Smith Douglas (SDHC) Earnings Call Transcript

Motley Fool Transcribing11-09

Image source: The Motley Fool. DATEWednesday, November 5, 2025 at 8:30 a.m. ETCALL PARTICIPANTSChief Executive Officer — Greg BennettChief Financial Officer — Russ DevendorfNeed a quote from a Motley...

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Email [email protected]RISKSChief Financial Officer Devendorf said, “our outlook does include several risks,” specifically citing the potential negative impacts from \"maintaining an adequate pace of sales, bringing new lots and communities online as scheduled, and managing cost pressures, particularly in labor and materials.\"Devendorf further highlighted, \"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.\"Chief Executive Officer Bennett reported ongoing permitting delays: \"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. It's pretty widespread across all our markets.\"Bennett observed, \"We are for sure seeing a lot of buyers that have a resulting number of specs that happened from contingencies that they just don't get over the line,\" referring to failed move-down transactions due to buyers’ inability to sell their existing homes.TAKEAWAYSPre-tax Income -- $17.2 million in the third quarter, down from $39.6 million in the prior year, including a $1.6 million charge for the abandonment of a lot option deal.Net Income -- $16.2 million for the third quarter, a decrease from $37.8 million in the prior year; adjusted net income was $13 million compared to $29.9 million.Home Sales Revenue -- $262 million for the third quarter, representing a 6% decrease compared to $277.8 million in the prior year.Total Closings -- 788 homes, a 3% decline from 812 homes; average selling price was $333,000, down 2.6%.Gross Margin -- 21% for the quarter, compared to 26.5% year-over-year; the decline reflects higher average lot costs (27.8% of revenue vs 24.8%) and increased pricing incentives.SG&A Expense -- $2 million higher than last year, reaching 13.8% of revenue (vs 12.3%), primarily due to lower revenue and increased payroll from new division openings.Incentives and Discounts -- Closing cost incentives rose to approximately $9,500 per closing from $6,600; pricing discounts reached 1.8% of revenue versus 1.2%; approximately $3.9 million was spent on forward commitments, versus $185,000 the previous year and $900,000 in the second quarter.Balance Sheet -- $14.8 million in cash and $49 million drawn on an unsecured revolver with $201 million remaining available; debt to book capitalization at 11.2% and net debt to book capitalization at 8.4%, representing a 370 basis point sequential improvement.Backlog -- 760 homes at quarter-end, with an average sales price of approximately $340,000 and projected gross margin of approximately 20%.Net Orders -- 690 homes, reflecting a 15% increase year-over-year; monthly sales pace per community was 2.4.Outlook for Q4 -- Expected closings between 725 and 775 homes; projected average sales price of $330,000 to $335,000 and gross margin guidance of 18.5%-19.5%.Active Communities -- 98 at quarter-end, with expectations for this count to remain steady in the next quarter.Operational Cycle Times -- Four days excluding Houston, matching previous quarter levels.Market Expansion Activity -- Vertical construction began in Greenville, Dallas interest lists are underway, and Gulf Coast entry expected by mid-next year.Community Count Growth Expectation -- Management stated a 10%-20% growth range in community count is possible for the next year, pending market conditions and lot deliveries.SUMMARYSmith Douglas Homes Corp. (SDHC +3.40%) reported year-over-year declines in revenue, home closings, and gross margin, attributing the margin compression to higher lot costs and increased use of sales incentives. Management emphasized continued strategic expansion into new markets, including Greenville, Dallas, and the Gulf Coast, while maintaining a focus on operational efficiency and a pace-over-price philosophy. The company highlighted a shift toward more speculative inventory deliveries in response to market uncertainty and noted persistent permitting delays across key markets.Expense leverage is projected to improve as corporate overhead remains largely fixed, and variable SG&A is expected to track with growth in community count and sales volume.Spec inventory deliveries outpaced built-to-order (presale) homes, reflecting a shift to more speculative builds in response to increased market uncertainty; management reiterated their longer-term focus on presale activity.A notable spike in closing cost incentives and use of below-market rate offers was deployed, including a 3.5% fixed rate on aged inventory, as pressure on conversion rates intensified in the face of softening demand.INDUSTRY GLOSSARYForward Commitment: A homebuilder’s advance agreement to secure a set mortgage interest rate for qualifying buyers on inventory homes, typically used to improve sales velocity in a rising or volatile rate environment.Spec Home: A home built without a buyer contract in place, intended for immediate sale to meet demand or accelerate absorption.Presale (Built-to-Order): Home sold before construction begins, allowing the buyer to choose finishes and features; typically associated with higher predictability of closings and margin stability.Cycle Time: The duration between the start of construction and completion/closing for a home, a core efficiency metric in homebuilding operations.Up-C Structure: An organizational structure allowing some shareholders to retain partnership interests (Class B units) while others hold public shares, affecting reported tax rates and net income presentation.Full Conference Call TranscriptGreg Bennett: Thanks, Joe, and good morning to everyone on the call today. In 2025, Smith Douglas Homes continued to execute on its long-term strategic plan of being the builder of choice for homebuyers 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 affordable prices while maintaining tight cost controls and leading cycle times. We also avoid much of the risk associated with homebuilding 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. For 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. 