Q3 2024 United Homes Group Inc Earnings Call

Operator: Good morning. My name is Amy, and I'll be your conference operator for today.

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 groups third quarter 'twenty 'twenty four 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 Sir.

Operator: 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.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star and the number one.

If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question again press star and the number one I would like to now turn the call over to Aaron Reeves Mcguinness you may begin.

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

Yeah.

Okay.

Jamie Pirrello: 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 security clause. 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. 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 Change: Good morning, and welcome to the Unitedhealth group 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 Health 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.

Speaker Change: Limited to the risk factors described by Unitedhealth Group, Inc 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.

Jamie Pirrello: 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.

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 as a result of new information future events or otherwise, except as may be required under applicable securities laws.

Jamie Pirrello: Additionally, reconciliations of non-GAP financial measures discussed on this call to the most directly comparable GAP measures can be accessed through the company's website and in its SEC file.

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.

Erin McGinnis: Hosting the call today are United Homes Group Chief Executive Officer Jamie Pirrello, President Jack Micenko, and Chief Financial Officer Keith Feldman.

During the call today are Unitedhealth group's Chief Executive Officer, Jamie Pirrello, President Jacqueline Thank our Chief Financial Officer, Keith Feldman with that I'd like to turn the call over to Jack.

Jack Micenko: With that, I'd like to turn the call over to Jack. Thank you, Erin. Good morning, and thank you everybody for joining us today as we go over our results for the third quarter 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 the 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, making improvements to our operations on a number of fronts.

Jacqueline Thank: Thank you Eric Good morning, and thank you everybody for joining us today as we go over our results for the third quarter 2024, and provide an update on our operations.

Speaker Change: <unk> 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, making improvements to our operations on a number of folks.

Jack Micenko: 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, so our ability to convert traffic in orders was somewhat dictated by movements in mortgage rates. through our use of mortgage rate buy-downs and other incentives. 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 fourth quarter, we expect incentives to remain elevated for the remainder of the year.

Speaker Change: We continue to see positive housing fundamentals in our markets highlighted by strong local economies and then migration patterns traffic in our communities was steady throughout the quarter.

Speaker Change: Ability to convert traffic in orders was somewhat dictated by movements in mortgage rates.

Speaker Change: Through our use of mortgage rate buy downs and other incentives.

Speaker Change: 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.

Speaker Change: Given the current mortgage rate environment seasonal slowdown our industry typically experiences in the fourth quarter, we expect incentives to remain elevated for the remainder of the year.

Jack Micenko: We made solid headway in the quarter aligning our product to address the needs of our buyers and our markets, and make sure we have sufficient inventory of homes to meet our delivery goals for this quarter. Our acquisitions of Rosewood and Creekside Homes have been integrated on our home building platform. We're making progress in establishing a foothold in our relatively new market, Raleigh, North Carolina. We've been hard at work transitioning United Homes from a successful private home builder into a production focused home builder with a publicly traded company mindset.

Speaker Change: We made solid headway in the quarter aligning our product to address the needs of our buyers in our markets to make sure we have sufficient inventory of homes to meet our delivery goals for this quarter and beyond.

Speaker Change: Our acquisitions of Rosewood in Creekside homes have been integrated our homebuilding platform.

Speaker Change: Making progress in establishing a foothold in a relatively new market Raleigh North Carolina.

Speaker Change: Been hard at work transitioning United hold true successful private homebuilder into a production focused homebuilder with a publicly traded company mindset.

Jack Micenko: 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 Century Communities, overseeing the Southeast Texas and Florida division. Jamie's led a successful career across many facets of the home building industry and understand 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.

Speaker Change: Helping us execute on the strategy as our new interim CEO, Jamie Pirrello joined our company earlier this year Jimmy comes to us with a wealth of industry knowledge and experience having most recently served as a consultant in the industry before that as regional president for century communities overseeing the southeast, Texas, and Florida divisions Jamie's letter successful career.

