Smith Douglas Homes Corp. (NYSE:SDHC) Q2 2025 Earnings Call Transcript

Smith Douglas Homes Corp. (NYSE:SDHC) Q2 2025 Earnings Call Transcript August 6, 2025

Smith Douglas Homes Corp. misses on earnings expectations. Reported EPS is $-0.13 EPS, expectations were $0.25.

Operator: Hello, and welcome to Smith Douglas Homes Second Quarter 2025 Call and Webcast. Please note that this call is being recorded. [Operator Instructions] I’d now like to hand the call over to Joe Thomas. You may now go ahead, please.

Joe Thomas:

SVP of Accounting & Finance: Good morning, and welcome to the earnings conference call for Smith Douglas Homes. We issued a press release this morning outlining our results for the second quarter of 2025, which we will discuss on today’s call and which can be found on our website at investors.smithdouglas.com or by selecting the Investor Relations link at the bottom of our homepage. Please note, this call will be simultaneously webcast on the Investor Relations section of our website. Before the call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating goals and performance are forward-looking statements.

Actual results could differ materially from such statements due to known and unknown risks, uncertainties and other important factors as detailed in the company’s SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most comparable GAAP measures can be found in our press release located on our website and our SEC filings. Hosting the call this morning are Greg Bennett, the company’s CEO and Vice Chairman; and Russ Devendorf, our Executive Vice President and CFO. I’d now like to turn the call over to Greg.

Gregory S. Bennett: Thanks, Joe, and good morning to everyone. Smith Douglas Homes turned in another strong operational performance in the second quarter of 2025, generating pretax income of $17.2 million and an earnings of $0.26 per diluted share. Home sales revenue was $224 million for the quarter on home closings of 669, which exceeded the guidance range we gave last quarter. Home closing gross margin came in at the high end of our guidance range at 23.2% and net new orders for the quarter totaled 736 homes. Overall, I’m proud of our company’s performance this quarter despite a challenging macroeconomic backdrop for homebuilding and believe it once again demonstrates the strength of our asset-light operational model focused on turning inventory quickly.

We experienced inconsistent demand trends during the quarter with stretches of solid order activity followed by periods of softness. While we believe there’s a strong desire and need for new homes in our markets, affordability constraints, declining consumer confidence and lack of urgency from buyers continue to be a headwind for our industry. As a result, we remain intensely focused on operating elements that are within our control, which include making our homes as affordable as possible while giving our buyers the choice and customization they desire. Our average sales price on homes closed this quarter came in at $335,000 which is one of the lowest ASPs of our peers. We ended the second quarter with 92 active communities, a 23% increase over second quarter of 2024 and improved our controlled lot count by 57% compared to a year ago to almost 25,000 lots.

Under our asset-light strategy, which gives us operational and financial flexibility to adjust to challenging market conditions, option lots accounted for 96% of our unstarted controlled lot count at the end of the quarter. We continue to focus on growing our operations in existing markets while exploring strategic expansion opportunities where we can deploy our operating model to further increase our overall market share of new home sales and achieve better economies of scale and operating leverage. To that end, I’m happy to share that we’ll be entering Dallas-Fort Worth and Gulf Coast of Alabama markets through greenfield start- ups. We have been working to secure several finished lot positions in DFW over the last 6 months and expect closing our first lots and start selling by year-end.

Additionally, we have been working on several opportunities to acquire lots in greater Baldwin County area of Southern Alabama and expect to close on several land deals that would have us targeting communities opening in the second half of 2026. We believe in the long-term growth prospects of these markets and they fit nicely into the geographic footprint where we can continue to deliver first-time homebuyers affordable, high-quality personalized homes. Construction efficiency continues to be another major focus area of our company. Excluding Houston, our average cycle time at the end of the quarter was 54 days, which is down from 60 days in second quarter of 2024. We continue to make headway in the quarter bringing Houston division on board with these principles and look forward to then achieving cycle times closer to the company average in the near future.

Despite the challenging sales backdrop, we feel our balance sheet remains in great shape with our net debt to net book capitalization ratio coming in at 12.1% at the end of the quarter. The strength of our balance sheet allows us to operate from a position of strength and remain opportunistic when the market dislocations occur. With our previously announced $50 million share repurchase authorization, we also have the flexibility to buy our stock back should the opportunity present itself. As we head into the second half of the year, I feel good about our company’s outlook even as the macroeconomic and interest rate environments continue to remain uneven and uncertain. We have many well-located communities in some of the best markets in the country and deliver homes at an average selling price that represents a good value.

