Smith Douglas Homes Corp.

11/05/2025 | Press release | Distributed by Public on 11/05/2025 15:19

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis provides information that we believe is relevant to an assessment and understanding of our results of operations and financial condition. You should read this analysis in conjunction with our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q. In addition to historical financial information, this discussion and analysis contains statements of a forward-looking nature relating to future events or our future financial performance, based upon our current plans, expectations and beliefs involving risks and uncertainties. These statements are only predictions, and actual events or results may differ materially. In evaluating such statements, you should carefully consider the various factors identified in the Annual Report, as updated by this Quarterly Report on Form 10-Q, which could cause actual results to differ materially from those expressed in, or implied by, any forward-looking statements, including those set forth in Part I, Item 1A. Risk Factors of our Annual Report.
Company Overview
Smith Douglas is engaged in the design, construction, and sale of single-family homes in some of the highest growth and most desirable markets in the Southeastern and Southern United States. We employ an efficient land-light, production focused, and conservatively leveraged business model, which we believe results in a compelling combination of strong home closing gross margins, construction cycle times, and returns. Our communities are primarily targeted to entry-level and empty-nest homebuyers. We offer our homebuyers an attractive value proposition by providing a personalized home buying experience at affordable price points. With the goal of becoming one of the most dominant homebuilders in the Southeastern and Southern United States, we intend to grow operations within our existing footprint and to expand into new markets where we can most effectively implement our business strategy and maximize our profit and returns.
In the third quarter of 2025, we continued to see softening in the market as mortgage interest rates remain elevated and potential homebuyers raised concerns about affordability and macroeconomic uncertainty. In response, we have used financing incentives, such as closing cost credits and mortgage rate buydowns, to address these concerns. We achieved 788 homes closed for a total of $262.0 million in home closing revenue for the three months ended September 30, 2025, which reflects a decrease of 3% in the number of homes closed and 6% in home closing revenue over the same period of the prior year. Our net new home orders increased 15% and contract value of net new home orders increased 13% period over period.
We seek to construct most of our homes on a pre-sold basis, where our homebuyers choose their homes based on a select number of value-engineered floor plans and are offered flexibility on the selection of home options. Our SMART Builder enterprise resource planning system and efficient construction process, which we call Rteam, allows us to provide this optionality for homebuyers based on just-in-time modifications. As a result of our differentiated value proposition and efficient construction cycle times, we believe we typically achieve a high level of homebuyer satisfaction and experience low cancellation rates, which were 11% for both the three months ended September 30, 2025 and 2024, respectively.
At the core of our land-light operating strategy lies the principle and discipline of primarily acquiring finished lots from a diverse pool of third-party land developers or land bankers through the effective utilization of lot-option contracts. Our lot acquisition strategy reduces our upfront capital requirements and generally seeks to provide for "just-in-time" lot delivery, better aligning our pace of home orders and home starts. While using land bankers and third-party developers comes at an additional cost, we believe our lot acquisition strategy reduces our operational and financial risk relative to other homebuilders that own a higher percentage of their land supply. As of September 30, 2025, we had 641 owned unstarted lots in real estate inventory on our balance sheet, which represented only 2.6% of our total controlled lot supply.
We believe the geographic markets in which we operate demonstrate strong population and employment growth trends, favorable migration patterns, and desirable lifestyle and weather conditions. Our operations are currently organized into ten geographical divisions which comprise two reportable segments. Our Southeast segment consists of our Atlanta, Central Georgia, Charlotte, Greenville, and Raleigh divisions. Our Central segment consists of our Alabama, Dallas-Fort Worth, Alabama Gulf Coast, Houston, and Nashville divisions. We think there is significant opportunity to expand our presence in each of our respective markets.
We believe our dedication to entry-level and empty-nest homebuyers with a focus on price points that fall below FHA guidelines, our efficient construction process, and our affordable luxury sales experience caters to the desires of
today's aspiring homeowners and is resilient across economic cycles. While we expect the current housing undersupply and favorable demographic trends to provide a strong, long-term runway for future new home buying demand, there are several factors beyond our control that could have a significant impact on our business including, but not limited to, rising inflation, future increases in interest rates, availability and cost of land, labor and construction, availability of mortgage and land bank financing, macroeconomic trends and other factors described elsewhere in this Quarterly Report on Form 10-Q.
Segments
Our operations are currently organized into ten geographical divisions which comprise two reportable segments. Our Southeast segment consists of our Atlanta, Central Georgia, Charlotte, Greenville, and Raleigh divisions. Our Central segment consists of our Alabama, Dallas-Fort Worth, Alabama Gulf Coast, Houston, and Nashville divisions.
Key Factors Affecting Our Performance
We believe our future performance will depend on many factors, including those described in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report, to which there have been no material changes.
Components of Results of Operations
There have been no material changes to the components of our results of operations described in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsof our Annual Report.
Other Factors Impacting Results of Operations
There have been no material changes to the other factors impacting our results of operations described in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsof our Annual Report.
