Q2 2024 United Homes Group Inc Earnings Call
thank for standing by my name is monand deep and i'll be your operator today
Jack Micenko: But it's not a one-size-fits-all; it's definitely looking at where we stack up side by side, and encouraging our team really throughout the ranks that we are, as a public company, pace versus price. We're leaning much more into pace. And so it's tactical things like pricing and positioning, it's cultural things like changing the mindset and getting people pushing more on the sales side as well. I don't know if Shelton or Keith, you guys, have anything to add to that. You know, it's not a magic bullet, there's no singular strategy; it's really blocking and tackling at the community level.
Speaker Change: At this time, I'd like to welcome everyone to the United Homes Group Second Quarter 2024 Earnings Call and Webcast. All lines being placed on mute to prevent any background noise.
Speaker Change: after the speaker's remarks so'll be a question and answer session we'd like to ask question during this time simply press star falled by the number one on your telephone key pad you wouldd like to withdraw your question press star one again thank you
Speaker Change: I would now like to turn the call over to Erin Reeves McGinnis, General Counsel. You may begin.
Carl Reichardt: I appreciate that. Thanks, Jack. Then two more. I think if I've got it right, the lot count under control was down 10% or so, certainly by more than the delivery volume was up. So can you talk a little bit about that and also maybe chat a bit about how the land market feels and looks to you right now as well as the acquisition market, too?
Jack Micenko: Sure. On the land side, you know, the pipeline 9300, let's maybe divide that a third, a third, a third. A third is, you know, close to being ready to go or finished, a third is in process, and a third is controlled, but it's further out, as you understand. You know, we are tightening the filter, really, at the top of the funnel.
Speaker Change: Good morning and welcome to United Homes Group's second 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 security laws.
Speaker Change: 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 its filings with the Securities and Exchange Commission.
Operator: 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.
Speaker Change: accordingly forward-looking statements should not be relied upon as representing our views as any subsequent date you should not place unduereliable on these forward-looking statements
Speaker Change: we do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made whether is a result of new information future events or otherwise accepted might be required under applicable securities lawss
Speaker Change: 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.
Speaker Change: Hosting the call today are United Homes Group's President Jack Misenko, Chief Operating Officer Shelton Twine, and Chief Financial Officer Keith Feldman. With that, I'd like to turn the call over to Jack.
Jack Micenko: We're asking all of our division heads and our land folks to really tighten up and really take a hard look at the deals that we're bringing in. We're still acquiring land. We're still, you know, very active there, but really sharpening the pencil on the front end and making sure that the best deals are coming through, focusing on margin, focusing on absorption pace. We've made some investments and will continue to make some investments on that front end, targeting both in terms of hires and services and technology to really bring a more quantitative approach to that land underwriting process. And I'd say we're probably in the fourth inning of really getting that to where we all would like it to be.
Erin McGinnis: Thank you, Erin. Good morning, and thank you, everyone, for joining us for a review of our second quarter results and an update on our operations. We've been working diligently over the last several quarters to cultivate a network of counterparties that will help facilitate our landline strategy, and we believe that network is now in place. The second quarter of 2024 was a period of transition for our company, as we set about consolidating recent acquisitions, rationalizing our workforce, and reorienting our product offerings in some more. We continue to seek out potential acquisition targets to add to our existing home-building footprint, provided they meet our underwriting criteria.
Jack Misenko: thank you a good morning and thank everyone for joining us for review or second quarter results and an update on our operations
Speaker Change: theunited homes group continues to pursue strategy of requiring lots in the capitalefficient manner and building out its homebuilding platform and high growth southeastern markets while selling and delivering homes that catater to the more afforortable segments of the market
Carl Reichardt: So I think that moving in lots is really part of that. We lots are our lifeblood, and we have to be very careful not to move in the opposite direction. You know, if our deliveries jumped up by 10 or 15 percent, that lot pipeline, the years controlled, kind of goes down and moves kind of quickly. So we want to be very focused there. We have the lots we need for 2025 and a fair amount for 2026. We're continuing to push our guys to add deals, but we're also really raising the standard on what they're bringing in the door. And then the second question: I'm sorry.
Carl Reichardt: Just on acquisitions, how that environment feels and looks to you now.
Speaker Change: Lots owned or controlled at the end of the second quarter totaled roughly 9,300 giving us a nice pipeline of lots to pursue a growth strategy and scale our operations.
Speaker Change: over ninety-five percent of these lots controll the option agreement or landbking arangement which allow us to reduce a large part of the risk in front cost associated with land acquisition and development
Jack Micenko: It's busy. You've seen it. A number of our large public competitors have announced deals. There are books out.
