United Homes (UHG) 8 Nov 242024 Q3 Earnings call transcript

Good morning. My name is Amy, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the United Homes Group's Third Quarter 2024 Earnings Call. [Operator Instructions] I would like to now turn the call over to Aaron Reeves McGinnis.

You may begin.

Good morning, and welcome to United Homes Group's Third Quarter of 2024 Earnings Call.

Before the call begins, I would like to note that this call will include forward-looking statements within the meaning of the federal securities laws. United Homes Group cautions that forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. These risks and uncertainties include, but are not limited to, the risk factors described by United Homes Group in filings with the Securities and Exchange Commission. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and you should not place undue reliance on these forward-looking statements. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be accessed through the company's website and in its SEC filings. Hosting the call today are United Homes Group's Chief Executive Officer, Jamie Pirrello, President, Jack Micenko and Chief Financial Officer, Keith Feldman. With that, I'd like to turn the call over to Jack.

Thank you, Aaron. Good morning, and thank you, everybody, for joining us today as we go over our results for the third quarter of 2024 and provide an update on our operations. United Homes Group delivered strong results in the quarter, highlighted by home sales revenue growth of 35% year-over-year and a 30% increase in new home deliveries. I want to thank all of our team members for their hard work in delivering a strong quarter of sales and deliveries and making improvements to our operations on a number of fronts.

We continue to see positive housing fundamentals in our markets, highlighted by strong local economies and in migration patterns. Traffic in our communities was steady throughout the quarter and our ability to convert traffic in orders was somewhat dictated by movements in mortgage rates. Through our use of mortgage rate buydowns and other incentives, we were able to maintain a steady cadence of orders through the quarter, culminating in a total of 341 homes sold, which represented a 25% increase over the prior year period.

Given the current mortgage rate environment and seasonal slowdown in our industry typically experiences in the fourth quarter, we expect incentives to remain elevated for the remainder of the year. We made solid headway in the quarter aligning our product to address the needs of our buyers in our markets, make sure we have sufficient inventory of homes to meet our delivery goals for this quarter and beyond.

Our acquisitions of Rosewood and Creekside homes have been integrated in our homebuilding platform, we're making progress in establishing a foothold in a relatively new market, Raleigh, North Carolina. We've been hard at work transitioning United Homes from a successful private homebuilder into a production focused home builder with a publicly traded company mindset. Helping us execute on this strategy is our new interim CEO, Jamie Pirrello, who joined our company earlier this year. Jamie comes to us with a wealth of industry knowledge and experience, having most recently served as a consultant to the industry, but before that, as regional president for Centric Communities overseeing the Southeast, Texas and Florida divisions. Jamie has led a successful career across many facets to the homebuilding industry and understands what it takes to compete effectively in the business. We're excited about adding a seasoned industry veteran like Jamie to our team, and believe he has the right background, experience and leadership abilities to take United Homes Group to the next level. With that, I'd like to turn the call over to Jamie, so he can give you more insight into his operational philosophy and his outlook for our company. Jamie?

Thanks, Jack. I'm thrilled to be part of the United Homes team and look forward to the opportunities that lie ahead. I'd like to start by giving special thanks to our Founder and Executive Chairman, Michael Nieri, for building an amazing company and establishing a culture that emphasizes passion, teamwork and a customer-first mindset. I'm excited to build upon the foundation that Michael has set and grow United Homes into one of the premier, large-scale production homebuilders in the Southeast.

We have an opportunity to build something special here given the favorable housing fundamentals that exist in this part of the country. People continue to migrate to the Southeast for its relative affordability, quality of life, while employers see the benefits of moving here in a business-friendly climate. We believe this dynamic will be in place for the foreseeable future and provides our company with a consistent pipeline of new homebuyers entering the market.

Our focus will continue to be on the more affordable segments of the market, as we believe this represents the most undersupplied and highest demand aspect of housing. It's no secret that there is real need for more affordable housing in this country and we intend to capitalize on this reality.

Our average sales price of production built homes in the third quarter was $320,000, which is one of the lowest ASPs of any of the publicly traded homebuilders. We've launched a number of initiatives focused on driving growth, lowering direct costs and managing overhead. We're updating our product to ensure we compete aggressively offering home designs in demand, rebidding all of our direct costs and tightly managing our overhead spend. These factors are aimed at generating positive operating leverage and improved gross margins in the future. Homebuilders are generally rewarded for achieving solid returns on capital. We intend to leverage our relationships with land bankers, developers in our markets to keep land off our balance sheet. This is a more capital efficient and risk adverse way to approach the business. Inventory turns are an important part of our return-focused strategy. We've been carrying too many completed specs.