Speaker Change: Across many facets of the homebuilding industry and understand what it takes to compete effectively in the business. We're excited about adding a seasoned industry veteran like Jamie to our team.

Background experience and leadership abilities to take you nine homes groups the next level.

Jamie Pirrello: 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. I look forward to the opportunities that lie ahead.

That I would like to turn the call over to Jamie. So he can give you more insight there is operational philosophy and his outlook for our company Jami.

Jamie Pirrello: Thanks, Jack I'm thrilled to be part of the United homes team and look forward to the opportunities that lie ahead.

Jamie Pirrello: I'd like to start by giving special thanks to our founder, Executive Chairman Michael Neary, 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 home builders 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.

I'd like to start by giving a special thanks to our founder and executive Chairman Michael Here for building, an amazing company and establishing a culture that emphasizes passion teamwork and a customer first mindset.

Jamie Pirrello: I'm excited to build upon the foundation that Michael is set.

Jamie Pirrello: <unk> homes into one of the Premier large scale production homebuilders in the southeast.

Jamie Pirrello: We have an opportunity to build something special here given the favorable housing fundamentals that exist in this part of the country.

Jamie Pirrello: People continue to migrate to the southeast sports relative affordability quality of life, while employers see the benefits of moving here the business friendly climate.

Jamie Pirrello: 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 a 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 home builders.

Jamie Pirrello: We believe this dynamic will be in place for the foreseeable future and provides our company with a consistent pipeline new homebuyers entering the market.

Jamie Pirrello: Our focus will continue to be on the more affordable segments of the market.

Jamie Pirrello: We believe this represents the most under supplied and highest demand aspect of housing.

Jamie Pirrello: No secret that there is a real need for more affordable housing in this country and we intend to capitalize on this reality.

Jamie Pirrello: Our average sales price on production built homes in the third quarter was 320000, which is one of the lowest asps.

Jamie Pirrello: Any of the publicly traded homebuilders.

Jamie Pirrello: 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, tightly managing our overhead spend. These factors are aimed at generating positive operating leverage and improve 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. This is a more capital efficient and risk adverse way to approach the business.

Jamie Pirrello: We've launched a number of initiatives focused on driving growth lowering direct costs and managing overhead.

Jamie Pirrello: <unk> our product to ensure we compete aggressively offering home designs in demand rebating.

Jamie Pirrello: We're getting all of our direct costs and tightly managing our overhead spend.

Jamie Pirrello: These factors are aimed at generating positive operating leverage and improved gross margins in the future.

Jamie Pirrello: 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.

Jamie Pirrello: 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 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.

Jamie Pirrello: Inventory turns are an important part of our return focus 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 our community is important and we plan on staying competitive in the marketplace. So that we cycled through our lot positions.

Jamie Pirrello: And drive higher inventory returns.

Jamie Pirrello: 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.

Jamie Pirrello: Well Theres 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.

Jamie Pirrello: 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.

Jamie Pirrello: The market is competitive United as homes group is in a great position to capitalize on the positive housing fundamentals that we see in our markets.

Jamie Pirrello: Our internal initiatives to drive improved profitability.

Jamie Pirrello: 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.

Speaker Change: Im excited to be part of the leadership team.

Speaker Change: <unk> on our company's legacy of providing quality affordable homes and great places to live.

Keith Feldman: 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. 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.

Speaker Change: With that I'd like to turn the call over to Keith who will provide more detail about our financial results in the quarter.

Speaker Change: And give an update our outlook for the remainder of 2024.

Speaker Change: Keith.

Keith: Thank you Jack you, 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.

Keith: This earn out will be paid on the <unk> common shares upon reaching certain stock price hurdles and that results in a cash expense for the company for.

Keith Feldman: For the nine months ended September 30th, 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 earn out liability. 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 nine months ended September 30, 2024 was $328.9 million, compared to $304.6 million for the nine 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 nine months ended September 30, 2024 were 1017 homes compared to 996 homes for the same period in 2023.

