Filed pursuant to Rule 424(b)(3)
Registration No. 333-271515
PROSPECTUS SUPPLEMENT NO.
2
(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 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 November 14, 2023,
the closing price of our Class A Common Shares was $7.68 per share and the closing price of our Warrants was $0.94 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 November
17, 2023.
ABOUT THIS PROSPECTUS SUPPLEMENT
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 September 30, 2023, filed with the U.S. Securities and Exchange Commission on November 14, 2023 (the “Quarterly Report”).
Accordingly, we have attached the Quarterly Report to this prospectus supplement.
Additionally, the information
that appears under the caption “Management” in the Prospectus is modified as set forth herein, and the information that appears
under the caption “Principal Stockholders” in the Prospectus is modified as set forth herein.
MANAGEMENT
Effective July 17, 2023, John
G. (Jack) Micenko, Jr., age 49, was appointed as our President. Michael Nieri continues to serve as our Chief Executive Officer and
Chairman. The biographical information set forth below for Mr. Micenko is hereby added to the “Management” section of
the Prospectus, and Mr. Nieri’s biographical information is also updated accordingly. In addition, Dan Goldstein, previously Executive
Vice President – Finance, is no longer with the company and accordingly, all references to Mr. Goldstein are hereby removed from
the Prospectus.
John G. (Jack) Micenko,
Jr., has served as our President since July 2023. Mr. Micenko has more than 20 years of experience in the residential real estate
and mortgage finance industry, most recently as Managing Director at BTIG LLC (“BTIG”), where he had led the firm’s
Housing Ecosystem investment banking practice since 2021, identifying opportunities for corporate clients across all aspects of the residential
housing industry. Before his tenure at BTIG, Mr. Micenko was Senior Equity Analyst and Deputy Director of Research for Susquehanna International
Group, LLP from 2004 to 2021. Mr. Micenko served as Vice President at Lehman Brothers Holdings Inc. from 2000 to 2004 and as Vice President
at Friedman Billings Ramsey Group, a real estate investment trust, from 1996 to 2000. Mr. Micenko holds a Bachelor of Finance from John
Carroll University and brings to our management team his extensive background in residential housing finance, capital markets and mergers
and acquisitions.
PRINCIPAL STOCKHOLDERS
The information in the “Principal
Stockholders” section of the Prospectus is hereby removed and replaced with the following:
The following table sets forth
information regarding the beneficial ownership of the Company’s voting securities, consisting of Class A and Class B Common
Shares, as of November 13, 2023 by:
|
· |
each person who is known by us to be the beneficial owner of more than five percent of any class of our voting securities, |
|
· |
each of our Named Executive Officers and directors; and |
|
· |
all of our executive officers and directors as a group. |
Beneficial ownership is determined
in accordance with SEC rules and includes voting or investment power with respect to securities. Except as indicated by the footnotes
below, we believe, based on the information furnished to us, that the persons and entities named in the table below will have sole voting
and investment power with respect to all stock that they beneficially own, subject to applicable community property laws.
Subject to the paragraph above,
the percentage ownership of issued shares is based on (i) 11,382,296 Class A Common Shares and (ii) 36,973,877 Class B
Common Shares issued and outstanding as of November 13, 2023.
Unless otherwise indicated,
we believe that all persons named in the table have sole voting and investment power with respect to all shares beneficially owned by
them. Unless otherwise noted, the business address of each of the following entities or individuals is 917 Chapin Road, Chapin, South
Carolina 29036.
