United Homes (UHG) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for United Homes Group, Inc Item 1. Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements of United Homes Group, Inc. (UHG) for the period ended June 30, 2025, including balance sheets, statements of operations, changes in stockholders' equity, cash flows, and detailed notes Condensed Consolidated Balance Sheets (unaudited) Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change ($) | Change (%) | | :-------------------------- | :-------------- | :---------------- | :--------- | :--------- | | Cash and cash equivalents | $36,538 | $22,629 | $13,909 | 61.5% | | Inventories | $144,454 | $139,270 | $5,184 | 3.7% | | Total assets | $281,066 | $265,381 | $15,685 | 5.9% | | Syndicated line of credit | $64,196 | $50,196 | $14,000 | 27.9% | | Derivative liabilities | $24,011 | $39,158 | $(15,147) | (38.7)% | | Total liabilities | $198,904 | $198,514 | $390 | 0.2% | | Total stockholders' equity | $82,162 | $66,867 | $15,295 | 22.9% | - Total assets increased by 5.9% from December 31, 2024, to June 30, 2025, primarily driven by an increase in cash and cash equivalents and inventories[13] - Total stockholders' equity saw a significant increase of 22.9%, while total liabilities remained relatively stable[15] Condensed Consolidated Statements of Operations (unaudited) Condensed Consolidated Statements of Operations (Three Months Ended June 30, in thousands, except per share amounts) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Revenue, net of sales discounts | $105,506 | $109,420 | $(3,914) | (3.6)% | | Gross profit | $19,919 | $19,578 | $341 | 1.7% | | Net (loss) income | $(6,341) | $28,640 | $(34,981) | (122.1)% | | Basic (loss)/earnings per share | $(0.11) | $0.59 | $(0.70) | (118.6)% | | Diluted (loss)/earnings per share | $(0.11) | $0.50 | $(0.61) | (122.0)% | | Change in fair value of derivative liabilities | $(6,171) | $32,055 | $(38,226) | (119.2)% | Condensed Consolidated Statements of Operations (Six Months Ended June 30, in thousands, except per share amounts) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Revenue, net of sales discounts | $192,507 | $210,258 | $(17,751) | (8.4)% | | Gross profit | $34,047 | $35,672 | $(1,625) | (4.6)% | | Net income | $11,839 | $53,578 | $(41,739) | (78.0)% | | Basic earnings per share | $0.20 | $1.11 | $(0.91) | (82.0)% | | Diluted earnings per share | $0.20 | $0.93 | $(0.73) | (78.5)% | | Change in fair value of derivative liabilities | $15,038 | $58,435 | $(43,397) | (74.3)% | - The significant decline in net income/loss for both the three and six months ended June 30, 2025, was primarily driven by a substantial negative change in the fair value of derivative liabilities[17] Condensed Consolidated Statements of Changes in Stockholders' Equity (unaudited) - Total stockholders' equity increased from $66,867 thousand at December 31, 2024, to $82,162 thousand at June 30, 2025[19] - The increase was primarily due to retained earnings of $24,763 thousand and additional paid-in capital of $57,393 thousand as of June 30, 2025[19] - Stock-based compensation expense contributed $3,368 thousand to additional paid-in capital for the six months ended June 30, 2025[19][21] Condensed Consolidated Statements of Cash Flows (unaudited) Cash Flow Summary (Six Months Ended June 30, in thousands) | Activity | 2025 | 2024 | Change ($) | | :------------------------------------------ | :----- | :----- | :--------- | | Net cash flows provided by (used in) operating activities | $2,780 | $(19,143) | $21,923 | | Net cash flows used in investing activities | $(176) | $(12,733) | $12,557 | | Net cash flows provided by financing activities | $9,937 | $120 | $9,817 | | Net change in cash, cash equivalents, and restricted cash | $12,541 | $(31,756) | $44,297 | | Cash, cash equivalents, and restricted cash, end of period | $38,090 | $24,916 | $13,174 | - Operating activities generated $2.8 million in cash in H1 2025, a significant improvement from a $19.1 million outflow in H1 2024, primarily due to increased cash from accounts payable and adjusted net income[21][173] - Investing activities used less cash in H1 2025 ($0.2 million) compared to H1 2024 ($12.7 million), mainly because there were no business acquisition payments in 2025[21][175] - Financing activities provided $9.9 million in H1 2025, largely from net proceeds of the syndicated line of credit[22][176] Notes to Condensed Consolidated Financial Statements (unaudited) Note 1 - Nature of business and summary of significant accounting policies - UHG is a homebuilding business operating in South Carolina, North Carolina, and Georgia, employing a land-light strategy for single-family