Q1 2025 United Homes Group Inc Earnings Call
Thank you for standing by my name is correlate and I will be your conference operator today at this time I would like to welcome everyone to the United at Home Group first quarter 'twenty 25 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be.
Carly: Thank you for standing by. My name is Carly, and I will be your conference operator today.
Carly: At this time, I would like to welcome everyone to the United Home Group First Quarter 2025 Earnings Call.
Carly: All lines have been placed on mute to prevent any background noise. 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, press star one again. Thank you.
A question and answer session. If he 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 Press Star one again thank.
Speaker Change: Thank you I would now like to turn the call over to Aaron Reyes Mcguinness General Counsel. Please go ahead.
Erin McGinnis: I would now like to turn the call over to Erin Reeves McGinnis, General Counsel. Please go ahead.
Speaker Change: Good morning, and welcome to Unitedhealth group's first quarter of 2025 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.
Erin McGinnis: Good morning, and welcome to United Homes Group's first quarter of 2025 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. 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 filing 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: I did have group cautioned that forward looking statements are subject to numerous assumptions risks and uncertainties, which change over time.
Speaker Change: Risks and uncertainties include but are not limited to the risk factors described by Unitedhealth group in its filings with the Securities and Exchange Commission.
Speaker Change: 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 secure.
Erin McGinnis: 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: 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: 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 filing.
Erin McGinnis: Hosting the call today are United Homes Group's Interim Chief Executive Officer Jamie Pirrello, President Jack Micenko, and Chief Financial Officer Keith Feldman.
Speaker Change: Hosting the call today are Unitedhealth group's interim Chief Executive Officer, Jamie Pirrello, President, Jack Masako, and Chief Financial Officer, Keith Feldman with that I'd like to turn the call over to Jamie.
James Pirrello: With that, I'd like to turn the call over to Thank you for joining us today. As we go over our results for the first quarter of 2025, we provide an update on our operations. United Homes Group delivered 252 homes in the first quarter, with an average sales price on production-built homes of $345,000, generating home sales revenue of $87 million. Home sales gross margins improved 20 basis points year-over-year, but remained depressed at 16.2% due to elevated incentive activity, and our strategic decision to discount moved stack inventory. Net new orders came in at 296 units. Our sales face in January, and the first half of February was disappointing and did not meet our expectations.
Speaker Change: Thank you for joining us today as we go over our results in the first quarter of 2025, we provide an update on our operations Unitedhealth group delivered 252 holes in the first quarter and.
Speaker Change: Average sales prices on production.
Speaker Change: 345000 generate home sales revenue.
Speaker Change: Yes.
Speaker Change: Home sales gross margins improved 20 basis points year over year, but remained depressed and 16, 2% due to elevated incentive activity.
The strategic decision to discount moves.
Speaker Change: Sure.
Speaker Change: Net new orders came in at 296 units.
Speaker Change: Our sales pace in January and the first half of February was disappointing.
Speaker Change: And did not meet our expectations as a result, we had fewer homes available to close during the second half of the first quarter.
James Pirrello: As a result, we had fewer homes available to close during the second half of the first quarter. slower sales pace had a material impact on our results. Like other builders, we saw improved sales in the second half of February. March met our expectations, and April and the first part of May had been good.
Speaker Change: Lower sales base had a material impact on our results.
Speaker Change: Like other builders, we saw improved sales in the second half of February.
Speaker Change: <unk> met our expectations in April and the first part of that isn't good.
James Pirrello: Overall, I'm pleased with the progress we made on a number of fronts and encouraged by the operational momentum we carried into the second quarter. As we mentioned in the last quarter, we've undertaken a product refresh and a direct cost reduction initiative that should improve our competitive positioning and profitability. While we are still in the early stages of these initiatives, the initial results have been encouraging. Our newly designed homes have been well received by buyers and generated margins well in excess of the company's average in the first quarter of 2025. The 23 newly designed homes we closed during the first quarter had an average gross margin of approximately 24%.
Speaker Change: Overall I'm pleased with the progress we made a number of fronts and I'm encouraged by the operational momentum we carried into the second quarter.
Speaker Change: As we mentioned last quarter, we've undertaken a product refresh and a direct cost reduction initiatives that should improve our competitive positioning and profitability.
Speaker Change: While we are still in the early stages of these initiatives initial.
Speaker Change: Initial results have been encouraging.
