United Homes Group Q2 2024 Earnings Report

United Homes Group EPS Results

• Actual EPS: $0.50
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

United Homes Group Revenue Results

• Actual Revenue: $109.42 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

United Homes Group Announcement Details

• Quarter: Q2 2024
• Date: 8/8/2024
• Time: N/A
• Conference Call Date: Thursday, August 8, 2024
• Conference Call Time: 8:30AM ET

United Homes Group (NASDAQ:UHG), a homebuilding company, engages in the design, building, and sale of homes in South Carolina, North Carolina, and Georgia. It provides detached single-family houses, as well as attached single-family houses, including duplex and town houses for entry-level buyers, first time move-ups, second time move-ups, third time move-ups, and custom builds. The company was founded in 2004 and is headquartered in Chapin, South Carolina.

United Homes Group Q2 2024 Earnings Call Transcript

Key Takeaways

• United Homes Group controls 9,300 lots (95% via option agreements/land banking) in the Southeast, underpinning its capital-efficient strategy of focusing on homebuilding rather than land development.
• In Q2 2024, the company delivered 337 homes generating $109.4 M in revenue with GAAP gross margins of 17.9% (20.9% adjusted) and $7.7 M of adjusted EBITDA, though incentives weighed on margins.
• The quarter saw 323 net new home orders across 59 active communities, with coastal orders up 59% and upstate orders up 44%, and a backlog of 248 homes valued at $81.2 M.
• Management is optimizing construction costs and labor availability by rebidding projects and benefiting from lumber price declines, even as rising lot costs pose offsetting pressure on margins.
• With $80 M in total liquidity ($25 M cash, $55 M credit facility), the company remains focused on M&A and organic growth in affordable home segments and maintains a positive long-term outlook despite transitional headwinds.

Presentation

[Operator]

Thanks for standing by. My name is Mandeep, and I'll be your operator today. At this time, I'd like to welcome everyone to the United Homes Group Q2 2024 Earnings Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there'll be a question and answer session. If you'd like to ask a question during this time, simply press Star followed by the number one on your telephone keypad. If you'd 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.

[Erin Reeves McGinnis, General Counsel at United Homes Group]

Good morning, and welcome to United Homes Group's Q2 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. 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.

[Erin Reeves McGinnis, General Counsel at United Homes Group]

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 President, Jack Micenko, 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, President at United Homes Group]

Thank you, Erin. Good morning, and thank you, everyone, for joining us for a review of our Q2 results and an update on our operations. United Homes Group continues to pursue a strategy of acquiring lots in a capital-efficient 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 Q2 totaled roughly 9,300, giving us a nice pipeline of lots to pursue our growth strategy and scale our operations. Over 95% of these lots are controlled via option agreement or land banking arrangement, which allow us to reduce a large part of the risk and upfront costs associated with land acquisition and development.

[Jack Micenko, President at United Homes Group]

We've been working diligently over the last several quarters to cultivate a network of counterparties that will help facilitate our land-light strategy, and we believe that network is now in place. 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. The Q2 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 markets. 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, President at United Homes Group]

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. We continue to see positive homebuilding fundamentals in our markets, characterized by steady job growth, low levels of inventory, and consistent in-migration patterns. We remain committed to growing our homebuilding presence throughout the Southeast through a combination of M&A and organic growth. We continue to seek out potential acquisition targets to add to our existing homebuilding footprint, provided they meet our underwriting criteria.

[Jack Micenko, President at United Homes Group]

We believe we are acquirer of choice for small local builders given our Southeastern roots and our appreciation for keeping their operations and workforce of the acquired companies intact. 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 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 homebuilding excellence. With that, I'd like to turn the call over to Shelton, who will provide more detail on our operations this quarter. Shelton?

[Shelton Twine, COO at United Homes Group]

Thank you, Jack. We delivered 337 homes in the Q2 of 2024, generating revenue of $109 million. Our operations in the Midlands contributed to 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 GAAP basis, or 20.9% on an adjusted basis, while adjusted EBITDA was $7.7 million for the period. Our gross profit margins were again weighed down by sales concessions as buyers utilized rate buydowns and other mortgage incentives to offset the impact of higher rates. We generated 323 net new home orders for the quarter and had 59 active communities open for sale at the end of the period.