We continue to look for ways to curb cost and our build times continue to improve, which will help us turn our inventories faster. Despite the uneven sales environment in the second quarter, our can rate was actually down year-over-year at 10% for the quarter, which is a testament to the appeal of our homes in the shortened time between sales and closings. We also have several new communities opened at the start of the third quarter, which will serve as a tailwind for our sales efforts. Given these positives, I remain optimistic about the future of Smith Douglas Homes. Now I’d like to turn the call over to Russ, who will provide more detail on our financial and operational performance this quarter and give an update on our outlook for third quarter.

Russell Devendorf: Thanks, Greg. I’ll now walk through our financial results for the second quarter and then provide an update on our outlook for the third quarter. We closed 669 homes during the second quarter, up 2% from 653 closings in the same quarter last year. Homebuilding revenue was $223.9 million, an increase of 1% over the prior year. Our average sales price was approximately $335,000, which is down slightly year-over-year due to slightly higher discounts and shifts in geographic and product mix. Gross margin came in at 23.2%, which was at the high end of our guidance range and compares to 26.7% in the prior year. Our lower year-over-year margin reflects the impact of higher average lot costs, which were 26% in the current quarter versus 23.9% of revenue in the year ago period as well as rising incentives and promotional activity, which totaled 4.8% of revenue this quarter, up slightly from 4.2% a year ago.

SG&A was up $2.9 million versus prior year and was 15.5% of revenue compared to 14.5% last year, driven primarily by increased payroll and associated expenses with a sizable portion of the increase coming from the opening of new divisions over the last few quarters. Net income for the quarter was $16.4 million compared to $24.7 million in the prior year, and pretax income was $17.2 million versus $25.9 million. Adjusted net income was $12.9 million compared to $19.4 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 4.3% this quarter, which is attributable to the approximate 18% economic ownership held by the public shareholders through Smith Douglas Homes Corp.

and Smith Douglas Holdings LLC. Because the majority of our earnings are allocated to our Class B members, which is shown as income attributable to noncontrolling interest on our income statement, we provide adjusted net income, which assumes 100% public ownership and a 24.9% blended federal and state effective tax rate. We believe this measure is helpful in evaluating our results relative to peers with more traditional C corporation structures. Additional details on our structure and related income tax treatment can be found in the footnotes to our financial statements. Turning to the balance sheet. We ended the quarter with $16.8 million in cash and had approximately $70 million outstanding on our unsecured revolver with $189 million available to draw.

As I mentioned on our last earnings call, we finalized the amendment to our credit facility, which included, among other things, an increase in total size to $325 million and extended the maturity to May 2029. Our debt-to-book capitalization was 15.2%, and our net debt to net book capitalization was 12.1%. Backlog at the end of the quarter was 858 homes with an average sales price of $341,000 and an expected gross margin of approximately 21.5%. Monthly sales per community went from 2.8 in April to 2.4 in May and 2.8 in June. In July, we saw that average dip back to approximately 2.5 sales per community. Affordability remains a key challenge for our buyers, and we continue to lean into targeted incentives to support sales. Continuing our program from late March, we utilized forward commitments to buy down interest rates, which we believe help boost conversion rates.

During the quarter, we recognized $0.9 million of costs on forward commitments, which is recorded as an offset to revenue. We expect to continue to utilize these rate buydowns through the end of the year as we focus on a pace over price philosophy. Turning to our third 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 20.5% to 21.5%. While incentives will continue to pressure margins, we are maintaining discipline in how and where we deploy them. We ended the second quarter with 92 active communities and expect to see that number continue to grow modestly throughout the remainder of the year. 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 half 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 of our 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: [Operator Instructions] Your first question comes from the line of Sam Reid of Wells Fargo.

Q&A Session

Richard Samuel Reid: Definitely great to see the gross margin come in at the high end of the guide for the second quarter. Just curious what you’re seeing from a stick and brick labor standpoint or either of those tailwinds relative to expectations in the quarter? And then looking to your third quarter guide, it does look like the homes you’re planning to sell and close intra-quarter will be carrying a lower margin relative to your backlog. Just curious what’s embedded in your gross margin assumptions from an incentive standpoint, especially as it sounds like you’re stepping up finance incentives.

Gregory S. Bennett: Yes. Sam, the sticks and bricks were flat during Q2. They’re down year-to-date a little. I’ll let Russ hit a little bit on the gross margin pressure.