Speaker Change: Our newly designed homes have been well received by buyers and generated margins well in excess of the company's average for the first quarter of 2025.
23, newly designed homes closed during the first quarter.
Speaker Change: Average gross margin of approximately 24%.
Speaker Change: We closed 27 of these refreshed homes in April.
James Pirrello: We closed 27 of these refreshed homes in eight... As of Monday, May 12th, we had 95 newly designed homes in backlog, carrying an average gross margin of approximately 24%. Every day, these homes are making up a bigger percentage of our closings in the future. In terms of our cost reduction plan, we have already identified over $3.5 million of direct construction cost savings for homes expected to be closed in 2025. We achieved this through the competitive re-bidding of our agreements with subcontractors and material suppliers. We expect the effects of these cost-saving initiatives to begin on a small scale in the second quarter and ramp up through the third and fourth quarters.
Speaker Change: As of Monday May 12, we had 95 newly designed homes backlog carrying an average gross margin of approximately 24%.
Speaker Change: Every day these homes are making up a bigger percentage of our closings in the future.
Speaker Change: In terms of our cost reduction plan.
Speaker Change: Already identified over $3 5 million direct construction cost savings for homes expected to be closed in 2025.
Speaker Change: This through the competitive resetting of our agreements with subcontractors and materials suppliers.
Speaker Change: Expect the effects of these cost savings initiatives to begin for small scale in the second quarter and ramp up through the third and fourth quarters. We have not completed this initiative. So we anticipate additional savings.
James Pirrello: We have not completed this initiative, so we anticipate additional savings.
James Pirrello: Another initiative we've undertaken is to place a greater emphasis on pre-sold homes. In prior quarters, it made sense to carry a higher level of spec inventory, given the extended cycle times resulting from the supply chain issues of years past, and the entry-level buyer's preference for quick, moving homes. Now that cycle times have come down and move-up buyers have become more active in the market, we have made the strategic decision to shift away from a high-spec home strategy and look for a somewhat more balanced approach in our move-up product line. Pre-sales are currently producing much higher margins, especially when compared to the discounting we do on completed spec home inventory.
Another initiative, we've undertaken some place a greater emphasis on pre sold homes.
Prior quarters makes sense to carry a higher level of spec inventory given the extended cycle times, resulting from the supply chain issues in years past.
The entry level buyers preference for quick move in homes.
Speaker Change: Now, let's cycle times has come down and move up buyer to become more active in the market. We've made the strategic decision to shift away from a high spec home strategy and look for a somewhat more balanced approach in our move up product lines pre sales are currently producing much higher margins, especially when compared to the discounting we do on.
Speaker Change: Uncompleted spec home inventory.
James Pirrello: This shift will allow us to capitalize on buyers who are willing and able to pay for what they want in a new home. includes upgrades, such as structural and interior option offerings, and other upgrades that we sell at higher margins. It will also give us better visibility into our delivery outlook for the year and reduce the capital tied up and standing in. With pre-sold homes and newly refreshed products expected to make up a higher percentage of our closings going forward, we are optimistic about the trajectory of our march. We also remain optimistic about the long-term prospects for our markets.
Speaker Change: This shift will allow us to capitalize on buyers, who are willing and able to pay for what they want and the new home.
Speaker Change: This includes upgrades such as structural material option offerings and other upgrades that we sell at higher margins.
Speaker Change: Also give us better visibility into our delivery outlook for the year and reduce the capital tied up in standing inventory.
Speaker Change: With pre sold homes and newly refreshed products expected to make up a higher percentage of our closings going forward. We are optimistic about the trajectory of our margins.
Speaker Change: We also remain optimistic about the long term prospects for our markets, the Carolinas and Georgia continue attract employers to the region either business friendly economic climate and attractive quality of life.
James Pirrello: The Carolinas and Georgia continue to attract employers to the region due to their business-friendly economic climate and attractive quality of life. They also boast better housing affordability relative to most major markets. which has led to consistent migration from other parts of the country. We continue to see greater opportunities for long-term growth in these markets and others throughout the Southeast, given these favorable housing fundamentals.
Speaker Change: They also both better housing affordability relative to most major markets, which has led to consistent migration from other parts of the country.
Speaker Change: We continue to see greater opportunities for long term growth in these markets and others throughout the southeast given these favorable housing fundamentals.