Jack Micenko: There are conversations being had. As you know and can imagine, we're getting shown many of them that fit from a size or a geographic standpoint. And frankly, we're getting looks at things that don't fit our size and our geographic footprint. But the market is robust. And I think you've seen some of that in the announcements. We continue to look at acquisitions. I think we're there as well. I don't think we want to look into transactions that are maybe projects or things that aren't really consistent with either the product or the market dynamics of where we're at.
Jack Micenko: We've, as you can imagine, we've walked or we've you know we've taken a spent time on a very small percentage of deals over the last year that I've been here that have been shown to us and we've you know spent time on even a smaller amount and so you know our conversion rate from you know deals we've got in the door NDAs we've signed and we do look at everything I mean we learn from that as well you know as well inside of 10% so we are we are you know we're seeing a lot the volume has picked up certainly since first quarter and I think it's it's really the same story on the seller side it's it's not as much a bank issue it's not as much a lender issue it's a lot availability lot replacement issue for a lot of these sellers they're they're reluctant to sell through their lot positions it's really really hard to replace it I think to just jog my memory to your other question the land environment is as competitive as ever been you know we're starting to see some pricing benefit on on some of the input cost and we're getting some pricing back from the trades land is not one of those areas the land continues to increase in price and competitiveness
Speaker Change: We've been working diligently over the last several quarters to cultivate a network of counterparties that will help facilitate our landline strategy, and we believe that network is now in place.
Mandeep: I appreciate the answers. Thanks, Jeff. Thanks, fellas. Our next question comes from the line of Chris Plahm with Tall Pines Capital.
Speaker Change: We feel that focusing on the business of building and selling homes rather than the development of land is a more effective and sustainable path to enhance returns for us and our industry.
Mandeep: Our next question comes from the line of Chris Plahm with Tall Pines Capital. Please go ahead.
Speaker Change: thesecond quterof two thousandand twenty four was period to transition for our company as we said about consolidating recent acquisitions rationalizing our workforce in reoriing our product offerings in some markets
Jack Micenko: Hi Chris. On the first question, I would say, so let's do three deals: I would say the Coastal Transaction Creek side, which was the most recent closing, is probably the furthest along, but that was really the cleanest from an operational product standpoint. So we've worked through a majority of their inventory, and we've opened communities under our products that are brands in that market. And so I think, you know, that one's probably the furthest along, I would say, 85, 90% of the way there. Their team came over very seamlessly.
Jack Micenko: Their founder is running our land operations and acquisition operations in that market. Herring was our first deal back in August of a year ago. We've got five communities going on up in Raleigh, and that was a little bit of a delay because the product set is very different. We were focused on an affordable product. We've got our communities open now, and we're underway there. Rose, what I say, that one we did in October of last year, a different product type.
Jack Micenko: We're still working through getting their trades aligned with ours, and their costs aligned with ours. That's also going to be the biggest opportunity. I'd say we're probably half way through 60% through integrating there, but they're very, very happy with their product, very happy with the demand trends, they're very happy with what their forward pipeline looks like from a land side for us, and that team is pretty well integrated from an operational standpoint.
Speaker Change: While we believe the actions we took during the quarter will be beneficial to our company over the long term, they did have an adverse impact on some of the aspects of our results this quarter.
Speaker Change: This does not alter our long-term outlook for the company or diminish our enthusiasm we have for the markets we're in. We have ambitious goals for our company, and we felt that setting the right foundation upon which to grow was an important step to take this quarter.
Jack Micenko: I think there's some more to come on the cost side that should benefit us over time, on the change in interest rates. You know, I think at a high level, we're still focused on the first buyer, the first-time move-up buyer. That is absolutely an affordability issue.
Jack Micenko: Certainly, rates will come down. Home prices are still up, so trying to meet the market with an affordable product, trying to target products for the right price point to meet that affordability issue, but maintaining value perception at the same time, I mean, that's the constant focus. You know, value engineering, it's always been a core part of the culture here. That's certainly the focus as well.
Speaker Change: We continue to see positive home building fundamentals in our markets characterized by steady job growth, low levels of inventory, and consistent in-migration patterns. We remain committed to growing our home building presence throughout the Southeast through a combination of M&A and organic growth.
Speaker Change: we continue to seek out potential acquisition targetsto add ourexisting homebuilding footprint provided they meet our underwriting criteria we believe we are acqured of choice for small local builders to in our southeastern rorots and appreciation for keeping their operations work twards the acququired companies intact
Erin McGinnis: We believe we are a choir of choice for small local builders given our Southeastern roots. As we look to the back half of 2024, we remain focused on starting and selling homes to meet our delivery goals for the year while closing homes we already have in the back.
Jack Micenko: We are continuing to buy down interest rates. We're continuing to monitor the market daily to make sure, you know, we're comparable to where our competitors are. The market has moved down. We were offering a 599 buy-down. We've moved down to a 499 as the market has moved lower. That's for, you know, quick finish, quick-close homes, and that's a line item that we budget for. You know, there are a couple benefits.
