Smith Douglas Homes Reports Full Year 2023 Results
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Insights
Smith Douglas Homes Corp.'s announcement reveals several key performance indicators (KPIs) that are essential for evaluating the company's financial health and strategic direction. A notable increase in net new orders by 22.8% suggests a robust demand for the company's homes, which is a positive sign for revenue prospects. However, the juxtaposition of growing sales and backlog against a 12.3% decline in net income raises questions about cost management and margin pressures.
The reduction in net income could be attributed to various factors, such as increased material costs, labor shortages, or other operational inefficiencies. Investors should consider whether this trend is likely to continue and how it might affect future profitability. The company's debt-to-book capitalization sitting at 26.6% indicates a moderate level of leverage, which is generally manageable, but the net-debt-to-net book capitalization of 21.1%—a non-GAAP financial measure—requires careful assessment against industry benchmarks to evaluate financial stability and risk.
Furthermore, the successful IPO and subsequent capital transactions have evidently bolstered the company's liquidity, potentially enhancing its ability to invest in growth opportunities. The strategic use of IPO proceeds to pay off existing debt is a prudent move that could reduce interest expenses and improve net income in the long term. Investors should monitor how effectively the company deploys its new capital towards achieving its ambitious goal of doubling home closings over the next five years.
The expansion from 53 to 69 active communities indicates a significant investment in growth and a bullish outlook on the housing market by Smith Douglas. This expansion, coupled with the company's backlog growth, suggests a strategic positioning to capture increased market share. However, the relatively stable cancellation rate year-over-year implies that while demand is growing, consumer sentiment may not have shifted drastically, which is an important consideration for projecting future sales stability.
It is also important to consider the broader housing market trends, such as interest rates, housing supply and economic indicators, which can greatly influence the performance of homebuilders like Smith Douglas. With the company's entry into the public market, its stock performance will now be more directly influenced by investor perception of its growth potential and risk profile.
As the company looks to expand its footprint, the ability to integrate strategic opportunities in new markets without overextending will be critical. The company's strategy and business model, as endorsed by investors during the IPO, will need to be executed with precision to ensure that growth targets are met without compromising profitability or financial health.
While the legal perspective may not directly relate to financial metrics, it is important to recognize the implications of transitioning to a public company status. Smith Douglas will now be subject to increased regulatory scrutiny and will have to maintain transparency with shareholders. Compliance with financial reporting, corporate governance and market regulations will be paramount.
The use of non-GAAP financial measures such as net-debt-to-net book capitalization should be communicated clearly to investors, ensuring that they understand the rationale and the method of calculation to avoid any potential misinterpretation. As the company grows and engages in new market opportunities, it will also have to navigate varying regional regulations and building codes, which can impact operational costs and timelines.
2023 Full Year Results as compared to 2022:
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Net new orders increased
22.8% to 2,368 -
Backlog homes increased
18.3% to 912 -
Sales value of backlog homes increased
20.1% to$310.7 million -
Home closings increased
4.4% to 2,297 -
Revenue increased
1.2% to$764.6 million -
Net income of
$123.2 million 12.3% -
Debt-to-book capitalization of
26.6% -
Net-debt-to-net book capitalization of
21.1% 1
The Company had 69 active communities on December 31, 2023, compared to 53 a year prior. The cancellation rate was
Greg Bennett, Vice Chairman and Chief Executive Officer, commented, “We are excited to begin life as a public company after executing on our highly successful IPO in January and raising over
Russ Devendorf, Executive Vice President and Chief Financial Officer added, “Concurrent with the IPO, we closed on our upsized
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1 Net-debt-to-net book capitalization is a Non-GAAP Financial Measure. See “Non-GAAP Financial Measures” below.
Conference Call & Webcast Information
Management will host a conference call to discuss the Company’s results at 8:30 a.m. Eastern Time on March 20, 2024. Interested parties can dial in using the numbers below or access the call via a webcast link provided in the investor relations section of the company’s website.
Dial-in Numbers:
Toll Free -
International: (+1) 646-307-1963
Conference ID: 6488452
Replay Numbers:
Toll Free -
Playback Passcode: 6488452
Replay will expire 7 days following the event
About Smith Douglas Homes
Headquartered in
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained in this press release that do not relate to matters of historical fact should be considered forward-looking statements, including without limitation statements regarding the Company’s performance, growth, strategic opportunities, and financial position, including with respect to growth in 2024 and the Company’s goal of doubling its home closings in five years. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including, but not limited to, the factors discussed under the caption “Risk Factors” in our final prospectus, filed with the Securities and Exchange Commission on January 10, 2024 pursuant to Rule 424(b)(4) relating to our registration statement on Form S‑1 (File No. 333-274379), as amended, filed in connection with our initial public offering. These forward-looking statements are based on management’s current estimates and expectations. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change.
