•“持续权益所有人代指在交易完成前是Smith Douglas Holdings LLC有限责任公司持股人的LLC权益所有者，在交易完成后也是LLC权益和我们的B类普通股持有人，包括创始人基金和GSb Holdings，他们可以根据各自的期权，全数或部分地不时将其LLC权益（如适用）选择性地与我们选择的（仅由我们的独立董事（根据交易所规则的含义）决定，他们为无利害关系方）现金交换或作为《第三部分，项目13。某些关系和相关交易》和《董事独立性- Smith Douglas LLC协议》所述的我们A类普通股的新发行股份 第III部分第13项。某些关系和相关交易和董事独立性- Smith Douglas LLC协议 的年度报告(Form 10-k)中描述，截至2023年12月31日，我们的“年度报告”。与交换LLC权益相关，相应数量的B类普通股将立即自动转让予Smith Douglas Homes corp.，并无偿取消。
•“受控批「受控批」指在选择权合约设定的相关时间范围内，已拥有或持有采购权的批次。
•“德文街房屋“” 指的是德文街房屋有限合伙公司
•“Devon Street Homes收购”指的是2023年7月31日达成的交易，根据该交易我们收购了Devon Street Homes的几乎所有资产。根据资产购买协议（“APA”），购买价格等于Devon Street Homes的净资产，不含现金，无负债，再加上一笔同意的保险金，主要由房地产存货组成，需根据购买价格进行调整。我们从手头现金，我们之前信贷工具的7200万抽取款项，一张面额500万的三年期本票支付给卖方，以及约300万的对卖方的有条件赔偿款项中，主要来资助购买价格8390万美元。有条件的赔偿款项将在实现一定毛利率目标后支付给卖方。 我们2023年的未经审核的基本报表截至于 2024年9月30日，包括Devon Street Homes的营运结果，可能与上一期不直接可比。
•“交易所「”」指的是纽约证券交易所。
•“创始人基金“” 指的是Bradbury家族信托第II A U/A/D于2015年12月29日成立，我们的创始人兼执行主席Tom Bradbury担任共同受托人。
•“有限责任公司股权「」指的是Smith Douglas Holdings LLC的会员单位，包括我们从首次公开募股的净收益中购买的那些。
•“再融资「”」指的是（i）与我们的首次公开发行同时，Smith Douglas Holdings LLC及我们的某些全资子公司进入修订和重新签署的循环信贷设施（“修订信贷设施”），取代了与伟华银行国家协会作为该等贷款人代理人（“贷款人”）签署，日期为2021年10月28日，并自该日期起修订的未担保循环信贷设施（“先前信贷设施”）成合约，修订签署的“修订信贷设施”），及（ii）使用首次公开发行的净收益的一部分偿还我们先前信贷设施下的8400万美元未偿还款项（“偿还债务”）。
•“第704(c)条款分配”指的是根据1986年修订版《内部税务法典》第704(c)条款在Smith Douglas Holdings LLC持有的存货财产中的收入和收益可能存在的不成比例分配，源自我们从Smith Douglas Holdings LLC收购LLC权益包括与交易相关的情况。
•“我们,” “我们,” “我们的合约公司,” “Smith Douglas及类似的提及是指：（i）交易完成后，包括首次公开发行（IPO）后的Smith Douglas Homes公司及其直接和间接子公司，包括Smith Douglas Holdings有限责任公司；（ii）在交易完成前，包括IPO前的Smith Douglas Holdings有限责任公司。
交易纪录
Smith Douglas Homes公司是一家成立于2023年6月20日的特拉华州公司。Smith Douglas Homes公司是一家控股公司，也是Smith Douglas Holdings LLC的唯一管理成员，其主要资产是LLC股权。在我们的IPO和交易之前，所有的业务运营都是通过Smith Douglas Holdings LLC进行的，而持续股权拥有者是Smith Douglas Holdings LLC的唯一成员。为了完成IPO，我们进行了某些组织交易，下面将进一步描述，以重组我们的公司结构：
•我们修订了Smith Douglas LLC协议，旨在，除了其他事宜外，(i) 将Smith Douglas Holdings LLC中所有现有的所有权益重新资本化为44,871,794 LLC利益（在考虑IPO所得的使用之前，如下所述），(ii) 任命Smith Douglas Homes corp.为Smith Douglas Holdings LLC的唯一管理成员，该任命将在其获得与IPO相关的LLC利益后生效，以及(iii) 向持续的股权所有人提供某些赎回权利；