Speaker Change: As we look to the back half of 2024, we will remain focused on starting and selling homes to meet our delivery goals for the year, while closing homes we already have in the backlog. We ended the quarter in a strong financial condition and continue to see a bright future ahead for our company. I look forward to executing on our strategy and building on our company's legacy of home building excellence.
Jack Micenko: We are seeing, like I said before, some improvement in input costs, particularly lumber. We've been proactive in going out to our trades and renegotiating terms, and so I do think, you know, starts in July and August generally should have a little bit of a better margin profile than starts earlier in the year. The cost of buy-down rates has come down as rates have come down. The one thing I would say that's a little bit of a change is that we are seeing more people take... closing cost dollars, and maybe not the rate, and maybe their perspective is, I can refinance, the rates are ultimately coming down, I can refinance at some point in the future, so they're taking more; we're going to them and saying, look We've recently seen a pivot to taking a little more of the dollars and a little bit less of the buy-down rate, so we're monitoring that very closely as well.
Mandeep: That concludes our Q&A session. I will now turn the call back over to Jack Micenko for his closing remarks.
Jack Micenko: Thanks, Mandeep. I just want to thank everybody for their interest in United Homes Group. We look forward to updating you on our progress at a number of investor conferences scheduled over the coming quarter and look forward to talking again soon. This concludes today's call. You may now disconnect.
Speaker Change: With that, I'd like to turn the call over to Shelton, who will provide more detail on our operations this quarter. Shelton?
Operator: [music]
Shelton Twine: thank you jet
Shelton Twine: We delivered 337 homes in the second quarter of 2024, generating revenue of $109 million.
Shelton Twine: our operations in the middland contributed to the highest number deliveries to the total followed by our upstate and coastal operations
Speaker Change: Home sales gross margin came in at 17.9% on a gap basis or 20.9% on an adjusted basis.
Speaker Change: while adjusted EBITDA was $7.7 million for the period.
Shelton Twine: our gross profit margins were again weighed down by sales concessions as buyers utilizizede rate by downs and other mortgage incentives to offset the impact of higher rates
Shelton Twine: We generated 323 net new home orders for the quarter and had 59 active communities open for sale at the end of the period.
Erin McGinnis: On a year-over-year basis, our net new orders were flat overall, but our coastal operations posted order growth of 59%, and our upstate operations generated order growth of 44%, with traffic and sales incentives fluctuating with movements in interest rates. We continue to see engaged and motivated buyers in our markets who want to buy a home provided it meets their lifestyle and budgetary needs.
Shelton Twine: On a year-over-year basis, our net new orders were flat overall, but our coastal operations posted order growth of 59%, and our upstate operations generated order growth of 44%.
Shelton Twine: We continued to see improvements on the construction side of the business as building materials and labor availability got better during the quarter.
Shelton Twine: We have been proactively re-bidding projects to make sure we are getting the most competitive pricing for our stick and brick costs and expect to generate some real savings for these efforts.
Shelton Twine: in addition lumber costs have been trending down recently which will be a tailwindfrom margins in the coming quarters the rising lot costs and other variables may offset these gains
Shelton Twine: Overall, I would characterize current marking conditions as healthy but uneven.
Shelton Twine: with traffic and sales incentives fluctuating with movements in interest rates.
Speaker Change: we continue to see engaged in motivated buyers in our markets who want to buy home provided it meets their lifestyle and budgetary needs
Speaker Change: Our company has been one of the preeminent homebuilders in our markets for decades, and we plan on maintaining and building on that reputation as we expand throughout the Southeast.
Keith: now i'd like to turn the call over to keith they will provide more detail on our financial results for the quarter
Speaker Change: Thank you, Jack and Shelton, and good morning.
Speaker Change: the second quarter of two thousand and twenty four net income was twenty eight point six million which included a change in fair value of thirty to two point one million primarily related to the accounting for potential earnout which will fluctuate on our financial statements each quarter based in or ending stock price
Speaker Change: This turnout will be paid only in common shares upon reaching certain stock price hurdles and can never result in a cash expense for the company.
Erin McGinnis: For the six months ended June 30, 2024, net income was $53.6 million, which included a change in the fair value of $58.4 million, primarily related to the accounting for the potential earn out liability. Home closings during the second quarter of 2024 were 337 homes compared to 385 homes in the second quarter of 2023. The average sales price during the second quarter of 2024 was approximately $341,000 for 299 production-built homes. This compares to an average sales price of approximately $313,000 during the second quarter of 2023 for 376 production-built homes. Similar to the second quarter, this decrease was primarily driven by a higher level of incentives and purchase price accounting adjustments from acquisitions at nonrecurring expense.