Smith Douglas Homes Consolidated Statements of Income and Other Operating Data (unaudited) |
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Year ended December 31, |
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2023 |
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2022 |
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Year over year change |
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Amount |
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Amount |
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Amount |
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Percent |
Consolidated Statements of Income Data: |
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Home closing revenue |
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9,278 |
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Cost of home closings |
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548,304 |
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532,599 |
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15,705 |
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Home closing gross profit |
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216,327 |
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222,754 |
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(6,427) |
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(2.9)% |
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Selling, general, and administrative costs |
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92,442 |
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83,006 |
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9,436 |
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Equity in income from unconsolidated entities |
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(934) |
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(1,120) |
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186 |
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(16.6)% |
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Interest expense |
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1,658 |
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997 |
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661 |
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Other (income) loss, net |
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(19) |
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(573) |
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554 |
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(96.7)% |
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Net income |
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(12.3)% |
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Other operating data (unaudited): |
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Home closings |
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2,297 |
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2,200 |
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97 |
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ASP of homes closed |
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(10) |
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(2.9)% |
Net new home orders |
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2,368 |
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1,928 |
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440 |
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Contract value of net new home orders |
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$667,530 |
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124,694 |
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ASP of net new home orders |
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$346 |
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(11) |
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(3.2)% |
Cancellation rate(1) |
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(0.6) |
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(3.7)% |
Backlog homes (period end)(2) |
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912 |
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771 |
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141 |
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Contract value of backlog homes (period end) |
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51,996 |
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ASP of backlog homes (period end) |
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5 |
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Active communities (period end)(3) |
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69 |
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53 |
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16 |
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Controlled lots: |
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Homes under construction |
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796 |
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623 |
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173 |
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Owned lots |
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524 |
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342 |
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182 |
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Optioned lots |
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11,501 |
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7,848 |
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3,653 |
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Total controlled lots |
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12,821 |
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8,813 |
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4,257 |
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[nm* Not meaningful] |
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1. The cancellation rate is the total number of cancellations during the period divided by the total gross new home orders during the period. |
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2. 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. |
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3. 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. |
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Non-GAAP Financial Measures
In addition to our results determined in accordance with generally accepted accounting principles in the
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 stockholders’ 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:
Year ended December 31, (in thousands, except percentages) |
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2023 |
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2022 |
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Notes payable |
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Members’ equity |
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208,903 |
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164,511 |
Total capitalization |
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Debt-to-book capitalization |
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Notes payable |
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Less: cash and cash equivalents |
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19,777 |
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29,601 |
Net debt |
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55,850 |
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(14,601) |
Members’ equity |
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208,903 |
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164,511 |
Total net capitalization |
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149,910 |
Net debt-to-book capitalization |
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(9.7)% |
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
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:
Year ended December 31, (in thousands) |
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2023 |
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2022 |
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Net income |
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Tax-effected adjustments(1) |
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30,795 |
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35,111 |
Adjusted net income |
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-
For the year ended December 31, 2023 and 2022, our tax expenses assumes a
25% federal and state blended tax rate (assuming100% 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).
View source version on businesswire.com: https://www.businesswire.com/news/home/20240319398891/en/
Investor Relations
Drew Mackintosh
(310) 924-9036
ir@smithdouglas.com
Source: Smith Douglas Homes
FAQ
What was the percentage increase in net new orders for Smith Douglas Homes Corp. (SDHC) in 2023 compared to 2022?
What was the percentage increase in backlog homes for Smith Douglas Homes Corp. (SDHC) in 2023 compared to 2022?
What was the percentage increase in sales value of backlog homes for Smith Douglas Homes Corp. (SDHC) in 2023 compared to 2022?
What was the revenue increase percentage for Smith Douglas Homes Corp. (SDHC) in 2023 compared to 2022?
What was the net income for Smith Douglas Homes Corp. (SDHC) in 2023?
How many active communities did Smith Douglas Homes Corp. (SDHC) have on December 31, 2023?
What was the cancellation rate for Smith Douglas Homes Corp. (SDHC) in 2023?
What is the goal of Smith Douglas Homes Corp. (SDHC) for home closings in the next five years?
