Release Date: May 10, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- United Homes Group reported a solid increase in sold backlog, up 39% from the previous year, indicating strong future cash flow generation.
- The company successfully closed the acquisition of Creekside Custom Homes, expanding its presence in the coastal region of South Carolina and integrating well with existing operations.
- United Homes Group has maintained a strong balance sheet with over $28 million in cash and $63 million in undrawn revolver capacity, positioning it well for future growth.
- The company's strategic land-light approach was bolstered by a partnership with a large land banking partner, enhancing capital efficiency.
- Home deliveries and sales revenue showed healthy figures with 311 homes delivered and $101 million in revenue, driven by improvements in construction cycle times and material availability.
Negative Points
- Despite overall revenue growth, the company experienced a decrease in gross profit margin from 17.7% to 16%, attributed to purchase accounting adjustments and increased interest expenses.
- The average sales price of homes increased, which could potentially limit market accessibility for some buyers in a competitive market.
- United Homes Group reported a slight decrease in home closings compared to the previous year, from 328 to 311 homes.
- The company's SG&A expenses were relatively high at $17.1 million, although adjustments for one-time fees and non-cash expenses brought it down to $14.3 million.
- While the company is pursuing a land-light strategy, the reliance on strategic partnerships and land banking arrangements could pose risks if these partnerships do not yield expected results.
Q & A Highlights
Q: Carl, excluding the purchase accounting impact and the higher interest rate impact on gross margin, can you talk about the travel from last year, the improvement in gross margin and what drove that ex those items?
A: Keith Feldman - United Homes Group Inc - Chief Financial Officer: Yes, Carl. The adjusted gross profit was marginally higher, primarily due to lower lumber costs compared to last year. We had high lumber costs in our inventory at the beginning of last year, and burning through that gave us a slight uplift in adjusted gross margin. Incentives were similar to last year but are trending up slightly.
Q: Jack, you've been there for I think three quarters now, if I've got it right. Can you talk about the acquisition environment as you look at it today versus, say, what it was nine months ago? And how does potential forward deal flow look, given that obviously, a lot of other builders are looking but at the same time, you guys have a value proposition for potential targets that might be very different?
A: John Micenko - United Homes Group Inc - President: Yes, Carl. M&A activity has picked up significantly, with several deals involving public companies in recent months. We evaluate most transactions in the marketplace, considering factors like market, geography, footprint, size, and consideration. Valuations have increased, but our land-light strategy is crucial, requiring a solution for the land ahead of time. With our new strategic land banking partner, we're well-positioned to address this efficiently. Expect more M&A activity with higher valuations moving forward.
Q: Can you provide more detail on operations this quarter?
A: Shelton Twine - United Homes Group Inc - Chief Operating Officer: In the first quarter of 2024, we delivered 311 homes, generating $101 million in home sales revenue. Our midlands division was the biggest contributor, followed by our upstate and coastal divisions. Construction cycle times have returned to pre-pandemic levels due to improved availability of labor and materials. We sold 384 homes during the quarter, with a sales pace of 2.6 per active community per month. Our cancellation rate was 10%, indicating strong buyer commitment.
Q: Keith, can you discuss the financial results for this quarter?
A: Keith Feldman - United Homes Group Inc - Chief Financial Officer: For Q1 2024, net income was $24.9 million, with revenue at $100.8 million. Home closings were 311 homes with an average sales price of $335,000. Gross profit margin was 16%, slightly down from 17.7% last year due to purchase accounting adjustments and increased interest expenses. Adjusted SG&A was approximately $14.3 million or 14.2% of revenue. We've also made significant progress on our land-light initiatives, moving $17 million of finished lots to a land banking partner.
Q: What are the key drivers for your expansion into new markets?
A: John Micenko - United Homes Group Inc - President: M&A is a key driver for our expansion. We have a competitive advantage due to our Southeastern roots and our approach to retaining acquired company personnel. We've executed several acquisitions, including Creekside Custom Homes, expanding our presence in South Carolina. We're evaluating more deals and aim to add more builders to our platform this year, focusing on financial and cultural fit.
Q: How are you managing the challenges associated with land acquisition and development?
A: John Micenko - United Homes Group Inc - President: We ended Q1 with over 11,000 lots owned and controlled, focusing on securing land capital efficiently through options agreements and land banking arrangements. Our land-light strategy received a boost with a strategic partnership and a definitive agreement for a newly created land fund, enhancing our market positioning and future growth prospects.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
