Smith Douglas Homes Q1 2025 Earnings Report

Smith Douglas Homes EPS Results

• Actual EPS: N/A
• Consensus EPS: $0.30
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Smith Douglas Homes Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $215.64 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Smith Douglas Homes Announcement Details

• Quarter: Q1 2025
• Date: 5/14/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, May 14, 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 Q1 2025 Earnings Call Transcript

Key Takeaways

• Strong Q1 Results: Generated pretax income of $19.6 M with 19% revenue growth to $225 M and a 23.8% gross margin above guidance, yielding net earnings of $0.30 per share.
• Q2 Outlook: Expect to close 620–650 homes at an average sales price of $335 K–$340 K with gross margins of 22.75%–23.25%, despite continued incentive pressures.
• Land-Light Strategy: Less than 5% of unstarted lots are owned on the balance sheet, with the remainder under option and land-banking agreements to limit downside risk and add flexibility.
• Incentive Pressure: Sales conversions have been negatively impacted by affordability concerns, requiring increased incentives averaging over 7% of revenue and higher promotional activity year over year.
• Enhanced Liquidity: Ended Q1 with $12.7 M cash, $40 M drawn on a $235 M revolver, and are finalizing a $75 M facility increase to $325 M to support growth.

Presentation

[Operator]

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Smith Douglas Homes First Quarter twenty twenty five Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

Thank you. I would now like to turn the call over to Joe Thomas, SVP of Accounting and Finance. Please go ahead.

[Joe Thomas, SVP of Accounting & 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 first quarter of twenty twenty five, which we will discuss on today's call, 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, SVP of Accounting & 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.

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

Thanks, Joe, and good morning to everyone. McDouglas Homes posted another quarter of strong profitability to start the year, generating pretax income of $19,600,000 or net earnings of $0.30 per share. Home closing revenue was $225,000,000 in the first quarter, representing a 19% increase over first quarter of twenty twenty four. Home closings gross margin for the quarter came in at 23.8%, which was higher than the guidance range we shared on our last call. We generated seven sixty eight net new orders in the first quarter on a sales pace of 3.1 homes per community per month.

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

Overall, I'm very pleased with our execution to start the year and believe Smith Douglas remains on track to achieve our long term goals. We experienced normal seasonality during the quarter with the quarter activity improving as we headed into the spring. We had solid traffic throughout the quarter. The sales conversions were negatively impacted by affordability concerns and macro uncertainty. Similar to past quarters, we used financing incentives to overcome these obstacles and solve for monthly payment that would fit our buyers' needs.

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

While there are many factors that affect our business that are out of our control, there are many things we can do to optimize our performance in any demand environment. The first is controlling land through option agreements rather than owning an outright. At the end of the first quarter, less than 5% of our unstarted controlled lots were owned on balance sheet, while the remainder was tied up through auction and land banking agreements. This landlocked strategy gives us some degree of flexibility with respect to our lot takedown timing if needed and limits our downside risk should market conditions soften. Another factor within our control is how quickly we build our homes.

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

For those of you that followed the Smith Douglas story, you know we're highly focused on improving build times and turning our inventories as fast as possible. Not only does this improve our return on capital, it also limits the possibility of cancellation, thanks to a shorter timeframe between sale and close. As of the end of the first quarter, our cycle times averaged fifty six days, excluding Houston. We also made further progress during the quarter getting Houston Division and their trade partners onboard the RTM platform and we expect to see build times move closer to the company average over time. A third factor we focus on at Smith Douglas is limiting the amount of spec inventory for sale in our communities.

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

We believe our business runs better and more promptly when we pre sell our homes. This gives buyers the ability to make important design decisions for their home and allows us to implement lot premiums and offer higher margin home upgrades to our communities, which we feel reduces our cancellation rate as the buyers become attached to their home they have designed. In summary, while there's more uncertainty today around the economy and our industry than in previous quarters, we built Smith Douglas to weather the ups and downs of this business. We remain focused on our long term goals of growing our market share and achieving better economies of scale, while maintaining a strong balance sheet and focusing on returns. This strategy has worked for our company since its inception and we believe will continue to do so into the future.

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

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

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

Thanks, Greg. I'll now walk through our financial results for the first quarter and then provide an update on our outlook for the second quarter. We closed six seventy one homes during the first quarter, up 19% from five sixty six closings in the same quarter last year. Homebuilding revenue was $224,700,000 an increase of nearly 19% over the prior year. Our average sales price was approximately $335,000 which is up slightly year over year due to shifts in geographic and product mix.