Results of Operations Data
The results of operations data in the following tables for the periods presented have been derived from the unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Comparison of three and nine months ended September 30, 2025 and 2024
The following table sets forth our statements of income and other operating data for the periods presented (amounts in thousands):
Three months ended
September 30, 		Nine months ended
September 30,
2025 2024 2025 2024
Consolidated Statements of Income Data:
Home closing revenue $ 262,041 $ 277,835 $ 710,687 $ 687,977
Cost of home closings 207,071 204,140 550,248 505,764
Home closing gross profit 54,970 73,695 160,439 182,213
Selling, general, and administrative costs 36,088 34,137 103,789 93,487
Equity in income from unconsolidated entities (640) (396) (1,457) (800)
Interest expense 898 614 2,336 1,903
Other expense (income), net 1,388 (245) 1,789 765
Income before income taxes 17,236 39,585 53,982 86,858
Provision for income taxes 1,021 1,761 2,622 3,814
Net income 16,215 37,824 51,360 83,044
Net income attributable to non-controlling interests and LLC members prior to IPO 14,089 32,477 44,186 71,079
Net income attributable to Smith Douglas Homes Corp. $ 2,126 $ 5,347 $ 7,174 $ 11,965
Earnings per share(1):
Basic $ 0.24 $ 0.60 $ 0.80 $ 1.35
Diluted $ 0.24 $ 0.58 $ 0.78 $ 1.30
Other operating data:
Home closings 788 812 2,128 2,031
ASP of homes closed $ 333 $ 342 $ 334 $ 339
Net new home orders 690 600 2,194 2,080
Contract value of net new home orders $ 231,818 $ 205,164 $ 737,957 $ 708,446
ASP of net new home orders $ 336 $ 342 $ 336 $ 341
Cancellation rate(2)
11.2% 11.4% 9.7% 11.3%
Backlog homes (period end)(3)
760 961 760 961
Contract value of backlog homes (period end) $ 258,732 $ 332,035 $ 258,732 $ 332,035
ASP of backlog homes (period end) $ 340 $ 346 $ 340 $ 346
Active communities (period end)(4)
98 74 98 74
Controlled lots (period end):
Homes under construction 1,098 1,135 1,098 1,135
Owned lots 641 611 641 611
Optioned lots 22,561 16,132 22,561 16,132
Total controlled lots 24,300 17,878 24,300 17,878
(1)Earnings per share for the nine months ended September 30, 2024 is calculated for the period from January 11, 2024, the date of the IPO, to September 30, 2024.
(2)The cancellation rate is the total number of cancellations during the period divided by the total gross new home orders during the period.
(3)Backlog homes (period end) is the number of homes in backlog from the previous period plus the number of net new home orders generated during the current period minus the number of homes closed during the current period.
(4)A community becomes active once the model is completed or the community has its first sale. A community becomes inactive when it has fewer than two homes remaining to sell.
Home closing revenue
Home closing revenue for the three months ended September 30, 2025, was $262.0 million, a decrease of $15.8 million, or 6%, from $277.8 million for the three months ended September 30, 2024. Home closing revenue for the nine months ended September 30, 2025, was $710.7 million, an increase of $22.7 million, or 3%, from $688.0 million for the nine months ended September 30, 2024. The change in revenue for both periods is primarily attributable to changes in the number of homes closed, which decreased by 3% and increased by 5% for the three and nine months ended September 30, 2025, respectively, while ASP of homes closed decreased by 3% and 1% for the three and nine months ended September 30, 2025, respectively. The reduction in the number of homes closed for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024 were primarily due to decreases of 8% in our Southeast segment, partially offset by increases of 6% in our Central segment. The growth in the number of homes closed for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024 were primarily due to increases of 9% in our Southeast segment, partially offset by decreases of 1% in our Central segment.
The following table sets forth our home closing revenue, number of home closings, and ASP of homes closed for the periods presented, in each of our reportable segments (dollar amounts in thousands):
Three months ended
September 30, 		2025 2024 Period over period change
Home closing
revenue 		Home closings ASP of
homes closed 		Home closing
revenue 		Home closings ASP of
homes closed 		Home closing
revenue 		Home closings ASP of
homes closed
Southeast $ 166,625 493 $ 338 $ 189,128 534 $ 354 (12)% (8)% (5)%
Central 95,416 295 323 88,707 278 319 8% 6% 1%
Total $ 262,041 788 $ 333 $ 277,835 812 $ 342 (6)% (3)% (3)%
Nine months ended
September 30, 		2025 2024 Period over period change
Home closing
revenue 		Home closings ASP of
homes closed 		Home closing
revenue 		Home closings ASP of
homes closed 		Home closing
revenue 		Home closings ASP of
homes closed
Southeast $ 446,110 1,292 $ 345 $ 417,015 1,186 $ 352 7% 9% (2)%
Central 264,577 836 316 270,962 845 321 (2)% (1)% (2)%
Total $ 710,687 2,128 $ 334 $ 687,977 2,031 $ 339 3% 5% (1)%
Cost of home closings
Cost of home closings for the three months ended September 30, 2025, was $207.1 million, an increase of $2.9 million, or 1%, from $204.1 millionfor the three months ended September 30, 2024, which was primarily driven bya 5% increase in the average cost of home closings, partially offset bya 3% decrease in home closings. Cost of home closings for the nine months ended September 30, 2025, was $550.2 million, an increase of $44.5 million, or 9%, from $505.8 million for the nine months ended September 30, 2024, which was primarily driven by a 5% increase in home closings and a 4% increase in the average cost of home closings.
Home closing gross profit
Home closing gross profit for the three months ended September 30, 2025 was $55.0 million, a decrease of $18.7 million, or 25%, from $73.7 millionfor the three months ended September 30, 2024. Home closing gross margin, expressed as a percentage and calculated as home closing gross profit divided by home closing revenue, was 21.0% in the three months ended September 30, 2025 compared to 26.5% in the same period in 2024. Home closing gross profit for the
ninemonths ended September 30, 2025 was $160.4 million, a decreaseof $21.8 million, or 12%, from $182.2 millionfor the ninemonths ended September 30, 2024. Home closing gross margin, expressed as a percentage and calculated as home closing gross profit divided by home closing revenue, was 22.6%in the ninemonths ended September 30, 2025 compared to 26.5%in the same period in 2024.
The decrease in home closing gross margin for each of the three and nine months ended September 30, 2025 compared to the same periods of the prior year was for each period primarily driven by increases of 5% and 4%, respectively, in the average cost of home closings and decreases of 3% and 1%, respectively, in the ASP of homes closed.