Name and Address of Beneficial Owner (1) | |
Number of Class A Shares Beneficially Owned | | |
% of Class (1) | | |
Number of Class B Shares Beneficially Owned | | |
% of Class (1) | |
Directors and Named Executive Officers | |
| | | |
| | | |
| | | |
| | |
Michael Nieri (2) | |
| 37,223,876 | | |
| 77.0 | % | |
| 36,973,877 | | |
| 100 | % |
Tom O’Grady | |
| 746,947 | | |
| 6.2 | % | |
| — | | |
| * | % |
David Hamamoto (2) | |
| 3,134,826 | | |
| 25.1 | % | |
| — | | |
| * | % |
Eric S. Bland | |
| 123,750 | | |
| 1.1 | % | |
| — | | |
| * | % |
James P. Clements | |
| 28,870 | | |
| * | | |
| — | | |
| * | % |
Robert Dozier | |
| 15,120 | | |
| * | | |
| — | | |
| * | % |
Jason Enoch | |
| 21,370 | | |
| * | | |
| — | | |
| * | % |
Nikki R. Haley | |
| 26,703 | | |
| * | | |
| — | | |
| * | % |
Alan Levine (2) | |
| 883,870 | | |
| 7.8 | % | |
| — | | |
| * | % |
Michael Bayles | |
| — | | |
| * | | |
| — | | |
| * | % |
Robert Grove | |
| — | | |
| * | | |
| — | | |
| * | % |
Keith Feldman | |
| 521,867 | | |
| 4.5 | % | |
| — | | |
| * | % |
Shelton Twine (2) | |
| 18,381,202 | | |
| 62.6 | % | |
| 17,926,728 | | |
| 48 | % |
All executive officers and directors as a group (18 individuals) | |
| 43,016,828 | | |
| 89.0 | % | |
| 36,973,877 | | |
| 100 | % |
Greater than Five Percent Holders: | |
| | | |
| | | |
| | | |
| | |
Antara Capital (3) | |
| 4,455,318 | | |
| 35.3 | % | |
| 0 | | |
| * | % |
PWN Trust 2018 (4) | |
| 6,058,909 | | |
| 34.9 | % | |
| 5,975,576 | | |
| 16 | % |
MEN Trust 2018 (5) | |
| 6,058,909 | | |
| 34.9 | % | |
| 5,975,576 | | |
| 16 | % |
PMN Trust 2018 (6) | |
| 6,058,909 | | |
| 34.9 | % | |
| 5,975,576 | | |
| 16 | % |
James Martell | |
| 748,020 | | |
| 6.2 | % | |
| — | | |
| * | % |
___________________________
* Less than 1%
(1) The percentage of beneficial ownership of
the Company is calculated based on (i) 11,382,296 Class A common stock and (ii) 36,973,877 Class B common stock issued and outstanding
as of November 13, 2023.
(2) Includes shares which the identified holder
may be deemed to beneficially own, including shares held in trusts for the benefit of family members, or trusts in which the identified
holder is a trustee.
(3) The business address of Antara Capital is
55 Hudson Yards, 47th Floor, Suite C, New York, New York 10001. Voting and dispositive control of the securities is held by Himanshu Gulati,
as managing member of Antara Capital GP LLC, a Delaware limited liability company which is the general partner of Antara Capital LP, a
Delaware limited partnership which is the investment manager of Antara Capital.
(4) Voting and dispositive control of the securities
is shared by Pennington Nieri and Shelton Twine.
(5) Voting and dispositive control of the securities
is shared by Maigan Nieri Lincks and Shelton Twine.
(6) Voting and dispositive control of the securities
is shared by Patrick Nieri and Shelton Twine.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
|
|
|
|
|
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 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.) |
917 Chapin Road
Chapin, South Carolina 29036
(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:
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
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 x 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 x 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 |
x |
|
Smaller reporting company |
x |
|
|
|
Emerging growth company |
x |
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 x
As of November 13, 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.
FORM 10-Q
UNITED HOMES GROUP, INC.
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.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
UNITED HOMES GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2023 (UNAUDITED) AND DECEMBER 31,
2022
| |
September 30,
2023 | | |
December 31,
2022 | |
ASSETS | |
| | | |
| | |
Cash and cash equivalents | |
$ | 81,243,705 | | |
$ | 12,238,835 | |
Accounts receivable, net | |
| 1,917,322 | | |
| 1,976,334 | |
Inventories: | |
| | | |
| | |
Homes under construction and finished homes | |
| 108,821,016 | | |
| 163,997,487 | |
Developed lots | |
| 23,725,065 | | |
| 16,205,448 | |
Due from related party | |
| 77,333 | | |
| 1,437,235 | |
Related party note receivable | |
| 628,832 | | |
| — | |
Income tax receivable | |
| 4,742,415 | | |
| — | |
Lot purchase agreement deposits | |
| 24,605,584 | | |
| 3,804,436 | |
Investment in joint venture | |
| 1,116,491 | | |
| 186,086 | |
Property and equipment, net | |
| 643,354 | | |
| 1,385,698 | |
Operating right-of-use assets | |
| 719,595 | | |
| 1,001,277 | |
Prepaid expenses and other assets | |
| 8,582,333 | | |
| 6,112,044 | |
Total Assets | |
$ | 256,823,045 | | |
$ | 208,344,880 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |
| | | |
| | |
Accounts payable | |
$ | 27,313,718 | | |
$ | 22,077,240 | |
Homebuilding debt and other affiliate debt | |
| 62,196,208 | | |
| 120,797,006 | |
Operating lease liabilities | |
| 723,269 | | |
| 1,001,277 | |
Other accrued expenses and liabilities | |
| 4,947,404 | | |
| 5,465,321 | |
Deferred tax liability | |
| 798,276 | | |
| — | |
Derivative liabilities | |
| 58,541,934 | | |
| — | |
Convertible note payable | |
| 67,574,708 | | |
| — | |
Total Liabilities | |
| 222,095,517 | | |
| 149,340,844 | |
Commitments and contingencies (Note 12) | |
| | | |
| | |
Class A common stock, $0.0001 par value; 350,000,000 shares authorized; 11,382,296 and 373,473 shares issued and outstanding on September 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 September 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) | |
| 1,783,014 | | |
| 1,422,630 | |
Retained Earnings (1) | |
| 32,939,680 | | |
| 57,577,672 | |
Total Stockholders' equity (1) | |
| 34,727,528 | | |
| 59,004,036 | |
Total Liabilities and Stockholders' equity | |
$ | 256,823,045 | | |
$ | 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.