Russell Devendorf: Yes. So what we assume for Q3 is continued incentives, particularly on the forward commitments. So we’ve had some success with the rate buydown. So we implemented — we started really back at the end of the first quarter and carried it through second quarter. So we’ve seen that it’s a pretty good traffic driver. So we’ve been buying rates down to — on a fixed basis to 4.99%. We started to implement a 5/1 ARM at a 3.99, and it’s been pretty good from a traffic standpoint. So that’s really the expectation is we’ll at least continue that through the third quarter and really just kind of monitor it as we move along. The nice thing is we did see a little bit of a tick down in rates and certainly the cost of the forward. So that was nice this past week, but that’s kind of our assumptions going forward.

Richard Samuel Reid: That’s helpful. And then maybe switching gears, just touching on lots. So it looks like your controlled lot position is up almost about 60 or so percent year-over-year. Maybe just break out kind of what that looks like in your existing markets versus how much of that might have come from some of the newer markets that you’re looking to enter like Dallas and the Gulf Coast. Just so we can kind of contextualize what that looks like in the context of your existing operations.

Russell Devendorf: Sure. Yes, nothing yet from the Gulf Coast. But for Dallas, we’re probably 600 or so lots, I believe, in there. And then we had a significant bump in Chattanooga over the last 6 to 12 months, which is part of our Atlanta division, but really, it’s something that we’re looking at as a possible stand-alone division in the future. So we’ve got some growth in there. Central Georgia as well, which we also mentioned about 6 months ago, we divisionalized that. That’s kind of another split from Atlanta because of the continued growth in our largest division. But Middle Georgia, Central Georgia is Perry making that is really kind of south of I-20, if you know the Atlanta market. And so we’ve picked up quite a few lot positions.

And then obviously, Greenville was another division that we opened last year, and we continue to pick up lots. So it’s coming — I mean it’s actually a pretty good spread across the footprint of the company. Houston, clearly, we continue to drive growth. We think going from close to 400 closings last year, we’ve got a view that, that can be another 1,000 unit market for us in the next few years. So we continue to add lot positions. So it is spread across the company, but hopefully, that gives you a little bit of color in some of the newer spots that we’re entering.

Operator: Your next question comes from the line of Mike Dahl of RBC Capital Markets.

Stephen Mea: You’ve actually got Stephen Mea on for Mike Dahl today. I wanted to start by kind of checking in on your thoughts for the outlook for the full year. Obviously, third guide — third quarter guide is super helpful and I want to fully respect the volatility in the current macro with everything going on out there. But I was kind of hoping you could share with us how you’re thinking about the kind of 3,000 to 3,100-ish homes target you gave us last quarter and kind of what may have changed with that if that’s kind of still a good guidepost? And if there’s any more details you could give us on how you’re thinking about the balance of the year, that would be helpful.

Russell Devendorf: Sure. Yes. Obviously, we feel a lot better about giving Q3 guidance. It’s — just given the environment, it’s pretty difficult to forecast too far out. Obviously, we put out 3,000. That’s a goal for us as a company. It’s definitely achievable. We certainly have the lot positions. We’ve got the community count. So it’s really going to depend on demand for us. And look, we’re — as Greg mentioned, I mean, we’ve got a pace over price philosophy. So for us, it’s really just finding that price in which we can continue to clear inventory and continue to push sales. But 3,000 is in our sights, 3,000 plus would be great. And so it’s really going to depend on the demand and more of the macro environment if we can get there.

We did — we felt like we had a pretty good balance this quarter, and we’ve started using incentives and driving traffic. And the nice thing is just this past week, we had — I don’t know if it was a contribution of kind of where rates moved last week, but we did see a nice uptick in traffic and had a pretty good week of sales this past week. So we’ll see, but it’s still a target of ours.

Stephen Mea: That’s super helpful. I appreciate the context there. Secondly, I had a question on the land side. You mentioned last quarter that you were starting to see some cracks in sellers out there. So I was wondering kind of from a higher level, what your current view of the kind of land landscape is and what may have changed from last quarter to this quarter and your overall views on that.

Gregory S. Bennett: Yes. Thanks. I’ll take that. We’re — we are seeing some softness in the land. It’s really not a lot of pullback on price. We are seeing the ability to go back on some terms and more favorable negotiating. But on the land itself, it’s still holding. But there’s a fair amount of retrading going on currently, and I think we’ll see that continue probably through the end of the year yet.

Operator: The next question comes from the line of Andrew Azzi of JPMorgan.