Selling, general, and administrative costs
Selling, general, and administrative costs for the three months ended September 30, 2025 were $36.1 million, an increaseof $2.0 million, or 6%, from $34.1 millionfor the three months ended September 30, 2024. Selling, general, and administrative costs for the ninemonths ended September 30, 2025 were $103.8 million, an increaseof $10.3 million, or 11%, from $93.5 millionfor the ninemonths ended September 30, 2024.
The increase for the three and nine months ended September 30, 2025 compared to the same periods of the prior year was for each period primarily due to an increase in division overhead associated with our increased active community count and newly formed divisions, including Central Georgia, Greenville, Alabama Gulf Coast, and Dallas-Fort Worth.
Equity in income from unconsolidated entities
Equity in income from unconsolidated entities consists primarily of our portion of income from our interest in the title company in which we hold a 49% interest and which operates in certain of our markets to provide title insurance to our homebuyers and our portion of income from our interest in the company engaged in providing mortgage broker services to our homebuyers. For the three and nine months ended September 30, 2025, equity in income from unconsolidated entities increased $0.2 million and $0.7 million, respectively, from the three and nine months ended September 30, 2024, in each case primarily due to higher title insurance revenue generated by the title company.
Interest expense
Interest expense is comprised of interest incurred, but not capitalized on our Prior Credit Facility, Amended Credit Facility, other borrowings, and amortization of debt issuance costs. For the three and nine months ended September 30, 2025, interest expense increased $0.3 million and $0.4 million, respectively, from the three and nine months ended September 30, 2024, in each case primarily due to higher outstanding borrowings on our Amended Credit Facility.
Other expense (income), net
Other expense (income), netprimarily consists of interest income, credit card rebates, insurance settlements, changes in fair value of contingent consideration related to the Devon Street Homes Acquisition, and other miscellaneous income and expenses. For the three months ended September 30, 2025, other expense (income), net reflected a negative impact of $1.6 million from the three months ended September 30, 2024, which was primarily due to a $1.6 million lot option contract abandonment charge for the three months ended September 30, 2025,while there were no such charges in the same period of the prior year. For the nine months ended September 30, 2025, other expense (income), net reflected a negative impact of $1.0 million from the nine months ended September 30, 2024, which was primarily due to the $2.3 million lot option contract abandonment charge during the nine months ended September 30, 2025, which did not occurin 2024, offset by a positive impact due to remeasurement of contingent liability charges of $1.3 million during the nine months ended September 30, 2024, which did not recur in 2025.
Provision for income taxes
After consummation of the IPO, Smith Douglas Homes Corp. became subject to U.S. federal, state, and local income taxes with respect to its allocable share of taxable income of Smith Douglas Holdings LLC assessed at the prevailing corporate tax rates. Smith Douglas Holdings LLC operates as a limited liability company and is treated as a partnership for income tax purposes. Accordingly, it incurs no significant liability for federal or state income taxes, since the taxable income or loss is passed through to its members. Provision for income taxes was $1.0 million and $1.8 million, respectively, for the three months ended September 30, 2025 and 2024, which reflects an effective tax rate of 5.9% and
4.4%, respectively. Provision for income taxes was $2.6 million and $3.8 million, respectively, for the nine months ended September 30, 2025 and 2024, which reflects an effective tax rate of 4.9% and 4.4%, respectively.
On July 4, 2025, the One Big Beautiful Bill Act was enacted in the U.S. The Company has assessed the legislation and determined that it does not have a material impact on the Company's income tax expense for the three and ninemonths ended September 30, 2025 nor does it materially impact the Company's effective income tax rate for 2025.See Note 1-Description of the business and summary of significant accounting policiesto our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
Net income
The following table sets forth net income by reportable segment for the periods presented (in thousands):
Three months ended
September 30, 		Nine months ended
September 30,
2025 2024
Period over
period change
2025 2024
Period over
period change
Southeast $ 20,854 $ 39,765 $ (18,911) $ 66,700 $ 86,368 $ (19,668)
Central 5,393 9,762 (4,369) 18,748 33,381 (14,633)
Segment total 26,247 49,527 (23,280) 85,448 119,749 (34,301)
Other(1)
(10,032) (11,703) 1,671 (34,088) (36,705) 2,617
Total $ 16,215 $ 37,824 $ (21,609) $ 51,360 $ 83,044 $ (31,684)
(1)Other primarily includes homebuilding operations in non-reportable segments, corporate overhead costs such as payroll and benefits, business insurance, information technology, office costs, outside professional services and travel costs, and certain other amounts that are not allocated to the reportable segments.
Net income for the three and nine months ended September 30, 2025 decreased by $21.6 million, or 57%, and $31.7 million, or 38%, respectively, from the same periods of the prior year. The decrease was primarily due to decreases of $18.7 million and $21.8 million in home closing gross profit, respectively, and increases of $2.0 million and $10.3 million in selling, general and administrative costs, respectively, offset by a positive change in other expense (income), net of $1.6 million and $1.0 million, respectively.
Southeast: The $18.9 million decreasein net income for the threemonths ended September 30, 2025 compared to the same period in the prior year was primarily due to a $16.2 million decrease in home closing gross profit and a $2.7 million increase in selling, general and administrative costs. Thedecreasein net income for the ninemonths ended September 30, 2025 compared to the same period in the prior year was primarily due to a $11.1 million decrease in home closing gross profit and a $8.6 million increase in selling, general and administrative costs.
Central: The $4.4 millionand $14.6 million decreasesin net income for the three and ninemonths ended September 30, 2025 compared to the same periods in the prior year was primarily due to decreases in home closing gross profit of $2.5 million and $10.7 million, respectively, and increases in selling, general, and administrative costs of $1.6 million and $2.8 million, respectively.
