Filed pursuant to Rule 424(b)(3)
Registration No. 333-271515
PROSPECTUS SUPPLEMENT NO.
1
(to Prospectus dated July 31, 2023)
United Homes Group, Inc.
Primary Offering of
Up to 8,625,000 Class A Common Shares Underlying
Public Warrants
Up to 2,966,664 Class A Common Shares Underlying
Private Placement Warrants
Secondary Offering of Up to 421,100 Class A
Common Shares Issued in a Private Offering
Up to 2,966,664 Class A Common Shares Issuable
Upon Exercise of Private Placement Warrants
Up to 2,966,664 Warrants to purchase Class A
Common Shares
_______________________________
This prospectus supplement
updates and supplements the prospectus dated July 31, 2023 (as may be further supplemented or amended from time to time, the “Prospectus”),
which forms a part of our Registration Statement on Form S-1 (File No. 333-271515).
This prospectus supplement
is being filed to update and supplement the Prospectus with the information contained in our Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 2023, filed with the U.S. Securities and Exchange Commission on August 14, 2023 (the “Quarterly Report”).
Accordingly, we have attached the Quarterly Report to this prospectus supplement.
This prospectus supplement
is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is required
to be delivered with this prospectus supplement. If there is any inconsistency between the information in the Prospectus and this prospectus
supplement, you should rely on the information in this prospectus supplement.
Our shares of common stock,
par value $0.0001 per share (the “Class A Common Shares”), and warrants to purchase Class A Common Shares (the “Warrants”)
are listed on the Nasdaq Stock Market LLC under the symbols “UHG” and “UHGWW”, respectively. On August 11, 2023,
the closing price of our Class A Common Shares was $8.55 per share and the closing price of our Warrants was $0.80 per Warrant.
We are an “emerging
growth company” and a “smaller reporting company” as such terms are defined under the federal securities laws and, as
such, are subject to certain reduced public company reporting requirements.
Investing in our securities
involves a high degree of risk. You should review carefully the risks and uncertainties described under the heading “Risk Factors”
beginning on page 7 of the Prospectus, and under similar headings in any amendments or supplements to the Prospectus.
Neither the Securities and Exchange Commission
nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of the Prospectus.
Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is August
15, 2023.
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period
ended June 30, 2023
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period
from ___ to ___
Commission File Number: 001-39936
United Homes Group, Inc.
(Exact name of Registrant as specified in its
charter)
|
|
|
Delaware |
|
85-3460766 |
(State or other jurisdiction of
incorporation or organization) |
|
(IRS Employer
Identification No.) |
90 N Royal Tower Drive,
Irmo, South Carolina 29063
(Address of principal executive offices)
(844) 766-4663
(Registrant’s telephone number)
N/A
(Former name, former address and former fiscal
year, if changed since last report)
Securities registered pursuant to Section 12(b)
of the Act:
Title of Each Class |
|
Trading Symbol(s) |
|
Name of Each Exchange on Which Registered |
Class A Common Shares |
|
UHG |
|
The Nasdaq Stock Market LLC |
|
|
|
|
|
Warrants, each whole warrant exercisable for one Class A Common Share, each at an exercise price of $11.50 per share |
|
UHGWW |
|
The Nasdaq Stock Market LLC |
Indicate by check mark whether
the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes ☒ No ☐
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging
growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
|
|
|
|
|
|
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
Non-accelerated filer |
|
☒ |
|
Smaller reporting company |
|
☒ |
|
|
|
|
Emerging growth company |
|
☒ |
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of August 9, 2023, 11,382,296
Class A Common Shares, par value $0.0001 per share, and 36,973,877 Class B Common Shares, par value $0.0001 per share, were issued and
outstanding.
Table of Contents
FORM 10-Q
UNITED HOMES GROUP, INC.
TABLE OF CONTENTS
|
|
|
|
Page No. |
PART I. |
|
FINANCIAL INFORMATION |
|
3 |
Item 1. |
|
Condensed Consolidated Financial Statements: |
|
3 |
|
|
Condensed Consolidated Balance Sheets as of June 30, 2023 (unaudited) and December 31, 2022 |
|
3 |
|
|
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited) |
|
4 |
|
|
Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022 (unaudited) |
|
5 |
|
|
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (unaudited) |
|
7 |
|
|
Notes to Condensed Consolidated Financial Statements (unaudited) |
|
8 |
Item 2. |
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
33 |
Item 3. |
|
Quantitative and Qualitative Disclosures About Market Risk |
|
47 |
Item 4. |
|
Controls and Procedures |
|
48 |
PART II. |
|
OTHER INFORMATION |
|
50 |
Item 1. |
|
Legal Proceedings |
|
50 |
Item 1A. |
|
Risk Factors |
|
50 |
Item 2. |
|
Unregistered Sales of Equity Securities and Use of Proceeds |
|
50 |
Item 3. |
|
Defaults Upon Senior Securities |
|
50 |
Item 4. |
|
Mine Safety Disclosures |
|
50 |
Item 5. |
|
Other Information |
|
50 |
Item 6. |
|
Exhibits |
|
50 |
Table of Contents
Cautionary Note Regarding Forward-Looking Statements
Certain statements contained
in this Quarterly Report on Form 10-Q, other than historical facts, may be considered forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the applicable
safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act,
as applicable. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain
risks and uncertainties, including known and unknown risks, which could cause actual results to differ materially from those projected
or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking
statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “should,”
“could,” “would,” “expect,” “intend,” “plan,” “anticipate,” “estimate,”
“believe,” “seek,” “continue,” or other similar words. Readers are cautioned not to place undue reliance
on these forward-looking statements, which speak only as of the date this report is filed with the Securities and Exchange Commission.
We cannot guarantee the accuracy of any such forward-looking statements contained in this Form 10-Q, and we do not intend to publicly
update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For further
information regarding risks and uncertainties associated with our business, and important factors that could cause our actual results
to vary materially from those expressed or implied in such forward-looking statements, please refer to the factors listed and described
in this report and in our other Securities and Exchange Commission (“SEC”) filings.
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED HOMES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 2023 (UNAUDITED) AND DECEMEBER 31,
2022
|
|
|
|
|
|
|
|
|
June 30, 2023 |
|
December 31, 2022 |
ASSETS |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
92,741,831 |
|
$ |
12,238,835 |
Accounts receivable, net |
|
|
1,919,934 |
|
|
1,976,334 |
Inventories: |
|
|
|
|
|
|
Homes under construction and finished homes |
|
|
89,756,401 |
|
|
163,997,487 |
Developed lots |
|
|
24,801,833 |
|
|
16,205,448 |
Due from related party |
|
|
8,420,919 |
|
|
1,437,235 |
Related party note receivable |
|
|
647,106 |
|
|
— |
Lot purchase agreement deposits |
|
|
16,416,693 |
|
|
3,804,436 |
Investment in Joint Venture |
|
|
822,568 |
|
|
186,086 |
Property and equipment, net |
|
|
639,470 |
|
|
1,385,698 |
Operating right-of-use assets |
|
|
656,772 |
|
|
1,001,277 |
Deferred tax asset |
|
|
3,495,518 |
|
|
— |
Prepaid expenses and other assets |
|
|
6,565,316 |
|
|
6,112,044 |
Total Assets |
|
$ |
246,884,361 |
|
$ |
208,344,880 |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
Accounts payable |
|
$ |
18,031,023 |
|
$ |
22,077,240 |
Homebuilding debt and other affiliate debt |
|
|
63,961,416 |
|
|
120,797,006 |
Operating lease liabilities |
|
|
656,772 |
|
|
1,001,277 |
Other accrued expenses and liabilities |
|
|
4,759,106 |
|
|
5,465,321 |
Income tax payable |
|
|
1,320,104 |
|
|
— |
Derivative liabilities |
|
|
208,155,641 |
|
|
— |
Convertible note payable |
|
|
67,133,585 |
|
|
— |
Total Liabilities |
|
|
364,017,647 |
|
|
149,340,844 |
|
|
|
|
|
|
|
Commitments and contingencies (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A common stock, $0.0001 par value; 350,000,000 shares authorized; 11,381,736 shares issued and outstanding on June 30, 2023, and December 31, 2022, respectively. (1) |
|
|
1,137 |
|
|
37 |
Class B common stock, $0.0001 par value; 60,000,000 shares authorized; 36,973,877 shares issued and outstanding on June 30, 2023, and December 31, 2022, respectively. (1) |
|
|
3,697 |
|
|
3,697 |
Preferred Stock, $0.0001 par value; 40,000,000 shares authorized; none issued or outstanding. |
|
|
— |
|
|
— |
Additional paid-in capital (1) |
|
|
764,887 |
|
|
1,422,630 |
Retained Earnings/(accumulated deficit) (1) |
|
|
(117,903,007) |
|
|
57,577,672 |
Total Stockholders’ equity (1) |
|
|
(117,133,286) |
|
|
59,004,036 |
Total Liabilities and Stockholders’ equity |
|
$ |
246,884,361 |
|
$ |
208,344,880 |
(1) |
Retroactively restated as of December 31, 2022 for the Reverse Recapitalization as a result of the Business Combination as described in Notes 1 and 2. |
The accompanying notes to the condensed consolidated
financial statements are an integral part of these statements.
3
Table of Contents
UNITED HOMES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND
2022 (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Revenue, net of sales discounts |
|
$ |
122,091,629 |
|
$ |
142,468,681 |
|
$ |
216,918,331 |
|
$ |
250,905,541 |
Cost of sales |
|
|
98,174,149 |
|
|
101,458,330 |
|
|
176,223,078 |
|
|
182,623,290 |
Gross profit |
|
|
23,917,480 |
|
|
41,010,351 |
|
|
40,695,253 |
|
|
68,282,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expense |
|
|
16,335,318 |
|
|
15,200,745 |
|
|
33,022,719 |
|
|
25,625,795 |
Net income from operations |
|
|
7,582,162 |
|
|
25,809,606 |
|
|
7,672,534 |
|
|
42,656,456 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other (expense) income, net |
|
|
(2,295,330) |
|
|
92,400 |
|
|
(2,092,615) |
|
|
263,478 |
Equity in net earnings from investment in joint venture |
|
|
390,674 |
|
|
— |
|
|
636,482 |
|
|
— |
Change in fair value of derivative liabilities |
|
|
242,342,979 |
|
|
— |
|
|
35,278,491 |
|
|
— |
Income before taxes |
|
|
248,020,485 |
|
|
25,902,006 |
|
|
41,494,892 |
|
|
42,919,934 |
Income tax expense |
|
|
(2,657,726) |
|
|
— |
|
|
(636,461) |
|
|
— |
Net income |
|
$ |
245,362,759 |
|
$ |
25,902,006 |
|
$ |
40,858,431 |
|
$ |
42,919,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
5.10 |
|
$ |
0.69 |
|
$ |
0.95 |
|
$ |
1.15 |
Diluted |
|
$ |
4.27 |
|
$ |
0.69 |
|
$ |
0.89 |
|
$ |
1.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted-average number of shares (1) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
48,122,141 |
|
|
37,347,350 |
|
|
42,877,744 |
|
|
37,347,350 |
Diluted |
|
|
57,874,253 |
|
|
37,444,348 |
|
|
48,800,225 |
|
|
37,395,849 |
(1) |
Retroactively restated for the three and six months ending June 30, 2022 for the Reverse Recapitalization as a result of the Business Combination as described in Notes 1 and 2. |
The accompanying notes to the condensed consolidated
financial statements are an integral part of these statements.
4
Table of Contents
UNITED HOMES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS’ EQUITY
THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND
2022 (UNAUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
Additional |
|
|
|
|
Shareholders’ and |
|
Net Due To and Due |
|
Total |
|
|
Class A |
|
Class B |
|
paid-in |
|
Retained |
|
other affiliates’ |
|
From Shareholders |
|
Stockholders’ |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
capital |
|
earnings |
|
net investment |
|
and Other Affiliates |
|
Equity |
Balance as of December 31, 2021 as originally reported |
|
— |
|
$ |
— |
|
— |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
$ |
83,586,722 |
|
$ |
(17,028,310) |
|
$ |
66,558,412 |
Retroactive application of recapitalization |
|
373,473 |
|
|
37 |
|
36,973,877 |
|
|
3,697 |
|
|
— |
|
|
66,554,678 |
|
|
(83,586,722) |
|
|
17,028,310 |
|
|
— |
Adjusted balance as of December 31, 2021 |
|
373,473 |
|
|
37 |
|
36,973,877 |
|
|
3,697 |
|
|
— |
|
|
66,554,678 |
|
|
— |
|
|
— |
|
|
66,558,412 |
Distributions and net transfer to shareholders and other affiliates |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(20,766,162) |
|
|
— |
|
|
— |
|
|
(20,766,162) |
Stock-based compensation expense |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
1,268,222 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,268,222 |
Net Income |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
17,017,928 |
|
|
— |
|
|
— |
|
|
17,017,928 |
Balance as of March 31, 2022 |
|
373,473 |
|
|
37 |
|
36,973,877 |
|
|
3,697 |
|
|
1,268,222 |
|
|
62,806,444 |
|
|
— |
|
|
— |
|
|
64,078,400 |
Distributions and net transfer to shareholders and other affiliates |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(24,415,179) |
|
|
— |
|
|
— |
|
|
(24,415,179) |
Stock-based compensation expense |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
53,288 |
|
|
— |
|
|
— |
|
|
— |
|
|
53,288 |
Net Income |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
25,902,006 |
|
|
— |
|
|
— |
|
|
25,902,006 |
Balance as of June 30, 2022 |
|
373,473 |
|
$ |
37 |
|
36,973,877 |
|
$ |
3,697 |
|
$ |
1,321,510 |
|
$ |
64,293,271 |
|
$ |
— |
|
$ |
— |
|
$ |
65,618,515 |
5
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
Additional |
|
Retained |
|
Total |
|
|
Class A |
|
Class B |
|
paid-in |
|
Earnings |
|
Stockholders’ |
|
|
Shares |
|
Amount |
|
Shares |
|
Amount |
|
capital |
|
(Accumulated Deficit) |
|
Equity |
Balance as of December 31, 2022 |
|
373,473 |
|
$ |
37 |
|
36,973,877 |
|
$ |
3,697 |
|
$ |
1,422,630 |
|
$ |
57,577,672 |
|
$ |
59,004,036 |
Distributions and net transfer to shareholders and other affiliates |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(4,193,093) |
|
|
(4,193,093) |
Stock-based compensation expense |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
51,079 |
|
|
— |
|
|
51,079 |
Forfeiture of private placement warrants |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
890,001 |
|
|
— |
|
|
890,001 |
Issuance of common stock upon the reverse recapitalization, net of transaction costs |
|
8,492,537 |
|
|
849 |
|
— |
|
|
— |
|
|
17,869,735 |
|
|
— |
|
|
17,870,584 |
Issuance of common stock related to PIPE Investment |
|
1,333,963 |
|
|
133 |
|
— |
|
|
— |
|
|
9,501,782 |
|
|
— |
|
|
9,501,915 |
Issuance of common stock related to lock-up agreement |
|
421,100 |
|
|
42 |
|
— |
|
|
— |
|
|
4,194 |
|
|
— |
|
|
4,236 |
Recognition of derivative liability related to earnout |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(242,211,404) |
|
|
— |
|
|
(242,211,404) |
Recognition of derivative liability related equity incentive plan |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(1,189,685) |
|
|
— |
|
|
(1,189,685) |
Earnout stock-based compensation expense for UHG employee options |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
4,448,077 |
|
|
— |
|
|
4,448,077 |
Transaction costs related to reverse recapitalization |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(2,932,426) |
|
|
— |
|
|
(2,932,426) |
Net Loss |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
(204,504,328) |
|
|
(204,504,328) |
Reclassification of negative APIC |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
212,146,017 |
|
|
(212,146,017) |
|
|
— |
Balance as of March 31, 2023 |
|
10,621,073 |
|
|
1,061 |
|
36,973,877 |
|
|
3,697 |
|
|
— |
|
|
(363,265,766) |
|
|
(363,261,008) |
Stock-based compensation expense |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
410,530 |
|
|
— |
|
|
410,530 |
Exercise of stock options under the 2023 Plan |
|
12,643 |
|
|
1 |
|
— |
|
|
— |
|
|
132,411 |
|
|
— |
|
|
132,412 |
Forfeiture of stock options under the 2023 Plan |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
479,742 |
|
|
— |
|
|
479,742 |
Exercise of stock warrants |
|
748,020 |
|
|
75 |
|
— |
|
|
— |
|
|
(75) |
|
|
— |
|
|
— |
Transaction costs related to equity issuance |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
(257,721) |
|
|
— |
|
|
(257,721) |
Net Income |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
— |
|
|
245,362,759 |
|
|
245,362,759 |
Balance as of June 30, 2023 |
|
11,381,736 |
|
$ |
1,137 |
|
36,973,877 |
|
$ |
3,697 |
|
$ |
764,887 |
|
$ |
(117,903,007) |
|
$ |
(117,133,286) |
The shares of the Company’s common stock, prior to the Business
Combination (as defined in Note 1) have been retroactively restated to reflect the exchange ratio of approximately 373.47 (“Exchange
Ratio”) established in the Business Combination.
The accompanying notes to the condensed consolidated
financial statements are an integral part of these statements.
6
Table of Contents
UNITED HOMES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
SIX MONTHS ENDED JUNE 30, 2023 AND 2022 (UNAUDITED)
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2023 |
|
2022 |
Cash flows from operating activities: |
|
|
|
|
|
|
Net income |
|
$ |
40,858,431 |
|
$ |
42,919,934 |
Adjustments to reconcile net (loss) income to net cash flows from operating activities: |
|
|
|
|
|
|
Bad debt expense |
|
|
83,126 |
|
|
— |
Investment earnings in joint venture |
|
|
(636,482) |
|
|
— |
Depreciation |
|
|
130,880 |
|
|
175,217 |
Gain on sale of property and equipment |
|
|
(56,543) |
|
|
— |
Amortization of deferred financing costs |
|
|
335,894 |
|
|
202,008 |
Amortization of discount on convertible notes |
|
|
419,309 |
|
|
— |
Non cash interest income |
|
|
(13,181) |
|
|
— |
Stock compensation expense |
|
|
4,909,686 |
|
|
1,321,510 |
Amortization of operating lease right-of-use assets |
|
|
408,278 |
|
|
271,287 |
Change in fair value of contingent earnout liability |
|
|
(42,499,827) |
|
|
— |
Change in fair value of warrant liabilities |
|
|
7,308,915 |
|
|
— |
Change in fair value of equity incentive plan |
|
|
(87,579) |
|
|
— |
Deferred tax asset |
|
|
(1,625,208) |
|
|
— |
Net change in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
|
(26,726) |
|
|
(929,446) |
Related party receivable |
|
|
(6,983,684) |
|
|
— |
Inventories |
|
|
65,644,701 |
|
|
(20,490,459) |
Lot purchase agreement deposits |
|
|
(10,090,631) |
|
|
(620,436) |
Prepaid expenses and other assets |
|
|
(440,212) |
|
|
797,072 |
Accounts payable |
|
|
(6,826,638) |
|
|
14,540,918 |
Operating lease liabilities |
|
|
(408,278) |
|
|
(271,287) |
Income tax payable |
|
|
618,233 |
|
|
— |
Other accrued expenses and liabilities |
|
|
(706,215) |
|
|
672,062 |
Net cash flows provided by operating activities |
|
|
50,316,249 |
|
|
38,588,380 |
Cash flows from investing activities: |
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(59,229) |
|
|
(80,703) |
Proceeds from the sale of property and equipment |
|
|
66,100 |
|
|
13,807 |
Proceeds from promissory note issued in exchange for sale of fixed assets |
|
|
31,095 |
|
|
— |
Capital contribution in joint venture |
|
|
— |
|
|
(49,000) |
Net cash flows provided by (used in) investing activities |
|
|
37,966 |
|
|
(115,896) |
Cash flows from financing activities: |
|
|
|
|
|
|
Proceeds from homebuilding debt |
|
|
42,083,334 |
|
|
66,000,000 |
Repayments of homebuilding debt |
|
|
(87,874,118) |
|
|
(62,421,057) |
Proceeds from other affiliate debt |
|
|
136,773 |
|
|
5,590,194 |
Repayments of other affiliate debt |
|
|
— |
|
|
(918,453) |
Payment of deferred financing costs |
|
|
(469,585) |
|
|
— |
Repayments on equipment financing |
|
|
— |
|
|
(16,852) |
Distributions and net transfer to shareholders and other affiliates |
|
|
(17,896,302) |
|
|
(58,701,411) |
Proceeds from convertible note, net of transaction costs |
|
|
71,500,000 |
|
|
— |
Proceeds from PIPE investment and lock up |
|
|
4,720,427 |
|
|
— |
Proceeds from Business Combination, net of SPAC transaction costs |
|
|
30,336,068 |
|
|
— |
Payment of equity issuance costs |
|
|
(257,721) |
|
|
— |
Payment of transaction costs |
|
|
(12,134,293) |
|
|
— |
Proceeds from exercise of employee stock options |
|
|
4,198 |
|
|
— |
Net cash flows provided by (used in) financing activities |
|
|
30,148,781 |
|
|
(50,467,579) |
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
80,502,996 |
|
|
(11,995,095) |
Cash and cash equivalents, beginning of year |
|
|
12,238,835 |
|
|
51,504,887 |
Cash and cash equivalents, end of year |
|
$ |
92,741,831 |
|
$ |
39,509,792 |
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
8,037,484 |
|
$ |
1,711,843 |
Cash paid for income taxes |
|
$ |
1,643,436 |
|
$ |
— |
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
Additions of right-of-use lease assets and liabilities |
|
|
— |
|
|
1,149,832 |
Acquisition of developed lots from related parties in settlement of due from Other Affiliates |
|
|
— |
|
|
13,520,070 |
Promissory note issued in exchange for sale of fixed assets |
|
|
665,020 |
|
|
— |
Settlement of co-obligor debt to affiliates |
|
|
8,340,545 |
|
|
— |
Release of guarantor from GSH to shareholder |
|
|
2,841,034 |
|
|
— |
Noncash distribution to owner’s of Other Affiliates |
|
|
12,671,122 |
|
|
— |
Earnest money receivable from Other Affiliates |
|
|
2,521,626 |
|
|
— |
Recognition of previously capitalized deferred transaction costs |
|
|
2,932,426 |
|
|
— |
Modification to existing lease |
|
|
(43,169) |
|
|
— |
Recognition of derivative liability related to earnout |
|
|
242,211,404 |
|
|
— |
Recognition of derivative liability related to equity incentive plan |
|
|
1,189,685 |
|
|
— |
Recognition of warrant liability upon Business Combination |
|
|
1,531,000 |
|
|
— |
Forfeiture of private placement warrants upon Business Combination |
|
|
(890,001) |
|
|
— |
Issuance of common stock upon the reverse recapitalization |
|
|
39,933,707 |
|
|
— |
Recognition of deferred tax asset upon Business Combination |
|
|
1,870,310 |
|
|
— |
Recognition of income tax payable upon Business Combination |
|
|
701,871 |
|
|
— |
Recognition of assumed assets and liabilities upon Business Combination, net |
|
|
3,588,110 |
|
|
— |
Noncash exercise of stock warrants |
|
|
75 |
|
|
— |
Noncash exercise of employee stock options |
|
|
128,214 |
|
|
— |
Forfeiture of employee stock options |
|
|
(479,742) |
|
|
— |
Total non-cash activities |
|
$ |
319,713,237 |
|
$ |
14,669,902 |
The accompanying notes to the condensed consolidated
financial statements are an integral part of these statements.