Erin McGinnis: For the six months ended June 30, 2024, net income was $53.6 million, which included a change in fair value of $58.4 million, primarily related to the accounting for potential earn out liabilities.
Speaker Change: Revenue for the second quarter of 2024 was $109.4 million compared to $122.1 million for the second quarter of 2023.
Erin McGinnis: Revenue for the six months ended June 30, 2024 was $210.3 million compared to $216.9 million for the six months ended June 30, 2023.
Erin McGinnis: Home closings during the second quarter of 2024 were 337 homes compared to 385 homes in the second quarter of 2023.
Speaker Change: home cloings for the six months fended shoune thireth two thousand and twenty four were six hundred and forty eight hom prepared to seven hundred and thirteen homes for the same period in twothousand and twenty three
Erin McGinnis: Average sales price during the second quarter of 2024.
Erin McGinnis: was approximately three hundred and forty one thousand for two hundred and ninety nine production bubuildt homes this compares to an average sales price of approximately three hundred and thirteen thousand during the second quarter of two thousand and twenty three for three hundred and seventy six production built homes
Erin McGinnis: As Sheldon mentioned, our net new orders during the second quarter of 2024 were 323 homes compared to 341 homes in the second quarter of 2023.
Erin McGinnis: Net new orders for the six months were 707 homes compared to 730 homes in 2023. Our backlog at the end of the second quarter was 248 homes with a value of approximately $81.2 million.
Erin McGinnis: Gross profit and gross profit margin for the second quarter 2024 was $19.6 million and 17.9% which decreased from $23.9 million and 19.6% from the second quarter of 2023.
Erin McGinnis: the decrease was primarily driven by higher levels of incentives versus price accounting adjustments from acquisitions and other nonrecurring expenses
Erin McGinnis: Adjusted gross profit margin was 20.9 million for the three months ended June 30th 2024. This decreased from 21.4% in the second quarter of 2023 and is due largely to the company continuing to offer attractive sales incentives to homebuyers.
Erin McGinnis: For the six months ended June 30, 2024, gross profit and gross profit margin was $35.7 million and 17%, which decreased from $40.7 million and 18.8% from the six months ended June 30, 2023.
Erin McGinnis: then work for the second quarter this decrease was primarily driven by higher level of incentives purchased price accounting adjustments from acquisitions and nonrecurring expenses
Erin McGinnis: adjusted gross profit margin was twenty point seven percent by the six months ed june thirty two thousand and twenty four a s decre from twenty point nine percent from the six months ended the june thire two thousand and twenty three
Erin McGinnis: This is due largely to the company continuing to offer attractive sales incentives to home buyers.
Erin McGinnis: s gna expense in the second quarter oftwo thousand and twenty-four was nineteen point six million adjusted for onetime transaction fees noncash stock-wase compensation expense and severance
Erin McGinnis: Adjusted SG&A was approximately 16.1 million or 14.7 percent of revenue for the second quarter.
Erin McGinnis: During the six-month end of June 30, 2024, SG&A expense was $36.7 million, and adjusted SG&A expense was $30.4 million, or 14.5% of revenue.
Erin McGinnis: As of today, we have 59 active communities, up from 53 as of Q2 2024.
Erin McGinnis: As of June 30, 2024, we had approximately 9,300 lots under control from our land development affiliates and third parties, as well as our land bank partners.
Speaker Change: We had $25 million in cash and $55 million of availability on our credit facility as of June 30th, 2024, resulting in total liquidity of 80 million. That concludes our prepared remarks. Operator, please open up the line for questions.
Speaker Change: thank you we will now begin to question answer session
Speaker Change: If you dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star 1 again.
Speaker Change: you're called upon to ask your and' listening be allowed speak on your device please ick up your handset and assure that your phone is not a meet asking your question
Operator: Again, press star 1 to join the queue.
Operator: Again, press star 1 to join the queue.
Speaker Change: Our first question comes from the line of Carl Reichardt with BTIG. Please go ahead.
Speaker Change: thanks morning guys we're doing well mor tocar would can you talk a little bit about your absorptions i think 're running a little less than two a month
Speaker Change: they had affordable product in one of the great markets in the country right now
Speaker Change: What's the strategy for improving those over the course of the next year or so? You'd mentioned something about product repositioning. Maybe you can give us a little more detail on that.
Speaker Change: Thanks for the question, and I'm going to apologize in advance if we're a little choppy with the storm. A couple of us are in a couple different locations this morning, but we're all here and we'll do our best. Yeah, we're running about 2-2 on an adjusted basis.
Speaker Change: That's up from 2-0 last quarter. You are absolutely correct. We think the right number is something in the high threes, low fours. You know, like most things, you know, our portfolio of communities is a bell curve. You know, we've got communities that are running.