[Shelton Twine, COO at United Homes Group]

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%. We continued 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 rebidding 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 quarters, though rising lot costs and other variables may offset these gains. Overall, I would characterize current marketing conditions as healthy but uneven, with traffic and sales incentives fluctuating with movements in interest rates.

[Shelton Twine, COO at United Homes Group]

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 home builders in our markets for decades, and we plan on maintaining and building on that reputation as we expand throughout the Southeast. 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, CFO at United Homes Group]

Thank you, Jack, and gentlemen, good morning. In the Q2 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. This earn-out will be paid only in common shares on reaching certain stock price hurdles and can never result in a cash expense for the company. 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.

[Keith Feldman, CFO at United Homes Group]

Revenue for the Q2 of 2024 was $109.4 million, compared to $122.1 million for the Q2 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. Home closings during the Q2 of 2024 were 337 homes, compared to 385 homes in the Q2 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.

[Keith Feldman, CFO at United Homes Group]

Average sales price during the Q2 of 2024 was approximately $341,000 for 299 production-built homes. This compares to an average sales price of approximately $313,000 during the Q2 of 2023 for 376 production-built homes. As Shelton mentioned, our net new orders during the Q2 of 2024 were 323 homes, compared to 341 homes in the Q2 of 2023. Net new orders for the six months were 707 homes, compared to 730 homes in 2023. Our backlog at the end of the Q2 was 248 homes, with a value of approximately $81.2 million.

[Keith Feldman, CFO at United Homes Group]

Gross profit and gross profit margin for the Q2, 2024, was $19.6 million and 17.9%, which decreased from $23.9 million and 19.6% from the Q2 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 ended June 30, 2024. This decreased from 21.4% in the Q2 of 2023, and is due largely to the company continuing to offer attractive sales incentives to home buyers.

[Keith Feldman, CFO at United Homes Group]

For the six months ended June 30, 2024, gross profit and gross profit margin was $335.7 million and 17%, which decreased from $40.7 million and 18.8% from the six months ended June 30, 2023. Similar to the Q2, this decrease was primarily driven by higher level of incentives, purchase price accounting adjustments from acquisitions, and non-recurring expenses. Adjusted gross profit margin was 20.7% for the six months ended June 30, 2024, a slight decrease from 20.9% from the six months ended June 30, 2023. This is due largely to the company continuing to offer attractive sales incentives to home buyers. SG&A expense in the Q2 of 2024 was $19.6 million.

[Keith Feldman, CFO at United Homes Group]

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 Q2. During the six months ended June 30, 2024, SG&A expense was $36.7 million, and adjusted SG&A expense was $30.4 million, or 14.5% of revenue. As of today, we have 59 active communities, up from 53 as of Q2 2024. 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. That concludes our prepared remarks. Operator, please open up the line for questions.

[Operator]

Thank you. We will now begin the question and answer session. If you dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star one again. If you're 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 one to join the queue. Our first question comes from the line of Carl Reichardt with BTIG. Please go ahead.

[Carl Reichardt, Managing Director and Partner at BTIG]

Thanks. Morning, guys. Hope you're doing well.

[Shelton Twine, COO at United Homes Group]

Morning, Carl.

[Carl Reichardt, Managing Director and Partner at BTIG]

So, Jack, can you talk a little bit about your absorptions? I, I think you're, you're running a little less than two a month. We had affordable product in one of the great markets in the country right now. What's the, the strategy for improving those, over the course of the next, over the next year or so? You'd mentioned something about product repositioning. Maybe give us a little more detail on that.

[Jack Micenko, President at United Homes Group]

Yeah. Hey, Carl, thanks for the question, and, I'm gonna 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, you are absolutely correct. We think the right number is something in the high 3s, low 4s. You know, like most things, you know, our portfolio of communities is a bell curve. You know, we've got communities that are running, you know, upwards of 7, 8, 8 a month, and we've got others that are, you know, below the average. So really focusing on, you know, the slower-moving communities, is it product? Is it price? Is it competitive landscape?

[Jack Micenko, President at United Homes Group]

And really targeting those slower-moving communities, on really a bi-weekly basis across the management committee and, division heads and that sort of thing. But it's not a one-size-fits-all. It's definitely looking at, you know, where we stack up, side by side. You know, 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.

[Carl Reichardt, Managing Director and Partner at BTIG]

All right. Appreciate that. Thanks, guys. 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? Thanks.

[Jack Micenko, President at United Homes Group]

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, 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. 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, you know, the best deals are coming through.