•我们修改并重订了Smith Douglas Homes Corp.的公司章程，其中包括：(i)规定A类普通股，每股A类普通股都赋予持有人在一般股东会上每股一票的表决权；(ii)规定B类普通股，在日落日期之前，每股B类普通股都赋予持有人在一般股东会上每股十票的表决权，而日落日期发生后，每股B类普通股将赋予持有人在一般股东会上每股一票的表决权；(iii)规定B类普通股只能由持续持股股东及其合法转让人持有；以及(iv)预先股，可由董事会在不需股东批准的情况下以一个或多个系列发行。
•Smith Douglas Holdings LLC利用出售LLC股权给Smith Douglas Homes Corp.的净收益，(i) 用于还清偿前信用设施下未偿还之约8400万美元的借款，作为再融资的一部分， (ii) 以260万美元总计赎回Smith Douglas Holdings LLC的所有未赎回的C类单位和D类单位， (iii) 用于偿还向某些关联方的90万美元应付票据，以及 (iv) 用于根据我们在本季度报告第10-Q表格中阐明的一般公司目的。 第I部分，项目2。管理层对财务状况和业务结果的讨论和分析-流动性和资本资源 在这份第10-Q季度报告书中， 第III部分，项目13。某些关系和相关交易，以及董事独立性 在我们的年度报告中；
•Smith Douglas Homes corp.与部分持续股权拥有人签订了（i）登记权协议，以及（ii）与Smith Douglas Holdings LLC和持续股权拥有人签订的税收可收回协议。有关登记权协议和税收可收回协议条款的描述，请参见 我们年度报告的第III部分第13条「特定关系和相关交易，以及董事独立性」 。
跟进交易：
•Smith Douglas Homes公司是一家控股公司，其主要资产包括直接从Smith Douglas Holdings LLC和每位持续股权所有者处收购的LLC股权；
•Smith Douglas Homes公司是Smith Douglas Holdings有限责任公司的唯一管理成员，并控制著Smith Douglas Holdings有限责任公司的业务和事务；
•Smith Douglas Homes公司直接或间接拥有8,846,154个LLC利益，占有Smith Douglas Holdings LLC大约17.3％的经济利益；
•持续股权持有人拥有（i）42,435,897个LLC股份，占Smith Douglas Holdings LLC经济利益的约82.7%，以及（ii）42,435,897股Smith Douglas Homes corp.的b类普通股。
我们在首次公开发行后的企业结构通常被称为伞型合伙-C公司（“Up-C”）结构，当合伙关系和有限责任公司进行业务首次公开发行时，这种结构经常被使用。Up-C结构允许持续股权拥有者保留他们在史密斯道格拉斯控股有限责任公司的股权所有权，并继续实现与拥有被视为合伙关系或“流通”实体以供美国联邦所得税目的的利益相关的税收优惠。相比之下，我们IPO后的投资者将持有史密斯道格拉斯房地产公司的股权，这是一家美国联邦所得税目的的国内公司，形式为A类普通股的股份。与该结构相关的持续股权拥有者的一项税收优惠是，分配给持续股权拥有者的史密斯道格拉斯控股有限责任公司的未来应税收入将以流通方式征税，因此将不受实体层次的企业税影响。此外，由于持续股权拥有者可以通过史密斯道格拉斯控股有限责任公司赎回他们的LLC权益（或根据我们的选择，由史密斯道格拉斯房地产公司直接交换）以每一比一的方式换发我们的A类普通股（经常性调整，包括进行拆股并股、送转和重分类），或者根据我们的选择，换发现金，因此Up-C结构还为持续股权拥有者提供了未公开交易的有限责任公司股东通常无法获得的潜在流动性。在任何此类LLC权益赎回或交换相关活动中，相应数量的由相关的持续股权拥有者持有的B类普通股将自动转让给史密斯道格拉斯房地产公司而无需支付任何代价并将被取消。持续股权拥有者和史密斯道格拉斯房地产公司还预计将从造成的由持续股权拥有者的LLC权益换发A类普通股或现金所引起的部分现金税收节省以及由“税收可收回协议”所涉及的其他税收益处对Up-C结构受益。 第三部分，项目13。某些关系、相关交易和董事独立性—税款可收回协议。见 第一部分，项目1A。风险因素—与我们组织结构相关的风险 我们年度报告的。一般而言，持续股权拥有人预计将根据税款可收回协议收到某些税务优惠金额的85%的支付，如下所述，Smith Douglas Homes Corp. 预计将以现金税收节省的形式受益，其金额等于某些税务优惠金额的15%，如下所述。我们向持续股权拥有人根据税款可收回协议支付的任何款项将减少因此税款储蓄而产生的现金。我们预计此类付款将是可观的。