Speaker Change: upwards of seven, eight a month, and we've got others that are below the average. So really focusing on, you know,
Speaker Change: the slower-moving communities, is it product?
Operator: is at Price.
Speaker Change: is it is a competitive landscape and really targeting those
Operator: and those slower-moving communities.
Speaker Change: on really a bi-weekly basis across the management committee.
Speaker Change: division heads and that sort of thing. But it's not a one-size-fits-all. It's definitely...
Speaker Change: looking at, you know, where we stack up side-by-side, you know, encouraging our team really throughout the ranks.
Speaker Change: that we are, as a public company, pace versus price. We're leaning much more into pace. And so it's tactical things like pricing and positioning. It's cultural, things like changing the mindset and getting people pushing more on the
Speaker Change: on the sales side as well. I don't know if Shelton or Keith, do you guys have anything to add to that? You know, it's not a magic bullet. There's no singular strategy. It's really blocking and tackling at the community level.
Speaker Change: All right, appreciate that. Thanks, Jack. Then two more. I think if I've got it right, the lot count under control was down 10% or so.
Speaker Change: certainly by more than the delivery volume was up. So can you talk a little bit about that and also maybe chat a bit about how the land market feels and looks to you right now as well as the acquisition market too. Thanks.
Shelton Twine: Sure. On the land side, you know, the pipeline 9300, let's maybe divide that by a third, a third, a third. A third is, you know, close to being ready to go or finished; a third is in process, and a third is under control, but it's further out, as you understand. You know, we are tightening the filter, really, at the top of the funnel. We're asking all of our division heads and our land folks to really tighten up and really take a hard look at the deals that we're bringing in. We're still acquiring land. We're still, you know,
Shelton Twine: Sure. On the land side, you know, the pipeline 9,300, let's maybe divide that a third, a third, a third. A third is...
Shelton Twine: close to being ready to go or finished, a third is in process, and a third...
Shelton Twine: is control, but it's further out, as you understand. We are tightening the filter, really, at the top of the funnel. We're asking all of our division heads and our land folks to really...
Shelton Twine: tighten up and really take a hard and look at the deals that 'rebring we'restill requiring land we're still
Shelton Twine: very active there, but really sharpening the pencil on the front end and making sure that.
Shelton Twine: you know, the best deals are coming through, focusing on margin, focusing on on absorption pace. We've made some investments and continue to make some investments on that front-end targeting both in terms of hires
Shelton Twine: and services and technology to really bring more quantitative approach.
Shelton Twine: to that land underwriting process. And I'd say we're probably in the fourth inning of really getting that to where we all would like it to be. So I think that move in lots is really part of that.
Shelton Twine: Lots are our lifeblood and we have to be very careful not not to move in the opposite direction. You know, if our deliveries jumped up by 10 or 15 percent that that lot pipeline, the years controlled, kind of goes down and moves kind of quickly. So we want to be we want to be very focused there.
Shelton Twine: the lots we need for 2025 and a fair amount of 26. We're continuing to push our guys to add deals, but we're also really raising the standard on what they're bringing in the door. And then the second question, I'm sorry.
Speaker Change: Just on acquisitions, how that environment feels and looks to you now.
Shelton Twine: It's busy. You've seen it. A number of our large public competitors have announced deals.
Speaker Change: There are books out. There are conversations being had. As you know and can imagine, we're getting shown many of them that fit from a size.
Shelton Twine: or a geographic standpoint, and frankly, we're getting looks at things that don't fit our size and aren't in our geographic.
Shelton Twine: footprint but the market is is robust
Shelton Twine: and I think you've seen some of that in the announcements. We continue to look at acquisitions. I think we've...
Shelton Twine: tighten the filter there as well. I don't think we want to look into, you know, transactions that are maybe projects or things that aren't really consistent with either the product or the market dynamics of where we're at. We've, as you can imagine, we've walked
Shelton Twine: We've spent time on a very small percentage of deals over the last year that I've been here that have been shown to us, and we've spent time on even a smaller amount, and so our conversion rate from
Shelton Twine: deals we've got in the door, NDAs we've signed, and we do look at everything. I mean, we learn from that as well. You know, it's well inside of 10%.
Shelton Twine: So we are, we are, you know, we're seeing a lot. The volume has picked up certainly since
Shelton Twine: first quarter, and I think it's really the same story on the seller side.
Shelton Twine: It's not as much a bank issue, it's not as much a lender issue, it's a lot...
Speaker Change: availability lot replacement issue for a lot of these sellers they they're reluctant to sell through their lot posics it's really really hard to replace it i think
Shelton Twine: to just jog my memory to your other question. The land environment is as competitive as it's ever been. We're starting to see some pricing benefit on some of the input costs, and we're getting some pricing back from the trades. Land is not one of those areas. Land continues.