James Pirrello: As we turn our attention to the latter part of the spring selling season, we remain focused on maintaining a consistent level of new home sales while executing on the initiatives I discussed above. So far this quarter, demand has been fairly solid, with April orders up 6% year-over-year. While incentives continue to run at a higher level than we would like, we believe our improved product design, pre-sold home focus, can offset some of their margin impact. As a result, I believe United Homes Group is on the right path to achieve its long-term goals.
Speaker Change: As we turn our attention to the latter part of the spring selling season, we remain focused on maintaining a consistent level of new home sales, while executing on the initiatives I discussed above so far this quarter demand has been fairly solid with April orders up 6% year over year.
Speaker Change: While our incentives continue to run at a higher level than we would like we believe our improved product design pre sold home focus can offset some of that margin impact.
Speaker Change: As a result, I believe 90 homes group so on the right path to achieve long term goals.
Jack Micenko: With that, I'd like to turn the call over to Jack, who will provide more detail on our operational results this quarter. Thanks, Jenny, and good morning to everyone. First quarter of 2025 was a tale of two halves for our company, second half being materially better than the January started slowly due to normal seasonality and some abnormal snowfall, which impacted our sales efforts. We saw a bounce back in February, and that momentum carried into March. Our profitability also followed a similar trajectory, with gross margins improving 400 basis points from the beginning of the quarter through the end.
Speaker Change: I'd like to turn the call over to Jack who will provide more detail on our operational results this quarter.
Jack Masako: Thanks, Jamie and good morning to everyone first quarter of 2025 was a tale of two halves for our company.
Jack Masako: Second half being materially better than the first January started slowly due to normal seasonality and some abnormal snowfall, which impacted our sales efforts.
Jack Masako: Ill bounce back in February and that momentum carried into March.
Jack Masako: <unk> ability also followed a similar trajectory with gross margins, improving 400 basis points from the beginning of the quarter through yet.
Jack Micenko: As Jamie mentioned, April orders were up 6% year over year. Poor ability continues to be an issue for buyers, which has necessitated the use of financing incentives to get people to their desired monthly payment. Incentives have been a key selling tool for our industry and a distinct advantage over the resale market where it has come at a cost to our profitability. Financing incentive has a percentage of ASP, was 4% for the quarter, which is consistent with the prior quarter. We expect incentive activities remain elevated.
Jack Masako: Jimmy mentioned April orders were up 6% year over year.
Speaker Change: We're building continues to be an issue for buyers, which is necessitated the use financing incentives to get people to their desired monthly payment.
Speaker Change: Scientists have been a key selling tool for our industry and a distinct advantage over the resale market.
Speaker Change: The cost to our profitability.
Speaker Change: Financing incentives as a percentage of ASP.
Speaker Change: Was 4% for the quarter, which is consistent with the prior quarter, we expect incentive activity to remain elevated we are optimistic that our shift to more pre sell homes and the appeal of our fresh product will dampen the effect however on our margins we.
Jack Micenko: We are optimistic that our shift to more presale homes and the appeal of our fresh product will dampen their effect, however, on our margins. We took 16 days out of our average cycle time in the first quarter as compared to last year. Part of the improvement was a result of labor and material availability returning to pre-COVID levels, but another factor has been our focus on becoming a more efficient builder. The product rationalization is better build practice.
Speaker Change: We took 60 days out of our average cycle time in the first quarter as compared to last year.
Speaker Change: Part of the improvement was a result of labor and material availability returning to pre COVID-19 levels, but another factor is that our focus will become a more efficient builder product rationalization and better build practices. This has been another key initiative for our company. In addition to the product improvements the cost containment measures we've undertaken.
Jack Micenko: has been another key initiative for our company, in addition to the product improvements, cost containment measures we've undertaken. We are a returns-focused builder, and our ability to build and close homes in a timely manner is an important aspect of that focus. Another important aspect of our strategy is to tie up land in a capital-efficient manner. At the end of the first quarter, we owned or controlled approximately 7,500 lots. We believe this asset-led strategy puts us in a great position to pursue our growth initiatives in a capital-efficient, risk-averse manner. We are staying disciplined to our underwriting of new land deals given the uncertainty in the market today and continue to work with our land partners on terms of our future lot take.
Speaker Change: We are a returns focused builder and our ability to build and close homes in a timely manner.
Speaker Change: Gordon aspect of that focus.
