United Homes Group Q4 2024 Earnings Report

United Homes Group EPS Results

• Actual EPS: $0.16
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

United Homes Group Revenue Results

• Actual Revenue: $134.81 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

United Homes Group Announcement Details

• Quarter: Q4 2024
• Date: 3/12/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, March 12, 2025
• Conference Call Time: 10:00AM 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 Q4 2024 Earnings Call Transcript

Key Takeaways

• United Homes launched a product refresh in Q4, updating floor plans and designs that have driven strong presales, reduced discounting and improved gross margins compared to legacy models.
• The company initiated a direct cost rebidding process across all major construction categories, securing significant early savings by soliciting bids from at least three vendors for each cost component.
• Operationally, Q4 new home deliveries rose 7% year-over-year and net new orders jumped 19%, though adjusted gross margin declined to 18.1% due to competitive pricing and mortgage incentives.
• In December, United Homes refinanced its convertible notes, reducing leverage by $10 million, cutting cash interest expense by about $4 million annually, and lowering potential dilution by roughly 30%.
• With 46 active communities, control of approximately 7,700 lots and $60 million in liquidity, the company plans to open 26 new communities in mid-2025 and remains optimistic about long-term Southeast housing fundamentals despite near-term headwinds.

Presentation

[Operator]

Good morning. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Homes Group Fourth Quarter twenty twenty four Earnings Call and Webcast. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise.

[Operator]

After the speakers' remarks, there will be a question and answer session. At this time, I would like to turn the conference over to Erin Rees McGinnis, General Counsel. Please go ahead.

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

Good morning, and welcome to United Homes Group's fourth quarter of twenty twenty four 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 Interim Chief Executive Officer, Jamie Perello President, Jack Matenko and Chief Financial Officer, Keith Sullivan. With that, I'd like to turn the call over to Jamie.

[James Pirrello, Interim CEO & Director at United Homes Group]

Thank you, Aaron. Good morning and thank you for joining us today as we review our results for the fourth quarter and full year of 2024. We will also highlight the strategic initiatives we're focusing on to enhance our financial and operational performance and scale our operations in key markets across the Southeast. I joined United Homes Group in the fall of twenty twenty four and immediately set about determining what our company's strengths were and the areas in which we can improve. Over the last six months, I've learned that we have an incredible opportunity to build something great with United Homes.

[James Pirrello, Interim CEO & Director at United Homes Group]

We have many of the key elements in place for a successful production homebuilding operation, namely a strong presence in several markets with great long term housing fundamentals,

[James Pirrello, Interim CEO & Director at United Homes Group]

a product focus that caters to the highest growth segments of

[James Pirrello, Interim CEO & Director at United Homes Group]

the market, which are millennial and Gen Z buyers and a land light operating model that offloads much of the risk and upfront capital requirements associated with owning and developing land. These are essential building blocks for the kind of homebuilder we want to be, a high growth, returns focused builder with significant presence in the Southeast. 1 of the first things we did was take a hard look at our existing product. After a thorough analysis of our sales pace, gross margins and competitive environment, it became clear that our product had become stale or was missing the mark. Beginning in the fourth quarter, we set about updating our floor plans and refreshing our homes to be more in sync with the wants and needs of today's buyers.

[James Pirrello, Interim CEO & Director at United Homes Group]

The initial response to our Refresh product has been very positive. We started permitting our Refresh product in November and we have seen strong sales so far from these redesigned plans. We are selling a large number of refreshed plans as presales, requiring significantly less discounting as we sell the homes before completion. As a result, we're seeing improved gross margins on our new plans as compared to our older product designs. Another area of opportunity was to improve our direct construction costs since our direct costs as a percentage of sales price were high compared to industry averages.

[James Pirrello, Interim CEO & Director at United Homes Group]

We set about rebidding all of our direct cost categories with no less than three vendors for each. To effectively compete and maximize gross margins, we must ensure we're getting the best price possible. This is an essential function for any business looking to keep costs down, improve profitability and especially for an organization where familiarity and entrenched relationships can lead to costs drifting higher over time. Homebuilding is a scale business and if you're not taking advantage of your size to lower costs, you're leaving money on the table. While we are still in the initial stages of this direct cost rebidding process, I can share that there have been significant wins due to this process.

