know, we make more, we lose less at full capacity. And so the assumption is that, you know, to continue to drive pace because it's as I'm sure you would agree, the macro environment is pretty uncertain. As Greg mentioned, it's really a confidence issue with our buyers. We've been able to solve the rate issue for some time now, but it does seem like it's just becoming a little more difficult to get buyers across the finish line. We are going to continue to push on rates. We introduced a really attractive 3.5% fixed rate on some older specs.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

That is really kind of the assumption. You know, we have seen costs of those forward commitments come down a bit in recent months as rates, overall rates have come down. We are just making an assumption that we will continue to push incentives and, you know, we plan for the worst and hope for the best.

[Sam Reid, Analyst at Wells Fargo]

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

[Sam Reid, Analyst at Wells Fargo]

Thanks.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Yeah, sure. Yeah, we, you know, as I'm sure most other builders, most companies, it's real difficult to provide any sort of guidance into 2026. I think if we did it would, it wouldn't be, you know, right of us. Just it's so uncertain right now. That said, given, you know, where we've driven our controlled lot count from the time we went public, you know, just over 18 months ago, we've nearly tripled our controlled lots. You've obviously seen the growth in our community count this year. We ended the quarter with 98, which is up substantially. We have the community count next year to kind of drive a pretty good amount of growth again, somewhere in the 10-20% growth range in community count. Absolutely.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

I think we have got the communities but a lot of that is really just dependent on where the market is. Right. And just making sure that those developers and we get those lots delivered on time. Yeah, it is not out of the question to see something in a 10-20% community count growth. The wild card is really going to be what is the absorption pace, you know, on those communities and you know, ultimately translating into sales and closings. Hope that helps.

[Sam Reid, Analyst at Wells Fargo]

All very helpful.

[Sam Reid, Analyst at Wells Fargo]

Thanks so much.

[Operator]

Our next question comes from Andrew Azzi from JPMorgan. Please go ahead. Your line is open.

[Andrew Azzi, VP at JPMorgan]

Hi guys.

[Andrew Azzi, VP at JPMorgan]

Thank you for taking my question.

[Andrew Azzi, VP at JPMorgan]

Appreciate all the color so far.

[Andrew Azzi, VP at JPMorgan]

You know, backlog conversion is pretty elevated here compared to your own history and likely to remain pretty high next quarter. Go higher. Would love to kind of just get some color on how you see that metric trending longer term and any structural factors there that are going on.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Yeah, I mean it's all a function of the current environment where, you know, the competition, everybody's, you know, there's a lot of specs on the ground. That's where a lot of the discounting is taking place. That's part of the reason why, you know, we've been leaning into forward commitments, you know, from a competitive standpoint and specifically on our spec homes to continue to keep that velocity or, you know, moving through our.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

You know.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Our assembly line process. presales have just been, it's been a little more difficult to come by from a presale standpoint because when you think, you know, those forward commitments, the most cost effective forward is, let's say, a 60 day or less, you know, rate lock. That's part of what's driving just kind of the industry to a more spec heavy environment. You know, we are trying to, we've offered some presale incentives. I think we're offering something though that's pretty unique and trying to move back to more of our presale approach. I mean, we are focused, let's put it this way, we are focused on pre selling. It's really the environment that's pushing us more to a little less, little spec heavy, and that's why the resulting backlog conversions are higher.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Over the last quarter we have really had a heavy focus on getting that incentive into presales, you know, with the way we are doing lot reservations and such. We expect to go back to, you know, more presale heavy. Certainly as the environment changes and I think, you know, specs become less and less as an industry. I think that is, you know, our approach has not changed. We are presale focused. It is just the current environment has kind of pushed us a little more to specs, you know, from a competitive standpoint.

[Andrew Azzi, VP at JPMorgan]

That makes sense.

[Andrew Azzi, VP at JPMorgan]

Obviously you've seen a lot of growth in your active communities and controlled lots. You know, could you provide any detail on kind of the geographic distribution of those and how you're prioritizing market expansion?

