Company: SDHC
Filing Date: 2025-03-21
Form Type: 10-K
Source: 0001982518-25-000007
Chunk: 39

Company: Smith Douglas Homes Corp.
Filing Date: 2025-03-21
Form: 10-K
Item: Item 7A
Chunk 39
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Item 7A.    Quantitative and Qualitative Disclosures About Market Risk.

Market risk is the risk of economic losses due to adverse changes in financial market prices and rates. Our primary market risks are described below. We do not have material exposure to commodity risk.

Interest Rate Fluctuation Risk

Our operations are interest rate sensitive. As overall housing demand is adversely affected by increases in interest rates, a significant increase in interest rates may negatively affect the ability of homebuyers to secure adequate financing. Higher interest rates could adversely affect our revenues, home closing gross margins and net income.

Additionally, we are subject to risk from interest rate fluctuations on any borrowings under our Amended Credit Facility, which carries a variable interest rate. Interest rate risk is highly sensitive due to many factors, including U.S. monetary and tax policies, U.S. and international economic factors and other factors beyond our control. As of March 14, 2025, outstanding borrowings under our Amended Credit Facility totaled $44.0 million.

We do not enter into, nor do we intend to enter into in the future, derivative financial instruments for trading or speculative purposes to hedge against interest rate fluctuations.

Inflation

Our results of operations and financial condition are presented based on historical cost. While it is difficult to accurately measure the impact of inflation due to the imprecise nature of the estimates required, we believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial. We and the homebuilding industry in general may be adversely affected during periods of high inflation, primarily because of higher land, financing, labor, and material construction costs. In addition, higher mortgage interest rates can significantly affect the affordability of permanent mortgage financing to prospective homebuyers. We attempt to pass through to our homebuyers any increases in our costs through increased sales prices. However, during periods of soft housing market conditions, we may not be able to offset our cost increases with higher selling prices.

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