Shelton Twine: to increase in price and competitiveness.
Speaker Change: I appreciate the answers. Thanks, Jack. Thanks, fellas.
Speaker Change: iss g
Shelton Twine: Our next question comes from the line of Chris Plame with Tall Pines Capital. Please go ahead.
Speaker Change: okayguys two questions this morning one would you guys think you're in on the integration of the acquisitions you've made to date and then lastly
Speaker Change: Does the strategy change at all on a go-forward basis with rates coming in a bit?
Shelton Twine: Hi, Chris. On the first question...
Shelton Twine: I would say the coastal transaction, Creekside, which was the most recent closing, is probably the furthest along. That was really the cleanest from an operational product standpoint. So we've
Shelton Twine: We've worked through a majority of their inventory, and we've opened communities under our product set and our brand in that market. And so I think, you know, that's...
Shelton Twine: That one's probably furthest along, I would say.
Shelton Twine: 85-90% of the way there. Their team came over very seamlessly. Their founder is running our land operations.
Shelton Twine: acquisition operations in that market.
Speaker Change: Herring was our first deal back in August a year ago. We've got five communities going on up in Raleigh.
Shelton Twine: and and that was
Shelton Twine: A little bit more of a delay because the product set is very different. We're focused on an affordable product. We've got our communities open now and we're underway there. Rose, what I say, that one we did in October .
Shelton Twine: of last year, different product type. We're still working through getting their trades.
Speaker Change: align with ours, their costs align with ours.
Shelton Twine: That's also going to be the biggest opportunity. I'd say we're probably half.
Speaker Change: halfway 60% through integrating there. But they're very happy with their product, very happy with the demand trends there, very happy with...
Shelton Twine: what their what their what their forward pipeline looks like from a land side for us and that team is is pretty well integrated from an operational standpoint. I think there's some more to come there on the on the cost side that should benefit us over time.
Shelton Twine: you know i think
Speaker Change: a high level we're still focused on on the first first buyer first time move up buyer
Speaker Change: That is absolutely an affordability issue. Certainly rates will come down, home prices are still up. So trying to meet the market with an affordable product, trying to target product for the right price point to meet that affordability.
Speaker Change: issue, but maintaining value perception at the same time. I mean that's that's the constant.
Shelton Twine: focus. You know, value engineering, it's always been a core part of the culture here. That's certainly the focus as well. We are continuing to buy down interest rates. We're continuing to monitor the market daily.
Shelton Twine: to make sure, you know, we're comparable to where our competitors are.
Speaker Change: The market has moved down. We are offering a $599.
Shelton Twine: buy down, we've moved down to a 499 as the market has moved lower, and that's for a quick finish.
Shelton Twine: Quick Close Homes and that's a line item that we budget for.
Speaker Change: a couple of benefits
Shelton Twine: We are seeing, like I said before, some improvement in input costs, particularly lumber. We've been proactive in going out to our trades and renegotiating terms. And so I do think...
Speaker Change: starts in July and August , generally should have a little bit of a better margin profile than starts earlier in the year. The cost of buy-down rates has come down.
Speaker Change: as rates have come down the one thing i would say that the little bit of a change is we are seeing more people take
Speaker Change: closing cost dollars and maybe not the rate and maybe their perspective is
Speaker Change: I can refinance. The rates are ultimately coming down. I can refinance.
Speaker Change: at some point in the future. So they're taking more, we're going to them and saying, look, you've got this incentive, choose it how you may. We've recently seen a pivot to taking a little more of the dollars and a little bit less of the buy-down rate. So we're monitoring that very much as well.
Speaker Change: Okay, great. Thanks.
jack messanco: that concludes our q a session i will now turn the call back over to jack messanco for a closing remarks
Shelton Twine: Thanks, Mandeep. I just want to thank everybody for their interest in United Homes Group. We look forward to updating you on our progress at a number of investor conferences scheduled over the coming quarter and look forward to talking again soon. Thank you.
Operator: This concludes today's call. You may now disconnect.
Operator: This concludes today's call. You may now disconnect.
Operator: John Micenko, Carl Reichardt, Keith Feldman, United Homes Group John Micenko, Carl Reichardt, Keith Feldman, United Homes Group John Micenko, Carl Reichardt, Keith Feldman, United Homes Group John Micenko, Carl Reichardt, Keith Feldman, United Homes Group John Micenko, Carl Reichardt, Keith Feldman, United Homes Group [music] John Micenko, Carl Reichardt, Keith Feldman John Micenko, Carl Reichardt, Keith Feldman, United Homes Group John Micenko, Carl Reichardt, Keith Feldman, United Homes Group John Micenko, Carl Reichardt, Keith Feldman, United Homes Group John Micenko, Carl Reichardt, Keith Feldman John Micenko, Carl Reichardt [music] John Micenko, Carl Reichardt, Keith Feldman John Micenko, Carl Reichardt, Keith Feldman, United Homes Group John Micenko, Carl Reichardt, Keith Feldman, United Homes Group John Micenko, Carl Reichardt, Keith Feldman, United Homes Group John Micenko, Carl Reichardt, Keith Feldman, United Homes Group
Carl Reichardt: Thanks. Morning, guys. Hope you're doing well. Good morning, Carl.