7
Table of Contents
UNITED HOMES GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
THREE AND SIX MONTHS ENDED JUNE 30, 2023 AND
2022
Note 1 - Nature of operations and basis of presentation
The Company and Nature of Business
United Homes Group, Inc. (“UHG” or
the “Company”), a Delaware corporation, is a homebuilding business which operates with an asset-light strategy. The Company
is a former blank check company incorporated on October 7, 2020 under the name DiamondHead Holdings Corp. (“DHHC”) as a Delaware
corporation formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or
similar business combination with one or more businesses.
UHG constructs single-family residential homes
and has active operations in South Carolina and Georgia offering a range of residential products including entry-level attached and detached
homes, first-time move up attached and detached homes and second move-up detached homes. The constructed homes appeal to a wide range
of buyer profiles, from first-time to lifestyle buyers. The Company’s primary objective is to provide customers with homes of exceptional
quality and value while maximizing its return on investment. The Company has grown by expanding its market share in existing markets and
by expanding into markets contiguous to the current active markets.
Business Combination
On September 10, 2022, DHHC entered into a Business
Combination Agreement (the “Business Combination Agreement”) with Hestia Merger Sub, Inc., a South Carolina corporation and
wholly owned subsidiary of DHHC (“Merger Sub”), and Great Southern Homes, Inc., a South Carolina corporation (“GSH”).
Upon the consummation of the transaction on March
30, 2023 (“Closing Date”), Merger Sub merged with and into GSH with GSH surviving the merger as a wholly owned subsidiary
of the Company (“Business Combination”). As a result of the Business Combination, GSH is now a wholly owned subsidiary of
DHHC, which has changed its name to United Homes Group, Inc.
GSH’s business historically consisted of
both homebuilding operations and land development operations. In anticipation of the Business Combination, GSH separated its land development
operations and its homebuilding operations across separate entities in an effort to adopt best practices in the homebuilding industry
associated with ownership and control of land and lots and production efficiency. For accounting treatment of the Business Combination,
see Note 2 - Merger and Reverse Recapitalization. Unless otherwise indicated or the context otherwise requires, references in this
quarterly report on Form 10-Q to “Legacy UHG” refer to the homebuilding operations of GSH prior to the consummation of the
Business Combination.
Basis of Presentation
The Condensed Consolidated Financial Statements
included in this report reflect (i) the historical operating results of Legacy UHG prior to the Business Combination; (ii) the combined
results of UHG and DHHC following the Closing; (iii) the assets and liabilities of UHG and DHHC, and Legacy UHG at their historical
cost; and (iv) the Company’s equity structure for all periods presented.
The accompanying Condensed Consolidated Balance
Sheet as of December 31, 2022, the Condensed Consolidated Statements of Operations and Statements of Changes in Stockholders’ Equity
for the three and six months ended June 30, 2022, and the Statement of Cash Flows for the six months ended June 30, 2022 (“Legacy
UHG financial statements”) have been prepared from Legacy UHG’s historical financial records and reflect the historical financial
position, results of operations and cash flows of the Legacy UHG for the periods presented on a carve-out basis in accordance with generally
accepted accounting principles in the United States of America (“GAAP”). The Statements of Changes in Stockholders’
Equity are adjusted for the retroactive application of the reverse recapitalization using the Exchange Ratio. The Legacy UHG financial
statements present historical information and results attributable to the homebuilding operations of GSH. The Legacy UHG financial statements
exclude GSH’s operations related to land development operations as Legacy UHG historically did not operate as a standalone company.
The carve-out methodology was used since Legacy UHG’s inception until the Closing Date. Thus, after March 30, 2023, no carve-out
amounts were included in UHG’s financial statements.
8
Table of Contents
Periods prior to the Business Combination
Prior to the Business Combination until the Closing
Date, Legacy UHG has historically transacted with affiliates that were owned by the shareholders of GSH. Legacy UHG has categorized the
various affiliates based on the nature of the transactions with Legacy UHG and their primary operations. The categories are as follows:
Land Development Affiliates -
Land development affiliates’ primary operations consist of acquiring and developing raw parcels of land for vertical home construction.
Upon completion, the land development affiliates transfer the developed lots to Legacy UHG in a non-cash transaction.
Other Operating Affiliates -
Other operating affiliates’ operations consist of acquiring and developing land, purchasing constructed houses for rental properties,
leasing activities, and purchasing model homes to be maintained during the sell down period of a community.
Collectively, these are referred to as “Other
Affiliates” in these financial statements and represented as related parties (see Note 8 - Related party transactions).
All assets, liabilities, revenues, and expenses
directly associated with the activity of Legacy UHG are included in these financial statements. Cash and cash equivalents is included
in these financial statements, as Legacy UHG provided the cash management/treasury function for the Other Affiliates until January 1,
2023. In addition, a portion of Legacy UHG’s corporate expenses including share-based compensation were allocated to Legacy UHG
based on direct usage when identifiable or, when not directly identifiable, on the basis of proportional cost of sales or employee headcount,
as applicable. The corporate expense allocations include the cost of corporate functions and resources provided by or administered by
GSH including, predominately, costs associated with executive management, finance, accounting, legal, human resources, and costs associated
with operating GSH’s office buildings. The corporate expense allocation requires significant judgment and management believes the
basis on which the corporate expenses have been allocated reasonably reflects the utilization of services provided to Legacy UHG during
the periods presented. Balance Sheet accounts were reviewed to determine what was attributable to Legacy UHG. There were no Balance Sheet
accounts that required allocation procedures for assets and liabilities.
In addition, all significant transactions between
Legacy UHG and GSH have been included in these financial statements. The aggregated net effect of transactions between Legacy UHG and
GSH are settled within Retained Earnings/ (Accumulated Deficit) on the Balance Sheets as they were not expected to be settled in cash.
These amounts were reflected in the Statements of Cash Flows within Distributions and net transfer to shareholders and other affiliates
and, when transactions were historically not settled in cash, in Non-cash financing activities.
GSH’s third-party long-term debt and related
interest expense have all been allocated to Legacy UHG. Legacy UHG was considered the primary legal obligor of such debt as it was the
sole cash generating entity and responsible for repayment of the debt. Certain portions of that long-term debt and the related interest
consist of construction revolving lines of credit and are reflected as Homebuilding debt. The remaining portions of long-term debt and
the related interest have been used to finance operations that were not related to Legacy UHG, primarily land development activities,
and were presented as Other Affiliate debt.
The results reported in these financial statements
would not be indicative of Legacy UHG’s future performance, primarily because prior to the Business Combination, the lots developed
by affiliates were not transferred to the homebuilding operations of GSH at a market rate. As such, these results do not necessarily reflect
what the financial position, results of operations and cash flows would have been had it operated as an independent company during the
periods presented.
Note 2 - Merger and Reverse Recapitalization
On the Closing Date, the following transactions
were completed:
|
● |
Merger Sub merged with and into GSH, with GSH surviving the merger as a wholly owned subsidiary of the Company; |
|
● |
All 1,000 shares of Class A common stock of GSH (“GSH Class A Common Shares”) issued and outstanding prior to the Closing Date were exchanged for 373,473 shares of Class A common stock of UHG (“UHG Class A Common Shares”); |
9
Table of Contents
|
● |
All 99,000 shares of Class B common stock of GSH (“GSH Class B Common Shares”) issued and outstanding prior to the Closing Date were exchanged for 36,973,877 shares of Class B common stock of UHG (“UHG Class B Common Shares”); |
|
● |
All 2,426 outstanding options of GSH to acquire GSH Class A Common Shares were assumed by the Company and converted into options to acquire an aggregate of approximately 905,930 UHG Class A Common Shares (the “Rollover Options”); |
|
● |
All 5,000 outstanding warrants to purchase GSH Class A Common Shares were assumed by the Company and converted into warrants to purchase 1,867,368 UHG Class A Common Shares (the “Assumed Warrants”); |
|
● |
8,625,000 outstanding shares of DHHC Class B common stock held by DHP SPAC II Sponsor LLC (the “Sponsor”) converted into 4,160,931 UHG Class A Common Shares, all of which are subject to resale or transfer restrictions; |
|
● |
The Company issued an aggregate of 1,755,063 UHG Class A Common Shares to the PIPE Investors, Lock-Up Investors and the Convertible Note Investors, pursuant to the terms of the PIPE Subscription Agreements, Share Lock-up Agreements and the PIPE Investment, (together the “PIPE Financings”), as described below. |
As of the Closing Date and following the completion
of the Business Combination, UHG had the following outstanding securities:
|
● |
10,621,073 UHG Class A Common Shares; |
|
● |
36,973,877 UHG Class B Common Shares; |
|
● |
2,966,664 warrants to purchase 2,966,664 UHG Class A Common Shares, each exercisable at a price of $11.50 per share, issued in connection with the DHHC initial public offering and held by the Sponsor and BlackRock Inc. and Millennium Management LLC (the “Anchor Investors”); |
|
● |
8,625,000 warrants to purchase 8,625,000 UHG Class A Common Shares, each exercisable at a price of $11.50 per share, issued in connection with the DHHC initial public offering; |
|
● |
1,867,368 Assumed Warrants to purchase 1,867,368 UHG Class A Common Shares, each exercisable at a price of $4.05 per share; |
|
● |
905,930 Rollover Options to purchase 905,930 UHG Class A Common Shares, each exercisable at a price of $2.81 per share. |
Earnout
In connection with the Business Combination, holders
of GSH common shares, certain holders of stock options, and holders of GSH warrants (together, “GSH Equity Holders”), options
held by employees and directors (“Employee Option Holders”) and the Sponsors (together, the “Earnout Holders”)
are entitled to receive consideration in the form of common shares (“Earnout Shares”). The Company reserved 21,886,378 Earnout
Shares for future issuance upon achievement of certain earnout conditions, of which 20,000,000 may be awarded to GSH Equity Holders and
Employee Option Holders and 1,886,378 additional earnout shares may be awarded to the Sponsors. Refer to Note 14 - Earnout Shares.
In connection with the Closing, and under the
terms of the Sponsor Support Agreement entered into in connection with the execution of the Business Combination Agreement, 1,886,378
shares of the 8,625,000 shares of DHHC Class B common stock held by the Sponsor were converted to Earnout Shares and became subject to
vesting conditions based on the achievement of certain market-based share price thresholds. Refer to Note 14 - Earnout Shares for
additional information regarding the terms and conditions of the Earnout Triggering Events. Of the remaining 6,738,622 shares of DHHC
Class B common stock, 2,577,691 shares were forfeited and 4,160,931 shares were converted into UHG Class A Common Shares.
Convertible Note
In connection with the closing of the Business
Combination, DHHC entered into a Convertible Note Purchase Agreement (the “Note Purchase Agreement”), by and among itself,
GSH, and a group of investors (the “Convertible Note Investors”). Pursuant to and at the
10
Table of Contents
closing of the transactions contemplated by the
Note Purchase Agreement, the Convertible Note Investors agreed to purchase $80.0 million in original principal amount of Convertible Promissory
Notes (the “Notes,” or “Note PIPE Financing”) and, pursuant to the terms of share subscription agreements entered
into between each Convertible Note Investor and UHG, an additional 744,588 UHG Class A Common Shares (the “PIPE Shares”) in
a private placement PIPE investment (the “PIPE Investment”). Refer to Note 12 - Convertible Note for additional information
on the accounting treatment for the Notes, including issuance costs.
Subscription Agreement
In connection with the execution of the Business
Combination Agreement, UHG entered into separate subscription agreements (each a “Subscription Agreement,” or “Subscription
Agreement PIPE Financing,” and together with the “Note PIPE Financing,” the “PIPE Financings”) with a number
of investors (each a “PIPE Investor”), pursuant to which the PIPE Investors agreed to purchase, and UHG agreed to sell to
the PIPE Investors, an aggregate of 471,500 shares of common stock for a purchase price of $10.00 per share and 117,875 shares for a purchase
price of $0.01 per share for an aggregate purchase price of $4.7 million, in a private placement offering. The PIPE Financings closed
simultaneously with the consummation of the Business Combination.
Lock-Up Agreement
In connection with the execution of the Business
Combination Agreement, DHHC entered into separate Share Issuance and Lock-Up Agreements (each a “Lock-up Agreement”) with
a number of investors (each a “Lock-up Investor”), pursuant to which UHG agreed to issue each Lock-up Investor 0.25 UHG Class
A Common Shares (up to 421,100 UHG Class A Common Shares in the aggregate) for a purchase price of $0.01 per share, for each UHG Class
A Common Share held by such Lock-up Investor at the Closing. Following the closing of the Business Combination, UHG notified each Lock-Up
Investor that UHG waived the lock-up restriction contained in the Lock-Up Agreements.
The number of shares of UHG common stock issued
immediately following the consummation of the Business Combination was as follows:
|
|
|
|
|
|
|
|
Shares |
|
Ownership % |
|
DHHC public shareholders - UHG Class A Common Shares1 |
|
4,331,606 |
|
9.1 |
% |
DHHC sponsor shareholders - UHG Class A Common Shares |
|
4,160,931 |
|
8.7 |
% |
GSH existing shareholders - UHG Class B Common Shares |
|
36,973,877 |
|
77.7 |
% |
GSH existing shareholders - UHG Class A Common Shares |
|
373,473 |
|
0.8 |
% |
Convertible Note Investors - UHG Class A Common Shares |
|
744,588 |
|
1.6 |
% |
PIPE Investors - UHG Class A Common Shares |
|
589,375 |
|
1.2 |
% |
Lock-up Investors - UHG Class A Common Shares |
|
421,100 |
|
0.9 |
% |
Total Closing Shares |
|
47,594,950 |
|
100 |
% |
1 |
Represents remaining DHHC Class A shares following share redemptions prior to the Business Combination. |
Treatment of Merger
The Business Combination is accounted for as a
reverse recapitalization under GAAP. This determination is primarily based on Legacy UHG retaining the largest portion of the voting rights,
the post-transaction management team is primarily comprised of the pre-transaction management team of GSH and the relative size of GSH’s
operations is larger than DHHC’s. Under this method of accounting, DHHC is treated as the “acquired” company for financial
reporting purposes. Accordingly, for accounting purposes, the Condensed Consolidated Financial Statements of UHG represent a continuation
of the financial statements of Legacy UHG with the Business Combination being treated as the equivalent of Legacy UHG issuing stock for
the net assets of DHHC, accompanied by a recapitalization. The net assets of DHHC are stated at historical cost, with no goodwill or other
intangible assets recorded. Operations prior to the Business Combination are presented as those of Legacy UHG. All periods prior to the
Business Combination have been retrospectively adjusted using the Exchange Ratio of 373.47 for the equivalent number of shares outstanding
immediately after the Business Combination to effect the reverse recapitalization. Accordingly, certain amounts have been reclassified
and retroactively adjusted to reflect the reverse recapitalization pursuant to the Business Combination for all periods presented within
the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Changes in Stockholders’ Equity.
11
Table of Contents
In connection with the Business Combination, the
Company received approximately $128.6 million of gross proceeds including the contribution of $43.9 million of cash held in DHHC’s
trust account from its initial public offering, $4.7 million of cash in connection with the Subscription Agreement PIPE Financing, and
$80.0 million in connection with the Notes PIPE Financing. As part of the PIPE Financings, the Company entered into the Note Purchase
Agreement for an original principal amount of $80.0 million. The Company incurred debt issuance costs of $5.0 million of original issuance
discount and an additional $3.5 million of transaction costs that were allocated to the Notes, resulting in net cash proceeds of $71.5
million.
The Company incurred $25.7 million of transaction
costs in connection with the Business Combination, consisting of advisory, banking, legal, and other professional fees, of which $13.6
million were incurred by DHHC and $12.1 million were incurred by Legacy UHG. All costs were capitalized and recorded as a reduction to
additional paid-in capital.
Note 3 - Summary of significant accounting policies
The unaudited Condensed Consolidated Financial
Statements include the accounts of the Company and its wholly owned subsidiaries. The Company’s fiscal year end is December 31 and,
unless otherwise stated, all years and dates refer to the fiscal year.
Unaudited Interim Condensed Consolidated Financial
Statements - The accompanying Condensed Consolidated Financial Statements of the Company have been prepared in accordance with GAAP
for interim financial information and the rules and regulations of Regulation S-X of the Securities and Exchange Commission (“SEC”).
Accordingly, certain information, notes, and disclosures normally included in the annual financial statements prepared under GAAP have
been condensed or omitted in accordance with SEC rules and regulations. Therefore, these Condensed Consolidated Financial Statements should
be read in conjunction with the financial statements and notes included in the audited financial statements of Legacy UHG for the year
ended December 31, 2022 included in the Form S-1/A filed with the SEC on July 17, 2023. Any reference in these notes to applicable guidance
is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards
Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying Condensed Consolidated Financial
Statements as of June 30, 2023 and for the three and six months ended June 30, 2023 and 2022 are unaudited. The unaudited interim Condensed
Consolidated Financial Statements have been prepared on the same basis as the audited annual financial statements and, in the opinion
of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the Company’s
financial position as of June 30, 2023, results of operations for the three and six months ended June 30, 2023 and 2022 and cash flows
for the six months ended June 30, 2023 and 2022. The financial data and other information disclosed in these notes related to the three
and six months ended June 30, 2023 and 2022 are also unaudited. The Condensed Consolidated Balance Sheet at December 31, 2022, was derived
from audited annual financial statements and adjusted for the retrospective recapitalization as described in Note 1 - Nature of operations
and basis of presentation and Note 2 - Merger and Reverse Recapitalization but does not contain all of the note disclosures
from the annual financial statements. Other than policies noted below, there have been no significant changes to the significant accounting
policies disclosed in Note 2 of audited Legacy UHG financial statements as of December 31, 2022 and 2021 and for each of the three years
in the period ended December 31, 2022. The results for the three and six months ended June 30, 2023 and 2022 are not necessarily indicative
of results to be expected for the year ending December 31, 2023, any other interim periods, or any future year or period.
Emerging Growth Company - The Company is
an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business
Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required
to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced
disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously
approved.
Further, Section 102(b)(1) of the JOBS Act exempts
emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that
is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company
can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but
any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that
when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging
growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison
of the Company’s financial statements with another
12
Table of Contents
public company which is not an emerging growth
company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used.
Principles of consolidation – The
Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions
and balances have been eliminated upon consolidation.
Use of Estimates – The preparation
of the accompanying Condensed Consolidated Financial Statements in conformity with GAAP requires management to make informed estimates
and judgments that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Estimates made
by the Company include corporate expense allocation, useful lives of depreciable assets, revenue recognition associated with contracts
recognized over time, capitalized interest, warranty reserves, share-based compensation, valuation of earnout liability, valuation of
convertible note and valuation of stock warrants. Due to inherent uncertainty involved in making estimates, actual results reported in
future periods may differ from those estimates.
Segment Information – The Company
determines its chief operating decision maker (“CODM”) based on the person responsible for making resource allocation decisions.
Operating segments are components of the business for which the CODM regularly reviews discrete financial information. The Company manages
its operations as a single segment for the purposes of assessing performance and making operating decisions.
Inventories and Cost of Sales –
The carrying value of inventory is stated at cost unless events and circumstances indicate the carrying value may not be recoverable.
