Yahoo Finance United Homes Group, Inc. (NASDAQ:UHG) Q4 2023 Earnings Call Transcript
United Homes Group, Inc. (NASDAQ:UHG) Q4 2023 Earnings Call Transcript March 14, 2024
United Homes Group, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning ladies and gentlemen and welcome to the United Homes Group Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, March 14, 2024. I would now like to turn the conference over to Erin Reeves McGinnis, General Counsel for United Holmes Group. Please go ahead.
Erin Reeves McGinnis: Good morning, and welcome to the United Homes Group fourth quarter and full year 2023 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 overtime. 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 securities laws. Additionally, reconciliations of non-GAAP financial measures and comparable GAAP measures can be accessed through the company's website in its SEC filings. Hosting the call today are united United Homes Group 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: Thanks, Erin. Good morning and thank you for joining us today as we review our fourth quarter and full year 2023 results, and provide an update on current market conditions. United Homes Group made great strides in 2023 by executing on several strategic initiatives that we believe will set us on the path to becoming a large scale production home builder in the Southeast United States. We're pleased with what we've accomplished during the year and believe that we're in a much better place both, financially and operationally today than we were a year ago. Here's a brief recap; some of the highlights from the year. In the spring of 2023, Great Southern Homes and Diamond Head Holdings closed their business combination have resulted in the formation of United Homes Group, a landline home builder focused on building single-family homes at affordable price points.
The goal is to take Great Southern Homes proven track record of success and replicate it in other high growth markets across the southeast through acquisition, and small private builders and a more efficient approach to land acquisition and development. All in the close of this transaction, we immediately set out putting our capital to use. In August we announced the acquisition of Herring Homes in Raleigh, North Carolina, and quickly followed up with the acquisition of Rosewood Communities in the upstate region of South Carolina in October. The Herring acquisition marked our initial foray into the attractive Raleigh Durham market, while Rosewood solidified our already strong presence in the Greenville, Spartanburg and Clemson markets. Subsequent to the end of the year we announced the third acquisition of Creekside which has a strong presence in the coastal area of South Carolina.
Similar to Herring and Rosewood, Creekside fits nicely in our land-light strategy, as well as affordable product focus. Our teams have already done a great job integrating these acquisitions into our existing home building platform, and we look forward to their positive contributions in 2024. We continue to actively pursue other acquisition opportunities that will fit our company from an operational and cultural standpoint while remaining disciplined in our underwriting standards. With respect to our land acquisition development efforts, we remained active in 2023 fortifying our existing market presence with a pipeline of new lots. We strive to remain as land-light as possible, with the goal of minimizing the risk associated with carrying the land as well as capital need to hold it on our balance sheet.
Throughout the year, we expanded our relationships with land bankers giving us more avenues through which we can employ this strategy. By controlling land via third-parties, we can utilize our capital more efficiently and focus our efforts on creating value by doing what we know best, which is building and selling homes. We remain focused on the more affordable segments of the market, as evidenced by our average closing price for production of homes with 316,000 for the full year of 2023. We believe that the lack of affordable resale home inventory will be a prevailing issue for some time and the entry level buyer cohort will continue to make up a good portion of demand. We are however, starting to broaden out our product portfolio to appeal to more [indiscernible] buyers with an expectation that the existing home market will begin to thaw at some point.
In summary, United Homes Group exited 2023 with a lot of momentum. We successfully pulled the two smaller home builders into our operation out of the third in the early part of the New Year. We also improved our land banking capabilities and maintained the land-light focus on keeping our balance sheet in great shape. As a result, we think United Homes Group is well positioned to build on our successes in 2023 and into the future. Now, I'd like to turn the call over to Shelton who will provide more detail on our operational performance in the quarter.
Shelton Twine: Thanks, Jack. And good morning to everyone. Net new orders for the four quarter came in at 294, representing an 8% increase over the fourth quarter of 2022. Demand picked up into the start of the New Year as we generated 260 net new orders in total for the month of January and February combined. We have seen good traffic trends at our communities and improved buyer confidence as evidenced by our lower cancellation rates of 10.1% for the quarter, and 6.2% for the first two months of the year. Incentives remain a key selling tool, particularly ones that drive affordability; that we have been able to raise base prices at a handful of communities that have been experiencing above average absorptions. We closed 387 homes in the fourth quarter, which was flat on a year-over-year basis.