residential homes[24] - Revenue recognized from speculative home closings was $105.5 million for Q2 2025 and $192.0 million for H1 2025[29][30] - Advertising and marketing costs decreased to $0.7 million for Q2 2025 (from $0.9 million in Q2 2024) and $1.4 million for H1 2025 (from $1.6 million in H1 2024)[31] Note 2 - Variable interest entities - UHG uses lot option and land bank option contracts to procure land, deferring acquisition and reducing financial risks[34] - Lot deposits related to option contracts totaled $44.9 million as of June 30, 2025, with an aggregate remaining purchase price of $340.9 million[35] - The maximum exposure to loss from involvement with Variable Interest Entities (VIEs) is limited to non-refundable lot deposits and capitalized pre-acquisition costs[34] Note 3 - Segment reporting - UHG operates through three reportable segments: GSH South Carolina (entry-level and first-move-up homes), Rosewood (second and third move-up homes), and Other (Raleigh, NC operations and mortgage joint venture)[40][41][42][43] Segment Revenue (Three Months Ended June 30, in thousands) | Segment | 2025 | 2024 | Change (%) | | :----------------- | :----- | :----- | :--------- | | GSH South Carolina | $90,924 | $98,207 | (7.4)% | | Rosewood | $10,797 | $6,085 | 77.4% | | Other | $3,785 | $5,128 | (26.2)% | | Total | $105,506 | $109,420 | (3.6)% | Segment Income (Loss) Before Taxes (Three Months Ended June 30, in thousands) | Segment | 2025 | 2024 | Change ($) | Change (%) | | :----------------- | :----- | :----- | :--------- | :--------- | | GSH South Carolina | $5,017 | $6,615 | $(1,598) | (24.2)% | | Rosewood | $(173) | $(549) | $376 | (68.5)% | | Other | $(12) | $(1,443) | $1,431 | (99.2)% | Note 4 - Fair value measurement - Derivative liabilities (contingent earnout, private placement warrants, stock options) and contingent consideration are valued using Level 3 inputs, while public warrant liability uses Level 1 inputs[54] Fair Value Measurements of Liabilities (June 30, 2025, in thousands) | Liability | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------- | :------ | :------ | :------ | :------ | | Contingent earnout liability | $— | $— | $14,295 | $14,295 | | Derivative private placement warrant liability | $— | $— | $2,640 | $2,640 | | Derivative public warrant liability | $6,986 | $— | $— | $6,986 | | Derivative stock option liability | $— | $— | $90 | $90 | | Total derivative liability | $6,986 | $— | $17,025 | $24,011 | | Contingent consideration | $— | $— | $881 | $881 | | Total fair value | $6,986 | $— | $17,906 | $24,892 | - Total derivative liability decreased from $39,158 thousand at December 31, 2024, to $24,011 thousand at June 30, 2025[55] Note 5 - Inventories Inventory Breakdown (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :---------------------- | :-------------- | :---------------- | | Pre-acquisition land costs | $8,528 | $4,737 | | Developed lots | $30,137 | $15,491 | | Homes under construction | $48,755 | $43,982 | | Finished homes | $57,034 | $75,060 | | Total inventories | $144,454 | $139,270 | - Total inventories increased by $5.2 million (3.7%) from December 31, 2024, to June 30, 2025[58] - Capitalized interest at the end of H1 2025 was $2,003 thousand, with $3,133 thousand expensed in cost of sales during the period[58] Note 6 - Debt Debt Outstanding (June 30, 2025, in thousands) | Debt Instrument | Weighted average interest rate | Outstanding Balance | | :---------------------- | :----------------------------- | :------------------ | | Syndicated line of credit | 7.61% | $64,196 | | Term loan, net | 11.59% | $67,314 | - The syndicated line of credit's outstanding balance increased to $64.2 million, with a weighted average interest rate of 7.61% as of June 30, 2025[60][166] - The term loan had an outstanding balance of $67.3 million with a weighted average interest rate of 11.59% as of June 30, 2025[60][169] - UHG was in compliance with all debt covenants for both the syndicated line of credit and the term loan as of June 30, 2025[65][69][167][170] Note 7 - Related party transactions - Lot deposits with related parties totaled $5.1 million as of June 30, 2025, down from $6.8 million at December 31, 2024[71] - The Company leases office spaces and model homes from related parties, with a lease modification in Q2 2024 resulting in a $0.2 million gain[72] - No overhead costs were allocated to related parties during Q2 and H1 2025, a decrease from $0.1 million and $0.2 million in the respective prior-year periods[73] Note 8 - Warranty reserves Warranty Reserves Activity (Six Months Ended June 30, in thousands) | Metric | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Warranty reserves