United Homes Group Q1 2025 Earnings Call Transcript

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Operator

Thank you for standing by. My name is Carly, and I will be your conference operator today. At this time, I would like to welcome everyone to the United Home Group First Quarter twenty twenty five 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 session.

Operator

Thank you. I would now like to turn the call over to Erin Reeves McGinnis, general counsel. Please go ahead.

Erin Reeves McGinnis
Erin Reeves McGinnis
General Counsel at United Homes Group

Good morning, and welcome to United Homes Group's first quarter of twenty twenty five 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 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
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 Maseko and Chief Financial Officer, Keith Feldman. With that, I'd like to turn the call over to Jamie.

James Pirrello
James Pirrello
Interim CEO & Director at United Homes Group

Thank you for joining us today as we go over our results for the first quarter of twenty twenty five and provide an update on our operations. United Homes Group delivered two fifty two homes in the first quarter with an average sales price on production built homes of $345,000 generating home sales revenue of $87,000,000 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 move spec inventory. Net new orders came in at two ninety six units. Our sales pace in January and the February was disappointing 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
James Pirrello
Interim CEO & Director at United Homes Group

The slower sales pace had a material impact on our results. Like other builders, we saw improved sales in the February. March met our expectations, and April and the May have been good. Overall, I'm pleased with the progress we made on a number of fronts and am 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.

James Pirrello
James Pirrello
Interim CEO & Director at United Homes Group

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 twenty twenty five. The 23 newly designed homes we closed during the first quarter had an average gross margin of approximately 24%. We closed 27 of these refreshed homes in April. As of Monday, May 12, we had 95 newly designed homes in backlog carrying an average gross margin of approximately 24%.

James Pirrello
James Pirrello
Interim CEO & Director at United Homes Group

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 $3,500,000 of direct construction cost savings for homes expected to be closed in 2025. We achieved this through the competitive rebidding 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. We have not completed this initiative so we anticipate additional savings.

James Pirrello
James Pirrello
Interim CEO & Director at United Homes Group

Another initiative we've undertaken to place a greater emphasis on presold 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 buyers' 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 lines. Presales are currently producing much higher margins, especially when compared to the discounting we do on completed spec home inventory. This shift will allow us to capitalize on buyers who are willing and able to pay for what they want in a new home.

James Pirrello
James Pirrello
Interim CEO & Director at United Homes Group

This 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 in standing inventory. 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. We also remain optimistic about the long term prospects for our markets. The Carolinas and Georgia continue to attract employers to the region due to their business friendly economic climate and attractive quality of life.

James Pirrello
James Pirrello
Interim CEO & Director at United Homes Group

They also boast better housing affordability relative to most major markets, which has led to consistent in 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. 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, presold home focus can offset some of that margin impact.

James Pirrello
James Pirrello
Interim CEO & Director at United Homes Group

As a result, I believe United Homes Group is on the right path to achieve its long term goals. With that, I'd like to turn the call over to Jack who will provide more detail on our operational results this quarter.

Jack Micenko
Jack Micenko
President at United Homes Group

Thanks, Jamie, and good morning, everyone. First quarter of twenty twenty five was a tale of two halves for our company, with the second half being materially better than the first. 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.

Jack Micenko
Jack Micenko
President at United Homes Group

As Jamie mentioned, April orders were up 6% year over year. Affordability continues to be an issue for buyers, which has necessitated the use 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 resell market where it has come at a cost to our profitability. Financing incentive as a percentage of ASP was 4% for the quarter, which is consistent with the prior quarter. We expect incentive activity to remain elevated.

Jack Micenko
Jack Micenko
President at United Homes Group

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 sixteen 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 with 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. 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.

Jack Micenko
Jack Micenko
President at United Homes Group

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 takedowns. We expect to open 10 new communities in the second quarter and 18 communities in the third quarter, giving our sales efforts a boost.

Jack Micenko
Jack Micenko
President at United Homes Group

Most of these communities will feature our newly refreshed product, which have been selling well and carry higher margins. 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. Now I'm going to turn the call over to Keith who will provide more detail on our financial results for the quarter.

Keith Feldman
Keith Feldman
Chief Financial Officer at United Homes Group

Thank you, Jack and Jamie, good morning. For the first quarter of twenty twenty five, we reported net income of $18,200,000 which includes a fair value adjustment of $21,200,000 primarily related to the accounting for the contingent earn out 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. As Jamie mentioned, revenue for the first quarter of twenty twenty five was $87,000,000 a decrease of $13,800,000 or 13.7% from $100,800,000 in the first quarter of twenty twenty four. The year over year decline was primarily driven by lower home closings, partially offset by an increase in average sales price.

Keith Feldman
Keith Feldman
Chief Financial Officer at United Homes Group

Home closings for the first quarter of twenty twenty five totaled two fifty two homes, down from three eleven 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 February and into March, the slower activity in January impacted our quarterly closings as a large portion of our sales typically close in the latter half of the quarter. 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 twenty twenty four. Due to the challenging environment previously discussed, net new orders for the first quarter was two ninety six homes, down from three eighty four homes in the prior year period.

Keith Feldman
Keith Feldman
Chief Financial Officer at United Homes Group

Backlog as of 03/31/2025 stood at two zero one homes, representing approximately $75,300,000 in value. Gross profit for the first quarter of twenty twenty five was $14,100,000 down $2,000,000 or 12.4% from $16,100,000 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. Adjusted gross margin was 18.8%, down from 20.4%, reflecting the elevated incentive costs and price reduction. 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
Keith Feldman
Chief Financial Officer at United Homes Group

Selling, general and administrative expenses for the first quarter were $16,200,000 Excluding approximately $2,000,000 in non cash stock based compensation expense, adjusted SG and A totaled $14,200,000 or 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 $1,000,000 in Q1 compared to Q4 of last year. 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
Keith Feldman
Chief Financial Officer at United Homes Group

As of 03/31/2025, 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 $86,900,000 of liquidity and cash and availability on our credit facility as of Q1. 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
Keith Feldman
Chief Financial Officer at United Homes Group

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

Operator

There are no questions at this time. I will now turn the call back over to management for closing remarks.

James Pirrello
James Pirrello
Interim CEO & Director at United Homes Group

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. 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.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

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

Key Takeaways

  • United Homes delivered 252 homes in Q1 generating $87 M revenue with a 16.2% gross margin, down slightly due to elevated incentives and spec inventory discounts.
  • Sales pace was weak in January–February, resulting in only 296 net new orders, but improved in March with April orders up 6% year-over-year and strong momentum entering Q2.
  • Its product refresh initiative saw 23 new-design homes closed at a 24% margin, 95 in backlog at similar margins, and cost-reduction efforts have identified over $3.5 M in direct construction savings for 2025.
  • The company is shifting away from a high-spec inventory strategy toward a more balanced, presold home focus to drive higher margins from upgrades and reduce capital tied up in standing inventory.
  • United Homes controls approximately 7,500 lots, has $86.9 M in liquidity, and plans to open 10 new communities in Q2 and 18 in Q3 featuring its refreshed products.
AI Generated. May Contain Errors.
Earnings Conference Call
United Homes Group Q1 2025
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