Jack Micenko: We think the right number is something in the high threes or low fours. Like most things, our portfolio of communities is a bell curve. We've got communities that are running upwards of seven, eight a month, and we've got others that are below the average. So we're really focusing on the slower-moving communities, what is it? the product, is it the price, is it the competitive landscape, and really targeting those slower-moving communities on a biweekly basis across the management committee and division heads and that sort of thing.
Mandeep: Thank you for standing by. My name is Mandeep, and I'll be your operator. At this time, I'd like to welcome everyone to the United Homes Group second quarter 2024 earnings call and webcast. All lines are being placed on mute to prevent any background noise.
Carl Reichardt: So, Jack, can you talk a little bit about your absorptions? I think you're running a little less than two a month. We have an affordable product in one of the great markets in the country right now. What's the strategy for improving those over the course of the next year or so? You'd mentioned something about product repositioning. Maybe you could give us a little more detail on that.
Mandeep: After the speaker's remarks, there will be a question and answer session. If you would like to ask questions during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Erin Reeves McGinnis, General Counsel. You may begin.
Jack Micenko: Hey Carl, thanks for the question. And I'm going to apologize in advance if we're a little choppy with the storm. All of us are in a couple different locations this morning, but we're all here, and we'll do our best.
Erin Reeves McGinnis: Good morning, and welcome to United Homes Group's second 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 its filings with the Securities and Exchange Commission.
Erin Reeves McGinnis: 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 file. Hosting the call today are United Homes Group president, Jack Mosenko, Chief Operating Officer Shelton Twine, and Chief Financial Officer Keith Feldman. With that, I'd like to turn the call over to Jack.
Jack Micenko: Thank you, Erin. Good morning, and thank you, everyone, for joining us for a review of our second quarter results and an update on our operations. United Homes Group continues to pursue a strategy of acquiring lots in a capital-fishing manner and building out its home-building platform in high-growth, southeastern markets while selling and delivering homes that cater to the more affordable segments of the market. Lots owned or controlled at the end of the second quarter totaled roughly 9,300, giving us a nice pipeline of lots to pursue a growth strategy and scale our operation. Over 95% of these lots are controlled via an option agreement or land banking arrangement, which allows us to reduce a large part of the risk and upfront costs associated with land acquisition and development.
Jack Micenko: We've been working diligently over the last several quarters to cultivate a network of counterparties that will help facilitate our landline strategy, and we believe that network is now in place. We feel that focusing on the business of billing and selling homes rather than the development of land is a more effective and sustainable path to enhanced returns for us and our industry. The second quarter of 2024 was a period of transition for our company, as we set about consolidating recent acquisitions, rationalizing our workforce, and reorienting our product offerings in some more ways. While we believe the actions we took during the quarter will be beneficial to our company over the long term, they did have an adverse impact on some of the aspects of our results this quarter.
Jack Micenko: This does not alter our long-term outlook for the company or diminish the enthusiasm we have for the markets we're in. We have ambitious goals for our company, and we felt that setting the right foundation upon which to grow was an important step to take this quarter. We continue to see positive home building fundamentals in our markets, characterized by steady job growth, low levels of inventory, and consistent in-migration patterns. We remain committed to growing our home building presence throughout the Southeast through a combination of M&A and organic growth.
Jack Micenko: Continue to seek out potential acquisition targets that add to our existing home building footprint provided they meet our underwriting criteria. We believe we are a choir of chores for small local builders given our southeastern roots and our appreciation for keeping their operations and workforce in the acquired companies. As we look to the back half of 2024, we remain focused on starting and selling homes to meet our delivery goals for the year while closing homes we already have in the back.
Jack Micenko: We ended the quarter in a strong financial condition and continue to see a bright future ahead for our company. I look forward to executing on our strategy and building on our company's legacy of home-building excellence. With that, I'd like to turn the call over to Shelton, who will provide more detail on our operations this quarter.
Shelton Twine: We delivered 337 homes in the second quarter of 2024, generating revenue of $109 million. Our operations in the Midlands contributed the highest number of deliveries to the total, followed by our upstate and coastal operations. Home sales gross margin came in at 17.9% on a gap basis or 20.9% on an adjusted margin, while adjusted EBITDA was $7.7 million for the period. Gross profit margins were again weighed down by sales concessions as buyers utilized rate buy-downs and other mortgage incentives to offset the impact of higher rates.