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

Gross margin came in at 23.8%, which was at the high end of our guidance range and compares to 26.1% in the prior year. On an adjusted basis, excluding a $642,000 impairment charge related to a Houston community we exited during the quarter, our gross margin would have been 24.1%. Our lower year over year margin reflects the impact of higher average lock costs, which were 25.5% of revenue in the current quarter versus 23% in the year ago period, as well as rising incentives and promotional activity, which totaled 4.7% of revenue this quarter, up slightly from 4.5% a year ago. SG and A was 14.7% of revenue compared to 14.5% last year, driven primarily by increased payroll and performance based compensation expense. We continue to tightly manage overhead while supporting our growth.

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

Net income for the quarter was $18,700,000 compared to twenty point five million dollars in the prior year and pretax income was $19,600,000 versus $21,400,000 Our numbers for the quarter include a $716,000 charge related to the abandonment of a lot option deal with a developer, is included in other income and expenses. This is related to the same community where we recorded the $642,000 impairment I mentioned earlier which is included in our cost of home closings. Adjusted net income was $14,700,000 compared to $16,100,000 in the prior year. As a reminder, given the nature of our Up C organizational structure, our reported net income reflects an effective tax rate of 4.4% this quarter, which is attributable to the approximate 17.5% economic ownership held by public shareholders through Smith Douglas Homes Corp. And Smith Douglas Holdings LLC.

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

Because the majority of our earnings are allocated to our Class B members, which is shown as income attributable to non controlling interests on our income statement, we provide adjusted net income, which assumes 100% public ownership and a 24.9% blended federal and state effective tax rate. We believe this measure is helpful in evaluating our results relative to peers with more traditional C Corporation structures. Additional details on our structure and related income tax treatment can be found in the footnotes to our financial statements. Turning to the balance sheet. We ended the quarter with $12,700,000 in cash and had $40,000,000 outstanding on our unsecured revolver $195,000,000 available to draw.

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

Our debt to book capitalization was 9.5 and our net debt to net book capitalization was 6.9%. I am also happy to announce that we are in the final stages of finalizing an amendment to our credit facility that will, among other things, increase the total facility size by $75,000,000 to $325,000,000 and extend the maturity, which will be four years from the closing date. We appreciate all of our existing and new banking partners for their unwavering support. Our strong balance sheet and liquidity puts us in a great position to support our ongoing growth. Backlog at the end of the quarter was seven ninety one homes with an average sales price of $341,000 and an expected gross margin of approximately 22.5%.

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

While backlog is lower from the 1,100 homes year over year reflecting a tougher selling environment this year, we did see positive momentum in our absorption pace as we progressed through the quarter. Monthly sales per community improved from 2.4 in January to 3.3 in February and 3.8 in March. In April, we saw that average dip back to approximately three sales per community as we move further into the spring selling season. Affordability remains a key challenge for our buyers and we've leaned into targeted incentives to support sales. In late March, we launched a $10,000,000 forward commitment program offering a 4.99 mortgage rate buy down in select communities, which helped boost conversion rates.

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

In the trailing thirteen week period, our total incentives and discounts have averaged just over 7%. Turning to our second quarter outlook. We expect to close between six twenty and six fifty homes, with an average sales price between $335,000 and 340,000 Gross margin is projected to be in the range of 22.75% to 23.25%. While incentives will continue to pressure margins, we are maintaining discipline in how and where we deploy them. We ended the first quarter with 87 active communities and expect to see that number continue to grow modestly throughout the remainder of the year.

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

We're actively opening new communities across multiple divisions and remain focused on supporting a stable and scalable growth platform. Before I conclude, I want to reiterate that while we're encouraged with our start to 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.

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

With that, I'll turn the call over to the operator for questions.

[Operator]

Our first question comes from the line of Michael Rehaut with JPMorgan. Please go ahead.

[Alex Isaac, Equity Research Analyst at J.P. Morgan]

Hi, good morning. This is Alex Isaac on for Mike. Thanks for taking my question. You mentioned on the demand side that there's some weakness in a lot of affordability challenges. I want to ask sort of how you would characterize the spring selling season overall and expectations for that?