Andrew Azzi: Would love to kind of focus in on maybe give an update for how you’re thinking about community count growth. I mean, I think with — obviously, I don’t think you necessarily guided to 3,000, but if that were the case, that would imply a nice year-over-year growth and closings in 4Q. So just wanted to see if you guys can expand on that any further.

Russell Devendorf: Sure. Yes. Look, it was — clearly, that was a little bit of a soft guide I gave on the last question. But like I said, it’s good to have goals, right? So that 3,000 is a target for us. We’d like to get there. As far as community count, so like I said, we’ve got the community count. The other thing to keep in mind with some of our community, the way we count it, we’ve got a few communities in Houston where we’ve got some different lot sizes, more or less the same product. So there’s probably — our community counts may be overstated or it includes really like probably 3 communities where you’ve got a couple of lot sizes, but we do count them as separate communities. So you typically don’t get the same absorption pace in — where you’ve got a couple of different single-family lot sizes.

So I just want to at least highlight that. But yes, we think that there’ll be some moderate growth with community count through the back half of the year. And you’re right, I mean, fourth quarter, we’ve got some expectations. We’ve got the inventory in the ground. When you look at our spec levels today. They’re a little more elevated than we normally have. We’re primarily a presale builder. But with the way that we operate from really an assembly line manufacturing approach, we continue to watch our inventory levels, but we’re pushing pace and pushing incentives so that we can target our absorptions and try and get to our closing number. So hopefully, that gives you a little color.

Andrew Azzi: Always helpful. I guess for my second question, I just wanted to expand on — maybe if you can expand on the decision to enter DFW. Obviously, I think that’s positive — a net positive. But given kind of the inventory dynamics there and potentially some oversupply, what drove that decision and kind of your strategy going forward for greenfields there and into other markets in the future?

Gregory S. Bennett: Yes, I’ll take that. We — if we entered Houston, part of that message was kind of it’s a launch pad for us across Texas with DFW being in the sight. We’ve actually been on the ground in DFW for several months now. Working on some opportunities and trying to be opportunistic where it was available and feel like we’ve got some really good positions there. We understand the dynamics in that market presently, but feel like as in any of our markets, we’re in a good place with those lots that we’ve secured.

Russell Devendorf: Yes. The only other thing I’d add there is, obviously, with our business model, we maintain a pretty conservative balance sheet. And there was a really good opportunity to pick up finished lots. And we’re definitely seeing some dislocation in the market there. Like you said, I think there’s there are some builders that are struggling. Our hope is that, clearly, we’re getting it at a time where we think there’s opportunity. Could there be some continued softness? Sure. But we just feel like with our balance sheet and really our long-term philosophy, we’re going to — we know we’re going to be there. It just felt like the right time, and we can pick up finished lots with some pretty low deposits. And so really limits the risk, but it’s a good time for us to start taking advantage of some opportunity.

Operator: The next question comes from the line of Rafe Jadrosich of Bank of America.

Rafe Jason Jadrosich: First wanted to ask just with the DFW and Gulf Coast entries, how do we think about just the SG&A run rate from here? Is there any sort of incremental investment as you ramp up into some new markets here? And then how do we think about — you have a building strategy, which is very efficient. How do we think about when those markets are able to get scale and you’re able to like implement R team at what level of deliveries do you need to get to before that hits that run rate?

Russell Devendorf: Sure. Like we mentioned in the prepared remarks, probably about half of where we saw the year-over-year increase in SG&A was really from some of these new divisions. And so it’s really payroll, it’s headcount cost. That’s the big driver when you’re doing a greenfield start-up is just putting some boots on the ground there. So yes, I think, look, the cost is — there’s a cost. It’s moderate, but maybe $1 million, a couple of million dollars in the first year to really get a division going before you start seeing some significant sales closings. But when we do a greenfield start-up, the plan is within the first 2 years, we’d like to get — and you know the way that we do business with our RT model, kind of our geographic pause.

But within the first 2 years, the plan is always to get to a run rate of about that 200 closings, which is full R team. So it’s usually about 2 years before you start seeing some — generating some profits. The hope is that those first 12 to 18 months, you’re going to get to kind of a breakeven and then kind of you get that run rate of 200. And then every, call it, 18 months or so, you — you’d like to see adding another R team, so another 200 units and get to 400. I mean that’s our approach is that we want to enter markets where we can get at least 2 full R teams. And certainly, with Dallas, that’s the largest market in the country. That’s a market where we’d love to see within 5 years plus, 1,000 — we hope that we can get to 1,000, deliveries there, just kind of like we’re targeting in Houston when we did that acquisition.