•adjusted net income, defined as net income adjusted for the tax impact using a 24.5% 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);
•EBITDA, defined 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;
•EBITDA margin, defined as EBITDA as a percentage of home closing revenue;
•our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the Continuing Equity Owners that will not benefit holders of our Class A common stock to the same extent that it will benefit the Continuing Equity Owners;
•the significant influence the Continuing Equity Owners have over us, including control over decisions that require the approval of stockholders; and
•the factors set forth under Part I, Item 1A. Risk Factors of our Annual Report.
Because forward‑looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, you should not rely on these forward‑looking statements as predictions of future events. The events and circumstances reflected in our forward‑looking statements may not be achieved or occur and actual results could differ
materially from those projected in the forward‑looking statements. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward‑looking statements by these cautionary statements.
These forward‑looking statements speak only as of the date of this Quarterly Report on Form 10-Q. Except as required by applicable law, we do not plan to publicly update or revise any forward‑looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of any new information, future events or otherwise.
关于首次公开发行（IPO），Smith Douglas Holdings LLC修订并重新制订其现有有限责任公司协议，其中包括（i）将Smith Douglas Holdings LLC中的所有现有所有权利益重估为
44,871,794 有限责任公司利益（在下文所述的IPO筹款使用发生前），（ii）在IPO时将Smith Douglas Homes Corp.任命为Smith Douglas Holdings LLC的唯一管理成员，并（iii）为Smith Douglas Holdings LLC中的有限责任公司利益所有者（不包括公司（持续权益拥有者）提供特定赎回权。
同时，史密斯道格拉斯住宅股份有限公司修订并重新订其注册证明书，其中包括为 A 类普通股规定 (i)，而 A 类普通股的每股股份都让其持有人权 一 一般向股东呈交的所有事项，每股投票；(ii) 对 B 类普通股票而言，每股 b 类普通股的股东均可享有权 十 一般向股东呈交的所有事项，每股每股票投票，直至当时尚未发行的 b 类普通股股份总数少于 10当时未发行 (日落日) A 类普通股及 B 类普通股的总股数的百分比，以及从日落日起及之后，每股 b 类普通股将授权其持有人 一 一般向股东呈交的所有事项，每股投票；(iii) 持续股权拥有者及其各自允许转让人持有的 B 类普通股股份只能持有人持有；及 (iv) 优先股票，由董事会在未经股东批准下以一或多个系列发行的优先股票。因此，史密斯道格拉斯住宅公司成为控股公司，也是史密斯道格拉斯控股有限公司的唯一管理成员，并控制史密斯道格拉斯控股有限公司的业务和事务。在实施如下所述的净资金使用后，史密斯道格拉斯住宅股份有限公司发行 42,435,897 持续股权拥有者的 b 类普通股股份，相等于该持续股权拥有者持有的有限责任公司权益数目，以名义代价。