Keith: For the nine months ended September 32024, net income was $46 2 million, which included a change in fair value of $50 7 million primarily related to the accounting for a potential earn out liabilities.

Keith: Revenue for the third quarter of 2024 was $118 6 million compared to $87 7 million for the third quarter of 2023 revenue.

Keith: Revenue for the nine months ended September 32024 was $328 9 million compared to $304 6 million for the nine months ended September 32023.

Keith: 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 nine months ended September 32024.

Keith: One <unk> thousand 17 homes compared to 996 homes for the same period in 2023.

Keith Feldman: 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 nine 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.

Keith: Average sales price during the third quarter of 2024 was approximately 320000 for 369 production built homes. This compares to an average sales price of approximately 316000 during the third quarter of 2023 for 268 production build homes.

Keith: 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 nine months were 1048 homes compared to 1002 homes in 2023, our backlog at the end of the third quarter was 220 homes with.

Keith: The value of approximately $79 9 million.

Keith: Gross profit and gross profit margin for the third quarter of 2024.

Keith: It was $22 4 million and 18, 9% was changed from $17 4 million and 19, 8% from the third quarter of 2023 adjusted gross profit margin was 26% for the three months ended September 32024, which decreased from 22, 1% in the third quarter of 2020.

Keith Feldman: Adjusted gross profit margin was 20.6% for the three-month end of September 30, 2024, which decreased from 22.1% in the third quarter of 2023. The decrease in gross profit, adjusted gross profit percentage, is primarily due to the company continuing to offer attractive sales incentives to homebuyers. For the nine-month end of September 30, 2024, gross profit remained consistent at $58.1 million. However, 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 adjustment.

Keith: III.

Keith: The decrease in gross profit and adjusted gross profit percentage is primarily due to the company continuing to offer attractive sales incentives to homebuyers.

Keith: For the nine months ended September 32024, gross profit remained consistent at $58 1 million.

Keith: However, 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 a higher level of incentives and amortization of purchase price accounting adjustments.

Keith Feldman: Adjusted gross profit margin was 20.7% for the nine months ended September 30, 2024, a slight decrease from 21.2% from the nine 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 home buyers. SG&A expense in the third quarter of 2024 was $18.7 million. After adjusting for one-time transaction fees, non-cash stock-based compensation, adjusted G&A was approximately $16.4 million, or 13.9% of revenues for the third quarter. For the nine 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.

Adjusted gross profit margin was 27% for the nine months ended September 32020 for a slight decrease from 21, 2% from the nine months ended September 32023, the company's adjusted gross profit percentage decreased due largely to the companys continuing to offer attractive sale.

Keith: Incentives for homebuyers.

Keith: 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 nine months ended September 32024.

G&A expenses, $55 4 million and adjusted SG&A expense was $46 8 million or 14, 2% of revenue.

Keith Feldman: As of today, we have 55 active communities 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 at our credit facility as of September 30, 2024, resulting in total liquidity of $89 million.

Keith: 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.

Keith: 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.

Keith Feldman: That concludes our prepared remarks.

Operator: Operator, please open up the line for questions. Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Speaker Change: That concludes our prepared remarks. Operator, please open up the line for questions.

Thank you. Bye.

Speaker Change: Thank you. At this time, I would like to remind everyone, in order to ask a question, please press star and the number 1 on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Jamie Pirrello: At this time, there are no questions, so I would like to turn it over to Jamie Pirrello for closing. 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.

Speaker Change: At this time, there are no questions, so I would like to turn it over to Jamie Farrello for closing remarks.

Thank you.

Speaker Change: 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.

Jamie Pirrello: We look forward to speaking with you in the future and our fourth quarter call in the new year. Thank you.

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

Thank you.

Thank you.

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

Speaker Change: Okay.