We made a concerted effort to ramp-up our starts during the quarter to make sure we had enough homes in production ahead of the coming spring selling season. We started 308 unsold homes during the quarter, which was a 75% increase over last year. We continue to see healthy demand for move-in ready homes, and we're well equipped to meet this demand as we move through the spring. Cycle times came down during the quarter and we are now back to building homes in roughly three months’ time. The shorter cycle times will go a long way towards improving our inventory terms, and getting homes closed in a more timely manner. We're constantly looking for ways to take cost out of the business and improve our processes, a mindset that has been a part of our organization from the beginning.
Overall, we feel good about current market conditions. The spring selling season is off to a solid start and we are seeing a steady flow of motivated and engaged buyers come through our communities. Affordability remains an issue for some buyers but we have several incentive tools at our disposal that can help address that. The availability of labor and materials has improved greatly as compared to last year, leading to shorter cycle times and better visibility into our operations. We're very optimistic about the long-term health of our existing markets and look forward to expanding our homebuilding footprint as we execute on our growth initiatives. With that, I'd like to turn the call over to Keith, who will provide more color on our financial performance.
Keith Feldman: Thank you, Jack and Shelton and good morning. For the fourth quarter of 2023, net loss was $67 million, which included a change in fair value of $69 million, primarily related to the accounting for the potential earnout which will fluctuate on our financial statements each quarter based on our ending stock price. This earnout will be paid only in common shares upon reaching certain stock price hurdles, and can never result in a cash expense for the company. For the year ended December 31, 2023 net income was $125 million, which included a change in fair value of $116 million, primarily related to the accounting for the potential earnout liabilities. Revenue for the fourth quarter of 2023 was $117 million, compared to $115 million for the fourth quarter of 2022.
Revenue for the year was $421 million, compared to $477 million in 2022. Home closings during the fourth quarter of 2023 or 387 homes, compared to 389 homes in the fourth quarter of 2022. Closings for the year were approximately 1400 homes, compared to approximately 1600 homes in the prior year. Average sales price during the fourth quarter of 2023 was $320,000 for 338 production-built homes; this compares to an average sales price of $300,000 during the fourth quarter of 2022 for 371 production-built homes. Average sales price for the year was $316,000 for approximately 1300 production-built homes; this compares to an average sales price of $296,000 during 2022 for approximately 1500 production-built homes. As Shelton has mentioned, our net new orders during the fourth quarter of 2023 were 294 homes, compared to 271 homes in the fourth quarter of 2022.
Net new orders for the year were approximately 1300 homes, compared to approximately 1260 homes in 2022. Our backlog at the end of the fourth quarter was 189 homes, with a value of approximately $58 million. Net new orders in January and February of 2024 were 260 homes, up from 242 homes in January and February of 2023. Gross profit for the fourth quarter of 2023 was $22 million and gross profit for the full year 2023 was $80 million. Adjusted gross profit which excludes the impact of capitalized interest and purchase accounting adjustments and cost of sales was $25 million for the fourth quarter and $90 million for the year. Adjusted gross profit margin for the fourth quarter was 21.8%, for the year adjusted gross profit margin was 21.4%. SG&A expense in the fourth quarter of 2023 was approximately $18 million, adjusted for one-time transaction fees and non-cash stock-based compensation expense, adjusted SG&A was approximately $17 million or 14% of revenue for the fourth quarter.
As of today, we have 63 active communities which included our recently closed Rosewood and Creekside acquisitions. As of December 31, 2023 we have approximately 9000 lots under control from our land development affiliate, as well as from third-parties. We had $57 million in cash and $24 million of availability on our credit facility as of December 31, 2023, resulting in total liquidity of $81 million. That concludes our prepared remarks. Operator, please open up the line for questions.
Operator: [Operator Instructions] Our first question comes from the line of Carl [ph] from BTIG. Please go ahead.
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