[James Pirrello, Interim CEO & Director at United Homes Group]

Our company and our industry face headwinds as we set about achieving our goals. We find the market to be competitive with most builders sacrificing gross margin per volume. Persistently high mortgage rates continue to negatively impact affordability. This has compelled us and the rest of the industry to use mortgage incentives to offset the higher financing costs and lower monthly mortgage payments. While this has proven an excellent sales tool when competing with the existing home market, it has also significantly affected our gross margins.

[James Pirrello, Interim CEO & Director at United Homes Group]

Completed inventory continues to run high across the industry. Our competitors have been offering substantial price discounts to move completed inventory. We are doing the same. We expect our rebidding process and new product designs to positively impact the pressure on gross margins from mortgage incentives and discounting. While there are a number of challenges causing uncertainty for our industry in the short term, we believe the long term outlook for homebuilding United Homes remains positive.

[James Pirrello, Interim CEO & Director at United Homes Group]

The supply of existing homes for sale remains below historical levels in our markets, while the shortage of new housing remains a positive for UHG. We are in some of the best markets in the country in terms of job creation, in migration and overall quality of life, all of which are critical factors that drive the need for new homes. To sum up, we are making progress on several initiatives that will drive revenue growth and improve gross margins, all leading to improved profitability. The market remains very competitive. 2025 is going to be a pivotal year for our company and I'm excited about the opportunities ahead.

[James Pirrello, Interim CEO & Director at United Homes Group]

With that, I'd like to turn the call over to Jack, who will go into more detail about our performance. Jack?

[Jack Micenko, President at United Homes Group]

Thank you, Jamie. Good morning to everyone. United Homes ended 2024 on a strong note, posting year to year growth of 7% for new home deliveries and 19% for net new home orders in the fourth quarter. We successfully continued to reduce our inventory of HVACs during the quarter, bringing away for a fresh start to the spring selling season and the further rollout of more of our refreshed products. Our teams did an excellent job closing homes in a timely manner.

[Jack Micenko, President at United Homes Group]

I want to thank them for their hard work and focus on getting people into their homes by year end. New Home starts to decline 26% year over year in the fourth quarter, partly as a result of our product redesign, but also as a result of strategic shift back to a more balanced approach to our operations. We believe the combination of improved cycle times and the opportunity to offer a degree of customization to our buyers has made the build to order model more attractive in today's market. While we've highlighted the improved gross margin profile of the refreshed product lineup to date, it's interesting to note that over half of the early sales of this refreshed product will come in the form of presales, allowing us to build a backlog for coming periods. This should also have a positive impact on our margins going forward given the stronger profitability associated with options and upgrades.

[Jack Micenko, President at United Homes Group]

Of course, we'll continue to have a number of specs in our communities for buyers looking for a quick move in option. Another highlight from the quarter was the capital markets transaction we executed in December, which refinanced the outstanding debt on our convertible notes, thereby reducing the company's leverage by $10,000,000 and lowering our cash interest expense by three twenty basis points. A potential dilution from the convertible note on our share count was also reduced by about 30% and we gained a valuable strategic shareholder in Kennedy Lewis as a result of the transaction. We remain committed to improving our balance sheet as we continue to execute on our long term strategic initiatives. Our community count fell to 46 active communities at year end.

[Jack Micenko, President at United Homes Group]

While we're happy to close out communities, we know our growth depends on increasing our community count going forward. Our sales pace, our sales per month per community increased 2.5 in the fourth quarter. We have 11 communities planned to open in the second quarter twenty twenty five and another 15 planned to open in the third quarter. As for some preliminary commentary on the first quarter to date, consistent with what you've heard from others, our January net new orders were lower than last year. However, February bounced back and the March has been consistent with trends seen in the back part of February.

[Jack Micenko, President at United Homes Group]

Unusually heavy snow across all of our markets during the January impacted traffic, which in turn impacted our sales activity. Unfortunately, with our high backlog conversion rate each quarter, softer January will impact March closings. Overall, I'm pleased with the steps our company has taken to build on the foundation that's already in place and to address the areas where we can improve. I agree with Jamie that United Homes is in a great position to capitalize on the strong housing fundamentals in our markets and really scale our operations throughout the Southeast. We're in an end meal position, having essentially all of our land controlled by option agreements and have set the course for better profitability through the redesign of our product, cost savings initiatives we've implemented and improvements to our capital structure.

[Jack Micenko, President at United Homes Group]

As a result, remain optimistic about the long term outlook for our company. With that, I'd like to turn the call over to Keith, who will provide more detail on our financial results. Keith?