So that’s really the thought process and how that math works for us.

Rafe Jason Jadrosich: That’s really helpful. And then when we look at the backlog is obviously down quite a bit year-over-year. Like how do you think about the percentage of spec going forward here? Like where has it been historically? Where was it in the quarter? And like how do we think about it going forward and like your comfort level in spec shifting to a little bit more spec versus BTO?

Russell Devendorf: Yes. Historically, really pre-COVID, we really are 70-plus percent presale versus spec — and before we hit drywall, which we call line in the sand, we’re normally 90-plus percent of our homes have a contract on it. So again, we are — we continue to be focused — heavily focused on presale. It’s just — really, it’s the market that’s kind of driving a little higher spec levels for us and what we’re seeing in our new home competitors just with the specs on the ground, and that’s where a lot of the opportunities are for buyers from an incentive standpoint. So we’re probably closer to 50%, 60% right now, but we are — we continue to push and have some ideas to try and continue to push more presale. I mean that’s obviously a focus.

But we’ve been successful. We do have some higher levels of inventory. So while the backlog is down, you will see our inventories up a bit — but again, we’ve just been selling at a higher spec rate. So backlog turnover is obviously increased and — but we’re getting some higher spec sales. So again, given our guidance for the third quarter and a little bit of that soft guidance I gave for the back half of the year, I feel like we can get to our numbers. But our focus is and always will be presales, but it’s just — it’s really kind of the market that’s driving a little bit of that shift right now, and we’re focused on getting back to higher presale levels when the market starts to hopefully move in our direction.

Operator: And your next question comes from the line of Jay McCanless of Wedbush.

Russell Devendorf: Jay, are you there on mute?

Jay McCanless: Sorry about that. So Russ, if you don’t mind, I heard the June and the July absorption numbers, but could you give the April and May, please?

Russell Devendorf: Joe is pulling it up. I think April was 3, if I recall, because I think we gave that on the last.

Joe Thomas:

SVP of Accounting & Finance: I think it was 2.8 and 2.5 Yes.

Russell Devendorf: Yes. It was higher in April. It trended down to maybe flat in May and then kind of as we move through the summer. But I can’t get good help, Jay. It’s taking Joe a while to pull up numbers. We’ll circle — when Joe…

Jay McCanless: Yes, I’ll follow up afterwards. No problem on that. And then I guess the next question I had, so with the loose kind of 3,000 closing number you called out, that’s what, almost 970, 980 you’re going to need to close in the fourth quarter. Does that feel achievable? And do you think you’re going to have to lean into the incentives and hit the gross margin to sell some of this excess spec inventory? Is that kind of how you guys are thinking about the rest of the year?

Russell Devendorf: Yes, for sure. I mean, look, again, we’re pace over price. So it’s clearly a matter of just leaning into incentives to the extent that it’s needed to drive that pace. Like I mentioned, it’s not a community count issue. It’s not a construction issue. Our cycle times actually continue to improve. So credit to our operators out in the field. It’s really just trying to hit a price that can get that demand going. So again, our goal is $3,000. Could it be $2,900? Sure. It’s just — a lot of it is just going to depend on price and incentives. And that’s why I haven’t touched margin because who — it’s real difficult to figure out where that margin is going to be to get that pace, but that’s our focus.

Jay McCanless: I think it’s worth calling out.

Joe Thomas:

SVP of Accounting & Finance: And Jay just circling back, it was 2.8 in April, 2.4 in May.

Russell Devendorf: And in June looks like — 2.8 in June. So tick back up in June and then you have the numbers we gave for July and August, or July.

Jay McCanless: I’d love to have that August number already if you got that, that would be a good one. So it’s actually encouraging, I think, that you guys are saying that if you give a little more on incentives that the consumer is responding because some of your larger competitors have talked about how even if they did lean in and put more incentives in, it’s not making the consumer react. So maybe talk a little bit, if you could, about what type of uptick you’re seeing when you do lean into the incentive because that’s different from what we’ve been hearing from some of your larger competitors.

Russell Devendorf: Yes. Look, at least for us, it’s definitely — so we weren’t a big user. We really did our first forward commitments in — at the end of Q1, and we pushed it into Q2 because we did see an uptick in traffic. And we do feel like we’re getting a little bit better conversion rate. So it’s — I can’t quantify exactly, but we continue to monitor. We talk to the field on a regular basis and just try to figure out what’s working, really try to continue to educate our sales folks on, hey, these are the positives of using these incentives. We implemented kind of that ARM product this last several weeks because at a $3.99 rate, getting folks to be able to qualify at that $3.99 rate is a big deal, especially for our buyer.