Speaker Change: Another important aspect of our strategy is to tie up land in a capital efficient manner at the end of the first quarter, we owned or controlled approximately 7500 loss. We believe this asset light strategy puts us in a great position to pursue our growth initiatives in a capital efficient risk averse manner.
Speaker Change: We are staying disciplined to our underwriting of new land deals given the uncertainty in the market today and continue to work with our land partner's on terms of our future lot takedowns.
Jack Micenko: We expect to open 10 new communities in the second quarter and 18 communities in the third quarter, giving our sales efforts a boost. Most of these communities will feature our newly refreshed product, which have been selling well and carry higher margins.
Speaker Change: <unk> opened 10, new communities in the second quarter, and an 18 communities in the third quarter, giving our sales effort to boost most of these communities will feature our newly refreshed product, which have been selling well and carry higher margins.
Jack Micenko: Given these new community rollouts and the way in which our company's performance improved over the first four months of the year, I'm excited about what's in store for the remainder of 2025.
Speaker Change: Given these new key rollouts in the way in which our company performance improved over the first four months of the year I'm excited about what's in store for the remainder of 2025.
Keith Feldman: Now I'd like to turn the call over to Keith, who will provide more detail on our financial results for the quarter. Thank you, Jack and Jamie. Good morning. For the first quarter of 2025, we reported net income of $18.2 million, which includes a fair value adjustment of $21.2 million, primarily related to the accounting for the contingent burnout liability, which fluctuates each quarter based on our ending stock price. The earn out will be settled exclusively in common shares upon reaching certain stock price hurdles and will never result in a cash expense for the company.
Speaker Change: 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 Jamie and good morning for the first quarter of 2025, we reported net income of $18 2 million, which includes a fair value adjustment of $21 2 million primarily related to the accounting for the contingent earn out liability, which fluctuates each quarter based on our ending stock price.
Keith Feldman: The earn out will be settled exclusively in common shares on reaching certain stock price hurdles and we'll never resulted in a cash expense for the company.
Keith Feldman: As Jamie mentioned, revenue for the first quarter of 2025 was $87 million, a decrease of $13.8 million, or 13.7% from $100.8 million in the first quarter of 2024. The year-over-year decline was primarily driven by lower home closings, partially offset by an increase in average sales price. Home closings for the first quarter of 2025 totaled 252 homes, down from 311 homes in the prior year period. As we previously mentioned, the industry-wide slow start to the year and unusually poor weather in South Carolina negatively impacted our January. While our sales pace began to improve in the second half of February and into March, the slower activity in January impacted our quarterly closings, as a large portion of our sales typically closed in the latter half of the quarter.
Keith Feldman: As Jamie mentioned revenue for the first quarter of 2025 was $87 million a decrease of $13 8 million or 13, 7% from $108 million in the first quarter of 2024.
Keith Feldman: Year over year decline was primarily driven by lower home closings, partially offset by an increase in average sales price.
Keith Feldman: Home closings for the first quarter of 2020 totaled 252 loans down from 311 homes in the prior year period.
Keith Feldman: As we previously mentioned the industry wide slow start to the year and unusually poor weather in South Carolina negatively impacted our January while our sales pace began to occur and improve in the second half of February and into March the solar activity in January impacted our quarterly closing as a large portion of our sales typically occur.
In the latter half of the quarter.
Keith Feldman: The average sales price for production built homes during the quarter was approximately $345,000, a 2.9% increase compared to $335,000 in the first quarter of 2024. Due to the challenging environment previously discussed, net new orders for the first quarter was 296 homes, down from 384 homes in the prior year period. Backlog as of March 31, 2025, stood at 201 homes, representing approximately $75.3 million in value. Gross profit for the first quarter of 2025 was $14.1 million, down $2 million or 12.4% from $16.1 million in the prior year period. Gross margin improved slightly to 16.2% from 16%, driven by lower interest expense and cost of sales as a percentage of revenue, partially offset by elevated incentives and price discounting aimed at accelerating the sales of finished inventory.
Keith Feldman: The average sales price for production's up homes during the quarter was approximately 345000, a two 9% increase compared to 335000 in the first quarter of 2024.
Keith Feldman: Due to the challenging environment previously discussed net new orders for the first quarter was 296 homes down from 384 homes in the prior year period backlog as of March 31, 2025 stood at 201 homes, representing approximately $75 3 million in value.