在首次公开募股之后，Smith Douglas Homes corp. 使用净收益来：(i) 以每股价格相等于每股A类普通股的IPO价格减去包销折扣的价格，从Smith Douglas Holdings LLC 直接购买新发行的LLC权益。 6,410,257 从Smith Douglas Holdings LLC以每股单位价格为每股相等于$的价格，约$百万直接购买新发行的LLC权益。125.2 每股单位价格为每股相等于$IPO价格的A类普通股减去包销折扣的价格，从持续股权拥有人按比例购买LLC权益，总价为$百万。21.00 以每股单位价格为每股相等于$IPO价格的A类普通股减去包销折扣的价格，从持续股权拥有人按比例购买LLC权益，总价为$百万。 2,435,897 在首次公开募股之后，Smith Douglas Homes corp. 使用净收益来：(i) 以每股价格相等于每股A类普通股的IPO价格减去包销折扣的价格，从Smith Douglas Holdings LLC 直接购买新发行的LLC权益。47.6 每股单位价格为每股相等于$IPO价格的A类普通股减去包销折扣的价格，从持续股权拥有人按比例购买LLC权益，总价为$百万。
附带的未经审计的简明合并基本报表包括Smith Douglas Homes corp。、Smith Douglas Holdings LLC和其全资子公司的账目。Smith Douglas Holdings LLC被视为一个变量兴趣实体，而Smith Douglas Homes Corp.是Smith Douglas Holdings LLC的主要受益人和唯一的管理成员，并具有决策权，其行动对实体的绩效产生重大影响。基于此，公司合并Smith Douglas Holdings LLC，并报告代表由持续权益拥有人持有的Smith Douglas Holdings LLC的经济权益的非控股权益。
Smith Douglas Homes corp.被视为一家C级子公司，需遵守联邦和州税法的规定。Smith Douglas Homes corp.唯一的实质资产是其对Smith Douglas Holdings LLC的所有权权益，后者是一家依美国联邦和某些州地方所得税目的征税的有限责任公司。Smith Douglas Holdings LLC的净应征所得和相关税收抵免（如有）将通过至其成员，并包含在成员的税务申报中。公司未将征税关于归非主导股东的收益的所得税负担报告于其根据美国通用会计准则编制的未经审计的简明合并基本报表中。
就IPO和相关交易而言，公司与Smith Douglas Holdings LLC和持续股权拥有者签订了一份TRA，根据该协议，Smith Douglas Homes corp.将支付给持续股权拥有者的款项为 85Smith Douglas Homes corp.实现（或在某些情况下被视为实现）相关于基础税基调整的税收好处金额的%，当此类节省实现时。
在2023年12月31日以及期间，我们的退休金计划资产的投资指南旨在将投资分配目标设置为%股票和%债券。 三个和九个月 结束于 期间 年9月30日, the Company incurred fees of $16,000 和$0.4 million, respectively, in the aggregate from certain entities affiliated by common ownership for use of facilities related to business development and vendor relations, which is included in selling, general and administrative costs in the accompanying unaudited condensed consolidated statements of income. During the three and nine 结束的 月份 2023年9月30日，均未发行和流通公司支付了 使用这些设施的费用。 零 分别是$数量和$数量。0.4 百万美元的设施使用费。公司支付了使用这些设施的费用，金额为 $0.1 百万和 $0.4 百万元在中国现金及等价物 九 结束于这些月份的 分别为2024年和2023年的9月30日. 没有 在结束于这些月份时支付了使用这些设施的费用 三个月的普通股东可获得的收入。 这些月份结束时支付了这些设施的使用费 2024年和2023年九月30日.