Inventory consists of developed lots, homes under construction, and finished homes.
|
– |
Developed lots - This inventory consists of land that has been developed for or acquired by the Company and where vertical construction is imminent. Developed lot costs are typically allocated to individual residential lots on a per lot basis based on specific costs incurred for the acquisition of the lot. As of June 30, 2023 and December 31, 2022, the amount of developed lots included in inventory was $24,801,833 and $16,205,448, respectively. Developed lots purchased at fair value from third parties was $18,415,780 and $10,052,179 as of June 30, 2023 and December 31, 2022, respectively, which is included in Developed Lots on the Condensed Consolidated Balance Sheets. |
|
– |
Homes under construction - At the time construction of the home begins, developed lots are transferred to homes under construction within inventory. This inventory represents costs associated with active homebuilding activities which include, predominately, labor and overhead costs related to home construction, capitalized interest, real estate taxes and land option fees. As of June 30, 2023 and December 31, 2022, the amount of inventory related to homes under construction included in homes under construction and finished homes was $60,633,819 and $141,863,561, respectively. |
|
– |
Finished homes - This inventory represents completed but unsold homes at the end of the reporting period. Costs incurred in connection with completed homes including associated selling, general, and administrative costs are expensed as incurred. As of June 30, 2023 and December 31, 2022, the amount of inventory related to finished homes included in homes under construction and finished homes was $29,122,582 and $22,133,926, respectively. |
Unconsolidated Variable Interest Entities
- Pursuant to ASC 810 and subtopics related to the consolidation of variable interest entities (“VIEs”), management analyzes
the Company’s investments and transactions under the variable interest model to determine if they are VIEs and, if so, whether the
Company is the primary beneficiary. Management determines whether the Company is the primary beneficiary of a VIE at the time it becomes
involved with a VIE and reconsiders that conclusion if changes to the Company’s involvement arise. To make this determination, management
considers factors such as whether the Company could direct finance, determine or limit the scope of the entity, sell or transfer property,
direct development or direct other operating decisions. The primary beneficiary is defined as the entity having both of the following
characteristics: 1) the power to direct the activities that most significantly impact the VIE’s performance, and 2) the obligation
to absorb losses and rights to receive the returns from the VIE that would be potentially significant to the VIE. Management consolidates
the entity if the Company is the primary beneficiary or if a standalone primary beneficiary does not exist and the Company and its related
parties collectively meet the definition of a primary beneficiary. If the investment does not qualify as a VIE under the variable interest
model, management then evaluates the entity under the voting interest model to assess if consolidation is appropriate.
The Company has entered into a shared services
agreement with a related party that operates in the land development business to provide accounting, IT, HR, and other administrative
support services and receive property maintenance services and due diligence and negotiation assistance with purchasing third party finished
lots. Management has analyzed and concluded that it has a variable interest
13
Table of Contents
in this entity through the services agreement
that provides the Company with the obligation to absorb losses and the right to receive benefits based on fees that are below market rates.
Additionally, the Company enters into lot option
purchase agreements with the same related party and other related parties to procure land or lots for the construction of homes. Under
these contracts, the Company funds a stated deposit in consideration for the right, but not the obligation, to purchase land or lots at
a future point in time. Under the terms of the option purchase contracts, the option deposits are not refundable. Management determined
it holds a variable interest through its potential to absorb some of the related parties’ first dollar risk of loss by placing a
non-refundable deposit.
Management determined that these related parties
are VIEs, however, the Company is not the primary beneficiary of the VIEs as it does not have the power to direct the VIEs’ significant
activities related to land development. Accordingly, the Company does not consolidate these VIEs.
As of June 30, 2023 the Company recognized $187,828
of assets related to the services agreement included within Due from related party on the Condensed Consolidated Balance Sheets, and $13,722,475
of assets related to lot purchase agreements included within Lot purchase agreement deposits on the Condensed Consolidated Balance Sheets.
There were no amounts associated with these agreements as of December 31, 2022. The Company determined these amounts to be the maximum
exposure to loss due to involvement with the VIEs as the Company does not provide any financial guarantees or support to these related
parties.
Revenue Recognition - The Company
recognizes revenue in accordance with ASC 606 Revenue from Contracts with Customers. For the three months ended June 30, 2023 and
2022, revenue recognized at a point in time from speculative homes totaled $117,716,265, and $135,421,944, respectively, and for the three
months ended June 30, 2023 and 2022, revenue recognized over time from land owned by customers totaled $4,375,364, and $7,046,737, respectively.
For the six months ended June 30, 2023 and 2022, revenue recognized at a point in time from speculative homes totaled $210,105,675, and
$239,871,985, respectively, and for the six months ended June 30, 2023 and 2022, revenue recognized over time from land owned by customers
totaled $6,812,656, and $11,033,556, respectively.
Advertising – The Company expenses
advertising and marketing costs as incurred and includes such costs within Selling, general, and administrative expense in the Condensed
Consolidated Statements of Operations. For the three months ended June 30, 2023 and 2022, the Company incurred $482,700 and $1,373,668,
respectively, in advertising and marketing costs. For the six months ended June 30, 2023 and 2022, the Company incurred $973,680 and $1,826,433,
respectively, in advertising and marketing costs.
Income Taxes – Income taxes
are accounted for using the asset and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized
for the expected future tax consequences on differences between the carrying amounts of assets and liabilities and their respective tax
basis, using tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred assets and liabilities
of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation
allowance when it is “more-likely-than not” that some portion or all of the deferred tax assets will not be realized. When
evaluating the realizability of deferred tax assets, all evidence, both positive and negative, is evaluated.
The Company recognizes interest and penalties
related to the underpayment of income taxes, including those resulting from the late filing of tax returns within the provision for income
taxes in the Condensed Consolidated Statements of Operations. The Company analyzes its tax filing positions in the U.S. federal, state,
and local tax jurisdictions where the Company is required to file income tax returns, as well as for all open tax years in these jurisdictions.
If, based on this analysis, the Company determines that uncertainties in tax positions exist, a liability is established.
Tax laws are complex and subject to different
interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining tax expense
and in evaluating tax positions, including evaluating uncertainties under GAAP. The Company reviews its tax positions quarterly and adjusts
its tax balances as new legislation is enacted or new information becomes available.
Prior to the Business Combination, Legacy UHG
was included in the tax filing of the shareholders of GSH, which was taxed individually under the provision of Subchapter S and Subchapter
K of the Internal Revenue Code. Individual shareholders were liable for income taxes on their respective shares of GSH’s taxable
income. No income tax liability nor income tax was allocated to Legacy UHG as of December 31, 2022 or for the six months ended June
30, 2022, nor was there any recorded liability for uncertain tax positions.
14
Table of Contents
Derivative liabilities – The Company
does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its
financial instruments, including issued warrants, to determine if such instruments are derivatives or contain features that qualify as
embedded derivatives, pursuant to ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging
(“ASC 815”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities
or as equity, is re-assessed at the end of each reporting period.
The 8,625,000 warrants issued in connection with
DHHC’s Initial Public Offering (the “Public Warrants”), the 2,966,664 Private Placement Warrants (as defined below),
21,491,695 Earnout Shares and certain stock options (as discussed in Note 13 - Share-based compensation) are recognized as derivative
liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant instruments, earnout shares and stock options
as liabilities at fair value and adjusts the instruments to fair value at each reporting period until they are exercised or issued, respectively.
The Public Warrant quoted market price was used as the fair value for the Public Warrants as of June 30, 2023. The Private Placement Warrants
and the Earnout shares were valued using a Monte Carlo analysis. See the Earnout and Warrant Liabilities sections below
for further detail on each instrument and their classification. Stock options were valued using Black-Scholes valuation model. See
Note 13 - Share-based compensation for further detail.
Earnout - In connection with the Business
Combination, Earnout Holders are entitled to receive consideration in the form of Earnout Shares upon the Company achieving certain Triggering
Events, as described in Note 14 - Earnout Shares. The contingent obligations to issue Earnout Shares to the Earnout Holders, excluding
Employee Option Holders, are recognized as derivative liabilities in accordance with ASC 815. The liabilities were recognized at fair
value on the Closing Date and are subsequently remeasured at each reporting date with changes in fair value recorded in the Condensed
Consolidated Statements of Operations.
Earnout Shares issuable to Employee Option Holders
are considered a separate unit of account from the Earnout Shares issuable to GSH Equity Holders, and the Sponsors, and are accounted
for as equity classified stock compensation. The Earnout Shares issuable to Employee Option Holders are fully vested upon issuance, thus
there is no requisite service period, and the value of these shares is recognized as a one-time stock compensation expense for the grant
date fair value.
The estimated fair values of the Earnout Shares
were determined by using a Monte Carlo simulation valuation model using a distribution of potential outcomes on a daily basis over the
Earnout Period as defined in Note 14 - Earnout Shares. The preliminary estimated fair values of the Earnout Shares were determined
using the most reliable information available, including the current trading price of the UHG Class A Common Shares, expected volatility,
risk-free rate, expected term and dividend rate.
The earnout liability is categorized as a Level
3 fair value measurement because the Company estimated projections during the Earnout Period utilizing unobservable inputs. See Note
4 - Fair Value Measurement for further detail on UHG’s accounting policy related to the fair value of financial instruments.
Warrant Liabilities- The Company assumed
8,625,000 publicly-traded warrants (“Public Warrants”) from DHHC’s initial public offering and 2,966,664 private placement
warrants originally issued by DHHC (“Private Placement Warrants” and, together with the Public Warrants, the “Common
Stock Warrants” or “Warrants”). Upon consummation of the Business Combination, each Common Stock Warrant issued entitled
the holder to purchase one UHG Class A Common Share at an exercise price of $11.50 per share. The Common Stock Warrants are exercisable
as of April 29, 2023. The Private Placement Warrants are identical to the Public Warrants, except that of the Private Placement Warrants
will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain exceptions.
During the three and six months ended June 30, 2023, no Common Stock Warrants were exercised. The Public Warrants are publicly traded
and are exercisable for cash unless certain conditions occur which would permit a cashless exercise. The Private Placement Warrants are
exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees,
subject to certain exceptions. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted
transferees, the Private Placement Warrants are redeemable by the Company and exercisable by such holders on the same basis as the Public
Warrants.
The Company evaluated the Public Warrants and
Private Placement Warrants and concluded that both meet the definition of a derivative and will be accounted for in accordance with ASC
Topic 815-40, as the Public Warrants and Private Placement Warrants are not considered indexed to UHG’s stock.
PIPE Investment – In connection
with the closing of the Business Combination, GSH entered into the Note Purchase Agreement, dated March 21, 2023, and effective March
30, 2023, with DHHC and the Convertible Note Investors. As part of the PIPE Investment, the Convertible Note Investors agreed to purchase
$80.0 million in original principal amount of Notes at a 6.25% original issue discount
15
Table of Contents
and were issued an additional 744,588 UHG Class
A Common Shares. The aggregate proceeds received from the Convertible Note Investors is $75.0 million. Additionally, in connection with
the Business Combination, (i) the PIPE Investors purchased from the Company an aggregate of (A) 471,500 UHG Class A Common Shares at a
purchase price of $10.00 per share, and (B) 117,875 UHG Class A Common Shares at a purchase price of $0.01 per share for gross proceeds
to the Company of approximately $4.7 million, pursuant to the PIPE Subscription Agreements, and (ii) the Lock-Up Investors purchased from
the Company an aggregate of 421,100 UHG Class A Common Shares at a purchase price of $0.01 per share pursuant to the Share Lock-Up Agreements.
Following the closing of the Business Combination, UHG notified each Lock-Up Investor that UHG waived the lock-up restriction contained
in the Share Lock-Up Agreements.
The Company accounts for the Notes and PIPE Shares
as two freestanding financial instruments. The Company accounts for the Notes at amortized cost and amortizes the debt discount to interest
expense using the effective interest method over the expected term of the Notes pursuant to ASC 835, Interest. The Company accounts
for the PIPE Shares as equity, as they are not in the scope of ASC 480. The Company applied the relative fair value method to allocate
the $75.0 million in aggregate proceeds received among the freestanding instruments issued. Specifically, $70.2 million was allocated
to the Notes, and $4.8 million was allocated to the PIPE Shares. The amount allocated to the PIPE Shares is presented as an increase in
additional paid-in capital.
The Notes are considered a hybrid financial instrument
consisting of a debt “host” and embedded features. The Company evaluated the Notes at issuance for embedded derivative features
and the potential need for bifurcation under ASC 815, and determined that the Notes contained embedded derivatives, including conversion
features and redemption rights. Although the Company determined that a group of these embedded features which are contingent on certain
events occurring, as further discussed in Note 12 - Convertible Note, would need to be bifurcated, the contingencies themselves
are either entirely within the Company’s control or based on an event management considers the probability of occurring as extremely
remote. Therefore, the group of embedded features which are contingent on certain events and required to be bifurcated would likely have
minimal or no value and therefore deemed to not be material to the Condensed Consolidated Financial Statements.
The Company engaged an independent valuation firm
to assist with the valuation of the Notes and the PIPE Shares. Refer to Note 12 - Convertible Note for further valuation details.
The Company recognized issuance costs of $3.5
million in connection with the Note Purchase Agreement. Issuance costs are specific incremental costs that are (1) paid to third parties
and (2) directly attributable to the issuance of a debt or equity instrument. The issuance costs attributable to the initial sale of the
instrument are offset against the associated proceeds in the determination of the instrument’s initial net carrying amount.
Recently Adopted Accounting Pronouncements
- In June 2016, FASB issued ASU 2016-13, Financial Instruments – Credit Losses Measurement of Credit Losses on Financial
Instruments (“ASC 326”). ASC 326 significantly changes the way impairment of financial assets is recognized by requiring
companies to immediately recognize estimated credit losses expected to occur over the remaining life of many financial assets. The immediate
recognition of the estimated credit losses generally will result in an earlier recognition of allowance for credit losses on loans and
other financial instruments. The Company adopted this ASU effective January 1, 2023. The adoption of ASC 326 did not have a significant
impact on the Company’s Condensed Consolidated Financial Statements.
In March 2020, FASB issued ASU 2020-04, Reference
Rate Reform (Topic 848), which provides practical expedients and exceptions for applying GAAP when modifying contracts and hedging
relationships that use the London Interbank Offered Rate (“LIBOR”) as a reference rate. During the three months ended March
31, 2023, the Company adopted Topic 848 and amended the related debt agreement (see Note 7 - Homebuilding debt and other affiliate
debt). The adoption of Topic 848 did not have a significant impact on the Company’s Condensed Consolidated Financial Statements.
Note 4 - Fair Value Measurement
Certain assets and liabilities measured and reported
at fair value under GAAP are classified in a three-level hierarchy that prioritizes the inputs used in the valuation process. Categorization
within the valuation hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The hierarchy
is based on the observability and objectivity of the pricing inputs as follows:
Level 1 – Quoted prices
in active markets for identical assets or liabilities.
16
Table of Contents
Level 2 – Significant directly
observable data (other than Level 1 quoted prices) or significant indirectly observable data through corroboration with observable market
data. Inputs would normally be (i) quoted prices in active markets for similar assets or liabilities, (ii) quoted prices in inactive markets
for identical or similar assets or liabilities or (iii) information derived from or corroborated by observable market data.
Level 3 – Prices or valuation
techniques that require significant unobservable data inputs. These inputs would normally be the Company’s own data and judgments
about assumptions that market participants would use in pricing the asset or liability.
Due to the short-term nature of the Company’s
Cash and cash equivalents, Accounts receivable, Lot deposits, and Accounts payable, the carrying amounts of these instruments approximate
their fair value. The interest rates on the Homebuilding debt and other affiliate debt vary and are the greater of either a reference
rate plus an applicable margin, or the base rate plus the aforementioned applicable margin. Refer to Note 7 - Homebuilding debt and
other affiliate debt for additional detail on the determination of these instruments’ interest rate. As the reference rate of
the Homebuilding debt and other affiliate debt at any point in time is reflective of the current interest rate environment the Company
operates in, the carrying amount of these instruments approximates their fair value.
The Convertible note payable is presented on the
Condensed Consolidated Balance Sheet at its amortized cost and not at fair value. As of June 30, 2023, the fair value of the convertible
note is $141,200,000. See Note 12 - Convertible Note for further details on how the fair value was estimated.
All other financial instruments except for Derivative
private placement warrants liability, Contingent earnout liability, Derivative stock option liability and Convertible note payable are
classified within Level 1 or Level 2 of the fair value hierarchy because the Company values these instruments either based on recent trades
of securities in active markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated
by observable market data.
The estimated fair value of the Derivative private
placement warrants liability, Contingent earnout liability, Derivative stock option liability and Convertible note payable is determined
using Level 3 inputs. The models and significant assumptions used in preparing the valuations are disclosed in Note 15 - Warrant liability,
Note 14 - Earnout Shares, Note 13 - Share-based compensation, and Note 12 - Convertible Note respectively.
The following table presents information about
the Company’s assets and liabilities that are measured at fair value on a recurring basis as of June 30, 2023 and indicates the
fair value hierarchy of the valuation. There were no assets or liabilities that are measured at fair value as of December 31, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2023 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Contingent earnout liability |
|
$ |
— |
|
$ |
— |
|
$ |
199,711,577 |
|
$ |
199,711,577 |
Derivative private placement warrant liability |
|
|
— |
|
|
— |
|
|
2,343,664 |
|
|
2,343,664 |
Derivative public warrant liability |
|
|
5,606,250 |
|
|
— |
|
|
— |
|
|
5,606,250 |
Derivative stock option liability |
|
|
— |
|
|
— |
|
|
494,150 |
|
|
494,150 |
Total Derivative Liability |
|
$ |
5,606,250 |
|
$ |
— |
|
$ |
202,549,391 |
|
$ |
208,155,641 |
Transfers to/from Levels 1, 2 and 3 are recognized
at the beginning of the reporting period. There were no transfers to/from levels during the six months period ended June 30, 2023 and
the year ended December 31, 2022.
17
Table of Contents
The following table presents a roll forward of
the Level 3 liabilities measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative |
|
|
|
|
|
|
|
|
private |
|
|
|
|
|
Contingent |
|
placement |
|
Derivative |
|
|
earnout |
|
warrant |
|
stock option |
|
|
liability |
|
liability |
|
liability |
Liability at January 1, 2023 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
Recognition |
|
|
242,211,404 |
|
|
625,370 |
|
|
1,189,685 |
Forfeitures |
|
|
— |
|
|
(890,001) |
|
|
— |
Change in fair value |
|
|
203,418,892 |
|
|
1,213,963 |
|
|
922,263 |
Liability at March 31, 2023 |
|
$ |
445,630,296 |
|
$ |
949,332 |
|
$ |
2,111,948 |
Forfeitures |
|
$ |
— |
|
$ |
— |
|
$ |
(817,862) |
Exercise of liability awards |
|
|
— |
|
|
— |
|
|
(272,621) |
Change in fair value |
|
|
(245,918,719) |
|
|
1,394,332 |
|
|
(527,315) |
Liability at June 30, 2023 |
|
$ |
199,711,577 |
|
$ |
2,343,664 |
|
$ |
494,150 |
Note 5 - Capitalized interest
The Company accrues interest on the Company’s
Homebuilding debt. That debt is used to finance homebuilding operations (see Note 7 - Homebuilding debt and other affiliate debt)
and the associated interest is capitalized and included within inventory for Homes under construction and finished homes during active
development of the home. Capitalized interest is expensed to Cost of sales upon the sale of the home. Capitalized interest activity is
summarized in the table below for the three and six months ended June 30, 2023 and 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Capitalized interest at beginning of the period: |
|
$ |
1,101,528 |
|
$ |
1,070,198 |
|
$ |
1,250,460 |
|
$ |
1,190,318 |
Interest cost capitalized |
|
|
1,906,390 |
|
|
900,753 |
|
|
4,144,290 |
|
|
1,738,533 |
Interest cost expensed |
|
|
(2,159,967) |
|
|
(1,001,614) |
|
|
(4,546,799) |
|
|
(1,959,514) |
Capitalized interest at June 30: |
|
$ |
847,951 |
|
$ |
969,337 |
|
$ |
847,951 |
|
$ |
969,337 |
Note 6 - Property and equipment
Property and equipment consisted of the following
as of June 30, 2023 and December 31, 2022:
|
|
|
|
|
|
|
Asset Group |
|
June 30, 2023 |
|
December 31, 2022 |
Furniture and fixtures |
|
$ |
738,361 |
|
$ |
688,487 |
Leasehold improvements |
|
|
380,187 |
|
|
380,187 |
Machinery and equipment |
|
|
164,258 |
|
|
1,037,231 |
Office equipment |
|
|
175,130 |
|
|
165,774 |
Vehicles |
|
|
361,755 |
|
|
750,950 |
Total Property and equipment |
|
$ |
1,819,691 |
|
$ |
3,022,629 |
Less: Accumulated depreciation |
|
|
(1,180,221) |
|
|
(1,636,931) |
Property and equipment, net |
|
$ |
639,470 |
|
$ |
1,385,698 |
Depreciation expense, included within Selling,
general and administrative expense on the Condensed Consolidated Statements of Operations was $36,938 and $88,388 for the three months
ended June 30, 2023 and 2022, respectively and $130,880 and $175,217, for the six months ended June 30, 2023 and 2022, respectively.
Note 7 - Homebuilding debt and other affiliate debt
Prior to the Business Combination, Legacy UHG,
jointly with its Other Affiliates considered to be under common control, entered into debt arrangements with financial institutions. These
debt arrangements are in the form of revolving lines of credit and are generally secured by land (developed lots and undeveloped land)
and homes (under construction and finished). Legacy UHG and certain related Other Affiliates were collectively referred to as the Nieri
Group. The Nieri Group entities were jointly and severally liable for the
18
Table of Contents
outstanding balances under the revolving lines
of credit, however, Legacy UHG was deemed the primary obligor. Legacy UHG was considered the primary legal obligor of such debt as it
was the sole cash generating entity and responsible for repayment of the debt. As such, Legacy UHG had recorded the outstanding advances
under the financial institution debt and other debt within these financial statements as of December 31, 2022.
A portion of the revolving lines of credit were
drawn down for the sole operational benefit of the Nieri Group and Other Affiliates outside of Legacy UHG. These line of credit balances
are reflected in the table below as Other Affiliates’ debt. Post Business Combination, the Company no longer enters into debt arrangements
with Other Affiliates of Legacy UHG. As discussed further below, in connection with the Business Combination, the Wells Fargo Syndication
line was amended and restated to exclude any members of the Nieri Group and Other Affiliates of Legacy UHG from the borrower list.
The advances from the revolving construction lines,
reflected as Homebuilding debt, are used to build homes and are repaid incrementally upon individual home sales. The various revolving
construction lines are collateralized by the homes under construction and developed lots. The revolving construction lines are fully secured,
and the availability of funds are based on the inventory value at the time of the draw request. Interest accrued on the loans is added
to the balance of the loans outstanding and is paid concurrently with the principal repayments made upon the occurrence of individual
home sales. As the average construction time for homes is less than one year, all outstanding debt is considered short-term as of June
30, 2023 and December 31, 2022.