[Alex Isaac, Equity Research Analyst at J.P. Morgan]

And also, if you feel like that demand weakness is consistent across geographies or more specifically, you see more specifically in certain geographies than other geographies?

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

Yes. So I think thanks for the question. Think the spring demand has been there all along. It's just week by week, as we said, we're just solving for payments to reach affordability in each market and it seems to be, across our entire footprint, demand has been relatively the same.

[Alex Isaac, Equity Research Analyst at J.P. Morgan]

That makes a lot of sense. Appreciate the color on that. And then as my follow-up question, just wanted to ask on the land side, you mentioned some land inflation. I'm just curious about any color on the land environment and your ability to find new lots both unfinished and finished lots as well as how we should think about the land environment for the company going forward?

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

Yeah. It's, we've obviously been able to find deals. Right? We've more than doubled our controlled lot count over the last, you know, since we've been since we've been public. Land inflation certainly over the, you know, prior twelve months has has continued to increase.

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

But we've always said, I think land sellers are usually when things have started to slow, land sellers typically in our experience are the last ones to figure out that maybe their land isn't worth what it was previously. But we are starting to see a few cracks in the sellers out there. I think it is transitioning a bit to a buyer's market. And so you are starting to see some some land prices moderate. I mean, there's there's definitely demand out there.

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

Right? I think builders are still out looking for deals and so we're competing every day. But, you know, the the land that's in our backlog and and as as we mentioned on the call, you know, we're we're working off a land that, you know, the prices over the last few years had continued to to increase. And so the the stuff that we're closing, you know, obviously has a has a a higher basis than what we what we had previously. But we are starting to see, know, little bit of negotiating power in some of the land deals.

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

So hope hopefully, that trend continues, especially as affordability remains remains challenging.

[Alex Isaac, Equity Research Analyst at J.P. Morgan]

I miss a lot sense. Appreciate all the color.

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

Sure.

[Operator]

Our next question comes from the line of Michael Dahl with RBC Capital Markets. Please go ahead.

[Mike Dahl, Managing Director - Equity Research at RBC Capital Markets]

Hey, good morning, everyone. You guys actually got Steve and Mia on for Mike today. Thanks for taking my questions. Sure. I wanted to start outlook beyond 2Q.

[Mike Dahl, Managing Director - Equity Research at RBC Capital Markets]

I appreciate the macro outlook has gotten a lot murky here since we last spoke, but I just wanted to get a sense of how you guys are kind of formally thinking about the guideposts you guys have been giving us for the full year. I believe those are around 3,300 homes just kind of, you know, beyond the second quarter. What do you guys kind of have in plan how you guys thinking about that? Thanks.

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

Yeah. I I, you know, I I wish we had the perfect crystal ball. It's kind of the reason that we we didn't, you know, really give specific guidance. I think when we when we talked, towards the end of last year and going back a little bit and when the Fed started to cut rates, we were hopeful that that would help with affordability. But as we moved in the first quarter, clearly, the mortgage rates were not in our favor, right?

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

They peaked in January and they still looking today, think the ten year yield is back up to about 4.5%. So affordability is a challenge. Like Greg said, you're seeing people need homes. There's demand out there. Know, as it as it relates to to full year guidance, you know, that's why we we really kind of pulled it off.

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

It's very it's it's it's really kind of a day to day thing as we just kinda navigate, you know, what's what's happening with more of the macro environment. We certainly have the communities and the lots to get to our 6,100 closing target. So, you know, that's that's clearly the objective. A lot's gonna depend on, you know, how the balance of selling season shakes out and and, you know, where we see the, you know, kind of the demand for the back half of the year, really more so the affordability, and what we're able to do. We're trying to balance margins with really balance our incentives and try to find that kind of, you know, appropriate mix.

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

So, look, our our target, you know, without giving specifics or or definitive guidance, we're we're certainly targeting that 6,100. Like I said, I think we can get there, but it's it's really gonna be a more of a macro story.

[Mike Dahl, Managing Director - Equity Research at RBC Capital Markets]

No. Definitely appreciate that. And also appreciate all the color. Thanks for that. And I wanted to jump ship to Houston and kind of the expansions you guys have been making recently.

