United Homes Group Q3 2024 Earnings Call Transcript

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November 8, 2024

There are 4 speakers on the call.

Operator

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 Third Quarter 2024 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

Operator

I would like to now turn the call over to Erin Reeves McGinnis. You may begin.

Speaker 1

Good morning and welcome to United Homes Group's Q3 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.

Speaker 1

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 Perillo President, Jack Micenko and Chief Financial Officer, Keith Feldman. With that, I'd like to turn the call over to Jack.

Speaker 2

Thank you, Erin. Good morning and thank you everybody for joining us today as we go over our results for the Q3 of 2024 and provide an update on our operations. Natty 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.

Speaker 2

Traffic in our communities was steady throughout the quarter, though our ability to convert traffic and orders was somewhat dictated by movements in mortgage rates. Through our use of mortgage rate buy downs 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 our industry typically experiences in the Q4, 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 on our homebuilding platform.

Speaker 2

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 homebuilder with a publicly traded company mindset. Helping us execute on the strategy is our new Interim CEO, Jamie Perillo, who joined our company earlier this year. Jamie comes to us with a wealth of industry knowledge and experience, having most recently served as consultant of 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 of the homebuilding industry and understand what it takes to compete effectively in the business.

Speaker 2

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.

Speaker 2

I'd like to start by giving special thanks to our Founder and Executive Chairman, Michael Neri, 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 1 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.

Speaker 2

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 Q3 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.

Speaker 2

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 and 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.

Speaker 2

We have 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 a 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 Q3 reflects our company's ability to adapt to changing market conditions and execute on strategic initiatives.

Speaker 2

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 in 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

Speaker 3

of 2024. Keith? Thank you, Jack and Jamie, and good morning. For the Q3 of 2024, net loss was $7,300,000 which included a change in fair value of $7,800,000 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.

Speaker 3

For the 9 months ended September 30, 2024, net income was $46,200,000 which included a change in fair value of $50,700,000 primarily related to the accounting for potential or net liabilities. Revenue for the Q3 of 2024 was $118,600,000 compared to $87,700,000 for the Q3 of 2023. Revenue for the 9 months ended September 30, 2024 was $328,900,000 compared to $304,600,000 for the 9 months ended September 30, 2023. Home closings during the Q3 of 2024 were 369 homes compared to 283 homes in the Q3 of 2023. Home closings for the 9 months ended September 30, 2024 were 10 17 homes compared to 9 96 homes for the same period in 2023.

Speaker 3

Average sales price during the Q3 of 2024 was approximately 320,000 to 369 production built homes. This compares to an average sales price of approximately 316,000 during the Q3 of 2023 for 268 production built homes. Our net new orders during the Q3 of 2024 were 341 homes compared to 272 homes in the Q3 of 2023. Net new orders for the 9 months were 10 48 homes compared with 1,002 homes in 2023. Our backlog at the end of the Q3 was 220 homes with a value of approximately $79,900,000 Gross profit and gross profit margin for the Q3 of 2024 was $22,400,000 18.9 percent which changed from $17,400,000 19.8 percent from the Q3 of 2023.

Speaker 3

Adjusted gross profit margin was 20.6% for the 3 months ended September 30, 2024 which decreased from 22.1% in the Q3 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 $58,100,000 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 cost of sales due to higher level of incentives and amortization of purchase price accounting adjustments. 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.

Speaker 3

The company's adjusted gross profit percentage decreased due largely to the company's continuing to offer attractive sales incentives to homebuyers. SG and A expense in the Q3 of 2024 was $18,700,000 after adjusting for one time transaction fees, non cash stock based compensation, adjusted G and A was approximately $16,400,000 or 13.9 percent of revenues for the Q3. For the 9 months ended September 30, 2024, SG and A expense was $55,400,000 and adjusted SG and A expense was $46,800,000 or 14.2 percent 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 for land banks.

Speaker 3

We had $25,800,000 in cash $63,200,000 of availability on our credit facility as of September 30, 2024, resulting in total liquidity of $89,000,000 That concludes our prepared remarks. Operator, please open up the line for questions.

Speaker 1

Thank you.

Operator

At this time, there are no questions. So I would like to turn it over to Jamie Ferrello for closing remarks.

Speaker 2

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 Q4 call in the New Year. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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Earnings Conference Call
United Homes Group Q3 2024
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