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Yeah, we, you know, as we stated, you know, from the time we went public, I mean, when we enter a market we want to make sure that we have, you know, that we enter markets where we can gain scale. For us, scale is, you know, we operate in an, our team philosophy, you know, geographic pods. Each pod or our team has 200 closings. For us, we like to at a minimum have 400 closings per division. Certainly in some divisions we're going to have in excess of that. Some of the larger markets like in Atlanta, Houston, Dallas, but at a minimum we're looking to do at least two full R teams.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

We have been prioritizing or really trying to scale up in those markets where we have not yet hit that, you know, escape velocity I'll call it, or you know, that scale. You can look at, you know, Charlotte, the Carolinas, Nashville, you know, those are some of the areas that we've started to focus and then clearly, as you know, we've opened a few new divisions. We've divisionalized Central Georgia. Getting Central Georgia, which is really south of I-20 in Atlanta and down to Perry, Macon, you know, that area, really focusing on gaining more scale out of Georgia in those areas. Chattanooga is, you know, we've added quite a few positions in Chattanooga.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

As we announced last quarter, Dallas is a market that we just entered and Gulf Coast, which right now is, you know, Gulf Coast of Alabama. Those are areas we focused but clearly where we can take advantage in markets where we already have that, you know, two full R teams. We will continue to try and take some additional market share if the opportunity arises.

[Andrew Azzi, VP at JPMorgan]

Thanks, Russ.

[Andrew Azzi, VP at JPMorgan]

Best of luck.

[Andrew Azzi, VP at JPMorgan]

I'll pass it on.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Thank you.

[Operator]

Our next question comes from Mike Dahl from RBC. Please go ahead. Your line is open.

[Stephen Mea, Equity Research Senior Associate at RBC]

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

[Stephen Mea, Equity Research Senior Associate at RBC]

Thanks.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Yeah, we have not really made any different assumptions for the balance of the year. I think it is just a, you know, it continues to be a difficult environment. You know, we see a couple of green shoots here and there. You know, it is not, look, it is good, right? We are, we have got traffic. You know, traffic has been decent. You know, folks are showing up. You know, people still need and want homes. The conversions, it is just a little bit tougher. You know, that is why we are leaning into the incentives. Yeah, we are not making any additional assumption for an increase in velocity. You know, maybe we will get it, maybe we will not. You know, we will continue to push on incentives and, you know, we are getting our fair share.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

It's just, you know, it's just too hard to predict right now. It's kind of on a week to week basis.

[Stephen Mea, Equity Research Senior Associate at RBC]

No, for sure.

[Stephen Mea, Equity Research Senior Associate at RBC]

That's logical.

[Stephen Mea, Equity Research Senior Associate at RBC]

Thanks for the insight there. I guess my second question more broadly, I wanted to ask on permits and permitting. You've talked previously about at times, you know, seeing pockets of delays, certain municipal levels, kind of depending on where it is. I just wanted to see you check in how that's been going for y'all today in general across your markets, if there's been any kind of change in that trend, especially given some of the broader enthusiasm around potential relief for housing lately. Thanks.

[Greg Bennett, CEO and Vice Chairman at Smith Douglas Homes]

Yeah, thanks for the question. I'll take that up. We continue to see challenges and delays in permitting both on getting final plan approval to start projects and then getting final sign off on completing projects. You know, it's pretty widespread. It's across all our markets. I wouldn't say it's in any market more so than another. We do see.

[Greg Bennett, CEO and Vice Chairman at Smith Douglas Homes]

It.

[Greg Bennett, CEO and Vice Chairman at Smith Douglas Homes]

Less prevalent in the areas that may be truly outside of the metros that are a little hungrier for having some stimulation from housing. In more of the central metro markets, we're still seeing a lot of delays.

[Stephen Mea, Analyst at RBC Capital Markets]

No, that's super helpful. Again, thanks to the Insight team. I'll pass it on.

[Operator]

Our next question comes from Rafe Jadrosich from Bank of America. Please go ahead. Your line is open.

[Rafe Jadrosich, Managing Director and Senior Equity Analyst at Bank of America]

Hi, good morning. Thanks for taking my question. Can you give us the spec versus built to order mix that was in your deliveries and then maybe what, like, what's in the backlog, and then any color about is there a difference in the margin between spec and BTR right now?

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Yeah.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

I have to go. We might have to get back to you on the exact percentage. I do not want to quote you something that is wrong, but I would tell you there was a higher spec if you count them pre-sale in, in Q4 from, from a closings perspective would, would be my guess. Maybe it is 50/50 but it is probably a little, little leaning more towards, more towards spec. Again, that is like I mentioned before, that is just kind of the environment where we are in. As far as backlog, again, I would have to go back and, and have to go and look at exactly what it is. Again, given, given the size of the backlog, I mean there is, there is, there is probably heavier pre-sale just sitting in backlog.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Maybe not by a wide margin, I think, you know, because most of the specs, if it's sitting in backlog and it was a spec, it's probably only 60 days old at most. Right. You know, we try to sell just as a matter of process. You know, when we're focused on specs, clearly if it's a finished spec, we've got a high focus on anything that gets finished without a contract. But even if we start something in our process, we're very focused on getting a contract on that before what we call line in the sand. It's basically drywall. You know, historically, you know, even, you know, we're presale focused and historically we're like 70% presale and 30% spec.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