The following table and descriptions summarize
the Company’s debt as of June 30, 2023 and December 31, 2022:
|
|
|
|
|
|
|
|
June 30, 2023 |
|
|
|
|
Homebuilding |
|
|
Weighted |
|
Debt - Wells |
|
|
average |
|
Fargo |
|
|
interest rate |
|
Syndication |
Wells Fargo Bank |
|
7.87 |
% |
$ |
23,575,902 |
Regions Bank |
|
7.87 |
% |
|
15,034,568 |
Texas Capital Bank |
|
7.87 |
% |
|
10,327,227 |
Truist Bank |
|
7.87 |
% |
|
10,728,645 |
First National Bank |
|
7.87 |
% |
|
4,295,074 |
Total debt on contracts |
|
|
|
$ |
63,961,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
Homebuilding |
|
|
|
|
|
|
|
|
Weighted |
|
Debt - Wells |
|
|
|
|
|
|
|
|
average |
|
Fargo |
|
|
|
|
|
|
|
|
interest rate |
|
Syndication |
|
Other Affiliates(1) |
|
Total |
Wells Fargo Bank |
|
4.98 |
% |
$ |
34,995,080 |
|
$ |
8,203,772 |
|
$ |
43,198,852 |
Regions Bank |
|
4.98 |
% |
|
27,550,618 |
|
|
— |
|
|
27,550,618 |
Texas Capital Bank |
|
4.98 |
% |
|
19,676,552 |
|
|
— |
|
|
19,676,552 |
Truist Bank |
|
4.98 |
% |
|
19,659,329 |
|
|
— |
|
|
19,659,329 |
First National Bank |
|
4.98 |
% |
|
7,870,621 |
|
|
— |
|
|
7,870,621 |
Anderson Brothers |
|
4.74 |
% |
|
— |
|
|
2,841,034 |
|
|
2,841,034 |
Total debt on contracts |
|
|
|
$ |
109,752,200 |
|
$ |
11,044,806 |
|
$ |
120,797,006 |
(1) Outstanding balances relate to
bank financing for land acquisition and development activities of Other Affiliates for which the Company is the co-obligor or has an indirect
guarantee of the indebtedness of the Other Affiliates. In addition, the $8,203,772 of Other Affiliates debt with Wells Fargo Bank as of
December 31, 2022 is part of the Wells Fargo Syndication.
Wells Fargo Syndication
In July 2021, the Nieri Group entities entered
into a $150,000,000 Syndicated Credit Agreement (“Syndicated Line”) with Wells Fargo Bank, National Association (“Wells
Fargo”). The Syndicated Line is a three-year revolving credit facility with a maturity date of July 2024, and an option to
extend the maturity date for one year that can be exercised upon approval from Wells Fargo. The Syndicated Line also includes a $2,000,000
letter of credit as a sub-facility subjected to the same terms and conditions as the Syndicated Line. The Syndicated Line was amended
and restated on March 30, 2023 (“Amendment Date”) in connection with the Business Combination (as
19
Table of Contents
defined in Note 1 - Nature of operations and
basis of presentation). As a result of the amended and restated agreement, GSH, a consolidated subsidiary of the Company, is now the
sole borrower of the Syndicated Line. No significant terms were changed other than those described below.
The remaining availability on the Syndicated Line
was $86,038,584 as of June 30, 2023 and $32,044,028 as of December 31, 2022. The Company pays a fee ranging between 15 and 30 basis
points per annum depending on the unused amount of the Syndicated Line. The fee is computed on a daily basis and paid quarterly in arrears.
The Syndicated Line contains financial covenants,
including (a) a minimum tangible net worth of no less than the sum of (x) $65 million and (y) 25% of positive after-tax income
until the Amendment Date (which amount is subject to increase over time based on earnings) and no less than $70 million from the Amendment
Date until June 30, 2023, and no less than $70 million plus 25% of quarterly earnings on and after June 30, 2023, (b) a maximum leverage
covenant that prohibits the leverage ratio from exceeding 2.75 to 1.00 for any fiscal quarter until the Amendment Date and 2.50 to 1.00
for any fiscal quarter after the Amendment Date, (c) a minimum debt service coverage ratio to be less than 2.50 to 1.00 for any fiscal
quarter, and (d) a minimum liquidity amount of not less than $15,000,000 at all times and unrestricted cash of not less than $7,500,000
at all times. The Company was in compliance with all debt covenants as of June 30, 2023. Legacy UHG was in compliance with all debt covenants
as of December 31, 2022.
The interest rates on the borrowings under the
Syndicated Line vary based on the leverage ratio. In connection with the amended and restated Syndicated Line, the benchmark interest
rate was converted from LIBOR to Secured Overnight Financing Rate (“SOFR”), with no changes in the applicable rate margins.
The interest rate is based on the greater of either LIBOR prior to Amendment Date or SOFR post Amendment Date plus an applicable margin
(ranging from 275 basis points to 350 basis points) based on the Company’s leverage ratio as determined in accordance with a pricing
grid, or the base rate plus the aforementioned applicable margin.
Other Affiliates debt
The amounts in Other Affiliates debt are unrelated
to the operations of Legacy UHG, and therefore, an equal amount is included as an offset in Retained Earnings. For the six months ended
June 30, 2023 and 2022, Other Affiliates borrowed $136,773,and $5,590,194, respectively. These amounts are recorded on the Statements
of Cash Flows, financing activities section, with borrowings presented as Proceeds from other affiliate debt and repayments as Repayments
of other affiliate debt. On February 27, 2023, Legacy UHG paid off Wells Fargo debt associated with Other Affiliates in the amount of
$8,340,545 and on February 28, 2023, Legacy UHG was released as a co-obligor from the Anderson Brothers debt associated with Other Affiliates
in anticipation of the Business Combination that closed on March 30, 2023 as discussed in Note 1. As a result there is no remaining debt
balance associated with Other Affiliates as of June 30, 2023.
In connection with the amendment of the Syndicated
Line, the Company incurred debt issuance costs, of which $469,585 is deferred and will be amortized over the remaining life of the Syndicated
Line. The amendment is accounted for as a modification of an existing line of credit under ASC 470, Debt, and, therefore, any previously
unamortized deferred costs continue to be amortized over the remaining life of the Syndicated Line. The Company recognized $214,906 and
$116,226, respectively, of amortized deferred financing costs within Other (expense) income, net for the three months ended June 30, 2023
and 2022, respectively. The Company recognized $335,894 and $202,008 of amortized deferred financing costs within Other (expense) income,
net for the six months ended June 30, 2023 and 2022, respectively. Outstanding deferred financing costs related to the Company’s
Homebuilding debt were $844,751 and $771,953 as of June 30, 2023 and 2022, respectively, and are included in Prepaid expenses and other
assets on the Condensed Consolidated Balance Sheets as the debt is a revolving arrangement.
Note 8 - Related party transactions
Prior to the Business Combination, Legacy UHG
transacted with Other Affiliates that were owned by the shareholders of GSH. Those Other Affiliates included Land Development Affiliates
and Other Operating Affiliates (see Note 1 - Nature of operations and basis of presentation).
Post Business Combination, the Company continues
to transact with these parties, however, they are no longer considered affiliates of the Company. Land Development Affiliates and Other
Operating Affiliates of Legacy UHG (post Business Combination) meet the definition of related parties of the Company as defined in ASC
850-10-20.
20
Table of Contents
Prior to the Business Combination, Legacy UHG
maintained the cash management and treasury function for its Other Affiliates. Cash receipts from customers and cash disbursements made
to vendors were recorded through one centralized bank account. Legacy UHG recorded a Due from Other Affiliate when cash was disbursed,
generally to a vendor, on behalf of an affiliate. Conversely, Legacy UHG recorded a Due to Other Affiliate when cash was received from
a customer on behalf of an affiliate. The balances were settled through equity upon the consummation of the Business Combination.
The below table summarizes Legacy UHG transactions
with the Land Development Affiliates and Other Operating Affiliates for the six months ended June 30, 2023 and 2022.
|
|
|
|
|
|
|
|
|
|
|
|
Six Months ended June 30, 2023 |
|
|
Land |
|
Other |
|
|
|
|
|
Development |
|
Operating |
|
|
|
|
|
Affiliates |
|
Affiliates |
|
Total |
Financing cash flows: |
|
|
|
|
|
|
|
|
|
Land development expense |
|
$ |
(384,349) |
|
$ |
— |
|
$ |
(384,349) |
Other activities |
|
|
(225,392) |
|
|
(422,342) |
|
|
(647,734) |
Total financing cash flows |
|
$ |
(609,741) |
|
$ |
(422,342) |
|
$ |
(1,032,083) |
|
|
|
|
|
|
|
|
|
|
Non-cash activities |
|
|
|
|
|
|
|
|
|
Settlement of co-obligor debt to other affiliates |
|
$ |
8,340,545 |
|
$ |
— |
|
$ |
8,340,545 |
Release of guarantor from GSH to shareholder |
|
|
2,841,034 |
|
|
— |
|
|
2,841,034 |
Credit for earnest money deposits |
|
|
2,521,626 |
|
|
— |
|
|
2,521,626 |
Total non-cash activity |
|
$ |
13,703,205 |
|
$ |
— |
|
$ |
13,703,205 |
|
|
|
|
|
|
|
|
|
|
|
|
Six Months ended June 30, 2022 |
|
|
Land |
|
Other |
|
|
|
|
|
Development |
|
Operating |
|
|
|
|
|
Affiliates |
|
Affiliates |
|
Total |
Financing cash flows: |
|
|
|
|
|
|
|
|
|
Land development expense |
|
$ |
(18,795,115) |
|
$ |
(628,209) |
|
$ |
(19,423,324) |
Other activities |
|
|
(840,297) |
|
|
(83,289) |
|
|
(923,586) |
Cash transfer |
|
|
— |
|
|
(10,000,000) |
|
|
(10,000,000) |
Total financing cash flows |
|
$ |
(19,635,412) |
|
$ |
(10,711,498) |
|
$ |
(30,346,910) |
|
|
|
|
|
|
|
|
|
|
Non-cash activities |
|
|
|
|
|
|
|
|
|
Acquisition of developed lots |
|
|
13,520,070 |
|
|
— |
|
|
13,520,070 |
Total non-cash activity |
|
$ |
13,520,070 |
|
$ |
— |
|
$ |
13,520,070 |
Land development expense – Represents
costs that were paid for by Legacy UHG that relate to the Land Development Affiliates’ operations. The Land Development Affiliates
acquire raw parcels of land and develop them so that Legacy UHG can build houses on the land.
Other activities – Represent
other transactions with Legacy UHG’s Other Affiliates. This includes, predominately, rent expense incurred for leased model homes
and payment of real estate taxes.
Settlement of co-obligor debt to other affiliates
– The amount represents the settlement of Wells Fargo debt associated with Other Affiliates.
Release of guarantor from GSH to shareholder
– The amount represents that Legacy UHG was released as a co-obligor from the Anderson Brothers debt associated with Other Affiliates.
Credit for earnest money deposits –
The amount represents credit received from a Legacy UHG affiliate in relation to lot deposits that Legacy UHG paid on behalf of the affiliate.
Cash transfer - A direct cash contribution
to Other Affiliates from Legacy UHG. Legacy UHG transferred cash to a related party. This cash transfer is in anticipation of separating
the homebuilding operations from land development operations.
21
Table of Contents
Acquisition of developed lots from related
parties in settlement of Due from Other Affiliates – Once the Land Development Affiliates of Legacy UHG developed the raw
parcels of land, they transferred the land to Legacy UHG in a non-cash transaction. The transfer amount was derived from the costs incurred
to develop the land.
Leases
In addition to the transactions above, Legacy
UHG has entered into three separate operating lease agreements with a related party. The terms of the leases, including rent expense and
future minimum payments, are described in Note 11 - Commitments and contingencies.
Services agreement
The Company shares office spaces with a related
party and certain employees of the Company provide services to the same related party, as such, the Company is allocating certain shared
costs to the related party in line with a predetermined methodology based on headcount. During the three and six months ended June 30,
2023 the Company allocated overhead costs to the related party in the amount of $261,248 and $447,060, respectively, and was charged for
property maintenance services in the amount of $11,847 and $71,672,respectively, by the same related party. The remaining balance outstanding
as of June 30, 2023 is a receivable of $187,828 and is presented within Due from related party on the Condensed Consolidated Balance Sheet.
Other
As of June 30, 2023, the Company was due $8,233,091
from a related party for advanced payments of future lot purchase agreement deposits which is recognized within Due from related party
on the Condensed Consolidated Balance Sheet. The amount was settled in its entirety subsequent to June 30, 2023.
Note 9 - Lot purchase agreement deposits
The Company does not engage in the land development
business. The Company’s strategy is to acquire developed lots through related parties and unrelated third party land developers
pursuant to lot purchase agreements. Most lot purchase agreements require the Company to pay a nonrefundable cash deposit of between 10%
and 15% of the agreed-upon fixed purchase price of the developed lots. In exchange for the deposit, the Company receives the right to
purchase the finished developed lot at a preestablished price. Such contracts enable the Company to defer acquiring portions of properties
owned by third parties until the Company determines whether and when to complete such acquisition, which may serve to reduce financial
risks associated with long-term land holdings.
Prior to the Business Combination, when Legacy
UHG was acquiring lots through Land Development Affiliates, it did not have to pay deposits as the land development operations were owned
by the shareholders of GSH. As such, the table below as of December 31, 2022, does not include lot purchase agreement deposits with related
parties, and it consists of unrelated third party lot purchase agreement deposits only.
Post Business Combination, the Company continues
to purchase lots from the former Land Development Affiliates of Legacy UHG, however, as the Company is no longer owned by the shareholders
of GSH, the Company must pay lot purchase agreement deposits to acquire lots. As such, as of June 30, 2023 all interests in lot purchase
agreements, including with related parties, is recorded within Lot purchase agreement deposits on the Condensed Consolidated Balance Sheet
and presented in the table below. The following table provides a summary of the Company’s interest in lot purchase agreements as
of June 30, 2023 and December 31, 2022:
|
|
|
|
|
|
|
|
|
June 30, 2023 |
|
December 31, 2022 |
Lot purchase agreement deposits |
|
$ |
16,416,693 |
|
$ |
3,804,436 |
Remaining purchase price |
|
|
178,792,611 |
|
|
65,451,928 |
Total contract value |
|
$ |
195,209,304 |
|
$ |
69,256,364 |
Out of the $16,416,693 lot purchase agreement deposits outstanding
as of June 30, 2023, $13,722,475 are with related parties.
The Company has the right to cancel or terminate
the lot purchase agreement at any time for any reason. The legal obligation and economic loss resulting from a cancellation or termination
is limited to the amount of the deposits paid. The cancellation or termination of a lot purchase agreement results in the Company recording
a write-off of the nonrefundable deposit to Cost of sales. For the three months ended June 30, 2023 and 2022, the Company recorded $6,991
and $24,324, respectively, and for the six months ended June 30,
22
Table of Contents
2023 and 2022, the Company recorded $15,655 and
$113,685, respectively, to Cost of sales for the forfeited lot purchase agreement deposits. The deposits placed by the Company pursuant
to the lot purchase agreements are deemed to be a variable interest in related party land developers but not in the third-party land developers.
See Note 3 - Summary of significant accounting policies for the policy and conclusions about unconsolidated variable interest entities.
Note 10 - Warranty reserves
The Company establishes warranty reserves to provide
for estimated future costs as a result of construction and product defects. Estimates are determined based on management’s judgment
considering factors such as historical spend and projected cost of corrective action.
The following table provides a summary of the
activity related to warranty reserves, which are included in Other accrued expenses and liabilities on the accompanying Condensed Consolidated
Balance Sheets as follows:
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Year Ended |
|
|
June 30, 2023 |
|
December 31, 2022 |
Warranty reserves at beginning of the period |
|
$ |
1,371,412 |
|
$ |
1,275,594 |
Reserves provided |
|
|
527,620 |
|
|
1,156,027 |
Payments for warranty costs and other |
|
|
(589,169) |
|
|
(1,060,209) |
Warranty reserves at end of the period |
|
$ |
1,309,863 |
|
$ |
1,371,412 |
Note 11 - Commitments and contingencies
Leases
The Company leases office spaces in South Carolina
under operating lease agreements with related parties, which have a remaining lease term of up to five years, some of which include
options to extend on a month-to-month basis, and some of which include options to terminate the lease. These options are excluded from
the calculation of the ROU asset and lease liability until it is reasonably certain that the option will be exercised. The Company recognized
an operating lease expense of $186,348 and $163,283 within Selling, general, and administrative expense on the Condensed Consolidated
Statements of Operations for the three months ended June 30, 2023 and 2022, respectively. The Company recognized an operating lease expense
of $387,787 and $322,962 within Selling, general, and administrative expense on the Condensed Consolidated Statements of Operations for
the six months ended June 30, 2023 and 2022, respectively.
Operating lease expense included variable lease
expense of $8,534 and $17,989 for the three months ended June 30, 2023 and 2022, respectively, Operating lease expense included variable
lease expense of $20,459 and $36,226 for the six months ended June 30, 2023 and 2022, respectively.
The weighted-average discount rate for the operating
leases was 5.59% and 3.17% during the six months ended June 30, 2023 and 2022, respectively.
The weighted-average remaining lease term was
2.00 and 2.27 years for the six months ended June 30, 2023 and 2022, respectively.
During the year ended December 31, 2022, Legacy
UHG closed on 19 sale-leaseback transactions with related parties, whereby it is the lessee. Leases commenced on January 1, 2023. The
Company is responsible for paying the operating expenses associated with the model homes while under lease. The rent expense associated
with sale-leaseback agreements that mature in less than 12 months (and are excluded thus from the ROU asset and lease liability) is $67,425
and $136,050, respectively, for the three and six months ended June 30, 2023.
23
Table of Contents
The maturity of the contractual, undiscounted
operating lease liabilities as of June 30, 2023 are as follows:
|
|
|
|
|
|
Lease Payment |
2023 |
|
$ |
241,156 |
2024 |
|
|
292,992 |
2025 |
|
|
108,792 |
2026 |
|
|
48,000 |
2027 and thereafter |
|
|
— |
Total undiscounted operating lease liabilities |
|
$ |
690,940 |
Interest on operating lease liabilities |
|
|
(34,168) |
Total present value of operating lease liabilities |
|
$ |
656,772 |
The Company has certain leases which have initial
lease terms of twelve months or less (“short-term leases”). The Company elected to exclude these leases from recognition,
and these leases have not been included in our recognized operating ROU assets and operating lease liabilities. The Company recorded $87,492
and $20,260 of rent expense related to the short-term leases within Selling, general and administrative expense on the Condensed Consolidated
Statements of Operations for the three months ended June 30, 2023 and 2022, respectively, and $182,873 and $54,515 for the six months
ended June 30, 2023 and 2022, respectively.
Litigation
The Company is subject to various claims and lawsuits
that may arise primarily in the ordinary course of business, which consist mainly of construction defect claims. In the opinion of management,
the disposition of these matters will not have a material adverse effect on the Company’s Condensed Consolidated Financial Statements.
When the Company believes that a loss is probable and estimable and not fully able to be recouped, the Company will record an expense
and corresponding contingent liability. As of the date of these Condensed Consolidated Financial Statements, management believes that
the Company has not incurred a liability as a result of any claims.
Note 12 - Convertible Note
In connection with the closing of the Business
Combination, GSH entered into the Note Purchase Agreement, dated March 21, 2023, and effective March 30, 2023, with DHHC and the Convertible
Note Investors. As part of the PIPE Investment, the Convertible Note Investors agreed to purchase $80.0 million in original principal
amount of Notes at a 6.25% original issue discount and were issued an additional 744,588 UHG Class A Common Shares. The aggregate proceeds
of the PIPE Investment were $75.0 million.
The Notes mature on March 30, 2028, and bear interest
at a rate of 15%. The Company has the option to pay any accrued and unpaid interest at a rate in excess of 10% either in cash or by capitalizing
such interest and adding it to the then outstanding principal amount of the Notes (“PIK Interest”). The Company has elected
to pay the full accrued and unpaid interest in excess of 10% in cash rather than PIK Interest. The effective interest rate on the Notes
is 20.46%.
The Notes are convertible at the holder’s
option into UHG Class A Common Shares at any time after March 30, 2024 through March 30, 2028, at a per share price (the “Initial
Conversion Price”) equal to 80% of volume-weighted average trading sale price (“VWAP”) per UHG Class A Common Share
during the 30 consecutive trading days prior to the first anniversary of the Closing Date (the “Measurement Period”). Pursuant
to the Note Purchase Agreement, the Initial Conversion Price has a floor of $5.00 per share and a cap of $10.00 per share. The Initial
Conversion Price is subject to adjustments for certain anti-dilution provisions as provided in the Notes. If an anti-dilution event occurs,
the number of shares of common stock issuable upon conversion may be higher than implied by the Initial Conversion Price. Each Note is
also convertible at the Company’s option into UHG Class A Common Shares, at any time after the second anniversary of the Closing
Date if the VWAP per UHG Class A Common Share exceeds $13.50 for 20 trading days in a 30 consecutive trading day period. The Company was
not required to bifurcate either of these conversion features as they met the derivative classification scope exception as described in
ASC 815-15.
The Notes may be redeemed by the Company at any
time prior to 60 days before March 30, 2028, by repaying all principal and interest amounts outstanding at the time of redemption plus
a make-whole amount equal to the additional interest that would accrue if the Notes remained outstanding through their maturity date.
The Company was not required to bifurcate the embedded redemption feature, as the economic characteristics and risks of the redemption
feature were clearly and closely related to the economic characteristics and risk of the Notes in accordance with ASC 815-15.