将归属于非控股权益的净利润加回到完全稀释计算中的净利润已经调整了应赋税的所得税，假若所得已经获得Smith Douglas Homes corp.，一个应征税的实体。在每股稀释计算的加权平均流通股份假设所有未清盘的LLC Interests都已赎回，并且公司选择在赎回时发行A类普通股股份，而非以现金结算。
以下讨论与分析提供了我们认为与评估和理解我们营运业绩和财务状况相关的资讯。您应该阅读本分析，并结合我们未经审计的简明合并基本报表以及本季度报告书中其他地方出现的相关附注。除了历史财务信息外，本讨论与分析还包含与未来事件或我们未来财务绩效相关的具前瞻性质的陈述，这些陈述基于我们目前的计划、期望和涉及风险和不确定性的信念。这些陈述仅为预测，实际事件或结果可能有很大不同。在评估这些陈述时，您应仔细考虑年度报告中确定的各种因素，该报告已由本季度报告书更新，这些因素可能导致实际结果与任何前瞻性陈述中所表达或意味的结果有很大不同，包括在 Part I, Item 1A. Risk Factors 在我们年度报告中设定的那些。 我们年度报告的第 I 部分，第 1A项。风险因素 我们年度报告的一部分。
在IPO完成后，Smith Douglas Homes corp. 按照现行公司税率就其可分派的 Smith Douglas Holdings LLC 的应税收入而言，受美国联邦、州和地方所得税的约束。Smith Douglas Holdings LLC 作为一家有限责任公司运营，对所得税目的被视为合伙关系。因此，它对联邦或州所得税无重大负债，因为可征税所得或损失将通过给其成员来进行。
Net income for the three months ended September 30, 2024 增加d by $390万，或 11% from the same period of the prior year。 增加 主要原因是由于一个 增加 了 1660万美元 房屋结业毛利润的增加，部分抵消了增加 了 $1120万 由于佣金和广告费用增加，销售、一般和行政成本增加。 $180万 因为IPO和重组交易，截至2024年9月30日的三个月所产生的所得税支出。
亚特兰大： The 760万美元增加 2024年9月30日结束的三个月的净利润，与前一年同期相比主要是因为房屋交易量增加了51％，部分抵销了房屋成本平均增加了5％以及与增加的房屋交易有关的额外销售、一般和管理成本。 51％的房屋成交量增加部分抵消了房屋成本平均增加5％以及伴随增加房屋交易而产生的额外销售、一般和管理成本，导致2024年9月30日结束的三个月的净利润下降。
调整后的净利润并不是根据GAAP所确定的净利润或净利润率的衡量标准。调整后的净利润是一个管理层和外部用户（如行业分析师、投资者、贷款方和评级机构）使用的补充非GAAP基本报表。我们将调整后的净利润定义为经过税务影响调整的净利润，使用一个 24.5% 联邦和州的综合税率（假设100%公共持有，以调整税收对于与Smith Douglas Holdings LLC相关的收益的影响，假设Smith Douglas Holdings LLC在所呈现的期间内是一家子章节C公司）。
管理认为调整后的净利润是有用的，因为它让管理能够更有效地评估我们的营运表现，并与那些在所得税前记录所得税费用的行业同行进行比较，而不是像Smith Douglas Holdings LLC的所得未在实体层面征税，因此并不反映所得税费用的支出。 调整后的净利润不应被视为按照GAAP确定的净利润或任何其他指标的替代品或更有意义的资讯。我们计算的调整后的净利润可能与其他公司的调整后的净利润不可比较。 我们提供调整后的净利润，因为我们认为它提供有用的信息，关于我们与同行的可比性。
EBITDA、EBITDA利润、调整后EBITDA和调整后EBITDA利润并非根据GAAP确定的净利润或净利润利润公布的指标。 EBITDA和调整后EBITDA是管理层和我们综合财务报表的外部用户，如行业分析师、投资者、贷款人和评级机构使用的附加非GAAP财务指标。 我们将EBITDA定义为( i ) 利息收入 、 ( ii ) 计入房屋结业费用的资本化利息 、 ( iii ) 利息支出 、 ( iv ) 所得税开支 和 ( v ) 折旧前的净利润。 我们将EBITDA利润定义为EBITDA占房屋结业收入的百分比。 我们将调整后EBITDA定义为( i ) 利息收入 、 ( ii ) 计入房屋结业费用的资本化利息 、 ( iii ) 利息支出 、 ( iv ) 所得税开支 、 ( v ) 折旧 、 ( vi ) 从成本售货中包括的购入会计应用所引起的调整、( vii ) 从其他(收入)费用中包括的购入会计应用所引起的调整的净利润。 我们将调整后EBITDA利润定义为调整后EBITDA占房屋结业收入的百分比。
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 the competitive landscape 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 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.
On October 28, 2021, certain of our wholly-owned subsidiaries entered into a $175.0 million unsecured revolving credit facility with Wells Fargo Bank, National Association, as administrative agent for the Lenders, as amended on December 19, 2022, and as amended concurrently with the consummation of the IPO to the Amended Credit Facility. Smith Douglas Holdings LLC and Smith Douglas Homes Corp. were not parties to the Prior Credit Facility. Concurrently with the consummation of the IPO, we repaid the Prior Credit Facility.
