United Homes Group, Inc

Good morning. My name is Amy and I'll be your conference operator for today. At this time, I would like to welcome everyone to the United Homes Group third quarter 2024 earnings call. All lines have been placed on mute to prevent any background noise. After the 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. I would like to now turn the call over to Erin Reeves McGinnis. You may begin.

Good morning, and welcome to United Homes Group's third quarter of 2024 earnings call. Before the call begins, I would like to note that this call will include forward-looking statements within the meaning of the federal securities laws. United Homes Group cautions that forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. These risks and uncertainties include but are not limited to the risk factors described by United Homes Group in filings with the Securities and Exchange Commission. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date, and you should not place undue reliance on these forward-looking statements. We do not undertake any obligation to update forward-looking statements to reflect events or circumstances after the date they were made, whether as a result of new information, future events, or otherwise, except as may be required under applicable securities laws. Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most directly comparable GAAP measures can be accessed through the company's website and in its SEC filings. Hosting the call today are United Homes Group's Chief Executive Officer, Jamie Perrello, President Jack Masenko, and Chief Financial Officer, Keith Feldman. 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 of 2024 and provide an update on our operations. The 8 Homes Group delivered strong results in the quarter, highlighted by home sales revenue growth of 35% year-over-year and a 30% increase in new home deliveries. I want to thank all of our team members for their hard work in delivering a strong quarter of sales and deliveries and making improvements to our operations on a number of fronts. We continue to see positive housing fundamentals in our markets, highlighted by strong local economies and in-migration patterns. Traffic in our communities was steady throughout the quarter, though our ability to convert traffic and orders was somewhat dictated by movements in mortgage rates. Through our use of mortgage rate buy-downs and other incentives, we were able to maintain a steady cadence of orders through the quarter, culminating in a total of 341 homes sold, which represented a 25% increase over the prior year period. Given the current mortgage rate environment and seasonal slowdown our industry typically experiences in the fourth quarter, we expect incentives to remain elevated for the remainder of the year. We made solid headway in the quarter aligning our product to address the needs of our buyers and our markets. and make sure we have sufficient inventory of homes to meet our delivery goals for this quarter and beyond. Our acquisitions of Rosewood and Creekside homes have been integrated on our home building platform. We're making progress in establishing a foothold in a relatively new market, Raleigh, North Carolina. We've been hard at work transitioning United Homes from a successful private home builder into a production-focused home builder with a publicly traded company mindset. Helping us execute on this strategy is our new interim CEO, Jamie Perello, who joined our company earlier this year. Jamie comes to us with a wealth of industry knowledge and experience, having most recently served as an consultant to the industry, but before that, as regional president for Centric Communities overseeing the Southeast, Texas, and Florida divisions. Jamie's led a successful career across many facets of the home building industry to 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. 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. I'd like to start by giving special thanks to our founder and 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, 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 the business friendly climate we believe this dynamic will be in place for the foreseeable future and provides our company with a consistent pipeline of new home buyers entering the market. Our focus will continue to be on the more affordable segments of the market, as we believe this represents the most undersupplied and highest demand aspect of housing. It's no secret that there is real need for more affordable housing in this country, and we intend to capitalize on this reality. Our average sales price on 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. We've launched a number of initiatives focused on driving growth, lowering direct costs and managing overhead. We're updating our product to ensure we compete aggressively, offering home designs in demand, rebidding all of our direct costs and tightly managing our overhead spend. These factors are aimed at generating positive operating leverage and 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 and developers in our markets to keep land off our balance sheet. This is a more capital efficient and risk adverse way to approach the business. Inventory turns are an important part of our return 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 a community is important, and we plan on staying competitive in the marketplace so that we cycle through our lot positions and drive higher inventory returns. While there's a lot of work to be done to achieve these goals, I'm confident that we have the right people, strategy, and focus in place to get there. The strong year-over-year growth we posted in both orders and deliveries in the third quarter reflects our company's ability to adapt to changing market conditions and execute on strategic initiatives. While the market is competitive, United Homes Group is in a great position to capitalize on the positive housing fundamentals that we see in our markets and our internal initiatives to drive improved profitability. I'm excited to be part of the leadership team that builds on our company's legacy of providing quality, affordable homes, and great places to live. With that, I'd like to turn the call over to Keith. will provide more detail about our financial results in the quarter and give an update on our outlook for the remainder of 2024.

Keith?

Thank you, Jack and Jamie, and good morning. For the third quarter of 2024, net loss was $7.3 million, which included a change in fair value of $7.8 million, primarily related to the accounting for potential earn-out, which will fluctuate on our financial statements each quarter based on our ending stock price. This earn-out will be paid only in common shares upon reaching certain stock price hurdles and can never result in a cash expense for the company. For the nine months ended September 30, 2024, net income was $46.2 million, which included a change in fair value of $50.7 million, primarily related to the accounting for potential earn-out liabilities. Revenue for the third quarter of 2024 was $118.6 million, compared to 87.7 million for the third quarter of 2023. Revenue for the nine months ended September 30th, 2024 was 328.9 million compared to 304.6 million for the nine months ended September 30th, 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 30th, 2024 or 1,017 homes compared to 996 homes for the same period in 2023. Average sales price during the third quarter of 2024 was approximately $320,000 for 369 production-built homes. This compares to an average sales price of approximately $316,000 during the third quarter of 2023 for 268 production-built homes. Our net new orders during the third quarter of 2024 with 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. 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 and 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, the gross profit margin decreased to 17.7% from 19.1% for the same period in 2023. The decrease in gross profit percentage is primarily attributed to higher cost of sales due to higher level of incentives and amortization of purchase price accounting adjustment. Adjusted gross profit margin was 20.7% for the nine months ended September 30th, 2024, a slight decrease from 21.2% from the nine months ended September 30th, 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. 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 on our credit facility as of September 30, 2024, resulting in total liquidity of $89 million. That concludes our prepared remarks. Operator, please open up the line for questions.

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

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

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