As a production builder, we need to sell homes and move them off our balance sheet as soon as possible. We know that maintaining sales momentum in the community is important and we plan on staying competitive in the marketplace so that we cycle through our lot positions and drive higher inventory returns.

While there's a lot of work to be done to achieve these goals, I'm confident that we have the right people, strategy and focus in place to get there. The strong year-over-year growth we posted in both orders and deliveries in the third quarter reflects our company's ability to adapt to changing market conditions and execute on strategic initiatives.

While the market is competitive, United Homes Group is in a great position to capitalize on the positive housing fundamentals that we see in our markets and our internal initiatives to drive improved profitability. I'm excited to be part of the leadership team that builds on our company's legacy of providing quality, affordable homes and great places to live. With that, I'd like to turn the call over to Keith, who will provide more detail about our financial results in the quarter and give an update on our outlook for the remainder of 2024. Keith?

Thank you, Jack and Jamie, and good morning.

For the third quarter of 2024, net loss was $7.3 million, which included a change in fair value of $7.8 million, primarily related to the accounting for potential earn-out which will fluctuate on our financial statements each quarter based on our ending stock price. This earn-out will be paid only in common shares upon reaching certain stock price hurdles and can never result in a cash expense for the company.

For the 9 months ended September 30, 2024, net income was $46.2 million, which included a change in fair value of $50.7 million, primarily related to the accounting for potential earnout liabilities. Revenue for the third quarter of 2024 was $118.6 million compared to $87.7 million for the third quarter of 2023. Revenue for the 9 months ended September 30, 2024, was $328.9 million compared to $304.6 million for the 9 months ended September 30, 2023. Home closings during the third quarter of 2024 were 369 homes compared to 283 homes in the third quarter of 2023. Home closings for the 9 months ended September 30, 2024, were 1,017 homes compared to 996 homes for the same period in 2023. Average sales price during the third quarter of 2024 was approximately $320,000 for 369 production built homes. This compares to an average sales price of approximately $316,000 during the third quarter of 2023 for 268 production built homes.

Our net new orders during the third quarter of 2024 were 341 homes compared to 272 homes in the third quarter of 2023. Net new orders for the 9 months were 1,048 homes compared to 1,002 homes in 2023.

Our backlog at the end of the third quarter was 220 homes with a value of approximately $79.9 million. Gross profit and gross profit margin for the third quarter of 2024 was $22.4 million and 18.9% which changed from $17.4 million and 19.8% from the third quarter of 2023. Adjusted gross profit margin was 20.6% for the 3 months ended September 30, 2024, which decreased from 22.1% in the third quarter of 2023. The decrease in gross profit and adjusted gross profit percentage is primarily due to the company continuing to offer attractive sales incentives to homebuyers.

For the 9 months ended September 30, 2024, gross profit remained consistent at $58.1 million.

However, the gross profit margin decreased to 17.7% from 19.1% for the same period in 2023. The decrease in gross profit percentage is primarily attributed to higher costs of sales due to higher level of incentives and amortization of purchase price accounting adjustment. Adjusted gross profit margin was 20.7% for the 9 months ended September 30, 2024, a slight decrease from 21.2% from the 9 months ended September 30, 2023. The company's adjusted gross profit percentage decreased due largely to the company's continuing to offer attractive sales incentives to homebuyers. SG&A expense in the third quarter of 2024 was $18.7 million. After adjusting for onetime transaction fees, noncash stock-based compensation, adjusted G&A was approximately $16.4 million or 13.9% of revenues for the third quarter.

For the 9 months ended September 30, 2024, SG&A expense was $55.4 million and adjusted SG&A expense was $46.8 million or 14.2% of revenue.

As of today, we have 55 active communities up from 53 as of Q3 2023.

As of September 30, 2024, we had approximately 8,600 lots under control including those owned or controlled by related parties as well as lots we expect to secure through option contracts with third parties or land banks. We had $25.8 million in cash and $63.2 million of availability on our credit facility as of September 30, 2024, resulting in total liquidity of $89 million. That concludes our prepared remarks. Operator, please open up the line for questions.

[Operator Instructions] At this time, there are no questions.

So I would like to turn it over to Jamie Pirrello for closing remarks.

Well, thank you. Jack, Keith and I would like to thank all of you for joining our call today and your interest in United Homes Group. We look forward to speaking with you in the future and our fourth quarter call in the New Year. Thank you.

This concludes today's conference call.

You may now disconnect.