Amended Credit Facility
Concurrently with the consummation of the IPO and pursuant to the Refinancing, Smith Douglas Holdings LLC and certain of its wholly-owned subsidiaries entered into the Amended Credit Facility, which amended and replaced the Prior Credit Facility, and conducted the Debt Repayment, pursuant to which we used a portion of the net proceeds from the IPO to repay the $84.0 million outstanding under our Prior Credit Facility. Smith Douglas Homes Corp. is not a party to the Amended Credit Facility.
The Amended Credit Facility, among other things, increases the aggregate principal amount of our revolving credit commitments to $250.0 million and extends the maturity date to January 16, 2027, provided that the borrowers may request a one-year extension of its maturity date. The Amended Credit Facility also includes a $100.0 million accordion feature, subject to additional commitments, and 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, among others, including requirements to maintain (i) a minimum tangible net worth equal to the sum of (a) $130.0 million, (b) 32.5% of positive pre-tax income earned in any fiscal quarter after June 30, 2023, (c) 75% of the equity proceeds of Smith Douglas Homes Corp. and its subsidiaries from the IPO and (d) 50% of new equity proceeds of Smith Douglas Homes Corp. and its subsidiaries after the IPO, (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 immediately to repay all amounts outstanding under the Amended Credit Facility. As of September 30, 2024, we were in compliance with all covenants related to the Amended Credit Facility.
As of September 30, 2024, there were no outstanding borrowings or letters of credit under the Amended Credit Facility.
The foregoing description of the Amended Credit Facility is qualified in its entirety by reference to the Amended Credit Facility, a copy of which is filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024.
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 that 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; provided, however, that 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 Structure and Part III, Item 13. Certain Relationships and Related Transactions,and Director Independence of our Annual Report.
Cash flows from operating, investing, and financing activities – comparison for the nine months ended September 30, 2024 and 2023
The following table summarizes our cash flows for the periods presented (in thousands):
Nine months ended September 30,
2024
2023
Net cash provided by operating activities
$
13,655
$
54,958
Net cash used in investing activities
(3,780)
(75,631)
Net cash (used in) provided by financing activities
(5,936)
1,512
Net increase (decrease) in cash and cash equivalents
We generated approximately $13.7 million and$55.0 million in net cash from operating activities for the nine months ended September 30, 2024 and 2023, respectively. Operating cash flows for the nine months ended September 30, 2024 benefited 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 were partially offset by a $61.5 million increase in real estate inventory and $23.1 million increase in deposits on real estate under option or contract. Operating cash flows for the nine months ended September 30, 2023 benefited from cash generated by net income of $93.5 million and non-cash operating expenses of $2.8 million, which were primarily offset by a $34.3 million increase in real estate inventory and $6.5 million increase in deposits on real estate under option or contract.
Investing activities
We used approximately $3.8 million and $75.6 million in net cash in investing activities for the nine months ended September 30, 2024 and 2023, respectively. The net cash used in investing activities during the nine months ended September 30, 2024 was primarily due to purchases of property and equipment and investments in unconsolidated entities. The net cash used in investing activities during the nine months ended September 30, 2023 was primarily due to $74.9 million used to fund the Devon Street Homes Acquisition.
Financing activities
Net cash (used in) provided by financing activities was approximately $(5.9) million and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively. The $7.4 million increase in cash used in financing activities was primarily attributable to net proceeds from the IPO and Reorganization Transactions of $115.7 million and a $30.9 million decrease in distributions to members of Smith Douglas Holdings LLC, partially offset by a $127.0 million increase in net repayments under revolving credit facility and a $23.3 million increase in net cash used in in real estate not owned transactions.
Material Cash Commitments
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 Operations of 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, 2024, we had 611 owned unstarted lots in real estate inventory on our balance sheet which represented only 3.4% 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, 2024, we had $73.9 million of non-refundable cash deposits under land and lot-option contracts pertaining to 9,572 lots with a remaining aggregate purchase price of approximately $612.8 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, 2024, 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 $32.7 million and $26.1 million as of September 30, 2024 and December 31, 2023, 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.