at beginning of the period | $1,866 | $1,302 | | Reserves provided | $500 | $558 | | Payments for warranty costs | $(293) | $(434) | | Warranty reserves at end of the period | $2,073 | $1,426 | - Warranty reserves increased to $2,073 thousand at June 30, 2025, from $1,866 thousand at the beginning of the period[79] Note 9 - Commitments and contingencies - Total undiscounted operating lease liabilities as of June 30, 2025, were $2,856 thousand, with a weighted-average remaining lease term of 2.78 years[82][81] - Outstanding surety bonds totaled $9.2 million and letters of credit totaled $1.3 million as of June 30, 2025[83] - An accrual of $0.2 million was recorded for a probable settlement related to Rosewood proceedings[85] Note 10 - Convertible Notes payable - UHG redeemed its $80.0 million Convertible Notes on December 11, 2024, resulting in a $45.6 million loss on extinguishment[86] - The redemption involved a cash payment of $70.0 million plus 10,168,850 shares of Class A Common Stock[86] - There is no remaining debt balance associated with the Convertible Notes as of June 30, 2025[86] Note 11 - Stock-based compensation - Total unrecognized stock compensation expense related to unvested stock options was $12.6 million as of June 30, 2025, expected to be recognized over 2.39 years[90] - Unrecognized pre-tax compensation expense for time-based restricted stock units (RSUs) was $0.6 million, expected over 2.72 years[92] - Unrecognized pre-tax compensation expense for performance-based restricted stock units (PSUs) was $1.1 million, expected over 1.47 years[93] Note 12 - Earnout shares - The fair value of earnout shares decreased significantly from December 31, 2024, to June 30, 2025, primarily due to changes in the company's stock price[95][96] Earnout Shares Fair Value and Assumptions | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Current stock price | $2.90 | $4.23 | | Expected volatility | 64% | 52% | | Fair value per share (Triggering Event I) | $0.81 | $1.59 | | Fair value per share (Triggering Event II) | $0.63 | $1.25 | | Fair value per share (Triggering Event III) | $0.50 | $0.99 | - For the six months ended June 30, 2025, the change in fair value of earnout shares resulted in a gain of $13.9 million[96] Note 13 - Warrant liability - The change in fair value of private placement warrant liability resulted in a loss of $0.6 million for Q2 2025 and a gain of $0.3 million for H1 2025[98] - The change in fair value of public warrant liability resulted in a loss of $1.5 million for Q2 2025 and a gain of $0.7 million for H1 2025[99] Warrant Valuation Assumptions | Metric | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Current stock price | $2.90 | $4.23 | | Exercise price | $11.50 | $11.50 | | Expected volatility | 64% | 52% | Note 14 - Income taxes - UHG recognized an income tax benefit of $0.3 million for Q2 2025 and $1.6 million for H1 2025[100] - The estimated effective tax rate for H1 2025 was 33.1%, significantly higher than 15.3% in H1 2024, primarily due to state income tax expense and nondeductible stock compensation[100] Note 15 - Earnings per share Earnings Per Share (Three Months Ended June 30) | Metric | 2025 | 2024 | | :----------- | :----- | :----- | | Basic EPS | $(0.11) | $0.59 | | Diluted EPS | $(0.11) | $0.50 | Earnings Per Share (Six Months Ended June 30) | Metric | 2025 | 2024 | | :----------- | :----- | :----- | | Basic EPS | $0.20 | $1.11 | | Diluted EPS | $0.20 | $0.93 | - Approximately 18.8 million potentially anti-dilutive securities were excluded from diluted EPS calculation for Q2 2025, including stock warrants, private placement warrants, public warrants, and stock options[102] - 21,886,379 earnout shares and 752,000 PSUs were excluded from diluted EPS for Q2/H1 2025 as their triggering events/conditions had not been satisfied[102] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on UHG's financial condition and results of operations, highlighting the company's business model, market challenges, operational improvements, and financial performance for the three and six months ended June 30, 2025 Overview - UHG operates in high-growth markets (South Carolina, North Carolina, Georgia) with a land-light strategy, focusing on single-family homes ranging from $200,000 to $600,000[105][107] - The company initiated a review of strategic alternatives in Q2 2025 to maximize shareholder value[108] - Market conditions in Q2 2025 were challenging due to elevated mortgage rates and affordability concerns, leading to a 5.9% decrease in net new orders for the quarter and 15.1% for the six months[109] - Gross margin improved by 100 basis points for Q2 2025 and 70 basis points for H1 2025, driven by