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 a foothold in our new markets in the third quarter.We began vertical construction on homes in the Greenville market, started generating interest lists for our communities in the Dallas market, and expect the 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 four days, excluding our Houston division. The efficiency of our operations is a key differentiator for our company, and it is a discipline we practice every day.It is a system senior management has developed and refined over decades in the homebuilding business and one that requires the coordination of our employees, suppliers, and trade partners. Overall, I am pleased with how our company has 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. This 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.Homebuilding 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 homebuyers 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 the fourth quarter.Russ Devendorf: 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. Closing cost incentives, which are included in the cost of sales, totaled 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 $900,000 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. We remain committed to our pace over price philosophy. SG&A was up approximately $2 million versus the 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 the 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. 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, attributable to the approximate 17.5% economic ownership held by public shareholders through Smith Douglas Homes Corp. Smith Douglas Holdings LLC.Because the majority of our earnings are allocated to our Class B members, which is shown as income attributable to non-controlling interests on our income statement, we provide adjusted net income, assuming 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. 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%.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% to 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. 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. 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: Thanks so much for taking my question. Also, thanks so much for all the color on the discounts and forward commitment impact 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 houses below what's in your backlog. So I would also just be curious in terms of the mix of homes you plan to close outside of your backlog during the fourth quarter too. Thanks.Russ Devendorf: 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 keeping that pace. It's really important for our operating philosophy. You know, we make more, we lose less at full capacity. And so the assumption is that we will continue to drive pace because, as I'm sure you would agree, the macro environment is pretty uncertain, as Greg mentioned. So 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.So we're going to continue to push on rates. We introduced a really attractive 3.5% fixed rate on some older specs. And so that's really kind of the assumption. We have seen costs of those forward commitments come down a bit in recent months as rates overall rates have come down. But so we're just making an assumption that we'll continue to push incentives and, you know, we plan for the worst and hope for the best.Sam Reid: That's all helpful, Russ. And then, maybe just switching gears a little bit on 2026. I know you're not providing guidance. But we just love any high-level commentary on directionally where we should be thinking about community count, especially in the context of all the new divisional openings. Then also just some perspective on lot costs, especially if the composition of your geographic mix changes. Thanks.Greg Bennett: 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 in 2026. I think if we did, it wouldn't be right of us just it's so uncertain right now. But that said, you know, where we've driven our controlled block count from the time we went public just over eighteen months ago. We've nearly tripled our controlled lots, and you've obviously seen the growth in our community count this year. We ended the quarter with 98, which is up substantially. So we have the community count next year to, you know, to kind of drive a pretty good amount of growth.Russ Devendorf: Again, somewhere in the 10 to 20% growth range in community count. Absolutely. I think we've got the communities. But a lot of that is really just dependent on where the market is. Right? And just making sure those developers and we get those lots delivered on time. But yes, it's not out of the question to see something in a 10% or 20% community count growth. Then but the wildcard is really going to be what's the absorption pace you know, on those communities and, you know, ultimately translating into sales and