24
Table of Contents
The Notes also contain additional conversion,
redemption, and payment provision features, at the option of the holder, which can be exercised upon contingent events such as the Company
defaulting on the Notes, a change of control in the ownership of the Company, or other events requiring indemnification. As the contingent
events are either entirely within the Company’s control or based on an event management considers the probability of occurring as
extremely remote, these features which are required to be bifurcated, would likely have minimal or no value, and therefore deemed to not
be material to the Condensed Consolidated Financial Statements.
The fair value of the Notes was calculated using
a Binomial model and a Monte Carlo model. The PIPE Shares were valued using a Discounted Cash Flow Model. The Company will accrete the
value of the discount across the expected term of the Note using the effective interest method.
The below table presents the outstanding balance
of the Notes as of June 30, 2023:
|
|
|
|
|
|
June 30, 2023 |
Beginning Balance – Par |
|
$ |
80,000,000 |
Unamortized Discount |
|
|
(12,866,415) |
Carrying Value |
|
$ |
67,133,585 |
The Company recognized interest expense of $3.4
million for the Notes for the three and six months ended June 30, 2023.
The following assumptions were used in the Binomial
and Monte Carlo valuation models to determine the estimated fair value of the Notes at the issue date, March 30, 2023 and as of June 30,
2023.
|
|
|
|
|
|
|
|
June 30, 2023 |
|
March 30, 2023 |
|
Risk-free interest rate |
|
4.20 |
% |
3.80 |
% |
Expected volatility |
|
40 |
% |
40 |
% |
Expected dividend yield |
|
— |
% |
— |
% |
Risk-Free Interest Rate – The risk-free
interest rate is based on the U.S. Treasury zero coupon bond used to reduce any projected future cash flows derived from the payoff of
the Notes as UHG common shares.
Expected Volatility – The Company’s
expected volatility was estimated based on the average historical volatility for comparable publicly traded companies.
Expected Dividend Yield – The dividend
yield is based on the Company’s history and expectation of dividend payouts. The Company does not expect to pay cash dividends to
shareholders during the term of the Notes, therefore the expected dividend yield is determined to be zero.
Note 13 - Share-based compensation
Equity Incentive Plans
In January 2022, the Board of Directors of
GSH approved and adopted the Great Southern Homes, Inc. 2022 Equity Incentive Plan (the “2022 Plan”). The 2022 Plan was
administered by a committee appointed by the Board of Directors and had reserved 3,000 common shares to be issued as equity-based awards
to directors and employees of GSH. The number of awards reserved was subject to change based on certain corporate events or changes in
GSH’s capital structure and the shares vest ratably over four years. The 2022 Plan defined awards to include incentive stock
options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, and performance
compensation awards. Effective as of March 30, 2023, in connection with the Business Combination, the Company’s board of directors
adopted the United Homes Group, Inc. 2023 Equity Incentive Plan (the “2023 Plan”) at which time the 2022 Plan was terminated.
The outstanding options prior to the Business Combination were cancelled in exchange of substantially equivalent options to acquire shares
of Common Stock of the Company based on the Exchange Ratio for the UHG common shares in the Business Combination. No further grants can
be made under the 2022 Plan. The 2023 Plan provides that the number of shares reserved and available for issuance under the 2023 Plan
will automatically increase each January 1, beginning on January 1, 2024, by 4% of the number of outstanding shares of Common Stock on
the immediately preceding December 31, or such lesser amount as determined by the Company’s board of directors. Each replacement
stock option is subject to the same terms and conditions as were applicable under the 2022 Plan.
25
Table of Contents
The Company concluded that the replacement stock
options issued in connection with the Business Combination did not require accounting for effects of the modification under ASC 718 as
it was concluded that a) the fair value of the replacement award is the same as the fair value of the original award immediately before
the original award was replaced, b) there were no changes in the vesting terms, and c) the classification of awards did not change.
For the three months ended June 30, 2023, the
Company granted 2,755,140 options with an exercise price of $11.64 per share that vest annually over four years. The weighted-average
grant date fair value of options granted for the three months ended June 30, 2023 was $5.34. As of June 30, 2023, the Company had only
issued incentive and non-qualified stock options.
The following table summarizes the activity relating
to the Company’s stock options. The below stock option figures are presented giving effect to a retroactive application of the Business
Combination which resulted in a replacement of the previous 2022 Plan stock options with the 2023 Plan, as described above, at an Exchange
Ratio of approximately 373.47. In addition, the exercise price for each replacement stock option was also adjusted using the Exchange
Ratio.
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
Average |
|
|
|
|
Per share |
|
|
|
|
Exercise |
|
|
Stock options |
|
price |
Outstanding, December 31, 2022 |
|
870,567 |
|
$ |
2.81 |
Granted |
|
2,755,140 |
|
|
11.64 |
Exercised |
|
(1,494) |
|
|
2.81 |
Forfeited |
|
(95,329) |
|
|
2.81 |
Outstanding, June 30, 2023 |
|
3,528,884 |
|
|
9.70 |
Options exercisable at June 30, 2023 |
|
194,206 |
|
$ |
2.81 |
The aggregate intrinsic value of the stock options
outstanding was $6,460,471 and $7,460,132 as of June 30, 2023 and December 31, 2022 respectively. The intrinsic value of a stock option
is the amount by which the fair value of the underlying stock exceeds the price of the option. The aggregate intrinsic value excludes
the effect of stock options that have a zero or negative intrinsic value.
The Company recognizes stock compensation expense
resulting from the equity-based awards over the requisite service period. Stock compensation expense is recorded based on the estimated
fair value of the equity-based award on the grant date using the Black-Scholes valuation model. Stock compensation expense is
recognized in the Selling, general and administrative expense line item in the Condensed Consolidated Statements of Operations. Total
stock compensation expense included in the Condensed Consolidated Statements of Operations for the three months ended June 30, 2023 and
2022 was $410,530 and $53,288, respectively, and $461,609 and $94,710 for the six months ended June 30, 2023 and 2022, respectively. As
of June 30, 2023, there was unrecognized stock compensation expense related to non-vested stock option arrangements totaling $14,871,937.
The weighted average period over which the unrecognized stock compensation expense is expected to be recognized is 3.61 years.
Prior to the Business Combination, Legacy UHG’s
common stock was not publicly traded, and it estimated the fair value of common stock based on the combination of the three methods: (i)
the discounted cash flow method of the income approach; (ii) the guideline company method of the market approach; and (iii) the subject
transaction method of the market approach.
Legacy UHG considered numerous objective and subjective
factors to determine the fair value of the Company’s common stock. The factors considered included, but were not limited to: (i) the
results of periodic independent third-party valuations; (ii) nature of the business and history of the enterprise from its inception;
(iii) the economic outlook in general and for the specific industry; (iv) the book value of the stock and financial condition
of the business; (v) earning and dividend paying capacity of the business; (vi) the market prices of stocks of corporations
engaged in the same or similar lines of business having their stock actively traded in a free and open market, either on an exchange or
over-the-counter.
26
Table of Contents
The following table presents the assumptions used
in the Black-Scholes option-pricing model to determine the grant date fair value of stock options granted during the year ended December
31, 2022 adjusted by the Exchange Ratio, the fair value of stock options immediately before the original award was replaced, the fair
value of stock options replaced on the replacement date and the fair value of options issued during the three months ended June 30, 2023.
|
|
|
|
|
|
|
|
|
|
|
Inputs |
|
May 25, 2023 |
|
March 30, 2023 |
|
January 19, 2022 |
|
Risk-free interest rate |
|
|
4.00 |
% |
|
3.77 |
% |
|
1.82 |
% |
Expected volatility |
|
|
40 |
% |
|
40 |
% |
|
35 |
% |
Expected dividend yield |
|
|
— |
% |
|
— |
% |
|
— |
% |
Expected life (in years) |
|
|
6.25 |
|
|
5.10 |
|
|
6.25 |
|
Fair value of options |
|
$ |
5.34 |
|
$ |
10.41 |
|
$ |
1.06 |
|
Risk-Free Interest Rate – The
risk-free interest rate is based on the U.S. Treasury zero coupon bond issued in effect at the time of the grant for the periods corresponding
with the expected term of the stock option.
Expected Volatility – The expected
volatility was estimated based on the average volatility for comparable publicly traded companies over a period equal to the expected
term of the options.
Expected Dividend Yield – The
dividend yield is based on the history and expectation of dividend payouts. The Company does not expect to pay cash dividends to shareholders
during the term of options, therefore the expected dividend yield is determined to be zero.
Expected Life – The expected
term represents the period the options granted are expected to be outstanding in years. As Legacy UHG did not have sufficient historical
experience for determining the expected term, the expected term has been derived based on the SAB 107 simplified method for awards that
qualify as plain-vanilla options.
Certain stock options issued under the 2023 Plan
are issued to individuals who are not employees of the Company and who are not providing goods or services to the Company. These options
are recognized in accordance with ASC 815 as a derivative liability and marked to market at each reporting period end. The derivative
liability of stock options amounts to $494,150 and is included within Derivative liability on the Condensed Consolidated Balance Sheet
as of June 30, 2023.
Stock warrants
In January 2022, Legacy UHG granted an option
to non-employee directors to purchase 1,867,368 stock warrants for $150,000. Each warrant represents one non-voting common share. The
warrants are exercisable at $4.05 per warrant, which represents an out-of-the-money strike price. The warrants can be exercised for 10 years
starting from July 1, 2022. Using the Black-Scholes valuation model, the Company determined the aggregate fair value of these warrants
to be approximately $1,376,800 as of the grant date. Because there is no continued service requirement for the warrant holders, the Company
recorded a one-time stock compensation expense in the amount of $1,226,800 within the Selling, general and administrative expense line
item in the Condensed Consolidated Statement of Operations for the year ended December 31, 2022.
The following table presents the assumptions used
in the Black-Scholes option-pricing model to determine the grant date fair value of stock warrants granted during the year ended December
31, 2022. There were no warrants granted during the six month period ended June 30, 2023.
Inputs |
|
December 31, 2022 |
|
Risk-free interest rate |
|
|
1.78 |
% |
Expected volatility |
|
|
35 |
% |
Expected dividend yield |
|
|
— |
% |
Expected life (in years) |
|
|
6.40 |
|
Fair value of warrants granted |
|
$ |
0.7 |
|
The methodology for determining the inputs is
consistent with the input methodology for stock options as described above.
In March 2022, the option holders purchased
the warrants in exchange for $150,000 cash consideration. This amount was recorded directly to Additional Paid-in Capital in the Company’s
Condensed Consolidated Balance Sheet.
27
Table of Contents
The outstanding stock warrants prior to the Business
Combination were converted into warrants to acquire a number of shares of Common Stock of the Company based on the Exchange Ratio for
the UHG common shares in the Business Combination. The above stock warrants figures are presented giving effect to a retroactive application
of the Business Combination which resulted in a conversion of the warrants at an Exchange Ratio of approximately 373.47:1. In addition,
the exercise price for each converted stock warrant was also adjusted using the Exchange Ratio. Each converted stock warrant is subject
to the same terms and conditions as were applicable prior to the conversion.
On April 28, 2023, a warrant holder of the stock
warrants exercised their warrants. 1,120,421 stock warrants were exercised in a cashless exercise whereby the Company issued 748,020 UHG
Class A Common Shares in accordance with the conversion terms. As of June 30, 2023, there are 746,947 stock warrants outstanding.
Earnout Employee Optionholders
The Earnout Shares issuable to holders of equity
stock options as of the Closing Date are accounted for as equity classified stock compensation and do not have a requisite service period.
During the six months ended June 30, 2023, the Company recognized a one-time stock-based compensation expense related to the Earnout of
$4.4 million, which is excluded from the above stock-based compensation expense table. See Note 14 - Earnout Shares for the assumptions
and inputs used in the valuation of the Earnout Shares.
Note 14 - Earnout Shares
During the five year period after the Closing
(“Earnout Period”), eligible GSH Equity Holders and Employee Option Holders are entitled to receive up to 20,000,000 Earnout
Shares. Additionally, and pursuant to the Sponsor Support Agreement, the Sponsor surrendered 1,886,378 DHHC Class B Shares for the contingent
right to receive Earnout Shares. All Earnout Shares issuable to GSH Equity Holders, Employee Option Holders and the Sponsors are subject
to the same Triggering Events (defined below).
On the date when the VWAP of one share of the
UHG Class A Common Shares quoted on the NASDAQ has been greater than or equal to $12.50, $15.00, $17.50 (“Triggering Event I,”
“Triggering Event II,” and “Triggering Event III,” respectively, and together the “Triggering Events”)
for any twenty trading days within any thirty consecutive trading day period within the Earnout Period, the eligible GSH Equity Holders,
Employee Option Holders, and the Sponsors will receive Earnout Shares distributed on a pro-rata basis. For Triggering Event I and Triggering
Event II, 37.5% of Earnout Shares will be released and following the achievement of Triggering Event III, 25.0% of Earnout Shares will
be released.
As discussed in Note 3 - Summary of significant
accounting policies, there are two units of account within the Earnout Shares depending on the Earnout Holder. If the Earnout Holder
is either a GSH Equity Holder or Sponsor, the instrument will be accounted for as a derivative liability. If the Earnout Holder is an
Employee Option Holder, the instrument will be accounted for as an equity classified award. The following table summarizes the number
of Earnout Shares allocated to each unit of account as of June 30, 2023:
|
|
|
|
|
|
|
|
|
Triggering Event I |
|
Triggering Event II |
|
Triggering Event III |
Derivative liability |
|
8,059,386 |
|
8,059,386 |
|
5,372,923 |
Stock compensation |
|
148,006 |
|
148,006 |
|
98,671 |
Total Earnout Shares |
|
8,207,392 |
|
8,207,392 |
|
5,471,594 |
As of March 30, 2023, the fair value of the Earnout
Shares was $12.10 per share issuable upon Triggering Event I, $11.16 per share issuable upon Triggering Event II and $10.19 per share
issuable upon Triggering Event III.
As of March 31, 2023, the fair value of the Earnout
Shares was $20.81 per share issuable upon Triggering Event I, $20.77 per share issuable upon Triggering Event II and $20.57 per share
issuable upon Triggering Event III.
As of June 30, 2023, the fair value of the Earnout
Shares was $10.13 per share issuable upon Triggering Event I, $9.17 per share issuable upon Triggering Event II and $8.22 per share issuable
upon Triggering Event III.
28
Table of Contents
The estimated fair value of the Earnout Shares
was determined using a Monte Carlo simulation using a distribution of potential outcomes on a daily basis over the Earnout Period. The
assumptions used in the valuation of these instruments, using the most reliable information available, include:
|
|
|
|
|
|
|
|
|
|
|
Inputs |
|
June 30, 2023 |
|
March 31, 2023 |
|
March 30, 2023 |
|
Current stock price |
|
$ |
11.16 |
|
$ |
20.80 |
|
$ |
12.68 |
|
Stock price targets |
|
|
$12.50, $15.00, $17.50 |
|
|
$12.50, $15.00, $17.50 |
|
|
$12.50, $15.00, $17.50 |
|
Expected life (in years) |
|
|
4.75 |
|
|
5.00 |
|
|
5.00 |
|
Earnout period (in years) |
|
|
4.75 |
|
|
4.75 |
|
|
4.75 |
|
Risk-free interest rate |
|
|
4.20 |
% |
|
3.69 |
% |
|
3.75 |
% |
Expected volatility |
|
|
40 |
% |
|
40 |
% |
|
40 |
% |
Expected dividend yield |
|
|
— |
% |
|
— |
% |
|
— |
% |
The change in the fair value of the Earnout Shares
between March 30, 2023 and June 30, 2023 was primarily attributable to the decrease in the current stock price of the Company from $12.68
as of March 30, 2023 to $11.16 as of June 30, 2023.
As none of the earnout Triggering Events have
occurred as of June 30, 2023, no shares have been distributed.
Note 15 - Warrant liability
Immediately prior to the Closing Date, 2,966,669
of the 5,933,333 Private Placement Warrants were forfeited. The remaining 2,966,664 Private Placement Warrants were recognized as a liability
on the Closing Date at fair value. The Private Placement Warrant liability was remeasured to fair value as of March 31, 2023 and June
30, 2023. The change in fair value of the private placement warrant liability for the three and six months ended June 30, 2023 resulted
in a loss of $1.4 million and $2.6 million, respectively. These changes are included in Change in fair value of derivative liabilities
on the Condensed Consolidated Statement of Operations.
The Private Placement Warrants were valued using
the following assumptions under the Monte Carlo method:
|
|
|
|
|
|
|
|
|
|
|
Inputs |
|
June 30, 2023 |
|
March 31, 2023 |
|
March 30, 2023 |
|
Current stock price |
|
$ |
11.16 |
|
$ |
20.80 |
|
$ |
12.68 |
|
Exercise price |
|
$ |
11.50 |
|
$ |
11.50 |
|
$ |
11.50 |
|
Expected life (in years) |
|
|
4.75 |
|
|
5.00 |
|
|
5.00 |
|
Risk-free interest rate |
|
|
4.20 |
% |
|
3.69 |
% |
|
3.75 |
% |
Expected volatility |
|
|
40 |
% |
|
40 |
% |
|
40 |
% |
Expected dividend yield |
|
|
— |
|
|
— |
|
|
— |
|
The Public Warrants were initially recognized
as a liability on the Closing Date at a fair value. The Public Warrant liability was remeasured to fair value as of March 31, 2023 and
June 30, 2023. The change in fair value of the public warrant liability for the three and six months ended June 30, 2023 resulted in a
loss of $3.2 million and $4.7 million, respectively. These changes are included in Change in fair value of derivative liabilities on the
Condensed Consolidated Statement of Operations.
29
Table of Contents
Note 16 - Income taxes
For the three and six months ended June 30, 2023,
the Company recognized income tax expense of $2,657,726 and $636,461, respectively. At the end of each interim period, the Company estimates
the effective tax rate expected to be applicable for the full fiscal year and this rate is applied to the results for the year-to-date
period, and then adjusted for any discrete period items. The Company’s estimated annual effective tax rate for the six months ended
June 30, 2023 is 26.2%. This differs from the federal statutory rate of 21.0% primarily due to state income tax expense and nondeductible
expenses. The Company has determined that changes in fair value of derivative liabilities, as well as offsetting tax adjustments, will
be treated as discrete items in the period incurred.
Great Southern Homes, Inc., a consolidated subsidiary
of the Company, had a change in tax status from an S Corporation to a C Corporation on March 30, 2023. In connection with its change in
status to a taxable entity, it recorded an income tax benefit of $1,199,454 in order to establish various deferred tax assets, primarily
attributable to timing differences in revenue recognition. This benefit is treated as a discrete item. Only income recognized during the
period in which Great Southern Homes, Inc. was a taxable entity is included in the calculation of the consolidated estimated annual effective
tax rate for the six months ended June 30, 2023.
Note 17 - Employee benefit plan
Effective January 1, 2021, GSH sponsored
an elective safe harbor 401(k) contribution plan covering substantially all employees who have completed three consecutive months
of service. The plan provides that GSH will match up to the first 3% of the participant’s base salary rate at 100% and 50% of the
next 2% for a maximum contribution of 4%. In addition, participants become 100% vested with respect to employer contributions after completing
six years of service starting in 2021. Administrative costs for the plan were paid by GSH.
Total contributions paid to the plans for Legacy
UHG’s employees for the three months ended June 30, 2023 and 2022 were approximately $37,035, and $60,693, respectively, and $117,112
and $98,345 for the six months ended June 30, 2023 and 2022, respectively. These amounts are recorded in Selling, general and administrative
expenses on the Condensed Consolidated Statements of Operations.
Note 18 - Net Earnings Per Share
The Company computes basic net earnings per share
using net income attributable to Company common stockholders and the weighted average number of common shares outstanding during each
period.
The weighted average number of shares of common
stock outstanding prior to the Business Combination have been retroactively adjusted by the Exchange Ratio to give effect to the reverse
recapitalization treatment of the Business Combination. The equity structure of the Company for the three and six months ended June 30,
2023 reflects the equity structure of DHHC, including the equity interests issued by DHHC to effect the business combination.
30
Table of Contents
The following table sets forth the computation
of the Company’s basic and diluted net profit per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Net income |
|
$ |
245,362,759 |
|
$ |
25,902,006 |
|
$ |
40,858,431 |
|
$ |
42,919,934 |
Basic income available to common shareholders |
|
$ |
245,362,759 |
|
$ |
25,902,006 |
|
$ |
40,858,431 |
|
$ |
42,919,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Add back: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Convertible note, net of tax |
|
|
2,523,450 |
|
|
— |
|
|
2,523,450 |
|
|
— |
Change in fair value of stock options - liability classified, net of tax |
|
|
(745,263) |
|
|
— |
|
|
(56,333) |
|
|
— |
Diluted income available to common shareholders |
|
$ |
247,140,946 |
|
$ |
25,902,006 |
|
$ |
43,325,548 |
|
$ |
42,919,934 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number of common shares outstanding - basic |
|
|
48,122,141 |
|
|
37,347,350 |
|
|
42,877,744 |
|
|
37,347,350 |
Effect of dilutive securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Convertible notes |
|
|
8,960,573 |
|
|
— |
|
|
4,569,176 |
|
|
— |
Stock options - equity classified |
|
|
— |
|
|
69,800 |
|
|
309,407 |
|
|
34,900 |
Stock options - liability classified |
|
|
83,071 |
|
|
— |
|
|
84,711 |
|
|
— |
Stock warrants |
|
|
708,468 |
|
|
27,198 |
|
|
959,187 |
|
|
13,599 |
Public warrants |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Private placement warrants |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
Weighted-average number of common shares outstanding - diluted |
|
|
57,874,253 |
|
|
37,444,348 |
|
|
48,800,225 |
|
|
37,395,849 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
5.10 |
|
$ |
0.69 |
|
$ |
0.95 |
|
$ |
1.15 |
Diluted |
|
$ |
4.27 |
|
$ |
0.69 |
|
$ |
0.89 |
|
$ |
1.15 |
The following table summarizes potentially dilutive
outstanding securities for that were excluded from the calculation of diluted EPS, because their effect would have been anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
Stock warrants |
|
— |
|
— |
|
— |
|
— |
Private placement warrants |
|
70,853 |
|
— |
|
35,427 |
|
— |
Public warrants |
|
205,993 |
|
— |
|
102,996 |
|
— |
Stock options - equity classified |
|
1,894,442 |
|
— |
|
— |
|
— |
Stock options - liability classified |
|
— |
|
— |
|
— |
|
— |
Convertible notes |
|
— |
|
— |
|
— |
|
— |
Total anti-dilutive features |
|
2,171,288 |
|
— |
|
138,423 |
|
— |
The Company’s 21,886,378 Earnout Shares are excluded from the
anti-dilutive table above for the three and six months ended June 30, 2023, as the underlying shares remain contingently issuable as the
Earnout Triggering Events have not been satisfied.