redesigned floor plans, expanded customization, and strategic rebidding of supplier contracts[110] Results of Operations - Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 Key Financial and Operating Data (Three Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Revenue, net of sales discounts | $105,506 | $109,420 | $(3,914) | (3.6)% | | Home closings | 303 | 337 | (34) | (10.1)% | | Average sales price of homes closed | $349,265 | $340,803 | $8,462 | 2.5% | | Gross profit | $19,919 | $19,578 | $341 | 1.7% | | Gross margin | 18.9% | 17.9% | 1.0% | 5.6% | | Selling, general and administrative expense | $18,016 | $19,614 | $(1,598) | (8.2)% | | Net new orders | 304 | 323 | (19) | (5.9)% | | Cancellation rate | 11.4% | 12.7% | (1.3)% | (10.2)% | | Backlog | 202 | 248 | (46) | (18.5)% | - Revenue decreased by 3.6% due to a 10.1% decrease in home closings, partially offset by a 2.5% increase in average sales price[116][117] - Gross margin improved by 1.0 percentage point to 18.9%, driven by redesigned floor plans, direct construction cost savings, and fewer non-recurring expenses[119] - Net loss before taxes was $(6.6) million, a significant decrease from $28.8 million income in Q2 2024, primarily due to a $38.3 million negative change in the fair value of derivative liabilities[115][127] Results of Operations - Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 Key Financial and Operating Data (Six Months Ended June 30) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :--------------------------------- | :----- | :----- | :--------- | :--------- | | Revenue, net of sales discounts | $192,507 | $210,258 | $(17,751) | (8.4)% | | Home closings | 555 | 648 | (93) | (14.4)% | | Average sales price of homes closed | $347,231 | $337,994 | $9,237 | 2.7% | | Gross profit | $34,047 | $35,672 | $(1,625) | (4.6)% | | Gross margin | 17.7% | 17.0% | 0.7% | 4.1% | | Selling, general and administrative expense | $34,176 | $36,668 | $(2,492) | (6.8)% | | Net new orders | 600 | 707 | (107) | (15.1)% | | Cancellation rate | 12.0% | 11.1% | 0.9% | 8.1% | - Revenue decreased by 8.4% due to a 14.4% decrease in home closings, partially offset by a 2.7% increase in average sales price[139] - Gross margin increased by 0.7 percentage points to 17.7%, driven by redesigned floor plans and lower interest expense in cost of sales, partially offset by higher incentive costs[142] - Net income before taxes decreased by 80.4% to $10.3 million, primarily due to a $43.4 million decrease in the gain from the change in fair value of derivative liabilities[148][150] Non-GAAP Financial Measures - UHG uses Adjusted Gross Profit, EBITDA, and Adjusted EBITDA as supplemental non-GAAP measures to evaluate operating performance by excluding certain non-recurring or non-operational items[155][159] Non-GAAP Financial Measures (Three Months Ended June 30, in thousands, except percentages) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :----- | :----- | :--------- | :--------- | | Adjusted gross profit | $22,436 | $22,845 | $(409) | (1.8)% | | Adjusted gross margin | 21.3% | 20.9% | 0.4% | 1.9% | | EBITDA | $(2,062) | $34,571 | $(36,633) | (106.0)% | | EBITDA margin | (2.0)% | 31.6% | (33.6)% | (106.3)% | | Adjusted EBITDA | $7,237 | $7,660 | $(423) | (5.5)% | | Adjusted EBITDA margin | 6.9% | 7.0% | (0.1)% | (1.4)% | Non-GAAP Financial Measures (Six Months Ended June 30, in thousands, except percentages) | Metric | 2025 | 2024 | Change ($) | Change (%) | | :-------------------- | :----- | :----- | :--------- | :--------- | | Adjusted gross profit | $38,801 | $43,459 | $(4,658) | (10.7)% | | Adjusted gross margin | 20.2% | 20.7% | (0.5)% | (2.4)% | | EBITDA | $19,327 | $64,493 | $(45,166) | (70.0)% | | EBITDA margin | 10.0% | 30.7% | (20.7)% | (67.4)% | | Adjusted EBITDA | $10,110 | $14,944 | $(4,834) | (32.3)% | | Adjusted EBITDA margin | 5.3% | 7.1% | (1.8)% | (25.4)% | Liquidity and Capital Resources - UHG had $36.5 million in cash and cash equivalents as of June 30, 2025, an increase of $13.9 million from December 31, 2024[162] - The company had $58.7 million in unused committed capacity under its syndicated line of credit as of June 30, 2025[162][166] - Net cash flows provided by operating activities for H1 2025 were $2.8 million, a significant improvement from a $19.1 million outflow in H1 2024[173] - Lot deposits related to option contracts totaled $44.9 million as of June 30, 2025, with an aggregate remaining purchase price of $340.9 million[165] Critical Accounting Policies and Estimates - There have been no significant changes to UHG's critical accounting policies and estimates during the six months ended June 30, 2025[177] Off-Balance Sheet Arrangements - UHG's