UNITED HOMES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2023 AND 2022 (UNAUDITED)
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Revenue, net of sales discounts | |
$ | 87,728,091 | | |
$ | 111,046,233 | | |
$ | 304,646,422 | | |
$ | 361,951,774 | |
Cost of sales | |
| 70,317,796 | | |
| 82,107,334 | | |
| 246,540,874 | | |
| 264,730,624 | |
Gross profit | |
| 17,410,295 | | |
| 28,938,899 | | |
| 58,105,548 | | |
| 97,221,150 | |
Selling, general and administrative expense | |
| 13,629,713 | | |
| 13,266,455 | | |
| 46,652,432 | | |
| 38,892,250 | |
Net income from operations | |
| 3,780,582 | | |
| 15,672,444 | | |
| 11,453,116 | | |
| 58,328,900 | |
Other (expense) income, net | |
| (1,199,140 | ) | |
| 49,513 | | |
| (3,291,755 | ) | |
| 312,991 | |
Equity in net earnings (losses) from investment in joint venture | |
| 293,923 | | |
| (49,000 | ) | |
| 930,405 | | |
| (49,000 | ) |
Change in fair value of derivative liabilities | |
| 149,703,161 | | |
| — | | |
| 184,981,652 | | |
| — | |
Income before taxes | |
| 152,578,526 | | |
| 15,672,957 | | |
| 194,073,418 | | |
| 58,592,891 | |
Income tax expense | |
| (1,735,839 | ) | |
| — | | |
| (2,372,300 | ) | |
| — | |
Net income | |
$ | 150,842,687 | | |
$ | 15,672,957 | | |
$ | 191,701,118 | | |
$ | 58,592,891 | |
Basic and diluted earnings per share | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 3.12 | | |
$ | 0.42 | | |
$ | 4.29 | | |
$ | 1.68 | |
Diluted | |
$ | 2.35 | | |
$ | 0.40 | | |
$ | 3.61 | | |
$ | 1.66 | |
Basic and diluted weighted-average number of shares (1) | |
| | | |
| | | |
| | | |
| | |
Basic | |
| 48,356,057 | | |
| 37,347,350 | | |
| 44,723,915 | | |
| 34,884,887 | |
Diluted | |
| 64,806,024 | | |
| 38,709,652 | | |
| 54,155,557 | | |
| 35,371,321 | |
(1)Retroactively
restated for the three and nine months ended September 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.