closings. So hope that helps.Sam Reid: All very helpful. Thanks so much.Operator: Our next question comes from Andrew Azzi from JPMorgan. Please go ahead. Your line is open.Andrew Azzi: Hi, guys. Thank you for taking my question and appreciate all the color so far. You know, backlog conversion is pretty elevated here compared to your own history, and likely to remain pretty high next quarter or 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.Russ Devendorf: Yeah. I mean, it's all a function of the current environment where the competition everybody's there's a lot of specs on the ground. That's where a lot of the discounting is taking place. And so 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 moving through our assembly line process. So presales have just been it's been a little more difficult to come by from a presale standpoint because when you think those forward commitments the most cost-effective forward is, let's say, a sixty-day or less rate lock.And so that's part of the part of what's driving just kind of the industry to a more spec-heavy environment. And we are trying to we've offered some presale incentives. So I think we're offering something though that's pretty unique and trying to move back to more of our presale approach. I mean, our focus, let's put it this way, we are focused on preselling. It's really the environment that's pushing us more to a little spec heavy. And so that's why the resulting backlog conversions are higher. But over the last quarter, we've really had a heavy focus on getting that incentive into presales with the way we're doing lot reservations and such.So we expect to go back to more presale heavy. Certainly, the environment changes. And I think, you know, specs less and less as an industry, think that's our approach has not changed. We are presale focused. It's just the current environment has kind of pushed us a little more to specs from a competitive standpoint.Andrew Azzi: That makes sense. And then, obviously, you've seen a lot of growth in your active communities and control lots. Could you provide any detail on kind of the geographic distribution of those and how you're prioritizing market expansion?Russ Devendorf: Yeah. Look, we, you know, as we stated, you know, from the time we went public I mean, we when we enter a market we want to make sure that we have you know, that we enter markets where we can gain scale. And for us, scale is we operate in an RTM philosophy, geographic pods. And so each pod or our team has 200 closings. And so for us, we like to a minimum, have 400 closings per division. And certainly in some divisions, we're gonna have you know, in excess of that, you know, 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.So we are we've 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. And so can look at Charlotte, The Carolinas, Nashville, you know, we're you know, those are some of the areas that we've started to focus. And then clearly, we've as you know, we've opened a few new divisions. We've divisionalized Central Georgia, so getting Central Georgia which is really South Of I-twenty in Atlanta and down to Perry Macon that area. Really focusing on gaining more scale out of Georgia. In those areas.Chattanooga is we've added quite a few positions in Chattanooga and then as we announced last quarter Dallas is a market that we just entered and Gulf Coast which right now is Gulf Coast Of Alabama. So those are areas we focused But clearly where we can take advantage in markets where we already have that two full R teams, continue to try and take some additional market share if the opportunity arises.Andrew Azzi: Thanks, Russ. Best of luck. I'll pass it on.Operator: Our next question comes from Mike Dahl from RBC. Please go ahead. Your line is open.Stephen Mea: Hey, good morning, everyone. You've actually got Stephen Mea on for Mike Dahl today. Thanks for taking my questions. Sure. The granular monthly and quarter-to-date demand trend discussion was all super helpful. Looking ahead, I wanted to ask we all have built into your assumptions for the fourth quarter, more so the extent of how November, December may compare to you've been seeing in October and how you see the balance of the quarter sort of shaking out against your historical seasonal patterns? Thanks.Russ Devendorf: Yeah. We haven't really made any different assumptions for the balance of the year. I think it continues to be a difficult environment, but we a couple of green shoots here and there, you know, so it's not look, it's good. Right? It's we are we've got traffic. You know, traffic's been decent. You know, folks are showing up. You know, people still need and want homes. So but the conversions, it's just a little bit tougher. You know, that's why we're leaning into the incentives. But we're not making any more any additional assumption for an increase in velocity. Maybe we'll get it, maybe we won't.We'll continue to push to push on incentives and, you know, but we're getting our fair share 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: No. For sure. That's logical. Thanks for the insight there. And I guess my second question more broadly, wanted to ask on permit some 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: Yes. Thanks for the question. I'll take that up. We continue to see challenges and delays in permitting, you know, both on getting final plan approval to start projects and then getting final sign-off. On completing projects. And it's pretty widespread. It's across all our markets. It's I wouldn't say it's in any market more so than another, but we do see it less prevalent in the areas that may be truly outside of the metros that are a little hungrier for having some stimulation from housing. But in more of the Central Metro markets, we're still seeing a lot of delays.Stephen Mea: Yep. 