land-light strategy involves lot option and land bank option contracts, limiting the risk of loss to $44.9 million in lot deposits and $8.5 million in capitalized pre-acquisition costs as of June 30, 2025[178][179] - The company had $9.2 million in outstanding surety bonds and $1.3 million in letters of credit as of June 30, 2025[181] Item 3. Quantitative and Qualitative Disclosures About Market Risk UHG is primarily exposed to market risk from fluctuations in interest rates, which can impact housing demand, financing costs, and the company's financial performance - UHG's operations are sensitive to interest rate fluctuations, which can adversely affect housing demand, financing costs, revenues, gross profits, and net income[182] - The company utilizes variable-rate debt, with $64.2 million outstanding under the syndicated line of credit (7.61% weighted average interest rate) and $67.3 million under the term loan (11.59% weighted average interest rate) as of June 30, 2025[183][185] - A 100 basis point increase in overall interest rates would negatively affect the company's net income by approximately $1.3 million[185] Item 4. Controls and Procedures UHG's management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, and reported no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, evaluated and concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[186] - There have been no material changes in the company's internal control over financial reporting during the fiscal quarter ended June 30, 2025[187] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, and exhibits for United Homes Group, Inc Item 1. Legal Proceedings UHG is involved in various legal proceedings, primarily construction defect claims, which management believes will not have a material adverse effect on the financial statements, with a specific accrual made for a probable settlement related to Rosewood proceedings - UHG is subject to various claims and lawsuits, mainly construction defect claims, arising in the ordinary course of business[84] - Management believes the disposition of these matters will not have a material adverse effect on the company's Condensed Consolidated Financial Statements[84] - An accrual of $0.2 million was recorded for a probable and reasonably estimable settlement related to Rosewood proceedings[85] Item 1A. Risk Factors UHG faces significant risks due to the cyclical nature of the homebuilding industry, which is sensitive to economic conditions, interest rates, and consumer confidence. Additionally, changes in trade policies, natural disasters, and the ongoing exploration of strategic alternatives pose potential threats to the company's business and financial results - The residential homebuilding industry is highly cyclical and significantly affected by changes in local and general economic conditions, including interest rates, employment, and consumer confidence[192] - Changes in U.S. trade policies and tariffs could increase costs or limit supplies of building materials, negatively impacting margins[197] - Weather conditions and natural disasters can decrease buyer traffic, delay construction, affect material/labor costs, and damage homes[195] - The exploration of strategic alternatives may be disruptive, incur substantial expenses, and cause stock price fluctuations without assurance of a successful transaction[198] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended June 30, 2025, UHG did not engage in any unregistered sales of equity securities that were not previously reported - There were no unregistered sales of the Company's securities during the quarter ended June 30, 2025, that were not reported in a Current Report on Form 8-K[199] Item 3. Defaults Upon Senior Securities UHG reported no defaults upon senior securities for the period - The Company reported no defaults upon senior securities[200] Item 4. Mine Safety Disclosures This item is not applicable to UHG's operations - Mine Safety Disclosures are not applicable to United Homes Group, Inc[201] Item 5. Other Information No other information was reported under this item for the period - No other information was disclosed under this item[202] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including key agreements, corporate governance documents, and certifications, providing supplementary information to the financial report - The exhibit index lists documents such as the Business Combination Agreement, Amended and Restated Certificate of Incorporation and Bylaws, Warrant Agreement, and various certifications[206] - Includes certifications from the Principal Executive Officer and Principal Financial Officer pursuant to the Sarbanes-Oxley Act of 2002[206]