[Mike Dahl, Managing Director - Equity Research at RBC Capital Markets]

It's great to hear that there's, you know, further progress with year to date and, I guess, since since the acquisition on, like, the r team integration in Houston. But I think it would be helpful for everyone, you know, in terms of framing the story. Like, if there's any further color you can provide on that progress and any potential time frame you may have for milestones there within Houston and the other expansion areas, which would be really helpful. Thanks.

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

Yeah. Thanks for the question. We are seeing, really big improvements in cycle time in Houston. We're we're up and running in our RTM process across the footprint. We are, I think, implemented on a seventy day schedule currently, that that we've rolled out.

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

We're not executing to a seventy day schedule quite yet, but our goal is to be there by the end of this year. So, yeah. And that's from a high point of of cycle times near two hundred days when we we closed on that acquisition. So I'd say there's been quite a bit of improvement there.

[Mike Dahl, Managing Director - Equity Research at RBC Capital Markets]

Yes, absolutely. Thanks for the questions guys. I'll pass it on. Thanks for answers. I'll it on.

[Operator]

Next question comes from the line of Jay McCanless with Wedbush. Please go ahead.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Hey, good morning everyone. So three questions for me. I guess could you talk a little bit about what you've seen so far in May in terms of demand and pricing power?

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

I think it's been pretty consistent with April. We haven't seen any any any real shift. Like I said, people are still coming into the to the sales office. We're seeing we're seeing traffic, but it's still a, you know, a challenging environment from an affordability perspective. And then even from a competitive perspective, when you see a lot of new home builders, you know, offering, you know, some some pretty big incentives that we're in.

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

And and and, you know, a lot of a lot more, you know, spec inventory on the ground. So it's it's challenging, but I like I said, I I don't I don't see a huge difference from from what we've seen in April.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

And so not to harp on it, but are you guys pulling the fiscal twenty five guidance or you still think you can hit some of the targets that you laid out last quarter?

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

Yeah. Look, I I think for the last question, it's really like I said, we've got the community count. We've got the, you know, the lots in place. We we're not we didn't wanna comment specifically on it. I think our target is still to get to that 6,100.

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

You know, that's that's our goal. And if the if the macro environment, you know, remains you know, gets a little bit better, remains remains steady, I think we have a good shot at hitting it. It's just it's it's really stuff that's out of our control. Right? So we're, you know, I think some of our competitors, some of the other new builders have, you know, pulled back on some guidance.

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

It's just, you know, it's still a little bit early to tell based on, you know, where things are moving. You know, obviously, this new administration, you know, there's been some quite a bit of choppiness, you know, from a macro perspective. So, you know, it's I'll be honest. I mean, it's it's difficult to forecast in this environment. Right?

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

But but look, our our goal and and like I said, we're we we still have a a good shot at getting to our our 3,000 plus target.

[Jay McCanless, SVP - Equity Research at Wedbush Securities]

Got it. And then the last question for me. I'm I'm sure you guys saw the the news on Lance yesterday. Any comments you might make on that and and any impact that could have on Smith Douglas?

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

No. I mean, we we don't we wouldn't comment on somebody else's transaction traditionally. But, you know, the only thing I would say is look at it's, you know, it's Apollo. So it does show some some pretty good support from a a pretty good backer that, you know, clearly they see some opportunity to to to to to make an investment of that size in the home building space. So we we like to see that.

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

And it won't, no impact from our standpoint. We don't see Landsea or New Home in our markets.

[Operator]

And our final question comes from the line of Raffi Jadrush with Bank of America. Please go ahead.

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

Hi, good morning. It's Raffi. Thanks for taking my questions. Ross, can you just on the second quarter gross margin guidance relative to where you came in, in the first quarter, which I think was pretty solid, is the quarter over quarter decline just higher incentives and that's related to forward commitment?

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

Yes. That's I think a good part of it. And to the extent that we may do a little bit more, that's definitely a driver.

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

Okay. And then when the backlog year over year is down I think over 25% here, but you've been able to continue to grow deliveries. Can you the backlog conversion has obviously improved a lot over the last year. Where can that go from here? Do you still see additional opportunity to drive the backlog conversion higher?

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

And is there sort of a cap to that? Well, you'll have to sort of refill the backlog with more orders to continue to grow deliveries.

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

Yeah. And that's a great point. We, you know, there's a couple of things there. You know, we we our cycle cycle times are improving. But, yeah, we we came in with a with a few more specs than we had last year.