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: 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's in the backlog? And then any color about the is there a difference in the margin between spec and BTO right now?Russ Devendorf: Yeah. I have to go we might have to get back to you on the exact percentage. I don't want to quote you something that's wrong, but I would tell you there was a higher spec count than presale in Q4 from a closings perspective. Would be my guess. And then maybe it's fifty-fifty, but it's probably a little leaning more towards more towards spec. And again, that's, like I mentioned before, that's just kind of the environment we're in. As far as backlog, again, I'd have to go back and you'd have to go and look at exactly what it is.But again, given the size of the backlog, I mean, there's probably heavier presale just sitting in backlog, but 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 sixty days old at most. So right? You know, we and we try to sell just as a matter of process, you know, when we're focused on specs, clearly, 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. So historically, you know, even, you know, while, you know, we're presale focused and historically, we're, like, 70% presale and 30% spec. 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. So it's really heavy with, you know, kind of presale prior to line in the sand. It's just the environment's shifted that a bit. But ultimately, the market will change. You're starting to see spec levels come down from other builders. We're also is a factor in you know, impacting, you know, us as well.But, I think that'll continue to shift back in our favor over time.Rafe Jadrosich: Okay. That's helpful. And then 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: 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 that's in place and we can do you know, a good amount of volume above where we're at. So that'll continue to leverage. And then obviously, the variable piece of our SG&A, so commission and, you know, community level marketing, things like that, that'll move in line more or less with community count and, you know, sales starts closing.But I would expect some leverage going into next year.Rafe Jadrosich: Okay. That's Thank you. Sure.Operator: For any additional questions, please press star followed by the number 1 on your telephone. Our next question comes from Paul Przybylski from Wolfe Research. Please go ahead. Your line is open.Paul Przybylski: Yes, morning. Thanks for the monthly order cadence. I was wondering if you could add some further color. How did incentives flow monthly through the quarter? And then 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 of 2% and October, do you have a minimum absorption pace you're targeting?Russ Devendorf: Yes. We're so I'll take the last one because that's easy. More. Is that's, you know, more absorptions. We're in you know, this is, you know, spring selling season, obviously, is where we'll get higher absorption pace. But you know, if we could hit a two and a half to three in the quarter, You know, that's generally know, three you know, two and a half to three and a half would be, you know, more reasonable. For Q4. So we are trying to push we've mentioned, pace. So we are looking at trying to push that absorption pace But it's going to come at the expense of margin. And we leaned into the forwards in Q3.So it's the cost did come down for sure. You know, as rates started to move down, you know, we were benefactor of cheaper forward commitments. But we also at the same time, while the pro-rata cost came down, we also pushed higher incentives to try and spur some of that absorption pace. So anything that we gain, 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 have a focus on turning you know, and not keeping any age specs there.We did have a good week last week in terms, you know, I think absorption pace was up last week, which we don't think I mentioned that in my prepared remarks. So we saw a little bit of a nice bump, but yes, trended up through the quarter. For sure. And we'll see what the balance of the year holds. But like we said, pace over price. That's our philosophy. We'll continue to use incentives to continue to push that pace.Paul Przybylski: Okay. And then I guess as you look at your consumer mix, you got entry-level, some downsizers, you know, active adult, however you wanna 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 adult because they just can't sell their home for what they're looking to get out of it?Greg Bennett: Yeah. We are for sure seeing a lot of buyers that and we have a resulting number of specs that happened from contingencies that they just don't get over the line. So there's yeah. For sure I've heard the other day for the first time in a long time new homes were cheaper than resales and that's making that difficult. So yes, the move-up buyer for us, which is not a big cohort, but that moved down buyer is pretty significant. They're still struggling with that challenge.Paul Przybylski: Okay. Thank you. I appreciate it.Russ Devendorf: Yeah. 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: 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. 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