Note 19 - Subsequent events
Management has performed an evaluation of subsequent
events after the Balance Sheet date of June 30, 2023 through the date the Condensed Consolidated Financial Statements were available to
be issued.
On August 10, 2023, the Company amended and restated
the existing Syndicated Credit Agreement (“Second Amendment”). As a result of the Second Amendment, GSH, a consolidated subsidiary
of the Company, along with the Company are co-borrowers of the Syndicated Credit Agreement.
31
Table of Contents
The Second Amendment, among other things, provides
an increase in facility from $150.0 million to $240.0 million and extends the maturity date to August 10, 2026. Wells Fargo Bank and Regions
Bank have increased their participation in the Syndicated Line from $55.0 million to $65.0 million and from $35.0 million to $55.0 million,
respectively. Texas Capital Bank, Truist Bank and First National Bank are no longer participants of the Syndicated Line while Flagstar
Bank, United Bank and Third Coast Bank have joined as new participants of the Syndicated Line with the participation of $50.0 million,
$40.0 million and $30.0 million, respectively.
There were no changes to interest rates under
the Second Amendment.
32
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operation
References to the “Company,” “UHG,”
“our,” “us” or “we” refer to United Homes Group, Inc. The following discussion and analysis of the
Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated
financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis
set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
UHG designs, builds and sells homes principally
in South Carolina, with a smaller presence in Georgia. The geographical markets in which UHG presently operates its homebuilding business
are currently high- growth markets, with substantial in-migrations and employment growth. UHG’s business historically consisted
of both homebuilding operations and land development operations. Recently, UHG separated its land development operations and homebuilding
operations across separate entities in an effort to adopt best practices in the homebuilding industry associated with ownership and control
of land and lots and production efficiency. Following the separation of the land development business, which is now primarily conducted
by affiliated land development companies (collectively, the “Land Development Affiliates”) that are outside of the corporate
structure of UHG, it employs an asset-light lot operating strategy, with a focus on the design, construction and sale of entry-level,
first move up and second move up single-family houses. UHG principally builds detached single-family houses, and, to a lesser extent,
attached single-family houses, including duplex houses and town houses.
UHG expects to continue to enjoy a close relationship
with the Land Development Affiliates, allowing it to potentially benefit from the pipeline of approximately 8,000 lots as of June 30,
2023, which consists of lots that are owned or controlled by Land Development Affiliates and which UHG expects to obtain the contractual
right to acquire, in addition to lots that UHG may acquire from third parties.
Since its founding in 2004, UHG has delivered
approximately 13,000 homes and currently builds in approximately 53 active subdivisions at prices that generally range from $200,000 to
$450,000. For the three months ended June 30, 2023 and 2022, UHG had 341 and 339 net new orders, and generated approximately $122.1 million
and $142.5 million in revenue on 385 and 459 closings, respectively. For the six months ended June 30, 2023 and 2022, UHG had 730 and
813 net new orders, and generated approximately $216.9 million and $250.9 million in revenue on 713 and 873 closings, respectively.
UHG’s plan to grow its business is multifaceted:
it plans to grow organically, through external acquisitions, and through expansion of business verticals via its mortgage joint venture,
Homeowners Mortgage, LLC (the “Joint Venture”) and build-to-rent (“BTR”) platform, pursuant to which UHG will
work together with institutional investors for development of BTR communities. Organically, the community count is expected to continue
to increase in 2023, and UHG expects average community size to increase, based on new communities currently under development. UHG also
expects to engage in opportunistic acquisitions of complementary private homebuilders within existing and targeted new markets, and to
grow its institutional BTR platform.
Additionally, UHG expects that continued operation
of the Joint Venture, which began generating revenue in July 2022, will add to UHG’s revenue and EBITDA growth, improve buyer traffic
conversion, and reduce backlog cancellation rates.
UHG revenues decreased from approximately $142.5
million for the three months ended June 30, 2022 to $122.1 million for the three months ended June 30, 2023. For the three months ended
June 30, 2023, UHG generated gross profit of 19.6%, adjusted gross profit of 21.4%, adjusted EBITDA margin of 10.7%, and net income of
approximately $245.4 million, representing a decrease of 9.2%, 8.1%, and 9.0%, and an increase of $219.5 million, respectively, from the
three months ended June 30, 2022.
UHG revenues decreased from approximately $250.9
million for the six months ended June 30, 2022 to $216.9 million for the six months ended June 30, 2023. For the six months ended June
30, 2023, UHG generated gross profit of 18.8%, adjusted gross profit of 20.9%, adjusted EBITDA margin of 10.0%, and net income of approximately
$40.9 million representing a decrease of 8.4%, 7.1%, 8.9%, and $2.1 million, respectively, from the six months ended June 30, 2022.
Adjusted gross profit, EBITDA, adjusted EBITDA,
and EBITDA Margin are not financial measures under GAAP. See “UHG’s Management’s Discussion and Analysis of Financial
Condition and Results of Operation — Non-GAAP Financial Measures” for an explanation of how UHG computes these non-GAAP
financial measures and for reconciliations to the most directly comparable GAAP financial measure, including an explanation of the pro
forma amounts.
33
Table of Contents
Over the last year the homebuilding industry has
faced headwinds due to macro-economic factors, such as rising inflation and the Federal Reserve’s response of raising interest rates
beginning in March 2022 and continuing through July 2023. As a result, new home demand has been negatively impacted by affordability concerns
from higher mortgage rates. In response to softer demand for new homes, UHG introduced additional sales incentives starting in the second
half of 2022 and continuing through the first half of 2023, mostly in the form of mortgage rate buy downs or closing costs.
Although UHG continues to deal with pricing fluctuations
related to building materials, labor and lot costs, UHG has experienced a significant decline in lumber prices from the peak prices in
2022 which should have a meaningful positive impact on margins for new homes constructed. UHG does have remaining inventory with various
levels of framing costs, which will be reflected in the margins for these homes. There has also been overall improvement in the supply
chain, which, coupled with UHG’s standardization of certain features of its homes, has improved construction cycle times. While
UHG cannot predict the extent to which the aforementioned factors will impact its performance, it believes that its asset-light business
model positions them well to effectively navigate market volatility.
Business Combination
On March 30, 2023 (the “Closing Date”),
UHG consummated the previously announced business combination (the “Business Combination”) contemplated by the Business Combination
Agreement, dated as of September 10, 2022 (the “Business Combination Agreement”), by and among DiamondHead Holdings Corp.,
a Delaware corporation (“DHHC” and, after the consummation of the Business Combination, United Homes Group, Inc. (“UHG”
or the “Company”)), Hestia Merger Sub, Inc., a South Carolina corporation and wholly owned subsidiary of DHHC (“Merger
Sub”), and Great Southern Homes, Inc., a South Carolina corporation (“GSH”). Pursuant to the terms of the Business Combination
Agreement, Merger Sub merged with and into GSH, with GSH surviving the merger as a wholly owned subsidiary of the Company. In connection
with the consummation of the Business Combination on the Closing Date, DHHC changed its name from DHHC to United Homes Group, Inc.
For accounting treatment of the Business Combination,
see Note 2 - Merger and Reverse Recapitalization in the notes to the UHG Condensed Consolidated Financial Statements. Unless otherwise
indicated or the context otherwise requires, references in this quarterly report on Form 10-Q to “Legacy UHG” refer to the
homebuilding operations of GSH prior to the consummation of the Business Combination.
The accompanying results of operations for the
three and six months ended June 30, 2022 (“Legacy UHG financial statements”) have been prepared from Legacy UHG’s historical
financial records and reflect the historical financial position. Results of operations of Legacy UHG for the periods presented are on
a carve-out basis in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
The Legacy UHG financial statements present historical information and results attributable to the homebuilding operations of GSH. The
Legacy UHG financial statements exclude GSH’s operations related to land development operations as Legacy UHG historically did not
operate as a standalone company. The carve-out methodology was used since Legacy UHG’s inception until the Closing date. Refer
to Note 1 – Nature of operations and basis of presentation and Note 2 – Merger and Reverse Recapitalization
in the notes to the UHG Condensed Consolidated Financial Statements included elsewhere in this quarterly report for more information on
the Business Combination and Basis of Presentation.
Components of UHG’s Operating Results
Below are general definitions of the Condensed
Consolidated Statements of Operations line items set forth in UHG’s period over period changes in results of operations.
Revenues
Revenues include the proceeds from the closing
of homes sold to UHG’s customers. Revenues from home sales are recorded at the time each home sale is closed and closing conditions
are met. Performance obligations are generally satisfied at a point in time when the control of the home is transferred to the customer.
Control is considered to be transferred to the customer at the time of closing when the title and possession of the home are received
by the homebuyer. In some contracts, the customer controls the underlying land upon which the home is constructed. For these specific
contracts, the performance obligation is satisfied over time. Revenue for these contracts is recognized using the input method based on
costs incurred as compared to total estimated project costs. Proceeds from home sales are generally received within a few days after closing.
Home sales are reported net of sales discounts. The pace of net new orders, average home sales price, and the amount of upgrades or options
selected impact UHG’s recorded revenues in a given period.
34
Table of Contents
Cost of Sales
Cost of sales includes the lot cost and carrying
costs associated with each lot, construction costs of each home, capitalized interest expensed, building permits, warranty costs (both
incurred and estimated to be incurred) and sales incentives in the form of mortgage rate buydowns and closings costs. In addition, Cost
of sales includes payroll, including bonuses for our field based personnel. Allocated costs, including interest, and property taxes,
incurred during the home construction are capitalized and expensed to Cost of sales when the home is closed, and revenue is recognized.
Indirect costs such as maintenance of communities, signage and supervision are expensed as incurred. UHG expects that developed land will
be acquired from the Land Development Affiliates of Legacy UHG and third parties at fair market value, which, when compared to Legacy
UHG’s historical acquisition of developed land from non-third parties at cost, is likely to increase UHG’s Cost of sales.
Selling, General and Administrative Expense
Selling expense includes sales commissions for
closed homes, marketing expenses, and certain lease expenses incurred to maintain model homes. UHG recognizes these costs in the period
they are incurred. General and administrative expense consists of corporate personnel and marketing overhead expenses such as payroll,
insurance, IT, office expenses, advertising, outside professional services, travel expenses and other public company costs such as Board
of Director fees, D&O insurance, listing fees and filing expenses. UHG recognizes these costs in the period they are incurred. General
and administrative expense further includes operating lease expense, variable lease costs including maintenance charges, taxes, business
insurance, and other similar costs, rent expense related to short-term leases, stock compensation expense associated with the equity classified
earnout shares issued in connection with the Business Combination, stock compensation expense associated with the 2023 Plan and transaction
expenses.
Prior to the Business Combination, a portion of
the selling, general and administrative (“SG&A”) expenses were allocated to Legacy UHG based on direct usage, when identifiable
or, when not directly identifiable, on the basis of proportional cost of sales or employee headcount, as applicable. Post Business Combination,
the allocation of a portion of SG&A is no longer applicable.
Other (Expense) Income, Net
Other (expense) income, net includes amortization
of deferred loan costs associated with UHG’s revolving lines of credit, loss upon sale of retirement of depreciable assets, interest
expense on the Convertible Note entered into in connection with the Business Combination, dividend income and miscellaneous vendor and
credit card rebates.
Equity in Net Earnings from Investment in Joint Venture
On February 4, 2022, Legacy UHG entered into a
joint venture agreement with an unrelated third party to acquire a 49% equity stake in Homeowners Mortgage, LLC, and made an initial capital
contribution of $49,000 at the formation of the joint venture. Equity in net earnings from investment in joint venture for the period
from the commencement of operations through June 30, 2023 was $0.6 million, increasing the investment in joint venture as of June 30,
2023 to $0.8 million.
Change in Fair Value of Derivative Liabilities
Change in fair value of derivative liabilities
includes certain stock options (as discussed in Note 13 - Share-based compensation in the notes to the UHG Condensed Consolidated
Financial Statements) issued under the 2023 Plan, warrants issued in connection with DHHC’s Initial Public Offering (the “Public
Warrants”, as discussed in Note 15 - Warrant liability in the notes the UHG Condensed Consolidated Financial Statements),
warrants issued in a private placement by DHHC (the “Private Placement Warrants”, as discussed in Note 15 - Warrant liability
in the notes the UHG Condensed Consolidated Financial Statements) and certain Earnout Shares issued in connection with the Business
Combination (as discussed in Note 14 - Earnout Shares in the notes to the UHG Condensed Consolidated Financial Statements). These
instruments are recognized as a derivative liability in accordance with ASC 815, and marked to market at the end of each reporting period.
The change in fair value of the derivative liability classified instruments is included in Change in fair value of derivative liabilities
on UHG’s Condensed Consolidated Statement of Operations.
Income Before Taxes
Income before taxes is revenues less cost of sales,
selling, general and administrative expense, other (expense) income, net, equity in net earnings from investment in joint venture, and
change in fair value of derivative liabilities.
35
Table of Contents
Income Tax Expense
Income taxes are accounted for using the asset
and liability method of accounting. Under this method, deferred tax assets and liabilities are recognized for the expected future tax
consequences on differences between the carrying amounts of assets and liabilities and their respective tax basis, using tax rates in
effect for the year in which the differences are expected to reverse. The effect on deferred assets and liabilities of a change in tax
rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when
it is “more-likely-than not” that some portion or all of the deferred tax assets will not be realized. When evaluating the
realizability of deferred tax assets, all evidence, both positive and negative, is evaluated.
Net Income
Net income is income before taxes adjusted for
income tax expense.
Net New Orders
Net new orders is a key performance metric for
the homebuilding industry and is an indicator of future revenues and cost of sales. Net new orders for a period is gross sales less any
customer cancellations received during the same period. Sales are recognized when a customer signs a contract and UHG approves such contract.
Cancellation Rate
UHG records a cancellation when a customer provides
notification that they do not wish to purchase a home. Increasing cancellations are a negative indicator of future performance and can
be an indicator of decreased revenues, cost of sales and net income. Cancellations can occur due to customer credit issues or changes
to the customer’s desires. The cancellation rate is the total cancellations during the period divided by the total number of new
sales for homes during the period.
Backlog
Backlog represents homes sold but not yet closed
with customers. Backlog is affected by customer cancellations that may be beyond UHG’s control, such as customers unable to obtain
financing or unable to sell their existing home.
Gross Profit
Gross profit is revenue less cost of sales for
the reported period.
Adjusted Gross Profit
Adjusted gross profit, a non-GAAP measure, is
gross profit less capitalized interest expensed in cost of sales.
36
Table of Contents
Results of Operations
Three Months Ended June 30, 2023 Compared
to Three Months Ended June 30, 2022
The following table presents summary results of
operations for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
|
|
|
2023 |
|
2022 |
|
Change |
|
% Change |
|
Statements of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, net of sales discounts |
|
$ |
122,091,629 |
|
$ |
142,468,681 |
|
$ |
(20,377,052) |
|
(14.3) |
% |
Cost of sales |
|
|
98,174,149 |
|
|
101,458,330 |
|
|
(3,284,181) |
|
(3.3) |
% |
Selling, general and administrative expense |
|
|
16,335,318 |
|
|
15,200,745 |
|
|
1,134,573 |
|
7.2 |
% |
Other (expense) income, net |
|
|
(2,295,330) |
|
|
92,400 |
|
|
(2,387,730) |
|
NM |
|
Equity in net earnings from investment in joint venture |
|
|
390,674 |
|
|
— |
|
|
390,674 |
|
NM |
|
Change in fair value of derivative liabilities |
|
|
242,342,979 |
|
|
— |
|
|
242,342,979 |
|
NM |
|
Income before taxes |
|
$ |
248,020,485 |
|
$ |
25,902,006 |
|
$ |
222,118,479 |
|
857.5 |
% |
Income tax expense |
|
|
(2,657,726) |
|
|
— |
|
|
(2,657,726) |
|
NM |
|
Net Income |
|
$ |
245,362,759 |
|
$ |
25,902,006 |
|
$ |
219,460,753 |
|
847.5 |
% |
Other Financial and Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Active communities at end of period(a) |
|
|
53 |
|
|
57 |
|
|
(4) |
|
(7.0) |
% |
Home closings |
|
|
385 |
|
|
459 |
|
|
(74) |
|
(16.1) |
% |
Average sales price of homes closed(b) |
|
$ |
313,075 |
|
$ |
300,270 |
|
$ |
12,805 |
|
4.3 |
% |
Net new orders (units) |
|
|
341 |
|
|
339 |
|
|
2 |
|
0.6 |
% |
Cancellation rate |
|
|
15.8 |
% |
|
11.0 |
% |
|
4.8 |
% |
43.6 |
% |
Backlog |
|
|
293 |
|
|
591 |
|
|
(298) |
|
(50.4) |
% |
Gross profit |
|
$ |
23,917,480 |
|
$ |
41,010,351 |
|
$ |
(17,092,871) |
|
(41.7) |
% |
Gross profit %(c) |
|
|
19.6 |
% |
|
28.8 |
% |
|
(9.2) |
% |
(31.9) |
% |
Adjusted gross profit(d) |
|
|
26,077,447 |
|
$ |
41,637,720 |
|
$ |
(15,560,273) |
|
(37.4) |
% |
Adjusted gross profit %(c) |
|
|
21.4 |
% |
|
29.2 |
% |
|
(7.8) |
% |
(26.7) |
% |
EBITDA(d) |
|
$ |
253,939,617 |
|
$ |
26,534,933 |
|
$ |
227,404,684 |
|
857.0 |
% |
EBITDA margin %(c) |
|
|
208.0 |
% |
|
18.6 |
% |
|
189.4 |
% |
1,018.3 |
% |
Adjusted EBITDA(d) |
|
$ |
13,109,262 |
|
$ |
27,752,115 |
|
$ |
(14,642,853) |
|
(52.8) |
% |
Adjusted EBITDA margin %(c) |
|
|
10.7 |
% |
|
19.5 |
% |
|
(8.8) |
% |
(45.1) |
% |
NM - Not Meaningful
(a) UHG had
5 communities in closeout for the three months ended June 30, 2023 and 7 communities in closeout for the three months ended June 30, 2022.
These communities are not included in the count of “Active communities at end of period.”
(b)
Average sales price of homes closed is calculated based on homebuilding revenues, excluding the impact of percentage of completion revenues.
(c)
Calculated as a percentage of revenue
(d)
Adjusted gross profit, EBITDA and adjusted EBITDA are non-GAAP financial measures. For definitions of adjusted gross profit, EBITDA and
adjusted EBITDA and a reconciliation to the most directly comparable financial measures calculated and presented in accordance with GAAP,
see “ UHG’s Management’s Discussion and Analysis of Financial Condition and Result of Operations—Non-GAAP Financial
Measures.”
Revenues: Revenues for the three months
ended June 30, 2023 were $122.1 million, a decrease of $20.4 million, or 14.3%, from $142.5 million for the three months ended June 30,
2022. The decrease in revenues was primarily attributable to the decrease in sales of production-built homes. The decrease in the number
of home closings was due in part to rising mortgage rates, which caused a reduction in purchasing power for homebuyers. The average sales
price of production-built homes closed for the three months ended June 30, 2023 was $313,075, an increase of $12,805, or 4.3%, from the
average sales price of production-built homes closed of $300,270 for the three months ended June 30, 2022. A decrease in revenues of $22.5
million was due to a decrease in the number of production-built homes sold and was offset by an increase of $4.8 million attributable
to an increase in the average price of homes sold. The decrease in revenue was also attributable to a decrease in Revenue recognized
over time from land owned by customers of $2.7 million.
Cost of Sales and Gross Profit: Cost of
sales for the three months ended June 30, 2023 was $98.2 million, a decrease of $3.3 million, or 3.3%, from $101.5 million for the three
months ended June 30, 2022. The decrease in Cost of sales was primarily attributable to the
37
Table of Contents
decrease in number of homes sold. UHG closed 385
homes during the three months ended June 30, 2023, a decrease of 74 home closings, or 16.1%, as compared to 459 homes closed during the
three months ended June 30, 2022. This was partially offset by an increase in the average cost to complete a home due to higher direct
costs, including lumber prices, and incentives, primarily in the form of mortgage rate buydowns and closing costs.
Gross profit for the three months ended June 30,
2023 was $23.9 million, a decrease of $17.1 million, or 41.7%, from $41.0 million for the three months ended June 30, 2022, due to the
decline in the number of home closings and increased cost per home as described above. Gross profit as a percentage of revenue for the
three months ended June 30, 2023 was 19.6%, a decrease of 9.2%, as compared 28.8% for the three months ended June 30, 2022.