[Keith Feldman, Chief Financial Officer at United Homes Group]

Thank you, Jack and Jamie, and good morning.

[Keith Feldman, Chief Financial Officer at United Homes Group]

For the fourth quarter of twenty twenty four, net income was $700,000 which included a change in fair value of $38,000,000 primarily related to the accounting for potential earn out, which will fluctuate on our financial statements each quarter based on 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. Fourth quarter net income also included a reported loss on the extinguishment of our convertible notes totaling $45,600,000 which was predominantly non cash in nature since the loss amount was settled in equity. The benefits include reduced balance sheet and cash flow leverage, converting our entire debt capital structure to floating rate and lower cash interest expense of approximately $4,000,000 per year based on current rates. For the year ended 12/31/2024, net income was $46,900,000 which included a loss on extinguishment of convertible notes $45,600,000 and a change in fair value of $88,700,000 predominantly related to the accounting potential or net liabilities.

[Keith Feldman, Chief Financial Officer at United Homes Group]

Revenue for the fourth quarter of twenty twenty four was $134,800,000 compared to $116,800,000 for the fourth quarter of twenty twenty three. Revenue for the full year twenty twenty four was $463,700,000 up from $421,500,000 in 2023. Home closings during the fourth quarter of twenty twenty four were four fourteen compared to three eighty seven homes in the prior year's quarter. For the full year, home closings increased to fourteen thirty one homes, up from thirteen eighty three homes in 2023. Average sales price during the fourth quarter of twenty twenty four was approximately $324,000 for four thirteen production built homes compared to approximately $320,000 in the prior year for three thirty eight production built homes.

[Keith Feldman, Chief Financial Officer at United Homes Group]

Net new orders for the quarter were three fifty one homes, up from two ninety four homes in the prior year period. And for the full year, net new orders increased to thirteen ninety nine homes, up from twelve ninety six homes in 2023. Backlog at the end of the fourth quarter stood at 157 homes, valued at approximately $58,300,000 Gross profit and gross profit margin for the fourth quarter of twenty twenty four were $21,800,000 and 16.2% respectively compared to $21,600,000 and 18.5% in the prior year period. Adjusted gross profit margin was 18.1% for the quarter, down from 21.8 in Q4 twenty twenty three. The decline reflects headwinds from a competitive pricing environment and a continuation of strategic sales incentives, drive volume, and optimize inventory turns.

[Keith Feldman, Chief Financial Officer at United Homes Group]

For the full year, gross profit was $79,800,000 compared to $79,700,000 in 2023. Gross profit margin declined to 17.2% from 18.9% due to higher cost of sales reflecting elevated incentives and amortization and purchase price accounting adjustments. Adjusted gross profit margin for the full year was 19.9%, down from 21.4% in the prior year as the company remained focused on maintaining competitive positioning in a dynamic market. SG and A expense in the fourth quarter of twenty twenty four was $19,300,000 after adjusting for one time transaction fees, severance expense and non cash stock based compensation, adjusted SG and A was approximately $17,700,000 or 13.1% of revenue for the quarter. For the full year, SG and A expense was $74,700,000 and adjusted SG and A expense was $64,500,000 or 13.9% of revenue.

[Keith Feldman, Chief Financial Officer at United Homes Group]

As of today, we have 46 active communities down from 61 at the end of twenty twenty three. As of 12/31/2024, we control approximately 7,700 lots, which include a mix of owned, optioned and land banked assets, positioning us to drive future growth and capture market opportunities. We currently have approximately $60,000,000 of liquidity in cash and availability on our credit facility. We remain focused on execution, adapting to an evolving market condition and positioning UHG for continued success in 2025 and beyond. That concludes our prepared remarks.

[Keith Feldman, Chief Financial Officer at United Homes Group]

Operator, please open up the line for questions.

[Operator]

Thank you. We will now begin the question and answer session. And at this time, we have no questions in the queue. I would like to turn the conference over to JB Pariello for closing remarks.

[James Pirrello, Interim CEO & Director at United Homes Group]

First of all of us at UHG would like to thank you for joining the call. We look forward to talking with you here at the end of the first quarter, which is quickly approaching. And we want to just again thank you for your support and for all efforts and the work of our hard people in what they're accomplishing today at UHG. So thank you and take care.

[Operator]

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Participants

Executives

• Erin Reeves McGinnis, General Counsel
• James Pirrello, Interim CEO & Director
• Jack Micenko, President
• Keith Feldman, Chief Financial Officer