DIAMONDHEAD(DHHC) - 2025 Q2 - Quarterly Report

Financial Performance - UHG's revenue for Q2 2025 was approximately $105.5 million, a decrease of 3.6% from $109.4 million in Q2 2024, primarily due to a 10.1% decline in home closings [111][116]. - The company experienced a net loss of approximately $6.3 million in Q2 2025, compared to a net income of $28.6 million in Q2 2024, largely due to changes in fair value of derivative liabilities [111][115]. - Income before taxes for the three months ended June 30, 2025 decreased by $35.4 million, or 122.9%, compared to the same period in 2024, primarily due to a decrease in the change in fair value of derivative liabilities of $38.3 million [127]. - The company reported a consolidated loss before taxes of $6.6 million for the three months ended June 30, 2025, compared to an income of $28.8 million for the same period in 2024 [125]. - Income before taxes for the six months ended June 30, 2025 decreased by $42.3 million, or 80.4%, from the same period in 2024, primarily due to a decrease in change in fair value of derivative liabilities [150]. Sales and Orders - The company reported 304 net new orders in Q2 2025, down 5.9% from 323 in Q2 2024, with a cancellation rate of 11.4%, an improvement from 12.7% in the prior year [107][109]. - Net new orders for the three months ended June 30, 2025 were 304 units, a decrease of 19 units, or 5.9%, from 323 units for the same period in 2024 [132]. - Net new orders for the six months ended June 30, 2025 was 600 units, a decrease of 107 units, or 15.1%, from 707 units for the same period in 2024 [154]. - The cancellation rate for the three months ended June 30, 2025 was 11.4%, a decrease of 1.3% from 12.7% for the same period in 2024 [133]. - The cancellation rate for the six months ended June 30, 2025 was 12.0%, an increase of 0.9% from 11.1% for the same period in 2024 [154]. Margins and Profitability - Gross margin improved to 18.9% in Q2 2025, up 1.0% from 17.9% in Q2 2024, attributed to operational improvements and cost-saving initiatives [110][119]. - UHG's adjusted gross profit for Q2 2025 was $22.4 million, a decrease of 1.8% from $22.8 million in Q2 2024, with an adjusted gross margin of 21.3%, an increase of 0.4% [120]. - Gross profit for the six months ended June 30, 2025 was $34.0 million, a decrease of $1.6 million, or 4.8%, from $35.7 million for the same period in 2024 [142]. - Adjusted gross profit for the six months ended June 30, 2025 was $38.8 million, a decrease of $4.7 million, or 10.8%, compared to $43.5 million for the same period in 2024 [143]. Expenses - Selling, general and administrative expenses decreased by 8.2% to $18.0 million in Q2 2025, primarily due to reduced commission and severance expenses [120]. - Selling, general and administrative expense for the six months ended June 30, 2025 was $34.2 million, a decrease of $2.5 million, or 6.8%, from $36.7 million for the same period in 2024 [143]. Cash Flow and Liquidity - As of June 30, 2025, UHG had approximately $36.5 million in cash and cash equivalents, an increase of $13.9 million from $22.6 million as of December 31, 2024 [162]. - As of June 30, 2025, UHG had net cash flows provided by operating activities of $2.8 million, a significant increase of $21.9 million compared to a net cash outflow of $19.1 million for the same period in 2024 [172][173]. - Net cash provided by financing activities for the six months ended June 30, 2025 was $9.9 million, compared to $0.1 million for the same period in 2024, primarily due to proceeds from the Syndicated Line of $41.0 million [176]. Future Outlook - UHG's pipeline as of June 30, 2025, consists of approximately 7,300 lots, indicating potential for future growth and market expansion [106]. - The company plans to expand its mortgage joint venture, Homeowners Mortgage, LLC, to enhance revenue and improve buyer traffic conversion [108]. - The Company is exploring strategic alternatives to maximize shareholder value, with no set deadline for completion of this review process [108]. Debt and Interest Rates - The Company had outstanding borrowings of $64.2 million under its Syndicated Line of Credit, which has a weighted average interest rate of 7.61% as of June 30, 2025 [166][185]. - UHG's term loan had an outstanding balance of $67.3 million with a weighted average interest rate of 11.59% as of June 30, 2025 [169][185]. - UHG's operations are sensitive to interest rate fluctuations, with a potential negative impact of approximately $1.3 million on net income from a 100 basis point increase in interest rates [185]. - The Syndicated Line of Credit matures on August 2, 2027, except for $73.3 million which matures on August 10, 2026 [166][167].