Backlog homes
The following table sets forth our backlog homes and contract value and ASP of backlog homes by reportable segment for the periods presented, along with their period-to-period change (dollar amounts in thousands):
As of September 30, 2025 2024 Period over period change
Backlog
homes 		Contract
value of
backlog
homes 		ASP of
backlog
homes 		Backlog
homes 		Contract
value of
backlog
homes 		ASP of
backlog
homes 		Backlog
homes 		Contract
value of
backlog
homes 		ASP of
backlog
homes
Southeast 430 $ 151,463 $ 352 584 $ 211,339 $ 362 (26)% (28)% (3)%
Central 330 107,269 325 377 120,696 320 (12)% (11)% 2%
Total 760 $ 258,732 $ 340 961 $ 332,035 $ 346 (21)% (22)% (2)%
Controlled lots
The following table sets forth our total controlled lots, which includes both our owned and optioned lots, by reportable segment as of the periods set forth below:
As of September 30, 2025 2024 Period over period change
Owned(1)
Optioned Total Controlled
Owned(1)
Optioned Total Controlled
Owned(1)
Optioned Total Controlled
Southeast 961 15,039 16,000 908 12,118 13,026 6% 24% 23%
Central 778 7,522 8,300 838 4,014 4,852 (7)% 87% 71%
Total 1,739 22,561 24,300 1,746 16,132 17,878 -% 40% 36%
(1)Includes homes under construction and owned lots.
Non-GAAP Financial Measures
In addition to our results determined in accordance with GAAP, we have provided information in this Quarterly Report on Form 10-Q relating to "adjusted home closing gross profit," "adjusted home closing gross margin," "adjusted net income," "EBITDA", "EBITDA margin", "adjusted EBITDA", "adjusted EBITDA margin", and "net debt-to-net book capitalization." We believe these non-GAAP financial measures are useful in evaluating our operating performance.
We report our financial results in accordance with GAAP. However, management believes that certain non-GAAP financial measures provide users of our financial information with additional useful information to evaluate our performance and to more readily compare these financial measures between past and future periods. There are limitations to the use of the non-GAAP financial measures presented in this Quarterly Report on Form 10-Q. For example, our non-GAAP financial measures may not be comparable to similarly titled measures of other companies. Other companies, including companies in our industry, may calculate non-GAAP financial measures differently than we do, limiting the usefulness of those measures for comparative purposes.
Adjusted home closing gross profit and adjusted home closing gross margin
Adjusted home closing gross profit and adjusted home closing gross margin are non-GAAP financial measures used by management as supplemental measures in evaluating operating performance. We define adjusted home closing gross profit as home closing revenue less cost of home closings, excluding capitalized interest charged to cost of home closings, impairment charges and adjustments resulting from the application of purchase accounting included in cost of sales, if applicable. We define adjusted home closing gross margin as adjusted home closing gross profit as a percentage of home closing revenue. Management believes this information is meaningful because it isolates the impact that capitalized interest has on home closing gross margin. However, because adjusted home closing gross profit and adjusted home closing gross margin information excludes capitalized interest, which has real economic effects and could impact our results of operations, the utility of adjusted home closing gross profit and adjusted home closing gross margin information as a measure of our operating performance may be limited. In addition, other companies may not calculate adjusted home closing gross profit and adjusted home closing margin information in the same manner we do. Accordingly, adjusted home
closing gross profit and adjusted home closing gross margin information should be considered only as a supplement to home closing gross profit and home closing gross margin information as a measure of our performance.
The following table presents a reconciliation of adjusted home closing gross profit and adjusted home closing gross margin to the GAAP financial measure of home closing gross profit and home closing gross margin for each of the periods indicated (amounts in thousands):
Three months ended
September 30, 		Nine months ended
September 30,
2025 2024 2025 2024
Home closing revenue $ 262,041 $ 277,835 $ 710,687 $ 687,977
Cost of home closings 207,071 204,140 550,248 505,764
Home closing gross profit(1)
$ 54,970 $ 73,695 $ 160,439 $ 182,213
Capitalized interest charged to cost of home closings 698 351 1,219 1,405
Purchase accounting adjustments included in cost of home closings 120 (410) 2 (670)
Impairment of real estate inventory - - 642 -
Adj. home closing gross profit $ 55,788 $ 73,636 $ 162,302 $ 182,948
Home closing gross margin(2)
21.0% 26.5% 22.6% 26.5%
Adj. home closing gross margin(2)
21.3% 26.5% 22.8% 26.6%
(1)Home closing gross profit is home closing revenue less cost of home closings.
(2)Calculated as a percentage of home closing revenue.
Our adjusted home closing gross profit and adjusted home closing gross margin decreased from both the three and nine months ended September 30, 2024 to the same periods in 2025. The decreases in adjusted home closing gross profit and adjusted home closing gross margin were primarily due to increases in the average cost of home closings of 5% and 4%, respectively, for the three and nine months ended September 30, 2025.
Adjusted net income
Adjusted net income is not a measure of net income or net income margin as determined by GAAP. Adjusted net income is a supplemental non-GAAP financial measure used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders, and rating agencies. We define adjusted net income as net income adjusted for the tax impact using a 24.6% federal and state blended tax rate (assuming 100% public ownership to adjust for the impact of taxes on earnings attributable to Smith Douglas Holdings LLC as if Smith Douglas Holdings LLC was a subchapter C corporation in the periods presented).
Management believes adjusted net income is useful because it allows management to more effectively evaluate our operating performance and comparability to industry peers who record income tax expense on their income before tax as opposed to the income of Smith Douglas Holdings LLC not being taxed at the entity level and, therefore, not reflecting a charge against earnings for income tax expense. Adjusted net income should not be considered as an alternative to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. Our computation of adjusted net income may not be comparable to adjusted net income of other companies. We present adjusted net income because we believe it provides useful information regarding our comparability to peers.
