Smith Douglas Homes Corp (SDHC) Q4 2024 Earnings Call Highlights: Record Home Deliveries and ...

• Revenue: $287 million for Q4 2024, a 32% increase year-over-year.
• Gross Margin: 25.5% for Q4 2024; 26.2% for the full year 2024.
• Pre-tax Income: $30 million for Q4 2024; $116.9 million for the full year 2024.
• Net Income: $28.8 million for Q4 2024; $111.8 million for the full year 2024.
• Adjusted Net Income: $22.6 million for Q4 2024; $88.1 million for the full year 2024.
• Home Deliveries: 836 homes in Q4 2024; 2,867 homes for the full year 2024.
• Average Sales Price: $344,000 per closed home in Q4 2024.
• SG&A Expense: 14.9% of revenue for Q4 2024.
• Controlled Lots: 19,522 at the end of 2024.
• Active Selling Communities: 78 at the end of 2024, up from 69 in 2023.
• Backlog: 694 homes with an average selling price of $340,000.
• Cash and Credit Facility: $22 million in cash; $250 million revolving credit facility with no borrowings.
• Debt-to-Book Capitalization: 0.8%.
• Net Debt to Net Book Capitalization: 5%.

• Warning! GuruFocus has detected 2 Warning Signs with SDHC.

Release Date: March 12, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Smith Douglas Homes Corp (NYSE:SDHC) reported a pre-tax income of $30 million in Q4 2024, contributing to a total of $117 million for the year.
• The company delivered a record 836 homes in Q4 2024, surpassing their guidance range.
• Gross margins for Q4 were 25.5%, aligning with expectations, and the full-year average was 26.2%.
• The company achieved an adjusted return on equity of 29% for 2024, exceeding the industry average.
• Smith Douglas Homes Corp (NYSE:SDHC) ended the year with 19,522 controlled lots, with 96% controlled via auction agreements, supporting their asset-light strategy.

Negative Points

• Price incentives and closing cost support negatively impacted margins, despite being effective sales tools.
• Interest rates increased throughout Q4 2024 and into January 2025, reaching over 7%, affecting affordability.
• The company faces macroeconomic uncertainties, including interest rates and tariffs, which could pose headwinds.
• Lot cost inflation has eroded margins by 200 to 300 basis points, with competitive land markets contributing to this challenge.
• SG&A expenses were elevated in Q4 due to bonus accruals, impacting overall cost efficiency.

Q & A Highlights

Q: Could you explain the dynamics behind the backlog gross margins being around 24% and the first quarter margins being slightly below that? A: The backlog margin is indeed around 24%, primarily due to sales made in Q4 where more incentives were used to address affordability issues. Interest rates moved against us despite Fed cuts, leading to increased incentives. However, as we progress through the year, we expect margins to trend upwards slightly as sales have picked up, although incentives are still necessary to drive volume.

Q: How are you managing lot cost inflation, and what impact does it have on margins? A: Lot cost inflation is a significant factor impacting margins, eroding about 200 to 300 basis points. While vertical costs have been stable, land remains competitive and challenging. We are monitoring potential surcharges or increases from subcontractors due to tariffs and other uncertainties.

Q: Can you provide guidance on community count growth and its impact on sales pace? A: We anticipate a gradual increase in community count throughout the year, aiming to reach around 90 by year-end, up from 78. This growth should support a steady sales pace, although macroeconomic factors could influence these projections.

Q: What are the main factors affecting your gross margin outlook for 2025? A: The primary factors impacting gross margins are market conditions, particularly interest rates, which have led to increased use of incentives. Initially, we expected margins to be around 25%, but rising rates and the need for incentives have adjusted this outlook. We focus on maintaining sales pace over price to manage margins effectively.

Q: How do you plan to leverage SG&A expenses as you grow in 2025? A: SG&A was elevated in Q4 due to bonus accruals, but we expect to achieve better leverage as we grow. With our current team and infrastructure, we aim to reduce SG&A as a percentage of revenue, targeting improvements below 14% as we expand our operations.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.