For us, it’s — our buyers, it’s really figuring out that payment. We’re still giving closing costs. So we’re also giving 0 closing cost plus that $3.99. It’s a really attractive opportunity. And so it’s like we said last quarter, it’s some of what’s happening in the market, I feel is a confidence issue by consumers. But hopefully, as there’s not as much noise, people start feeling good into the back half of the year. And like I said, these incentives feel like they’re working for us. And so we’ll continue to monitor and continue to push it to the extent that we feel like it’s helping out.

Jay McCanless: Okay. That’s great. And then the last one for me. I know you all talked about your stick and brick. It sounds like that’s a little better. But I think there is the looming threat potentially of higher lumber prices depending on what happens with this Canadian softwood lumber agreement. I guess, are you all seeing any pricing letters from your suppliers? Are you all starting to see anecdotally any signs of lumber prices starting to move up? And if so, when do you think it might hit your income statement?

Gregory S. Bennett: Jay, this is Greg. We’ve not seen any letters presently. So there’s a lot of discussion around tariffs. There’s a lot of discussion about potential. But as of present moment, we’ve not had any notifications of impact.

Operator: [Operator Instructions] Your next question comes from the line of Alex Barron of Housing Research Center.

Alex Barrón: Congratulations on the reduction in the build times. I was curious on that subject, if there’s anything you can share on how you’ve been able to achieve those reductions? And do you feel like there’s any further potential? Or do you feel like that’s as good as it gets?

Gregory S. Bennett: Yes, we’ve got a stated goal company-wide that we want to be at days on our build. So yes, we still believe there’s opportunity. The pace over price is our lever that we use with our trays to help drive our waste and our cost. So they know they’re getting a commitment of starts, and that allows us to be more reliable in our assembly process.

Operator: Your next question comes from the line of Paul Przybylski of Wolfe Research.

Paul Allen Przybylski: I guess you’ve got the 2 new greenfields you just announced, but could you give us an update on what you’re seeing with respect to the M&A environment and your appetite for M&A given current volatility and how you would even go about underwriting a deal given the unknowns out there?

Russell Devendorf: Yes. No, good question. There’s definitely M&A opportunities out there. We absolutely — we’re always looking. We evaluate opportunities. But again, for us, it’s all but Houston, we’ve done through a greenfield. We feel really confident and comfortable in our ability to open new divisions through greenfields. It’s — obviously, it takes a little bit longer to get ramped up. But we’re okay with that. We’re patient. Our majority shareholders are patient. We’re not looking at this as a sprint. This is a long-term play, long-term view that we’re taking. And really the objective — the main objective is to build a durable company and stick to the culture and the things that have made us really good, and it’s easier to do that through greenfields.

And the one thing we didn’t mention, but the two folks that are going to be heading up these operations are internal folks that have been at the corporate level for a long time. And and really get how we do things. So we’re really fortunate, and that’s how we look like we always look to promote internally, and we feel like that’s the best way to do it. Now that said, if there was a really good opportunity that we can — we felt like we were getting a really good deal, sure. I mean, we’d look at it. Like I said, there’s opportunities out there, but it’s tough to want to pay a big premium in today’s environment. It’s still — I’d say M&A is still not cheap. I think things are getting a little more realistic, but there may be a time and a place for it for us.

But for now, we feel pretty good about the direction we’re taking on the growth side of things.

Paul Allen Przybylski: Okay. And then I guess kind of related to that, have you made any changes to your current land underwriting standards? Have you pushed up your hurdle rates? And along with that, have you seen any change in financing costs given the volatility from the keeps up off balance sheet?

Gregory S. Bennett: Yes. On the latter part, really not a lot of term changes, but we are focused on our mature divisions, we want to maintain pace, and we’re underwriting based on our ability to maintain pace and market share. And then on our newer divisions, maybe our underwriting is a touch softer, but we’re still very conservative as we look to those new markets, knowing that we’ve got to ramp up. So not any real change overall to underwriting, but we’re totally aware of the market conditions.

Operator: And with that, I’d now like to hand the call back to Greg Bennett for final remarks.

Gregory S. Bennett: Thank you, everyone, for joining us today on behalf of Smith Douglas and the whole management group. We appreciate your interest and your involvement today. Have a great day.

Operator: Thank you for attending today’s call. You may now disconnect. Goodbye.