Keith Feldman: Gross profit for the first quarter of 2025 was $14 1 million down $2 million or 12, 4% from $16 1 million in the prior year period gross margin improved slightly to 16, 2% from 16% driven by lower interest expense and cost of sales as a percentage of revenue.
Keith Feldman: Partially offset by elevated incentives and price discounting aimed at accelerating the sales of finished inventory.
Keith Feldman: adjusted gross margin was 18.8% down from 20.4% reflecting the elevated incentive costs and price reduction.
Keith Feldman: Adjusted gross margin was 18, 8% down from 24%.
Keith Feldman: Collecting the elevated incentive cost and price reduction.
Keith Feldman: We anticipate improvements in our margins throughout the year as our direct cost reduction efforts materialize into earning savings and homes featuring our Refresh 4 plans start to comprise a larger share of our closings in future quarters. Selling general and administrative expenses for the first quarter were $16.2 million excluding approximately $2 million in non-cash stock-based compensation expense. Adjusted SG&A totaled $14.2 million for 16.3% of revenue. In December, we refinanced our standing convertible note debt, which reduced our total debt and lowered our cash interest expense. The refinancing and lower balances on our wells facility resulted in cash interest expense savings of approximately $1 million in Q1 compared to Q4 of last year.
Keith Feldman: We anticipate improvements in our margins throughout the year as our direct cost reduction efforts materialize into earnings savings and homes, featuring our fresh floor plans start to comprise a larger share of our closings in future quarters.
Keith Feldman: Selling general and administrative expenses for the first quarter was $16 2 million, excluding approximately $2 million and noncash stock based compensation expense adjusted SG&A totaled $14 2 million or 16, 3% of revenue.
In December we refinanced our standing convertible note debt, which reduced our total debt and lower our cash interest expense, the refinancing and lower balances on our wells facility, resulting in cash interest expense savings of approximately $1 million in Q1 compared to Q4 of last year.
Keith Feldman: As of today, we have 50 active communities down from 63 a year ago. As Jack noted, the planned rollout of new communities in the second and third quarters is expected to provide a meaningful boost to our sales effort. As of March 31, 2025, we controlled approximately 7,500 lots, which include a mix of owned, optioned, and land-banked assets, positioning us to drive future growth and capture market opportunities. We had approximately $86.9 million of liquidity in cash and availability on our credit facility as of Q1.
Keith Feldman: As of today, we have 50 active communities down from 63, a year ago as Jack noted the planned rollout of new communities in the second and third quarters is expected to provide a meaningful boost to our sales efforts.
Keith Feldman: As of March 31, 2025.
Keith Feldman: Control of approximately 7500 lives, which include a mix of owned option and land banked assets positioning us to drive future growth and capture market opportunities.
Keith Feldman: We had approximately $86 9 million of liquidity in cash and availability on our credit facility as of Q1.
Keith Feldman: As we look ahead, we remain focused on execution. While the spring selling season got off to a slower start, we're encouraged by the momentum exiting the quarter into April. We're adapting to shifting market dynamics, staying disciplined in our capital allocation, and continuing to position UHG for long-term growth and value creation.
Keith Feldman: As we look ahead, we remain focused on execution, while the spring selling season got off to a solid start we are encouraged by the momentum exiting the quarter into April we're adapting to shifting market dynamics staying disciplined in our capital allocation and continuing to position USG for long term growth and value creation.
Keith Feldman: That concludes our prepared remarks.
Keith Feldman: That concludes our prepared remarks, operator, please open up the line for questions.
Carly: Operator, please open up the line for questions. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.
Keith Feldman: Okay.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad well pause for just a moment to compile the Q&A roster.
Keith Feldman: Okay.
Speaker Change: There are no questions at this time I will now turn the call back over to management for closing remarks.
Carly: There are no questions at this time.
James Pirrello: I will now turn the call back over to management for closing remarks. Jack, Keith, and I would like to thank all of you for joining us today. I want to thank our entire team for their commitment to our customers, our shareholders, our lenders, and each other.
Speaker Change: Jack Keith and I would like to thank all of you for joining us today I want to thank our entire team for their commitment to our customers our shareholders, our lenders and each other.
James Pirrello: We remain optimistic about the future of United Homes Group and look forward to updating you on our second quarter results later this summer. Thank you.
Speaker Change: We remain optimistic about the future of Unitedhealth group and look forward to updating you on our second quarter results. Later this summer. Thank you.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Carly: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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