The following table presents a reconciliation of adjusted net income to the GAAP financial measure of net income for each of the periods indicated (in thousands):
Three months ended
September 30, 		Nine months ended
September 30,
2025 2024 2025 2024
Net income $ 16,215 $ 37,824 $ 51,360 $ 83,044
Provision for income taxes 1,021 1,761 2,622 3,814
Income before income taxes 17,236 39,585 53,982 86,858
Tax-effected adjustments(1)
4,240 9,710 13,280 21,306
Adjusted net income $ 12,996 $ 29,875 $ 40,702 $ 65,552
(1)For the three and nine months ended September 30, 2025 and 2024, our tax expenses assume a 24.6% and 24.5% federal and state blended tax rate, respectively (assuming 100% public ownership to adjust for the impact of taxes on earnings attributable to Smith Douglas Holdings LLC as if Smith Douglas Holdings LLC was a subchapter C corporation in the periods presented).
EBITDA, EBITDA margin, adjusted EBITDA, and adjusted EBITDA margin
EBITDA, EBITDA margin, adjusted EBITDA, and adjusted EBITDA margin are not measures of net income or net income margin as determined by GAAP. EBITDA and adjusted EBITDA are supplemental non-GAAP financial measures used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders, and rating agencies. We define EBITDA as net income before (i) interest income, (ii) capitalized interest charged to cost of home closings, (iii) interest expense, (iv) income tax expense, and (v) depreciation. We define EBITDA margin as EBITDA as a percentage of home closing revenue. We define adjusted EBITDA as net income before (i) interest income, (ii) capitalized interest charged to cost of home closings, (iii) interest expense, (iv) income tax expense, (v) depreciation, (vi) share-based payment expense, (vii) adjustments resulting from the application of purchase accounting included in cost of sales, (viii) adjustments resulting from the application of purchase accounting included in other expense (income), net, and (ix) real estate inventory impairment and lot option contract abandonment charges. We define adjusted EBITDA margin as adjusted EBITDA as a percentage of home closing revenue.
Management believes EBITDA, EBITDA margin, adjusted EBITDA, and adjusted EBITDA margin are useful because they allow management to more effectively evaluate our operating performance and compare our results of operations from period to period without regard to our financing methods or capital structure, or other items that impact comparability of financial results from period to period. EBITDA, EBITDA margin, adjusted EBITDA, and adjusted EBITDA margin should not be considered as alternatives to, or more meaningful than, net income, net income margin, or any other measure as determined in accordance with GAAP. Our computation of EBITDA, EBITDA margin, adjusted EBITDA, and adjusted EBITDA margin may not be comparable to EBITDA, EBITDA margin, adjusted EBITDA, and adjusted EBITDA margin of other companies. We present EBITDA, EBITDA margin, adjusted EBITDA, and adjusted EBITDA margin because we believe they provide useful information regarding the factors and trends affecting our business.
The following table presents a reconciliation of EBITDA, EBITDA margin, adjusted EBITDA, and adjusted EBITDA margin to the GAAP financial measure of net income and net income margin for each of the periods indicated:
Three months ended
September 30, 		Nine months ended
September 30,
2025 2024 2025 2024
Net income $ 16,215 $ 37,824 $ 51,360 $ 83,044
Capitalized interest charged to cost of home closings 698 351 1,219 1,405
Interest expense 898 614 2,336 1,903
Interest income (80) (224) (304) (592)
Provision for income taxes 1,021 1,761 2,622 3,814
Depreciation 700 419 1,766 1,128
EBITDA $ 19,452 $ 40,745 $ 58,999 $ 90,702
Share-based payment expense 1,054 1,234 2,635 3,163
Purchase accounting adjustments included in cost of home closings 120 (410) 2 (670)
Remeasurement of contingent consideration liability - - - 1,308
Real estate inventory impairment and lot option contract abandonment charges 1,580 - 2,938 -
Adjusted EBITDA $ 22,206 $ 41,569 $ 64,574 $ 94,503
Net income margin(1)
6.2% 13.6% 7.2% 12.1%
EBITDA margin(1)
7.4% 14.7% 8.3% 13.2%
Adjusted EBITDA margin(1)
8.5% 15.0% 9.1% 13.7%
(1)Calculated as a percentage of home closing revenue.
Our EBITDA and EBITDA margin decreased from the three and nine months ended September 30, 2024 to the same periods in 2025, primarily as a result of decreases in net income of $21.6 million and $31.7 million, respectively. Our adjusted EBITDA and adjusted EBITDA margin decreased from the three and nine months ended September 30, 2024 to the same periods in 2025, primarily as a result of decreases in net income of $21.6 million and $31.7 million, respectively, real estate inventory impairment and lot option contract abandonment charges during the three and nine months ended September 30, 2025, which did not occurin 2024, and remeasurement of contingent consideration liability related to the Devon Street Homes Acquisition during the three and nine months ended September 30, 2024 which did not recur in 2025.
Net debt-to-net book capitalization
Net debt-to-net book capitalization is a supplemental measure of our leverage that is not required by, or presented in accordance with, GAAP and should not be considered as an alternative to debt-to-book capitalization or any other measure derived in accordance with GAAP. We caution investors that amounts presented in accordance with our definition of net debt-to-net book capitalization may not be comparable to similar measures disclosed by our competitors because not all companies and analysts calculate this non-GAAP financial measure in the same manner. We present this non-GAAP financial measure because we consider it to be an important supplemental measure of our leverage and believe it is frequently used by securities analysts, investors, and other interested parties in the evaluation of companies in our industry.
We define net debt-to-net book capitalization as:
•Total debt, less cash and cash equivalents, divided by
•Total debt, less cash and cash equivalents, plus equity.