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 policies to our accompanying unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Some of those significant accounting policies requireus to make difficult, subjective, or complex judgments or estimates. An accounting estimate isconsidered to be critical if it meets both of the following criteria: (i) the estimate requires assumptionsabout matters that are highly uncertain at the time the accounting estimate is made, and (ii) differentestimates reasonably could have been used, or changes in the estimate that are reasonably likely tooccur 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, except as described below.
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.
In calculating the provision for interim income taxes, in accordance with ASC Topic 740, Income Taxes, an estimated annual effective tax rate is applied to year-to-date ordinary income. At the end of each interim period, we estimate the effective tax rate expected to be applicable for the full fiscal year. This differs from the method utilized at the end of an annual period.
For annual periods, income taxes are accounted for using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In assessing the realizability of deferred tax assets, we consider whether it is more-likely-than-not that the deferred tax assets will be realized. Deferred tax assets and liabilities are calculated by applying existing tax laws and the rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in the year of the enacted rate change.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authority, based on the technical merits of the position. As of September 30, 2024 and December 31, 2023, there were no known items which would result in a significant accrual for uncertain tax positions.
After the IPO and Reorganization Transactions, we are the sole managing member of Smith Douglas Holdings LLC. The non-controlling interests in the unaudited condensed consolidated statement of income for the three and nine months ended September 30, 2024 represent the portion of earnings attributable to the economic interest in Smith Douglas Holdings LLC held by the Continuing Equity Owners. The non-controlling interests in the unaudited condensed consolidated balance sheet as of September 30, 2024 represent the portion of the net assets of the Company attributable to the Continuing Equity Owners, based on the portion of the LLC Interests owned by such unit holders. As of September 30, 2024, the non-controlling interests were 82.7%.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 1—Description of the business and summary of significant accounting policies to 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.
We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an emerging growth company we choose to rely on such exemptions, we may not be required to, among other things, (i) provide an auditor’s attestation report on our systems of internal controls 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are exposed to market risk from changes in interest rates and inflation. These market risks arise in the normal course of business. During the three months ended September 30, 2024, there have been no material changes to the information included under Part II, Item 7A, Quantitative and Qualitative Disclosures About Market Risk, in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 4. Controls and Procedures.
Limitations on effectiveness of controls and procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10‑Q, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a‑15(e) and 15d‑15(e) under the Exchange Act). Based on that evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2024, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
From time to time, we are subject to mediation, arbitration, litigation, or claims arising in the ordinary course of business. The results of any current or future claims or proceedings cannot be predicted with certainty, and regardless of the outcome, litigation can have an adverse impact on us because of defense and litigation costs, diversion of management resources, reputational harm, and other factors. We do not believe that any existing claims or proceedings will have a material effect on our business, consolidated financial condition or results of operations.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed under Part I, Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023. These factors could materially adversely affect our business, financial condition, liquidity, results of operations and capital position, and could cause our actual results to differ materially from our historical results or the results contemplated by any forward-looking statements contained in this Quarterly Report on Form 10-Q. There have been no material changes in the risks affecting the Company since the filing of our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Recent Sales of Unregistered Securities
None.
Use of Proceeds
None.
Purchases of equity securities by the issuer and affiliated purchasers
Asset Purchase Agreement, dated July 31, 2023, by and among SDH Houston LLC, Devon Street Homes, L.P., Devon Street Homes G.P., L.L.C., and John Stephen Ray, The BRR 2022 Trust U/T/A dated April 20, 2022, The CAR 2022 Trust U/T/A dated April 20, 2022 and The TTR 2022 Trust U/T/A dated April 20, 2022
†Certain portions of this exhibit (indicated by “[***]”) have been omitted pursuant to Regulation S-K, Item (601)(b)(10). The Registrant undertakes to furnish supplemental copies including the omitted portions upon request by the SEC.
^Schedules have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Registrant undertakes to furnish supplemental copies of any of the omitted schedules upon request by the SEC.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
Smith Douglas Homes Corp.
Date: November 12, 2024
By:
/s/ Gregory S. Bennett
Gregory S. Bennett
President, Chief Executive Officer, Vice Chairman, and Director