United Homes (UHG) - 2024 Q2 - Quarterly Report

Financial Performance - UHG's revenue for Q2 2024 was approximately $109.4 million, a decrease of 10.4$122.1 million in Q2 2023, primarily due to a reduction in home closings [162][170]. - UHG's net income for Q2 2024 was approximately $28.6 million, a significant decrease of 88.3$245.4 million in Q2 2023 [162][170]. - The gross profit margin for Q2 2024 was 17.9%, down from 19.6% in Q2 2023, indicating a decline in profitability [171]. - UHG's adjusted EBITDA margin for Q2 2024 was 7.0%, a decrease of 34.6% compared to 10.7% in Q2 2023 [170]. - Adjusted gross profit for Q2 2024 was $22.8 million, a decrease of$3.3 million, or 12.6%, compared to $26.1 million in Q2 2023, with a gross profit margin of 20.9$28.6 million, a decrease of $216.8 million, or 88.3$245.4 million in Q2 2023, primarily due to a decrease in income before taxes [177]. - Gross profit for the six months ended June 30, 2024, was $35.7 million, a decrease of$5.0 million, or 12.3%, with a gross profit margin of 17.0%, down 1.8% from 18.8% in the same period of 2023 [182]. - Net income for the six months ended June 30, 2024, was $53.6 million, an increase of$12.7 million, or 31.1%, from $40.9 million for the same period in 2023 [187]. - EBITDA for the six months ended June 30, 2024, was$64.5 million, an increase of $14.6 million, or 29.3$49.9 million for the same period in 2023 [193]. Home Closings and Orders - The company had 337 home closings in Q2 2024, down 12.5% from 385 closings in Q2 2023, reflecting the impact of rising mortgage rates on purchasing power [171]. - Net new orders for Q2 2024 were 323 units, a decrease of 18 units, or 5.3%, from 341 units in Q2 2023, with a cancellation rate of 12.7%, down 3.1% from 15.8% [178]. - Backlog for Q2 2024 was 248 units, a decrease of 45 units, or 15.4%, from 293 units in Q2 2023 [179]. - Net new orders for the six months ended June 30, 2024, were 707 units, a decrease of 23 units, or 3.2%, from 730 units for the same period in 2023 [187]. - Cancellation rate for the six months ended June 30, 2024, was 11.1%, a decrease of 3.4% from 14.5% for the same period in 2023 [187]. Acquisitions and Growth Strategy - The company completed the acquisition of Creekside Custom Homes for $12.7 million in cash, enhancing its market presence in South Carolina [167]. - UHG plans to expand its business through targeted acquisitions of complementary private homebuilders and homebuilding operations [161]. - UHG's pipeline as of June 30, 2024, consists of approximately 9,300 lots, indicating potential for future growth [160]. Expenses and Financial Position - Selling, general and administrative expense for the six months ended June 30, 2024, was$36.7 million, an increase of $3.7 million, or 11.2$33.0 million in the same period of 2023 [183]. - Cash and cash equivalents as of June 30, 2024, were approximately $24.9 million, a decrease of$31.8 million from $56.7 million as of December 31, 2023 [194]. - The Company reported net cash flows used in operating activities of$19.1 million for the six months ended June 30, 2024, a decrease of $69.4 million compared to$50.3 million provided in the same period of 2023 [216]. - Net cash used in investing activities for the six months ended June 30, 2024 was $12.7 million, primarily for acquiring homebuilding assets [219]. - The Company’s financing activities provided$120,322 in cash for the six months ended June 30, 2024, a significant decrease from $30.1 million in the same period of 2023 [219]. Debt and Interest Rates - As of June 30, 2024, the total debt on contracts amounted to$72,724,336, with homebuilding debt from Wells Fargo Syndication at $71,196,208 and other notes payable at$1,528,128 [204]. - The outstanding balance of the Convertible Note Agreement was $69,040,609 as of June 30, 2024, with a maturity date of March 30, 2028 and an interest rate of 15$0.7 million [229]. - The company utilizes both fixed-rate and variable-rate debt, with fixed-rate debt affecting fair value and variable-rate debt impacting future earnings and cash flows [228]. Tax and Derivative Liabilities - Income tax expense for Q2 2024 was $0.1 million, compared to$2.7 million in Q2 2023, with an estimated annual effective tax rate of 15.3% [176]. - The effective tax rate for the full fiscal year is estimated to be 15.3% for June 30, 2024, compared to 26.2% as of June 30, 2023 [186]. - Change in fair value of derivative liabilities for Q2 2024 was a gain of $32.1 million, down from a gain of$242.3 million in Q2 2023 [175]. - The change in fair value of derivative liabilities for the six months ended June 30, 2024, was a gain of $58.4 million, compared to$35.3 million for the same period in 2023 [185]. Stock-Based Compensation and Financial Instruments - The company’s stock-based compensation includes stock options, RSUs, PSUs, and stock warrants, with specific accounting methods applied for each type [221]. - The fair value of stock option awards is determined using the Black-Scholes option pricing model, while PSU awards with a market condition are assessed using a Monte Carlo simulation model [222]. - The company has not entered into derivative financial instruments for trading or speculative purposes or to hedge against interest rate fluctuations [228].