Adjusted Gross Profit: Adjusted gross profit
for the three months ended June 30, 2023 was $26.1 million, a decrease of $15.5 million, or 37.4%, as compared to $41.6 million for the
three months ended June 30, 2022. Adjusted gross profit as a percentage of revenue for the three months ended June 30, 2023 was 21.4%,
a decrease of 7.8%, as compared to 29.2% for the three months ended June 30, 2022. The adjusted gross profit as a percentage of revenue
decrease was attributable to a $17.1 million decrease in gross profit for the three months ended June 30, 2023 as compared to June 30,
2022. This decrease was partially offset by interest expense included in cost of sales, which increased by $1.5 million due to higher
interest rates period over period. Adjusted gross profit is a non-GAAP financial measure. For the definition of adjusted gross profit
and a reconciliation to UHG’s most directly comparable financial measure calculated and presented in accordance with GAAP, see “UHG’s
Management’s Discussion and Analysis of Financial Condition and Result of Operations —
Non-GAAP Financial Measures.”
Selling, General and Administrative Expense:
Selling, general and administrative expense for the three months ended June 30, 2023 was $16.3 million, an increase of $1.1 million,
or 7.2%, from $15.2 million for the three months ended June 30, 2022. The increase in selling, general and administrative expense was
attributable to an increase of $0.4 million related to stock compensation expense, public company expenses of $0.6 million and an increase
in consulting and audit fees of $0.5 million for the three months ended June 30, 2023. This increase was partially offset by a decrease
in commissions expense of $0.8 million.
Other (Expense) Income, Net: Total Other
(expense) income, net for the three months ended June 30, 2023 was $(2.3) million of expense, a decrease of $2.4 million, or NM, from
$0.1 million of income for the three months ended June 30, 2022. The decrease in Other (expense) income, net was primarily attributable
to an increase in interest expense on the Convertible Notes issued in connection with the Business Combination of $3.4 million, partially
offset by a decrease in investment income of $1.2 million.
Equity in Net Earnings from Investment in Joint
Venture: Equity in net earnings from investment in joint venture for the three months ended June 30, 2023 was $0.4 million compared
to zero for the three months ended June 30, 2022, due to the joint venture not being formed until mid-2022. The increase in equity in
net earnings from investment in joint venture increased the investment in joint venture as of June 30, 2023 to $0.8 million. There were
no impairment losses related to the Company’s investment in the joint venture recognized during the three months ended June 30,
2023.
Change in Fair Value of Derivative Liabilities:
Change in fair value of derivative liabilities for the three months ended June 30, 2023 was $242.3 million as compared to zero for
the three months ended June 30, 2022. Under ASC 815, derivative liabilities are marked to market each reporting period with changes recognized
on the Statements of Operations. This change was attributable to a change in fair value of $245.9 million related to the Earnout Shares
and $1.0 million related to the stock options issued under the 2023 Incentive Plan that are accounted for as derivative liabilities under
ASC 815, offset by a change in fair value of $3.2 million related to the Public Warrants and $1.4 million related to the Private Placement
Warrants issued in connection with the Business Combination.
Income Tax Expense: Income tax expense for the three months
ended June 30, 2023 was $2.7 million as compared to zero for the three months ended June 30, 2022. The Company estimates the effective
tax rate expected to be applicable for the full fiscal year and this rate is applied to the results for the year-to-date period, and then
adjusted for any discrete period items.
Net Income: Net income for the three months ended June 30, 2023
was $245.4 million, an increase of $219.5 million, or 847.5%, from $25.9 million for the three months ended June 30, 2022. The increase
in Net income was primarily attributable to the increase in income before taxes of $222.1 million, or 857.5%, during the three months
ended June 30, 2023 as compared to the three months ended June 30, 2022, (which is primarily attributable to the change in fair value
of derivative liabilities), partially offset by an increase in income tax expense of $2.7 million, during the three months ended June
30, 2023 as compared to the three months ended June 30, 2022.
38
Table of Contents
Six Months Ended June 30, 2023 Compared to Six Months Ended June
30, 2022
The following table presents summary results of operations for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount |
|
|
|
|
|
2023 |
|
2022 |
|
Change |
|
% Change |
|
Statements of Operations |
|
|
|
|
|
|
|
|
|
|
|
|
Revenue, net of sales discounts |
|
$ |
216,918,331 |
|
$ |
250,905,541 |
|
$ |
(33,987,210) |
|
(13.6) |
% |
Cost of sales |
|
|
176,223,078 |
|
|
182,623,290 |
|
|
(6,400,212) |
|
(3.5) |
% |
Selling, general and administrative expense |
|
|
33,022,719 |
|
|
25,625,795 |
|
|
7,396,924 |
|
28.9 |
% |
Other (expense) income, net |
|
|
(2,092,615) |
|
|
263,478 |
|
|
(2,356,093) |
|
(800.0) |
% |
Equity in net earnings from investment in joint venture |
|
|
636,482 |
|
|
— |
|
|
636,482 |
|
NM |
|
Change in fair value of derivative liability |
|
|
35,278,491 |
|
|
— |
|
|
35,278,491 |
|
NM |
|
Income before taxes |
|
$ |
41,494,892 |
|
$ |
42,919,934 |
|
|
(1,425,042) |
|
(3.3) |
% |
Income tax expense |
|
|
(636,461) |
|
|
— |
|
|
(636,461) |
|
NM |
|
Net income |
|
$ |
40,858,431 |
|
$ |
42,919,934 |
|
$ |
(2,061,503) |
|
(4.7) |
% |
Other Financial and Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
Active communities at end of period(a) |
|
|
53 |
|
|
57 |
|
|
(4) |
|
(7.0) |
% |
Home closings |
|
|
713 |
|
|
873 |
|
|
(160) |
|
(18.3) |
% |
Average sales price of homes closed(b) |
|
$ |
313,591 |
|
$ |
287,272 |
|
$ |
26,319 |
|
9.2 |
% |
Net new orders (units) |
|
|
730 |
|
|
813 |
|
|
(83) |
|
(10.2) |
% |
Cancellation rate |
|
|
14.5 |
% |
|
15.0 |
% |
|
(0.5) |
% |
(3.3) |
% |
Backlog |
|
|
293 |
|
|
591 |
|
|
(298) |
|
(50.4) |
% |
Gross profit |
|
$ |
40,695,253 |
|
$ |
68,282,251 |
|
$ |
(27,586,998) |
|
(40.4) |
% |
Gross profit %(c) |
|
|
18.8 |
% |
|
27.2 |
% |
|
(8.4) |
% |
(30.9) |
% |
Adjusted gross profit(d) |
|
$ |
45,242,052 |
|
$ |
69,867,520 |
|
$ |
(24,625,468) |
|
(35.2) |
% |
Adjusted gross profit %(c) |
|
|
20.9 |
% |
|
27.8 |
% |
|
(6.9) |
% |
(24.8) |
% |
EBITDA(d) |
|
$ |
49,929,159 |
|
$ |
44,636,114 |
|
$ |
5,293,045 |
|
11.9 |
% |
EBITDA margin %(c) |
|
|
23.0 |
% |
|
17.8 |
% |
|
5.2 |
% |
29.2 |
% |
Adjusted EBITDA(d) |
|
$ |
21,626,472 |
|
$ |
47,121,518 |
|
$ |
(25,495,046) |
|
(54.1) |
% |
Adjusted EBITDA margin %(c) |
|
|
10.0 |
% |
|
18.8 |
% |
|
(8.8) |
% |
(46.8) |
% |
NM - Not Meaningful
(a) UHG had
5 communities in closeout for the six months ended June 30, 2023 and 7 communities in closeout for the six months ended June 30, 2022.
These communities are not included in the count of “Active communities at end of period.”
(b)
Average sales price of homes closed is calculated based on homebuilding revenues, excluding the impact of percentage of completion revenues.
(c)
Calculated as a percentage of revenue
(d)
Adjusted gross profit, EBITDA and adjusted EBITDA are non-GAAP financial measures. For definitions of adjusted gross profit, EBITDA and
adjusted EBITDA and a reconciliation to the most directly comparable financial measures calculated and presented in accordance with GAAP,
see “ UHG’s Management’s Discussion and Analysis of Financial Condition and Result of Operations—Non-GAAP Financial
Measures.”
Revenues: Revenues for the six months ended
June 30, 2023 were $216.9 million, a decrease of $34.0 million, or 13.6%, from $250.9 million for the six months ended June 30, 2022.
The decrease in revenues was primarily attributable to the decrease in sales of production-built homes. The decrease in the number of
home closings was due in part to rising mortgage rates, which caused a reduction in purchasing power for homebuyers. The average sales
price of production-built homes closed for the six months ended June 30, 2023 was $313,591, an increase of $26,319, or 9.2%, from the
average sales price of production-built homes closed of $287,272 for the six months ended June 30, 2022. A decrease in revenues of $47.4
million due to the decrease in number of production-built homes sold is offset by $17.6 million generated from the increase in overall
sales prices. The decrease in revenues was also attributable to a decrease in revenue recognized over time from land owned by customers
of $4.2 million.
Cost of Sales and Gross Profit: Cost of
sales for the six months ended June 30, 2023 was $176.2 million, a decrease of $6.4 million, or 3.5%, from $182.6 million for the six
months ended June 30, 2022. The decrease in Cost of sales was primarily attributable to the decrease in number of homes sold. UHG closed
713 homes during the six months ended June 30, 2023, a decrease of 160 home closings, or 18.3%, as compared to 873 homes closed during
the six months ended June 30, 2022. This was partially offset by an increase in the
39
Table of Contents
average cost to complete a home as a result of
higher direct costs, including lumber prices, and incentives, primarily in the form of mortgage rate buydowns and closing costs.
Gross profit for the six months ended June 30,
2023 was $40.7 million, a decrease of $27.6 million, or 40.4%, from $68.3 million for the six months ended June 30, 2022, due to the decline
in the number of home closings and increased cost per home as described above. Gross profit as a percentage of revenue for the six months
ended June 30, 2023 was 18.8%, a decrease of 8.4%, as compared 27.2% for the six months ended June 30, 2022.
Adjusted Gross Profit: Adjusted gross profit
for the six months ended June 30, 2023 was $45.2 million, a decrease of $24.7 million, or 35.2%, as compared to $69.9 million for the
six months ended June 30, 2022. Adjusted gross profit as a percentage of revenue for the six months ended June 30, 2023 was 20.9%, a decrease
of 6.9%, as compared to 27.8% for the six months ended June 30, 2022. The adjusted gross profit as a percentage of revenue decrease was
attributable to a $27.6 million decrease in gross profit for the six months ended June 30, 2023 as compared to June 30, 2022. This decrease
was partially offset when excluding interest expense included in cost of sales, which increased by $3.0 million due to higher interest
rates period over period. Adjusted gross profit is a non-GAAP financial measure. For the definition of adjusted gross profit and a reconciliation
to UHG’s most directly comparable financial measure calculated and presented in accordance with GAAP, see “UHG’s
Management’s Discussion and Analysis of Financial Condition and Result of Operations — Non-GAAP Financial Measures.”
Selling, General and Administrative Expense:
Selling, general and administrative expense for the six months ended June 30, 2023 was $33.0 million, an increase of $7.4 million, or
28.9%, from $25.6 million for the six months ended June 30, 2022. The increase in selling, general and administrative expense was attributable
to an increase of $4.4 million related to stock compensation expense, $2.9 million of consulting expenses, and $1.9 million of general
& administrative expenses, which includes public company expenses of $0.6 million. This increase was partially offset by a decrease
of $1.5 million in commission expenses and $0.3 million in miscellaneous expenses.
Other (Expense) Income, Net: Total other
(expense) income, net for the six months ended June 30, 2023 was $(2.1) million of expense, a decrease of $2.4 million, or 800.0%, from
$0.3 million of income for the six months ended June 30, 2022. The decrease in other (expense) income was primarily attributable to an
increase of $3.4 million of interest expense on the Convertible Notes issued in connection with the Business Combination, offset by an
increase in investment income of $1.2 million.
Equity in Net Earnings from Investment in Joint
Venture: Equity in net earnings from investment in joint venture for the six months ended June 30, 2023 was $0.6 million compared
to zero for the six months ended June 30, 2022, due to the joint venture not being formed until mid-2022. The increase in equity in net
earnings from investment in joint venture increased the investment in joint venture as of June 30, 2023 to $0.8 million. There were no
impairment losses related to the Company’s investment in the joint venture recognized during the six months ended June 30, 2023.
Change in Fair Value of Derivative Liabilities:
Change in fair value of derivative liabilities for the six months ended June 30, 2023 was $35.3 million as compared to zero for the six
months ended June 30, 2022. This change was primarily attributable to a change in fair value of $42.5 million related to the Earnout Shares
and $0.1 million related to the stock options issued under the 2023 Incentive Plan that are accounted for as derivative liabilities under
ASC 815, offset by a change in fair value of $4.7 million related to the Public Warrants and $2.6 million related to the Private Placement
Warrants issued in connection with the Business Combination.
Income Tax Expense: Income tax expense
for the six months ended June 30, 2023 was $0.6 million as compared to zero for the six months ended June 30, 2022. The Company estimates
the effective tax rate expected to be applicable for the full fiscal year and this rate is applied to the results for the year-to-date
period, and then adjusted for any discrete period items. The Company’s estimated annual effective tax rate for the six months ended
June 30, 2023 is 26.2%.
Net Income: Net income for the six months
ended June 30, 2023 was $40.9 million, a decrease of $2.0 million, or 4.7%, from $42.9 million for the six months ended June 30, 2022.
The decrease in net income was primarily attributable to the decrease in income before taxes of $1.4 million, or 3.3%, during the six
months ended June 30, 2023 as compared to the six months ended June 30, 2022 (which is primarily attributable to the change in fair value
of derivative liabilities), and by an increase in income tax expense of $0.6 million, during the six months ended June 30, 2023 as compared
to zero during the six months ended June 30, 2022.
40
Table of Contents
Non-GAAP Financial Measures
Adjusted Gross Profit
Adjusted gross profit is a non-GAAP financial
measure used by management of UHG as a supplemental measure in evaluating operating performance. UHG defines adjusted gross profit as
gross profit excluding the effects of capitalized interest expensed in cost of sales. UHG’s management believes this information
is meaningful because it separates the impact that capitalized interest expensed in cost of sales has on gross profit to provide a more
specific measurement of UHG’s gross profits. However, because adjusted gross profit information excludes capitalized interest expensed
in cost of sales, which has real economic effects and could impact UHG’s results of operations, the utility of adjusted gross profit
information as a measure of UHG’s operating performance may be limited. Other companies may not calculate adjusted gross profit
information in the same manner that UHG does. Accordingly, adjusted gross profit information should be considered only as a supplement
to gross profit information as a measure of UHG’s performance.
The following table presents a reconciliation
of adjusted gross profit to the GAAP financial measure of gross profit for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
Six Months Ended June 30 |
|
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Revenue, net of sales discounts |
|
$ |
122,091,629 |
|
$ |
142,468,681 |
|
$ |
216,918,331 |
|
$ |
250,905,541 |
|
Cost of sales |
|
|
98,174,149 |
|
|
101,458,330 |
|
|
176,223,078 |
|
|
182,623,290 |
|
Gross profit |
|
$ |
23,917,480 |
|
$ |
41,010,351 |
|
$ |
40,695,253 |
|
$ |
68,282,251 |
|
Interest expense in cost of sales |
|
|
2,159,967 |
|
|
627,369 |
|
|
4,546,799 |
|
|
1,585,269 |
|
Adjusted gross profit |
|
$ |
26,077,447 |
|
$ |
41,637,720 |
|
$ |
45,242,052 |
|
$ |
69,867,520 |
|
Gross profit %(a) |
|
|
19.6 |
% |
|
28.8 |
% |
|
18.8 |
% |
|
27.2 |
% |
Adjusted gross profit %(a) |
|
|
21.4 |
% |
|
29.2 |
% |
|
20.9 |
% |
|
27.8 |
% |
(a)
Calculated as a percentage of revenue
EBITDA and Adjusted EBITDA
Earnings before interest, taxes, depreciation
and amortization, or EBITDA, and adjusted EBITDA are supplemental non-GAAP financial measures used by management of UHG. UHG defines EBITDA
as net income before (i) capitalized interest expensed in cost of sales, (ii) interest expensed in other (expense) income, net, (iii)
depreciation and amortization, (iv) taxes. UHG defines adjusted EBITDA as EBITDA before stock-based compensation expense, transaction
cost expense and change in fair value of derivative liabilities. Management of UHG believes EBITDA and adjusted EBITDA are useful because
they provide a more effective evaluation of UHG’s operating performance and allow comparison of UHG’s results of operations
from period to period without regard to UHG’s financing methods or capital structure or other items that impact comparability of
financial results from period to period such as fluctuations in interest expense or effective tax rates, levels of depreciation or amortization,
or unusual items. EBITDA and adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other
measure as determined in accordance with GAAP. UHG’s computations of EBITDA and adjusted EBITDA may not be comparable to EBITDA
or adjusted EBITDA of other companies. UHG presents EBITDA and adjusted EBITDA because they believe these metrics provide useful information
regarding the factors and trends affecting UHG’s business.
41
Table of Contents
The following table presents a reconciliation
of EBITDA and adjusted EBITDA to the GAAP financial measure of net income for each of the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
|
|
2023 |
|
2022 |
|
2023 |
|
2022 |
|
Net income |
|
$ |
245,362,759 |
|
$ |
25,902,006 |
|
$ |
40,858,431 |
|
$ |
42,919,934 |
|
Interest expense in cost of sales |
|
|
2,159,967 |
|
|
627,369 |
|
|
4,546,799 |
|
|
1,585,269 |
|
Interest expense in other (expense) income, net |
|
|
3,419,309 |
|
|
— |
|
|
3,419,309 |
|
|
— |
|
Depreciation and amortization |
|
|
251,846 |
|
|
2,606 |
|
|
466,776 |
|
|
175,217 |
|
Taxes |
|
|
2,745,736 |
|
|
2,952 |
|
|
637,844 |
|
|
(44,306) |
|
EBITDA |
|
$ |
253,939,617 |
|
$ |
26,534,933 |
|
$ |
49,929,159 |
|
$ |
44,636,114 |
|
Stock-based compensation expense |
|
|
410,530 |
|
|
53,288 |
|
|
4,909,686 |
|
|
1,321,510 |
|
Transaction cost expense |
|
|
1,102,094 |
|
|
1,163,894 |
|
|
2,066,118 |
|
|
1,163,894 |
|
Change in fair value of derivative liabilities |
|
|
(242,342,979) |
|
|
— |
|
|
(35,278,491) |
|
|
— |
|
Adjusted EBITDA |
|
$ |
13,109,262 |
|
$ |
27,752,115 |
|
$ |
21,626,472 |
|
$ |
47,121,518 |
|
EBITDA margin(a) |
|
|
208.0 |
% |
|
18.6 |
% |
|
23.0 |
% |
|
17.8 |
% |
Adjusted EBITDA margin(a) |
|
|
10.7 |
% |
|
19.5 |
% |
|
10.0 |
% |
|
18.8 |
% |
(a)
Calculated as a percentage of revenue
Liquidity and Capital Resources
Overview
UHG funds its operations from its current cash
holdings and cash flows generated by operating activities, as well as its available revolving lines of credit, as further described below.
As of June 30, 2023, UHG had approximately $92.7 million in cash and cash equivalents, an increase of $80.5 million, from $12.2 million
as of December 31, 2022. As of the Closing Date, UHG received net proceeds from the business combination and the PIPE investments (“PIPE
Investments”) of approximately $94.4 million. As of June 30, 2023 and December 31, 2022, UHG had approximately $86.0 million, and
$32.0 million in unused committed capacity under its revolving lines of credit, respectively. See “Wells Fargo Syndication”
below for information on the modification to the Wells Fargo Syndication subsequent to March 30, 2023.
UHG intends to use the proceeds received from
the Business Combination and the PIPE Investments primarily for general corporate purposes, including corporate operating expenses and
potential future acquisition opportunities. UHG believes that its current cash holdings, including proceeds from the Business Combination
and PIPE Investments, cash generated from operations, as well as cash available under its revolving lines of credit, will be sufficient
to satisfy its short term and long term cash requirements for working capital to support its daily operations, meet current commitments
under its contractual obligations, and support the potential acquisition of complementary businesses.
Cash flows generated by UHG’s projects can
differ materially in timing from its results of operations, as these depend upon the stage in the life cycle of each project. UHG generally
relies upon its revolving lines of credit to fund building costs, and timing of draws is such that UHG may from time to time be in receipt
of funds from the line of credit in advance of such funds being utilized. UHG is generally required to make significant cash outlays at
the beginning of a project related to lot purchases, permitting, and construction of homes, as well as ongoing property taxes. These costs
are capitalized within UHG’s real estate inventory and are not recognized in its operating income until a home sale closes. As a
result, UHG incurs significant cash outflows prior to the recognition of associated earnings. In later stages of projects, cash inflows
could exceed UHG’s results of operations, as the cash outflows associated with land purchase and home construction and other expenses
were previously incurred.
The cost of home construction fluctuates with
market conditions and costs related to building materials and labor. The residential construction industry experiences labor and material
shortages from time to time, including shortages in qualified subcontractors, tradespeople and supplies of insulation, drywall, cement,
steel, and lumber. These labor and material shortages can be more severe during periods of strong demand for housing, during periods following
natural disasters that have a significant impact on existing residential and commercial structures or as a result of broader economic
disruptions. Increases in lumber commodity prices may result in the renewal of UHG’s lumber contracts at more expensive rates, which
may significantly impact UHG’s cost to construct homes and UHG’s business. While UHG has recently seen a steep decline in
the price of lumber and more moderate reductions in other building
42
Table of Contents
materials, future increases in the cost of building
materials and labor could have a negative impact on UHG’s margins on homes sold. Supply-chain disruptions may also result
in increased costs to obtain building supplies, delayed delivery of developed lots, and incurrence of additional carrying costs on homes
under construction, among other things. Labor and material shortages and price increases for labor and materials could cause delays in
home construction and increase UHG’s costs of home construction, which in turn could have a material adverse effect on UHG’s
cost of sales and operations.