Shelton Twine: We generated 323 net new home orders for the quarter and had 59 active communities open for sale at the end of the period. On a year-over-year basis, our net new orders were flat overall, but our coastal operations posted order growth of 59%, and our upstate operations generated order growth of 44%.
Keith Feldman: We continue to see improvements on the construction side of the business, as building materials and labor availability got better during the quarter. We have been proactively re-bidding projects to make sure we are getting the most competitive pricing for our stick and brick costs and expect to generate some real savings for these efforts. In addition, lumber costs have been trending down recently, which will be a tailwind for margins in the coming quarter.
Keith Feldman: Rising lot costs and other variables may all set these games. Overall, I would characterize current market conditions as healthy but unequal, with traffic and sales incentives fluctuating with movements in interest rates. We continue to see engaged and motivated buyers in our markets who want to buy a home provided it meets their lifestyle and budgetary needs. Our company has been one of the preeminent homebuilders in our markets for decades, and we plan on maintaining and building on that reputation as we expand throughout the South. Now I'd like to turn the call over to Keith, who will provide more detail on our financial results for the quarter.
Keith Feldman: Thank you, Jack and Shelton, and good morning. For the second quarter of 2024, net income was $28.6 million, which included a change in fair value of $32.1 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. The turnout will be paid only in common shares on reaching certain stock price hurdles and can never result in a cash expense for the company.
Keith Feldman: For the six months ended June 30, 2024, net income was $53.6 million, which included a change in fair value of $58.4 million, primarily related to the accounting for the potential earn out liability. Revenue for the second quarter of 2024 was $109.4 million, compared to $122.1 million for the second quarter of 2023. Revenue for the six months ended June 30, 2024 was $210.3 million, compared to $216.9 million for the six months ended June 30, 2023.
Keith Feldman: Home closings during the 2nd quarter of 2024 were 337 homes compared to 385 homes in the 2nd quarter of 2023. Home closings for the six months ended June 30, 2024, were 648 homes compared to 713 homes for the same period in 2023. The average sales price during the second quarter of 2024 was approximately 341,000 for 299 production built homes. This compares to an average sales price of approximately 313,000 during the second quarter of 2023 for 376 production built homes.
Keith Feldman: As Sheldon mentioned, our net new orders during the second quarter of 2024 were 323 homes compared to 341 homes in the second quarter of 2023. Net new orders for the six months were 707 homes compared to 730 homes in 2023.
Keith Feldman: Our backlog at the end of the second quarter was 248 homes with a value of approximately $81.2 million. Gross Profit and Gross Profit Margin for the second quarter of 2024 were 19.6 million and 17.9%, which decreased from 23.9 million and 19.6% from the second quarter of 2023. The decrease was primarily driven by higher levels of incentives, purchase price accounting adjustments from acquisitions, and other non-recurring expenses. Adjusted gross profit margin was 20.9 million for the three months and June 30th, 2024.
Keith Feldman: This decrease from 21.4 percent in the second quarter of 2023 and is due largely to the company continuing to offer attractive sales incentives to our home buyers. The six-month end of June 30, 2024 gross profit and gross profit margin were $35.7 million and 17%, which decreased from $40.7 million and 18.8% from the six-month end of June 30, 2023. No more to the second quarter, this decrease was primarily driven by a higher level of incentives, purchase price accounting adjustments from acquisitions at a non-recording expense.
Keith Feldman: Adjusted gross profit margin was 20.7% for the six months ended June 30, 2024, a slight decrease from 20.9% for the six months ended June 30, 2023. This is due largely to the company continuing to offer attractive sales incentives to home buyers.
Mandeep: SG&A expense in the second quarter of 2024 was $19.6 million; adjusted for one-time transaction fees, non-cash stock-based compensation expense, and severance, adjusted SG&A was approximately $16.1 million, or 14.7% of revenue for the second quarter. During the six-month end of June 30, 2024, SG&A expense was $36.7 million, and adjusted SG&A was $30.4 million, or 14.5% As of today, we have 59 active communities, up from 53 as of Q2 2024.
Mandeep: As of June 30, 2024, we had approximately 9,300 lots under control from our land development affiliates and third parties, as well as our land bank partners. We had $25 million in cash and $55 million of availability on our credit facility as of June 30, 2024, resulting in total liquidity of $80 million. Operator, please open up the line for questions.
Mandeep: Thank you. We will now begin the question and answer session. If you've dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. Thank you. Our first question comes from the line of Carl Reichardt with BTIG; please go ahead.
Jack Micenko: Yeah, we're running about 2.2 on an adjusted basis. That's up from 2.0 last quarter. You are absolutely correct.