When you take into account, you know, getting a contract before we hit that line in the sand, you know, we were, you know, 90% plus of our homes had a contract on it before that line in the sand. It was really heavy. Heavy what? You know, kind of presale prior to line in the sand. It's just the environment's, you know, shifted that a bit. You know, ultimately the market will, you know, the market will change. You know, you're starting to see spec levels come down from other builders, which also is a factor in, you know, impacting, you know, us as well. I think that that'll continue to shift back in our favor over time.

[Rafe Jadrosich, Managing Director and Senior Equity Analyst at Bank of America]

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

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

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

[Rafe Jadrosich, Managing Director and Senior Equity Analyst at Bank of America]

Okay, that's helpful.

[Rafe Jadrosich, Managing Director and Senior Equity Analyst at Bank of America]

Thank you.

[Operator]

For any additional questions, please press star followed by the number one on your telephone keypad. Our next question comes from Paul. Our next question comes from Paul Przybylski from Wolfe Research. Please go ahead. Your line is open.

[Paul Przybylski, Analyst at Wolfe Research]

Yeah, good morning.

[Paul Przybylski, Analyst at Wolfe Research]

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

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Yeah, I'll take the last one because that's easy. More is that, that's, you know, more absorptions. You know, we're in, you know, this is, you know, spring selling season obviously is the, is where we'll get, you know, higher absorption pace. You know, if we could hit a two and a half to three and in the, in the quarter, you know, that's generally, you know, two and a half to three and a half would be, you know, more reasonable for a Q4. You know, we are trying to push, as we've mentioned, pace. We are looking at trying to push that absorption pace, and it's going to come at the expense of margin. We leaned into the forwards in Q3. The cost did come down for sure.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

You know, as rates started to move down, we were benefactor of cheaper forward commitments. But we also, at the same time, while the pro rata costs came down, we also pushed higher incentives to try and spur some of that absorption pace. You know, anything that we gained we kind of, you know, we gave back a little bit because we were really just pushing a stronger incentive specifically on some of our older specs. We really, really have a focus on turning, you know, not keeping any age specs there. You know, we did have a good week last week in terms, you know, I think absorption pace was up last week, which we didn't, I don't think I mentioned that in my prepared remarks. We saw a little bit of a nice bump.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Yeah, incentives, incentives trended up through the quarter for sure, and you know, we'll see, we'll see what the.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Balance of the year holds.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Like we said, pace over price. That is our philosophy and we'll continue to use incentives to continue to push that pace.

[Paul Przybylski, Analyst at Wolfe Research]

Okay.

[Paul Przybylski, Analyst at Wolfe Research]

I guess as you look.

[Paul Przybylski, Analyst at Wolfe Research]

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

[Paul Przybylski, Analyst at Wolfe Research]

To get out of it?

[Greg Bennett, CEO and Vice Chairman at Smith Douglas Homes]

You know? Yeah, we are for sure seeing a lot of buyers that. And, you know, we have a resulting number of specs that happen from contingencies that they just do not get over the line. There is, yeah, for sure. I heard the other day, for the first time in a long time, new homes were cheaper than resales and, you know, that is making that difficult. Yeah, the move up buyer, you know, for us, which is not a big cohort, but that move down buyer is a pretty significant. They are still struggling with that challenge.

[Paul Przybylski, Analyst at Wolfe Research]

Thank you. I appreciate it.

[Russ Devendorf, Executive VP and CFO at Smith Douglas Homes]

Thanks, Paul.

[Operator]

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

[Greg Bennett, CEO and Vice Chairman at Smith Douglas Homes]

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

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Russ Devendorf, Executive VP and CFO
• Joe Thomas, Senior VP of Accounting and Finance
• Greg Bennett, CEO and Vice Chairman

Analysts

• Stephen Mea, Analyst at RBC Capital Markets
• Paul Przybylski, Analyst at Wolfe Research
• Sam Reid, Analyst at Wells Fargo
• Stephen Mea, Equity Research Senior Associate at RBC
• Rafe Jadrosich, Managing Director and Senior Equity Analyst at Bank of America
• Andrew Azzi, VP at JPMorgan