This non-GAAP financial measure has limitations as an analytical tool in that it subtracts cash and cash equivalents and therefore may imply that the Company has less debt than the most comparable measure determined in accordance with GAAP. Because of this limitation, this non-GAAP financial measure should be considered along with
other financial measures presented in accordance with GAAP. The presentation of this non-GAAP financial measure is not intended to be considered in isolation or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP. We have reconciled this non-GAAP financial measure with the most directly comparable GAAP financial measure in the following table:
As of
(in thousands, except percentages) 		September 30,
2025 		December 31,
2024
Notes payable $ 53,637 $ 3,060
Equity 426,444 401,727
Total capitalization $ 480,081 $ 404,787
Debt-to-book capitalization 11.2% 0.8%
Notes payable $ 53,637 $ 3,060
Less: cash and cash equivalents 14,775 22,363
Net debt 38,862 (19,303)
Equity 426,444 401,727
Total net capitalization $ 465,306 $ 382,424
Net debt-to-net book capitalization 8.4% (5.0)%
Liquidity and Capital Resources
Overview
As of September 30, 2025, we had $14.8 million of cash and cash equivalents. We believe existing cash and cash equivalents, availability under our Amended Credit Facility, and positive cash flows from operations will be sufficient to support working capital and capital expenditure requirements for at least the next 12 months. We have historically generated cash and fund our operations primarily from cash flows from operating activities as well as availability under our credit facilities and other borrowings. We exercise strict controls and have a prudent strategy for our cash management, including those related to cash outlays for lot acquisitions and deposits on lot-option contracts. We require multiple party account control and authorization for payments. We competitively bid each phase of the development and construction process and closely manage production schedules and payments. Land acquisitions are reviewed and analyzed by our senior management team and ultimately approved by our Chief Executive Officer and Chief Financial Officer. Additionally, our land-light business model reduces our upfront capital requirements and generally provides for "just-in-time" lot delivery, which better aligns our pace of home orders and home starts. Our principal uses of cash include deposits on lot-option contracts, acquisition of finished lots, home construction, operating expenses, and the payment of interest and routine liabilities.
In the coming 12 months, our primary funding needs will revolve around the construction of homes, acquisition of finished lots under new and existing contracts, and operating expenses. Additionally, we may seek to use our capital to enter new markets through acquisition or greenfield startup if we believe such markets fit our business model. To address these short-term liquidity requirements, we anticipate relying on our existing cash and cash equivalents, as well as the net cash flows generated by our operations, and availability under our Amended Credit Facility.
However, the opportunity to purchase substantially finished lots in desired locations is becoming increasingly more competitive. As a result, we remain open to seeking additional capital if necessary to enhance our liquidity position, further enable the acquisition of additional finished lot inventory in anticipation of improving market conditions, and fortify our long-term capital structure.
Looking beyond the next 12 months, our primary funding needs will continue to center around home construction, finished lot acquisitions necessary to maintain a minimum four-year lot supply, growing active community count, growth into new and existing markets, and principal and interest payments on our Amended Credit Facility. We expect our existing cash reserves, along with generated cash flows and availability under our Amended Credit Facility, will be sufficient to fund our ongoing operational activities and provide the necessary capital for future lot purchases and related growth strategies.
To the extent our current liquidity is insufficient to fund future activities, we may need to raise additional funds, such as refinancing or securing new secured or unsecured debt, common and preferred equity, disposing of certain assets to fund our operations, and/or other public or private sources of capital. If we raise additional funds by issuing equity securities, the ownership of our existing stockholders will be diluted. The incurrence of additional debt financing would result in debt service obligations, and any future instruments governing such debt could provide for operating and financing covenants that could restrict our operations. We cannot assure you that we could obtain refinancing or additional financing on favorable terms or at all. See Part I, Item 1A. Risk Factors-General Risk Factors-Access to financing sources may not be available on favorable terms, or at all, especially in light of current market conditions, which could adversely affect our ability to maximize our returns of our Annual Report.
Amended Credit Facility
As of September 30, 2025, the Company has a $325.0 million unsecured revolving credit facility under the Amended Credit Facility. On May 15, 2025, the Company entered into the Amended Credit Facility to, among other things, (i) increase the total revolving commitments from $250.0 million to $325.0 million, (ii) increase certain thresholds and sublimits in the borrowing base to allow for additional borrowing flexibility, (iii) extend the revolving loan maturity date from January 16, 2027 to May 15, 2029, and (iv) revise certain financial covenants. The Amended Credit Facility matures on May 15, 2029, except that the Company may request a one-year extension of such maturity date. The Amended Credit Facility also includes a $100.0 million accordion feature, subject to additional commitments. The Amended Credit Facility provides that up to $20.0 million may be used for letters of credit.
The borrowings and letters of credit outstanding under the Amended Credit Facility may not exceed the borrowing base as defined in the Amended Credit Facility. The borrowing base primarily consists of a percentage of commercial land, land held for development, lots under development, and finished lots held by Smith Douglas Holdings LLC and certain of its wholly-owned subsidiaries.
Borrowings under the Amended Credit Facility bear interest, at the borrower's option, at either a base rate or SOFR (which may be a daily simple rate or based on 1-, 3- or 6-month interest periods, in each case at the borrower's option), plus an applicable margin. The applicable margin will range from 2.35% to 3.00% based on our leverage ratio as determined in accordance with a pricing grid defined in the Amended Credit Facility and is subject to a floor of 0.00%. Interest is payable in arrears on the last business day of each month or at the end of each 1-, 3- or 6-month interest period, as applicable.
The Amended Credit Facility is unsecured. Upon the occurrence of certain triggers set forth in the Amended Credit Facility, Smith Douglas Homes Corp. may be required to provide a guarantee of the obligations of Smith Douglas Holdings LLC and the other borrowers under the Amended Credit Facility.