[Jack Micenko, President at United Homes Group]

Focusing on margin, focusing on absorption pace. We've made some investments and continue to make some investments on that front end, targeting both in terms of hires and services and technology to really bring 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. So I think that move in lots is really, you know, part of that. You know, lots are our lifeblood, and we have to be very careful not to move in the opposite direction.

[Jack Micenko, President at United Homes Group]

You know, if our deliveries jumped up by 10 or 15%, that lot pipeline, the years controlled, kind of goes down and moves kind of quickly. So, we wanna be very focused there. We have the lots we need for 2025 and a fair amount of 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 in the door. And then the second question, I'm sorry,

[Carl Reichardt, Managing Director and Partner at BTIG]

Just on acquisition.

[Jack Micenko, President at United Homes Group]

Follow up.

[Carl Reichardt, Managing Director and Partner at BTIG]

How that environment feels and looks to you now?

[Jack Micenko, President at United Homes Group]

It's busy. You've seen it. A number of our large public competitors have announced deals. There are books out, there are conversations being had. As you know and can imagine, we're getting, you know, 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've tightened the filter there as well. I don't think we wanna 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.

[Jack Micenko, President at United Homes Group]

We've, as you can imagine, we've walked or we've, we've, you know, 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, 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 or 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, you know, we're seeing a lot. The volume has picked up certainly since Q1. And I think it's really the same story on the seller side.

[Jack Micenko, President at United Homes Group]

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 reluctant to sell through their lot positions. It's really, really hard to replace it. And I think to just jog my memory to your other question, the land environment is as competitive as it's ever been. You know, 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 to increase in price and competitiveness.

[Carl Reichardt, Managing Director and Partner at BTIG]

Okay, I appreciate the answers. Thanks, Jack. Thanks, fellas.

[Jack Micenko, President at United Homes Group]

Thanks, Carl.

[Operator]

Our next question comes from the line of Chris Klem with Tall Pines Capital. Please go ahead.

[Chris Clem, Analyst at Tall Pines Capital]

Hey, guys. Two questions this morning. One, where do you guys think you're at on the integration of the acquisitions you've made to date? And then lastly, did the strategy change at all on a go-forward basis with rates coming in a bit?

[Jack Micenko, President at United Homes Group]

Hi, Chris. On the first question, I would say three deals. The coastal transaction, Creekside, which was the most recent closing, is probably the furthest along, because 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 product set and our brand in that market. And so I think, you know, that's that one's probably furthest along, I would say, 85-90% of the way there. Their team came over very seamlessly. Their founder is running our land acquisition operations in that market. Herring was our first deal back in August a year ago. We've got 5 communities going on up in Raleigh.

[Jack Micenko, President at United Homes Group]

That was a little bit of a more of a delay because the product set is very different. We're focused on affordable product. We've got our communities open now, and we're underway there. Rosewood, I say, that one we did in October of last year, different product type. We're still working through getting their trades aligned with ours, their costs aligned with ours. That's also gonna be the biggest opportunity. I'd say we're probably halfway, 60% through integrating there. But they're very, very happy with their product, very happy with the demand trends. They are very happy with what their forward pipeline looks like from a land side for us, and that team is pretty well integrated.

[Jack Micenko, President at United Homes Group]

From an operational standpoint, I think there's some more to come there 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-time move-up buyer. 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 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. We are continuing to buy down interest rates.

[Jack Micenko, President at United Homes Group]

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 are offering a 5.99 buydown. We've moved down to a 4.99 as the market has moved lower, and that's for, you know, quick finish, quick close homes. And that's a line item that we budget for. You know, a couple benefits 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.

[Jack Micenko, President at United Homes Group]

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 we are seeing more people take closing cost dollars and maybe not the rate, and maybe their perspective is, I can refinance, or 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, you've got this, this incentive. Choose, 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.

[Chris Clem, Analyst at Tall Pines Capital]

Okay, great. Thanks.

[Operator]

That concludes our Q&A session. I will now turn the call back over to Jack Micenko for closing remarks.

[Jack Micenko, President at United Homes Group]

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.

Participants

Executives

• Erin Reeves McGinnis, General Counsel
• Jack Micenko, President
• Keith Feldman, CFO
• Shelton Twine, COO

Analysts

• Carl Reichardt, Managing Director and Partner at BTIG
• Chris Clem, Analyst at Tall Pines Capital