Finished Lot Deposits
The Company does not engage in the land development
business. The Company’s strategy is to acquire developed lots through related parties and unrelated third party land developers
pursuant to lot purchase agreements. Most lot purchase agreements require the Company to pay a nonrefundable cash deposit of at least
10% of the agreed-upon fixed purchase price of the developed lots. In exchange for the deposit, the Company receives the right to purchase
the finished developed lot at a preestablished price. Such contracts enable the Company to defer acquiring portions of properties owned
by third parties until the Company determines whether and when to complete such acquisition, which may serve to reduce financial risks
associated with long-term land holdings. As of June 30, 2023 and December 31, 2022, the Company’s lot deposits related to finished
lot purchase contracts were $16.4 million and $3.8 million, respectively.
Prior to the Business Combination, when Legacy
UHG was acquiring lots through Land Development Affiliates, it did not have to pay deposits as the land development operations were owned
by the shareholders of GSH. Post Business Combination, the Company continues to purchase lots from the former Land Development Affiliates
of Legacy UHG, however, as the Company is no longer owned by the shareholders of GSH, the Company must pay lot purchase agreement deposits
to acquire lots. As such, as of June 30, 2023 all interests in lot purchase agreements, including with related parties, is recorded within
Lot purchase agreement deposits on the Balance Sheet to the UHG Condensed Consolidated Financial Statements.
Homebuilding Debt
Prior to the Business Combination, Legacy UHG,
jointly with its Other Affiliates (see Note 1 — Nature of operations and basis of presentation to the UHG Condensed
Consolidated Financial Statements for definitions of these terms) considered to be under common control, entered into debt arrangements
with financial institutions. These debt arrangements are in the form of revolving lines of credit and are generally secured by land (developed
lots and undeveloped land) and homes (under construction and finished). Legacy UHG and certain related Other Affiliates were collectively
referred to as the Nieri Group. The Nieri Group entities were jointly and severally liable for the outstanding balances under the revolving
lines of credit, however; the Legacy UHG has been deemed the primary obligor of such debt, as it is the sole cash generating entity and
responsible for repayment of the debt. As such, Legacy UHG had recorded the outstanding advances under the financial institution debt
and other debt within the financial statements as of December 31, 2022.
A portion of the revolving lines of credit were
drawn down for the sole operational benefit of the Nieri Group and Other Affiliates outside of Legacy UHG. These line of credit balances
are reflected in the table below as Other Affiliates’ debt. Post Business Combination, the Company no longer enters into debt arrangements
with Other Affiliates of Legacy UHG. As discussed further below, in connection with the Business Combination, the Wells Fargo Syndication
line was amended and restated to exclude any members of the Nieri Group and Other Affiliates of Legacy UHG from the borrower list.
The advances from the revolving construction lines,
reflected as Homebuilding debt, are used to build homes and are repaid incrementally upon individual home sales. The various revolving
construction lines are collateralized by the homes under construction and developed lots. The revolving construction lines are fully secured,
and the availability of funds are based on the inventory value at the time of the draw request. Interest accrued on the loans is added
to the balance of the loans outstanding and is paid concurrently with the principal repayments made upon the occurrence of individual
home sales. As the average construction time for homes is less than one year, all outstanding debt is considered short-term as of June
30, 2023 and December 31, 2022.
43
Table of Contents
The following table and descriptions provide a
summary of Company’s material debt under the revolving lines of credit for the periods indicated:
|
|
|
|
|
|
|
|
June 30, 2023 |
|
|
|
|
Homebuilding |
|
|
Weighted average |
|
Debt - Wells Fargo |
|
|
interest rate |
|
Syndication |
Wells Fargo Bank |
|
7.87 |
% |
$ |
23,575,902 |
Regions Bank |
|
7.87 |
% |
|
15,034,568 |
Texas Capital Bank |
|
7.87 |
% |
|
10,327,227 |
Truist Bank |
|
7.87 |
% |
|
10,728,645 |
First National Bank |
|
7.87 |
% |
|
4,295,074 |
Total debt on contracts |
|
|
|
$ |
63,961,416 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
|
|
|
|
Homebuilding |
|
|
|
|
|
|
|
|
Weighted average |
|
Debt - Wells Fargo |
|
|
|
|
|
|
|
|
interest rate |
|
Syndication |
|
Other Affiliates(1) |
|
Total |
Wells Fargo Bank |
|
4.98 |
% |
$ |
34,995,080 |
|
$ |
8,203,772 |
|
$ |
43,198,852 |
Regions Bank |
|
4.98 |
% |
|
27,550,618 |
|
|
— |
|
|
27,550,618 |
Texas Capital Bank |
|
4.98 |
% |
|
19,676,552 |
|
|
— |
|
|
19,676,552 |
Truist Bank |
|
4.98 |
% |
|
19,659,329 |
|
|
— |
|
|
19,659,329 |
First National Bank |
|
4.98 |
% |
|
7,870,621 |
|
|
— |
|
|
7,870,621 |
Anderson Brothers |
|
4.74 |
% |
|
— |
|
|
2,841,034 |
|
|
2,841,034 |
Total debt on contracts |
|
|
|
$ |
109,752,200 |
|
$ |
11,044,806 |
|
$ |
120,797,006 |
(1) Outstanding
balances relate to bank financing for land acquisition and development activities of Other Affiliates for which the Company is the co-obligor
or has an indirect guarantee of the indebtedness of the Other Affiliates. In addition, the $8,203,772 of Other Affiliates debt with Wells
Fargo Bank as of December 31, 2022, is part of the Wells Fargo Syndication.
Wells Fargo Syndication
In July 2021, the Nieri Group entities entered
into a $150,000,000 Syndicated Credit Agreement (“Syndicated Line”) with Wells Fargo Bank, National Association (“Wells
Fargo”). The Syndicated Line is a three-year revolving credit facility with a maturity date of July 2024, and an option to extend
the maturity date for one year that can be exercised upon approval from Wells Fargo. The Syndicated Line also includes a $2,000,000 letter
of credit as a sub-facility subjected to the same terms and conditions as the Syndicated Line. The Syndicated Line was amended and restated
on March 30, 2023 (“Amendment Date”) in connection with the Business Combination (as defined in Note 1 - Nature of operations
and basis of presentation). As a result of the amended and restated agreement, Great Southern Homes, Inc. a consolidated subsidiary
of the Company, is now the sole borrower of the Syndicated Line. No significant terms were changed other than described below.
The remaining availability on the Syndicated Line
was $86.0 million and $32.0 million as of June 30, 2023 and December 31, 2022, respectively. The Company pays a fee ranging between
15 and 30 basis points per annum depending on the unused amount of the Syndicated Line. The fee is computed on a daily basis and paid
quarterly in arrears.
The Syndicated Line contains financial covenants,
including (a) a minimum tangible net worth of no less than the sum of (x) $65 million and (y) 25% of positive after-tax income until the
Amendment Date (which amount is subject to increase over time based on earnings) and no less than $70 million from the Amendment Date
until June 30, 2023, and no less than $70 million plus 25% of quarterly earnings on and after June 30, 2023, (b) a maximum leverage covenant
that prohibits the leverage ratio from exceeding 2.75 to 1.00 for any fiscal quarter until the Amendment Date and 2.50 to 1.00 for any
fiscal quarter after the Amendment Date, (c) a minimum debt service coverage ratio to be less than 2.50 to 1.00 for any fiscal quarter,
and (d) a minimum liquidity amount of not less than $15,000,000 at all times and unrestricted cash of not less than $7,500,000 at all
times. The Company was in compliance with all debt covenants as of June 30, 2023. Legacy UHG was in compliance with all debt covenants
as of December 31, 2022.
The interest rates on the borrowings under the
Syndicated Line vary based on the leverage ratio. In connection with the amended and restated Syndicated Line, the benchmark interest
rate was converted from LIBOR to Secured Overnight Financing Rate (“SOFR”), with no changes in the applicable rate margins.
The interest rate is based on the greater of either LIBOR prior to Amendment Date or SOFR
44
Table of Contents
post Amendment Date plus an applicable margin
(ranging from 275 basis points to 350 basis points) based on the Company’s leverage ratio as determined in accordance with a pricing
grid, or the base rate plus the aforementioned applicable margin.
Other Affiliates debt
On February 27, 2023, Legacy UHG paid off Wells
Fargo debt associated with Other Affiliates in the amount of $8,340,545 and on February 28, 2023, Legacy UHG was released as a co-obliger
from the Anderson Brothers debt associated with Other Affiliates in anticipation of the Business Combination that closed on March 30,
2023 as discussed in Note 1. As a result there is no remaining debt balance associated with Other Affiliates as of June 30, 2023.
Subsequent events
On August 10, 2023, the Company amended and restated
the existing Syndicated Credit Agreement (“Second Amendment”). As a result of the Second Agreement, GSH, a consolidated subsidiary
of the Company, along with the Company are co-borrowers of the Syndicated Credit Agreement.
The Second Amendment provides an increase in facility
from $150.0 million to $240.0 million and maturity date extended to August 10, 2026. Wells Fargo Bank and Regions Bank have increased
their participation in the Syndicated Line from $55.0 million to $65.0 million and from $35.0 million to $55.0 million, respectively.
Texas Capital Bank, Truist Bank and First National Bank are no longer participants of the Syndicated Line while Flagstar Bank, United
Bank and Third Coast Bank have joined as new participants of the Syndicated Line with the participation of $50.0 million, $40.0 million
and $30.0 million, respectively. Refer to Note 19 - Subsequent events in the notes of the UHG Condensed Consolidated Financial
Statements for additional information.
Leases
The Company leases office spaces in South Carolina
under operating lease agreements with related parties, which have a remaining lease term of up to five years, some of which include options
to extend on a month-to-month basis, and some of which include options to terminate the lease. These options are excluded from the calculation
of the ROU asset and lease liability until it is reasonably certain that the option will be exercised. As of June 30, 2023, the future
minimum lease payments required under these leases totaled $0.7 million, with $0.2 million payable within 12 months. Further information
regarding Company’s leases is provided in Note 11 — Commitments and contingencies to the UHG Condensed Consolidated
Financial Statements.
Cash Flows
Six Months Ended June 30, 2023 Compared to
Six Months Ended June 30, 2022
The following table summarizes UHG’s cash
flows for the periods indicated:
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, |
|
|
2023 |
|
2022 |
Net cash provided by operating activities |
|
$ |
50,316,249 |
|
$ |
38,588,380 |
Net cash provided by (used in) in investing activities |
|
|
37,966 |
|
|
(115,896) |
Net cash provided by (used in) in financing activities |
|
|
30,148,781 |
|
|
(50,467,579) |
Operating Activities
Net cash flows provided by operating activities
during the six months ended June 30, 2023 was $50.3 million, as compared to cash flows provided of $38.6 million for the six months ended
June 30, 2022. The difference in cash flows period over period is $11.7 million. This change is attributable to cash provided by a lower
investment in inventory of $65.6 million, partially offset by a decrease in accounts payable of $6.8 million and an increase in lot purchase
deposits of $10.1 million during the six months ended June 30, 2023. This change was also partially offset by changes in net income adjusted
for non-cash transactions provided of $11.2 million for the six months ended June 30, 2023, as compared to cash flows provided of $44.9
million for the six months ended June 30, 2022. For the six months ended June 30, 2022, cash used to increase investments in inventory
was $20.5 million, partially offset by an increase in accounts payable of $14.5 million.
45
Table of Contents
Investing Activities
Net cash provided by investing activities for
the six months ended June 30, 2023 was attributable to proceeds from a promissory note issued in exchange for the sale of fixed assets
and proceeds from the sale of property and equipment of $0.1 million.
Net cash used in investing activities for the
six months ended June 30, 2022 was attributable to the purchase of additional property and equipment of $0.1 million and Legacy
UHG’s capital contribution in a joint venture of $0.1 million.
Financing Activities
Net cash provided by (used in) financing activities
for the six months ended June 30, 2023 was $30.1 million compared to net cash used in financing activities of $50.5 million for the six
months ended June 30, 2022. The difference in cash flows period over period is $80.6 million. The increase in financing activities was
primarily attributable to cash received of $94.4 million as a result of the Business Combination, PIPE, and recapitalization transactions,
proceeds from homebuilding debt of $42.1 million, partially offset by repayment of homebuilding debt of $87.9 million and distributions
and net transfers to shareholders and other affiliates of $17.9 million during the six months ended June 30, 2023. In contrast, during
the six months ended June 30, 2022, cash flows used in financing activities included $62.4 million for repayment of homebuilding debt
and $58.7 million of cash flows used in distributions and net transfers to shareholders and other affiliates, partially offset by $66.0
million of proceeds from homebuilding debt and $5.6 million of proceeds from other affiliate debt.
Critical Accounting Policies and Estimates
There have been no material changes from our critical
accounting policies and estimates previously disclosed in Management’s Discussion and Analysis of Financial Condition and Results
of Operations included in the Company’s Form S-1/A registration statement filed with the SEC on July 17, 2023, aside from those
included below.
Unconsolidated Variable Interest Entities
Management analyzes the Company’s investments
and transactions under the variable interest model to determine if they are variable interest entities (“VIEs”), and, if so
determine whether the Company is the primary beneficiary and consolidation is appropriate. Management reviews its involvement with a VIE
and reconsiders that conclusion if there are any changes to the Company’s involvement that arise. To make this determination, management
considers factors such as whether the Company could direct finance, determine or limit the scope of the entity, sell or transfer property,
direct development or direct other operating decisions. Management consolidates the entity if the Company is the primary beneficiary or
if a standalone primary beneficiary does not exist and the Company and its related parties collectively meet the definition of a primary
beneficiary. If the investment does not qualify as a VIE under the variable interest model, management then evaluates the entity under
the voting interest model to assess if consolidation is appropriate.
The Company has entered into a shared services
agreement with a related party that operates in the land development business to provide accounting, IT and HR, and other administrative
support services and receive property maintenance services and due diligence and negotiation assistance with purchasing third party finished
lots. Management concluded that it has a variable interest in this entity through the service agreement that provides the Company
with the obligation to absorb losses and the right to receive benefits based on fees that are below market rates. Additionally, the Company
enters into lot option purchase agreements with the same related party to procure land or lots for the construction of homes and has determined
that while this related party qualifies as a VIE, it does not however qualify for consolidation as the Company is not the primary beneficiary
of the VIE nor does it have the power to direct the VIE’s significant activities. Refer to Note 3 - Summary of significant accounting
policies in the notes of the UHG Condensed Consolidated Financial Statements for additional information.
Recently Issued/Adopted Accounting Standards
Refer to the section titled “Recent Accounting
Pronouncements” in Note 3 – Summary of significant accounting policies in the notes to the UHG Condensed Consolidated
Financial Statements for more information.
Off-Balance Sheet Arrangements
UHG currently has no off-balance sheet arrangements.
46
Table of Contents
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The interest rate on the borrowings under our
Syndicated Line is based upon SOFR plus an applicable margin ranging between 275 basis points and 350 basis points, based upon our leverage
ratio. We are therefore exposed to market risks related to fluctuations in interest rates on our outstanding debt under our Syndicated
Line. As of June 30, 2023, we had $63.9 million outstanding under our Syndicated Line, which carried a weighted average rate of 7.87%.
A 100 basis point increase in overall interest rates would negatively affect the Company’s net income by approximately $0.6
million. We did not utilize swaps, forward or option contracts on interest rates or commodities, or other types of derivative financial
instruments as of or during the three and six months ended June 30, 2023. During the three and six months ended June 30, 2023, we
did not enter into and currently do not hold, derivatives for trading or speculative purposes.
Our Convertible Note accrues interest at a fixed
rate, thus this instrument is not subject to interest rate sensitivity.
47
Table of Contents
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
A company’s internal controls over financial
reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements in accordance with generally accepted accounting principles. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with policies or procedures may deteriorate.
Prior to the Business Combination, Legacy UHG
was not required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act. Upon consummation
of the Business Combination, UHG’s management is required to certify financial and other information in its quarterly and annual
reports and provide an annual management report on the effectiveness of internal control over financial reporting.
UHG has identified material weaknesses in its
internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material misstatement of its annual or interim financial statements
will not be prevented or detected on a timely basis. UHG identified material weaknesses in UHG’s internal controls in the following
areas: (i) failure to properly evaluate certain transactions in accordance with GAAP; (ii) lack of appropriate documented review
of related party transactions; (iii) a lack of or improper segregation of duties and second level reviews in certain areas;
(iv) failure to retain evidence of review of multiple key controls and lack of formal control review and documentation required by COSO
principles; and (v) multiple IT related control deficiencies.
Each of the material weaknesses described above
involves control deficiencies that could result in a misstatement of one or more account balances or disclosures that would result in
a material misstatement to the UHG financial statements that would not be prevented or detected, and, accordingly, it has determined that
these control deficiencies constitute material weaknesses.
UHG is currently in the process of implementing
measures and has taken the below steps to address the underlying causes of these material weaknesses and the control deficiencies. Its
efforts to date have included the following:
|
● |
updated processes around the accounting for custom revenue in consideration of ASC 606; |
|
● |
updated processes around accounting for warranty expense; |
|
● |
implemented changes to correct the classification of intercompany charges and inventory; and |
|
● |
adopting the COSO framework in order to develop and deploy control activities and assess the effectiveness of internal controls over financial reporting. |
|
● |
Implemented a related party transaction committee to provide oversight of related party transactions; and |
|
● |
Hired new personnel to facilitate second level reviews, and financial reporting oversight |
UHG is also currently implementing additional
measures which include:
|
● |
reviewing and enhancing its system of internal controls across all departments to ensure that financial statement line items and disclosures across segments are addressed by sufficiently precise controls; |
|
● |
reviewing and enhancing its internal controls related to the financial statement review process, including review controls over manual journal entries and account reconciliations; |
|
● |
reviewing and enhancing of IT general controls over information systems relevant to financial reporting, including privileged access and segregation of duties; and |
|
● |
realignment of existing personnel and the addition of both internal and external personnel to strengthen management’s review and documentation over internal control over financial reporting. |
48
Table of Contents
UHG will continue to review and improve its internal
controls over financial reporting to address the underlying causes of the material weaknesses and control deficiencies. Such material
weaknesses and control deficiencies will not be remediated until UHG’s remediation plan has been fully implemented, and it has concluded
that its internal controls are operating effectively for a sufficient period of time.
UHG cannot be certain that the steps it is taking
will be sufficient to remediate the control deficiencies that led to its material weaknesses in its internal control over financial reporting
or prevent future material weaknesses or control deficiencies from occurring. In addition, UHG cannot be certain that it has identified
all material weaknesses and control deficiencies in its internal control over financial reporting or that in the future it will not have
additional material weaknesses or control deficiencies in its internal control over financial reporting.
Changes in Internal Control over Financial
Reporting
During the six months ended June 30, 2023, we
completed the Business Combination and the internal controls of Legacy UHG became our internal controls. Except for the efforts
to begin remediating the material weaknesses described above, there were no changes during the six months ended June 30, 2023 in Legacy
UHG’s internal control over financial reporting that have materially affected, or are reasonably likely to material affect, our
internal control over financial reporting.
49
Table of Contents
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 11 - Commitments
and Contingencies, incorporated herein by reference, to our condensed consolidated financial statements included elsewhere in this
report.
Item 1A. Risk Factors
There have been no material changes from the risk
factors previously disclosed in the Company’s Form S-1/A registration statement filed with the SEC on July 17, 2023, as amended.
We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Additional
risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) During the quarter ended June 30, 2023, there
were no unregistered sales of our securities that were not reported in a Current Report on Form 8-K.
(b) None.
(c) None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
(a) None.
(b) None.
(c) Not applicable.
Item 6. Exhibits
The exhibits required to be filed with this report
are set forth on the Exhibit Index hereto and incorporated by reference herein.
50
Table of Contents
EXHIBIT INDEX
The following exhibits are
included in this report on Form 10-Q for the period ended June 30, 2023 (and are numbered in accordance with Item 601 of Regulation S-K).
|
|
|
Exhibit No. |
|
Description |
2.1 |
|
Business Combination Agreement, dated September 10, 2022, by and between DiamondHead Holdings Corp., Merger Sub and Great Southern Homes, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Registration Statement on Form S-4 filed on February 9, 2023) |
3.1 |
|
Amended and Restated Certificate of Incorporation of United Homes Group, Inc. (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K, filed on April 5, 2023) |
3.2 |
|
Amended and Restated Bylaws of United Homes Group, Inc. (incorporated by reference to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed on April 5, 2023) |
4.1 |
|
Warrant Agreement, dated January 25, 2021, by and between Continental Stock Transfer & Trust Company and DiamondHead Holdings Corp. (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on January 25, 2021) |
4.2 |
|
Senior Convertible Promissory Note, dated March 30, 2023, by and between the Company and Conversant Opportunity Master Fund LP (incorporated by reference to Exhibit 4.2 to the Company’s Registration Statement on Form S-1 filed on April 28, 2023) |
4.3 |
|
Senior Convertible Promissory Note, dated March 30, 2023, by and between the Company and Dendur Master Fund Ltd. (incorporated by reference to Exhibit 4.3 to the Company’s Registration Statement on Form S-1 filed on April 28, 2023) |
31.1* |
|
Certification of Principal Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2* |
|
Certification of Principal Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1* |
|
Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 |
32.2* |
|
Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002 |
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* |
|
Cover page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Filed herewith.
Certain instruments defining rights of holders of long-term debt of
the company and its consolidated subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. Upon request, the company
agrees to furnish to the SEC copies of such instruments.
51
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
UNITED HOMES GROUP, INC. |
|
(Registrant) |
|
|
Dated: August 14, 2023 |
By: |
/s/ Keith Feldman |
|
|
Keith Feldman |
|
|
Chief Financial Officer |
|
|
(Principal Financial and Accounting Officer) |
52
United Homes (NASDAQ:UHG)
過去 株価チャート
から 5 2024 まで 6 2024
United Homes (NASDAQ:UHG)
過去 株価チャート
から 6 2023 まで 6 2024