The Amended Credit Facility contains certain financial covenants, including requirements to maintain (i) a minimum tangible net worth equal to the sum of (a) $286.1 million, (b) 32.5% of pre-tax income earned in any fiscal quarter after March 31, 2025, and (c) 50% of any new equity proceeds of Smith Douglas Homes Corp. and its subsidiaries at any time after March 31, 2025, (ii) a maximum leverage ratio of 60%, (iii) a minimum ratio of EBITDA to interest incurred of 2.00 to 1.00, and (iv) a minimum liquidity requirement of $15.0 million. The Amended Credit Facility also contains various covenants that, among other restrictions, limit the ability of Smith Douglas Homes LLC and the other borrowers to incur additional debt and to make certain investments and distributions. Additionally, the Amended Credit Facility contains certain covenants that restrict certain activities of Smith Douglas Homes Corp. The Amended Credit Facility also contains customary events of default relating to, among other things, failure to make payments, breach of covenants, and breach of representations. If an event of default occurs and is continuing, the borrowers may be required to immediately repay all amounts outstanding under the Amended Credit Facility. As of September 30, 2025, the Company was in compliance with all covenants related to the Amended Credit Facility.
As of September 30, 2025, there were $49.0 million of outstanding borrowings under the Amended Credit Facility. As of October 31, 2025, there were $67.0 million of outstanding borrowings under the Amended Credit Facility. As of September 30, 2025 and October 31, 2025, there were no outstanding letters of credit.
Additional liquidity requirements
We are a holding company and have no material assets other than our ownership of LLC Interests. We have no independent means of generating revenue. The Smith Douglas LLC Agreement provides for the payment of certain
distributions to the Continuing Equity Owners and to us in amounts sufficient to cover the income taxes imposed on such members with respect to the allocation of taxable income from Smith Douglas Holdings LLC as well as to cover our obligations under the Tax Receivable Agreement and other administrative expenses.
Regarding the ability of Smith Douglas Holdings LLC to make distributions to us, the terms of their financing arrangements (including the Amended Credit Facility) contain covenants that may restrict Smith Douglas Holdings LLC or its subsidiaries from paying such distributions, subject to certain exceptions. Further, Smith Douglas Holdings LLC is generally prohibited under Delaware law from making a distribution to a member to the extent that, at the time of the distribution, after giving effect to the distribution, liabilities of Smith Douglas Holdings LLC (with certain exceptions), as applicable, exceed the fair value of its assets.
In addition, under the Tax Receivable Agreement, we are required to make cash payments to the Continuing Equity Owners equal to 85% of the tax benefits, if any, that we actually realize (or in certain circumstances are deemed to realize), as a result of (i) Basis Adjustments; (ii) Section 704(c) Allocations; and (iii) certain tax benefits (such as interest deductions) arising from payments made under the Tax Receivable Agreement. We expect the amount of the cash payments we will be required to make under the Tax Receivable Agreement will be significant. The actual amount and timing of any payments under the Tax Receivable Agreement will vary depending upon a number of factors, including the timing of redemptions or exchanges by the Continuing Equity Owners, the amount of gain recognized by the Continuing Equity Owners, the amount and timing of the taxable income we generate in the future, and the federal tax rates then applicable. Any payments made by us to the Continuing Equity Owners under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been available to us.
Additionally, in the event we declare any cash dividends, we intend to cause Smith Douglas Holdings LLC to make distributions to us in amounts sufficient to fund such cash dividends declared by us to our stockholders. Deterioration in the financial condition, earnings, or cash flow of Smith Douglas Holdings LLC for any reason could limit or impair their ability to pay such distributions.
If we do not have sufficient funds to pay taxes or other liabilities or to fund our operations, we may have to borrow funds, which could materially adversely affect our liquidity and financial condition and subject us to various restrictions imposed by any such lenders. To the extent we are unable to make payments under the Tax Receivable Agreement for any reason, such payments generally will be deferred and will accrue interest until paid. However, nonpayment for a specified period may constitute a material breach of a material obligation under the Tax Receivable Agreement and therefore accelerate payments due under the Tax Receivable Agreement. In addition, if Smith Douglas Holdings LLC does not have sufficient funds to make distributions, our ability to declare and pay cash dividends will also be restricted or impaired.
See Part I-Item 1A. Risk Factors-Risks Related to our Organizational Structureof our Annual Report and Certain Relationships and Related Person Transactions of our Proxy Statement.
Cash flows from operating, investing, and financing activities - comparison for the nine months ended September 30, 2025 and 2024
The following table summarizes our cash flows for the periods presented (in thousands):
Nine months ended
September 30, 		2025 2024
Net cash (used in) provided by operating activities $ (41,094) $ 13,655
Net cash used in investing activities (5,573) (3,780)
Net cash provided by (used in) financing activities 39,079 (5,936)
Net (decrease) increase in cash and cash equivalents (7,588) 3,939
Cash and cash equivalents, beginning of period 22,363 19,777
Cash and cash equivalents, end of period $ 14,775 $ 23,716
Operating activities
We used $41.1 million andgenerated $13.7 millionin net cash in operating activities for the ninemonths ended September 30, 2025and 2024, respectively. Operating cash flows for the ninemonths ended September 30, 2025benefited from cash generated by net income of $51.4 million and non-cash operating expenses of $9.5 million, which were more than offset by a $61.0 millionincrease in real estate inventory, $34.4 millionincrease in deposits on real estate under option or contract, and a $7.5 million decrease in accrued expenses and other liabilities. Operating cash flows for the ninemonths ended September 30, 2024benefited from cash generated by net income of $83.0 million, non-cash operating expenses of $7.9 million, and a $6.2 million increase in accounts payable, which werepartially offset by a $61.5 millionincrease in real estate inventory and a $23.1 million increase in deposits on real estate under option or contract.
Investing activities
We used $5.6 millionand $3.8 millionin net cash in investing activities for the ninemonths ended September 30, 2025and 2024, respectively. The net cash used in investing activities during the ninemonths ended September 30, 2025was primarily due to $4.5 million in purchases of property and equipment and $1.1 million in investments in unconsolidated entities. The net cash used in investing activities during the ninemonths ended September 30, 2024was primarily due to $3.2 million in purchases of property and equipment and $0.6 million in investments in unconsolidated entities.
