United Homes Group Inc (UHG) 2024 Q4 法說會逐字稿

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 2024 earnings call and webcast.

Today's conference is being recorded.

(Operator Instructions) At this time, I would like to turn the conference over to Erin Reeves McGinnis, General Counsel.

Please go ahead.

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

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 security laws.

Additionally, reconciliations of non-GAAP financial measures discussed on this call to the most directly possible 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 Pirrello; President, Jack Micenko; and Chief Financial Officer, Keith Feldman.

With that, I'd like to turn the call over to Jamie.

Thank you, Erin.

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 the United Homes Group in the fall of 2024 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 in United Homes.

We have many of the key elements in place for successful production home building operations, namely a strong presence in several markets with great long-term housing fundamentals; a product focus that caters to the highest growth segments of 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 home builder we want to be: a high growth, returns-focused builder with significant presence in the Southeast.

One 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.

The initial response to our refreshed product has been very positive.

We started permitting our refreshed 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 pre-sales, 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.

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.

Home building 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're still in the initial stages of this direct cost rebidding process, I can share that there have been significant wins due to this process.

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 for 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.

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 a rebidding process and new product designs to positively impact the pressure on gross margins from mortgage incentives and discount.

While there are a number of challenges causing uncertainty for our industry in the short-term, we believe the long-term outlook for home building homes remains positive.

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.

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

Jack.

Thank you, Jamie.

Good morning to, everyone.

United Homes ended 2024 on a strong note, hosting year-over-year growth from 7% for new home deliveries and 19% for net new home orders in the fourth quarter.

We successfully continue to reduce our inventory of age specs during the quarter, bringing the way for a fresh start to the spring selling season and the further rollout of more of our refreshed products.

Our team did an excellent job closing homes in a timely manner.

I want to thank them for their hard work and focus on getting people into their homes by year end.

New homes starts to climb 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 pre-sales, 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.

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 in 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 million and lowering our cash interest expense by 320 basis points.

A potential dilution from the convertible node on our share camp 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, so we continue to execute on our long-term strategic initiatives.

Our community count fell to 46 active communities at year end.

While we're happy to close our communities, we know our growth depends on increasing our community count going forward.

Our sales pace, our sales per month for community increased 2.5% in the fourth quarter.

We have 11 communities planned to open in the second quarter of 2025 and another 15 planned to open in the third quarter.

As for some preliminary commentary on the first quarter to date, consistent with what we've heard from others, our January net new orders were lower than last year.

However, February bounced back and the first week of March has been consistent with trends seen in back part of February.

Unusually heavy snow across all of our markets during the third week of 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 foundations 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 enviable position of having essentially all of our land controlled by option agreements and set the course for better profitability through the redesign of our product, cost savings initiatives we've implemented, and improvements to our capital structure.

As a result, we 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.

Thank you, Jack and Jamie, and good morning.

For the fourth quarter of 2024, net income was $0.7 million, which included a change in fair value of $38 million, primarily related to the accounting for potential earnout, which will fluctuate on our financial statements each quarter based on our ending stock price.

The earnout 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 $45.6 million, 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 million per year based on current rates.

For the year ended December 31, 2024, net income was $46.9 million, which included a loss on extinguishment of convertible notes $45.6 million, and a change in fair value of $88.7 million, predominantly related to the accounting potential earnout liabilities.

Revenue for the fourth quarter of 2024 was $134.8 million compared to $116.8 million for the fourth quarter of 2023.

Revenue for the full year 2024 was $463.7 million, up from $421.5 million in 2023.

Home closings during the fourth quarter of 2024 were 414 compared to 387 homes in the prior year's quarter.

For the full year home closings increased to 1,431 homes, up from 1,383 homes in 2023.

Average sales price during the fourth quarter of 2024 was approximately $324,000 for 413 production-built homes compared to approximately $320,000 in the prior year for 338 production-built homes.

Net new orders for the quarter were 351 homes up from 294 homes in the prior year period, and for the full year, net new orders increased to 1,399 homes, up from 1,296 homes in 2023.

Backlog at the end of the fourth quarter stood at 157 homes valued at approximately $58.3 million.

Gross profit and gross profit margin for the fourth quarter of 2024 to [21.8 million] and 16.2% respectively, compared to [21.6 million] and 18.5% in the prior year period.

Adjusted gross profit margin was 18.1% for the quarter, down from 21.8% in Q4 2023.

The decline reflects headwinds from a competitive pricing environment and the continuation of strategic sales incentives, drive volume, and optimize inventory returns.

For the full year, gross profit was $79.8 million compared to $79.7 million in 2023.

Gross profit margin declined to 17.2% from 18.9% due to the higher cost of sales, reflecting elevated incentives and amortization of 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&A expense in the fourth quarter of 2024 was $19.3 million.

After adjusting for one-time transaction fees, severance expense, and non-cash stock-based compensation, adjusted SG&A was approximately $17.7 million, or 13.1% of revenue for the quarter.

For the full year, SG&A expense was $74.7 million and adjusted SG&A expense was $64.5 million or 13.9% of revenue.

As of today we have 46 active communities down from 61 at the end of 2023.

As of December 31, 2024, we control approximately 7,700 lots, which include a mix of owned options and land banked assets positioning us to drive future growth and capture market opportunities.

We currently have approximately $60 million 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.

Operator, please open up the line for questions.

(Operator Instructions) And at this time, we have no questions in the queue.

I would like to turn the conference over to Jamie Pirrello for closing remarks.

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 the effort and the work of our hard people in what they're accomplishing today at UHG.

So thank you and take care.

And this concludes today's conference call.

Thank you for your participation.

You may now disconnect.