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

So even though backlog is down, we actually had, you know, as much, if not a little bit more inventory. And so we're able to, like Rick said, and we've said, we there there are there is demand there. So there are people coming into the sales offices. We're getting traffic, but it's just taking higher incentives to get people to convert. And so that's why, you know, margins are are dipping a bit, but we're still able to, you know, get some pretty good closing numbers.

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

And so even though backlog is down and we're traditionally and and obviously our business model is focusing on presales, we still got the inventory. You know, we're clicking on, you know, pretty much all cylinders from an operating perspective. And so we're we're really just taking a measured approach to how we're pricing. And, you know, we don't wanna get, you know we're we're not looking to, you know, fill up a whole bunch of, you know, spec inventory. And and so as we start to see, you know, maybe a few more specs or a little bit of slowness in a community here or there, you know, we'll we'll turn the dial on incentives and and kinda move the inventory.

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

So that's a long way of saying, yeah, we can definitely increase that backlog conversion rate because we'll just continue to turn the dial and just move some more of that speculative inventory that's sitting in some of those communities.

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

Okay. That's and then is there any just update on the mortgage JV that you have right now? Any any plans to, change that that relationship?

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

No. Actually, I'd I'd tell you it's it continues to get better every week. It's part of the reason that really and it's very been been very helpful in pushing out some of these, you know, a very consistent message on the on the incentive side. And so we were we were using, you know, through our partner, which is loan depot using, you know, using them for our forward commitments and and just pushing out a consistent message. We are now fully licensed in in all of our in all of our markets.

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

We've got loan officers that have been operating in all of our markets and our capture continues to get better. And I want to say last week our capture was 56% for our mortgage partner. And so obviously that's you know, our our goal is to be at ninety ninety plus percent, but, you know, we we were still using we we were not using our Ridgeland brand yet in Atlanta because we've just gotten licensed, that's obviously our biggest market. But in everywhere else, capture has been, very good and it, we we think it'll continue to to to improve. So, looking forward to it.

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

And I I think the operator said I'm the the last one. So if I could sneak one more in here. In your core markets, are you seeing a pullback in starts, from competition? Or have you adjusted the starts pace at all? And obviously some of the larger public builders that have already reported on a year over year basis you've seen starts down a lot.

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

I'm just wondering if some of the standing kind of sitting finished spec inventory out there from competitors. Do you think that's a problem right now or an issue? And is there any sign that that's sort of improving and there's been an adjustment on the start side?

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

Yes. Hello, Ray. I'll take that. We we have not had an interruption in starts on our side. We we are hearing discussion about slowing starts from competitors and probably seeing a little bit of evidence of that.

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

We went in to tag on to Russ' backlog question, previous question. We pushed starts in the end of twenty twenty four to be certain that we kept our machine running that is the kind of environment around rates and we know how we ended Q4 with sales last year. It built some inventory, but that inventory coming into the year, you know, drove a lot of conversions for us in Q1. We've grown backlog since the beginning of the year and we continue to push starts every day. We're hitting on our starts, actually ahead of our starts budget for the year.

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

And I've been refreshed to see the past two weeks that we've outpaced with our pre sales in our orders. So I'm optimistic that we'll continue to be able to build on our model and that our presales will overtake the inventory that we've built. And our cycle times, as we said, helps us to be able to convert that buyer quickly.

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

Okay. That's helpful. Appreciate all the color guys. You.

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

Yes. Thanks, Rick.

[Operator]

And this does conclude our Q and A session. I will now turn the call back over to Greg Bennett, CEO, for closing remarks.

[Gregory Bennett, President, CEO, Director & Vice Chairman at Smith Douglas Homes]

Yes. Thank you, Tina. Thank you, everyone, for joining us. Appreciate all the interest in Smith Douglas and hope to speak again next quarter.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you all for joining and you may now disconnect.

Participants

Executives

• Joe Thomas, SVP of Accounting & Finance
• Gregory Bennett, President, CEO, Director & Vice Chairman
• Russ Devendorf, Executive VP & CFO

Analysts

• Alex Isaac, Equity Research Analyst at J.P. Morgan
• Mike Dahl, Managing Director - Equity Research at RBC Capital Markets
• Jay McCanless, SVP - Equity Research at Wedbush Securities
• Rafe Jadrosich, Managing Director & Senior Equity Analyst at Bank of America