Financing activities
We generated $39.1 millionand used $5.9 millionin net cash from financing activities for the ninemonths ended September 30, 2025and 2024, respectively. The net cash provided by financing activities during the ninemonths ended September 30, 2025was primarily due to $49.0 million in net borrowings under the Amended Credit Facility and $36.7 million in proceeds from sale of real estate not owned, partially offset by $28.0 million in tax distributions, $13.7 million in payments related to repurchases of real estate not owned, and $2.2 million of debt issuance costs. The net cash used in financing activities during the ninemonths ended September 30, 2024was primarily due to $115.7 million in net proceeds from the IPO and Reorganization Transactions, which were more than offset by $71.0 million in net repayments under the Prior Credit Facility, $39.3 million in distributions, and 12.3 million in payments related to repurchases of real estate not owned.
Material Cash Commitments
Other than with respect to the interest on the outstanding borrowings under our Amended Credit Facility, as described above, there have been no material changes to the material cash commitments described in Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsof our Annual Report.
Off-Balance Sheet Arrangements
While using land bankers and third-party developers as part of our land-light operating strategy comes at an additional cost, we believe our lot acquisition strategy reduces our operating and financial risk relative to other homebuilders that own and develop a higher percentage of their land supply. As of September 30, 2025, we had 641 owned unstarted lots in real estate inventory on our balance sheet which represented only 2.6% of our total controlled lot supply.
Under the umbrella of our land-light strategy, we generally seek to avoid engaging in land development. Where possible, we prefer to work with third-party developers that will sell us finished lots under lot-option contracts. In situations where we cannot find a developer partner, we will work with third-party land bankers. Under these land bank arrangements, we typically assign the land or lots we have under contract to the land banker. The land banker will acquire the land or lots directly, and if land development is necessary, we will simultaneously enter into a development agreement to complete the lots for the land banker. Additionally, we will enter a lot-option contract to acquire the finished lots on a takedown to match our projected sales absorption and starts pace. Typically, we are required to put up a deposit ranging between 5-20% on our lot-option contracts.
Our asset-light and capital efficient lot acquisition strategy is intended to avoid the financial commitments and risks associated with direct land ownership and land development by allowing us to control a significant number of lots for a relatively low capital cost. These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled by these option contracts for any reason, and our sole legal obligation and economic loss as a result of such
forfeitures is limited to the amount of the deposits paid pursuant to such option contracts and, in the case of land bank option contracts, any related fees paid to the land bank partner. We do not have any financial guarantees and we typically do not guarantee lot purchases on a specific performance basis under these agreements. In certain circumstances, we may have a completion obligation under development agreements with land bankers where we may be at-risk for certain cost overruns.
As of September 30, 2025, we had $132.7 million of non-refundable cash deposits under land and lot-option contracts pertaining to 15,530 lots with a remaining aggregate purchase price of approximately $1,100.5 million.
Surety Bonds and Letters of Credit
From time to time, we may enter into surety bond and letter of credit arrangements with local municipalities, government agencies and developers. These arrangements relate to certain performance or maintenance-related obligations. As of September 30, 2025, there were no outstanding letters of credit. Surety bonds do not have stated expiration dates; rather, we are released from the bonds as the contractual performance is completed. These bonds, which totaled $44.1 million and $32.1 million as of September 30, 2025 and December 31, 2024, respectively, are typically outstanding over a period of approximately one to five years depending on the pace of development. If banks were to decline to issue letters of credit or surety companies were to decline to issue surety bonds, our ability to operate could be restricted and could have an adverse effect on our business and results of operations.
Stock Repurchase Program
In May 2025, our Board of Directors authorized a stock repurchase program for up to $50.0 million of our Class A common stock. The volume, timing, and manner of any repurchases will be determined at our discretion, subject to general market conditions, as well as our management of capital, general business conditions, other investment opportunities, regulatory requirements, and other factors. The repurchase program does not obligate us to repurchase any specific amount of common stock, has no time limit, and may be modified, suspended, or discontinued at any time without notice at the discretion of our Board of Directors. There were no shares acquired under the program as of September 30, 2025.
Critical Accounting Policies and Estimates
In preparing our financial statements in conformity with U.S. GAAP, we must make decisions that impact the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. In reaching such decisions, we apply judgments based on our understanding and analysis of the relevant circumstances, historical experience, and business valuations. Actual amounts could differ from those estimated at the time the consolidated financial statements are prepared.
Our significant accounting policies are described in Note 1-Description of the business and summary of significant accounting policiesto our accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Some of those significant accounting policies require us to make difficult, subjective, or complex judgments or estimates. An accounting estimate is considered to be critical if it meets both of the following criteria: (i) the estimate requires assumptions about matters that are highly uncertain at the time the accounting estimate is made, and (ii) different estimates reasonably could have been used, or changes in the estimate that are reasonably likely to occur from period to period may have a material impact on the presentation of our financial condition, changes in financial condition, or results of operations. There have been no material changes to the Company's critical accounting estimates since our Annual Report.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 1-Description of the business and summary of significant accounting policiesto our unaudited condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q.
JOBS Act
We qualify as an "emerging growth company" pursuant to the provisions of the JOBS Act, enacted on April 5, 2012. Section 102 of the JOBS Act provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We are choosing to "opt out" of this provision and, as a result, we will adopt new or revised accounting standards upon or prior to required public company adoption dates. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Specifically, subject to the satisfaction of certain conditions set forth in the JOBS Act, we are not required to, and do not intend to, among other things, (i) provide an auditor's attestation report on our systems of internal control over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Act, (iii) comply with the requirement of the PCAOB regarding the communication of critical audit matters in the auditor's report on the financial statements, and (iv) disclose certain executive compensation-related items, such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer's compensation to median employee compensation. These exemptions will apply until we no longer meet the requirements of being an emerging growth company. We will remain an emerging growth company until the earlier of (i) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our prior second fiscal quarter, and (ii) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.
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