UNITED HOMES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ EQUITY(1)
THREE AND NINE MONTHS ENDED SEPTEMBER 30,
2023 AND 2022 (UNAUDITED)
|
|
Common
stock |
|
|
|
|
|
|
|
|
|
|
|
Net
Due To |
|
|
|
|
|
|
Class A |
|
|
|
Class B |
|
|
|
|
|
|
|
|
Shareholders' |
|
|
and Due From |
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Shares |
|
|
Amount |
|
|
Additional
paid-in capital |
|
|
Retained
earnings |
|
|
and other
affiliates' net
investment |
|
|
Shareholders
and Other
Affiliates |
|
|
Total
Stockholders'
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 |
|
Distribution and net transfer
to shareholders and other affiliates |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(29,630,624 |
) |
|
|
— |
|
|
|
— |
|
|
|
(29,630,624 |
) |
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
51,116 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
51,116 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
15,672,957 |
|
|
|
— |
|
|
|
— |
|
|
|
15,672,957 |
|
Balance, September 30,
2022 |
|
|
373,473 |
|
|
$ |
37 |
|
|
|
36,973,877 |
|
|
$ |
3,697 |
|
|
$ |
1,372,626 |
|
|
$ |
50,335,604 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
51,711,964 |
|
| |
Common
stock | | |
| | |
Retained | | |
| |
| |
| Class A | | |
|
Class B | | |
| | |
Earnings | | |
Total | |
| |
Shares | | |
Amount | | |
Shares | | Amount | | |
Additional
paid-in capital | | |
(Accumulated
Deficit) | | |
Stockholders'
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 | ) |
Stock-based
compensation expense | |
| — | | |
| — | | |
| — | | |
| — | | |
| 1,106,014 | | |
| — | | |
| 1,106,014 | |
Exercise
of stock options under the 2023 Plan | |
| 560 | | |
| — | | |
| — | | |
| — | | |
| 1,567 | | |
| — | | |
| 1,567 | |
Recognition
of derivative liability related equity incentive plan | |
| — | | |
| — | | |
| — | | |
| — | | |
| (89,454 | ) | |
| — | | |
| (89,454 | ) |
Net
Income | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 150,842,687 | | |
| 150,842,687 | |
Balance
as of September 30, 2023 | |
| 11,382,296 | | |
$ | 1,137 | | |
| 36,973,877 | | |
$ | 3,697 | | |
$ | 1,783,014 | | |
$ | 32,939,680 | | |
$ | 34,727,528 | |
(1)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.
UNITED HOMES GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
| |
Nine Months
Ended
September 30, | |
| |
2023 | | |
2022 | |
Cash flows from operating activities: | |
| | | |
| | |
Net income | |
$ | 191,701,118 | | |
$ | 58,592,891 | |
Adjustments to reconcile net income to
net cash flows from operating activities: | |
| | | |
| | |
Bad debt expense | |
| 87,786 | | |
| — | |
Investment (earnings) losses in joint
venture | |
| (930,405 | ) | |
| 49,000 | |
Depreciation | |
| 154,474 | | |
| 264,884 | |
(Gain) loss on sale of property and
equipment | |
| (1,892 | ) | |
| 6,967 | |
Amortization of deferred financing costs | |
| 694,219 | | |
| 283,157 | |
Amortization of discount on convertible
notes | |
| 860,432 | | |
| — | |
Non cash interest income | |
| (26,002 | ) | |
| — | |
Stock compensation expense | |
| 6,015,700 | | |
| 1,372,626 | |
Amortization of operating lease right-of-use
assets | |
| 627,120 | | |
| 396,628 | |
Change in fair value of contingent earnout
liability | |
| (191,222,357 | ) | |
| — | |
Change in fair value of warrant liabilities | |
| 6,667,249 | | |
| — | |
Change in fair value of
equity incentive plan | |
| (426,544 | ) | |
| — | |
Deferred tax liability | |
| 2,668,586 | | |
| — | |
Net change in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (28,774 | ) | |
| (1,856,760 | ) |
Related party receivable | |
| 1,359,902 | | |
| (1,437,235 | ) |
Inventories | |
| 48,838,741 | | |
| (46,974,166 | ) |
Lot purchase agreement deposits | |
| (17,882,022 | ) | |
| (664,490 | ) |
Prepaid expenses and other assets | |
| 460,845 | | |
| (505,383 | ) |
Accounts payable | |
| 2,456,057 | | |
| 7,086,580 | |
Operating lease liabilities | |
| (623,446 | ) | |
| (396,628 | ) |
Income tax receivable | |
| (5,444,286 | ) | |
| — | |
Other accrued expenses
and liabilities | |
| (517,917 | ) | |
| 3,446,281 | |
Net cash flows
provided by operating activities | |
| 45,488,584 | | |
| 19,664,352 | |
Cash flows from investing activities: | |
| | | |
| | |
Purchases of property and equipment | |
| (59,229 | ) | |
| (116,420 | ) |
Proceeds from the sale of property and
equipment | |
| 66,100 | | |
| 13,808 | |
Proceeds from promissory note issued
for sale of property and equipment | |
| 62,190 | | |
| — | |
Cash paid for acquisition | |
| (2,166,516 | ) | |
| — | |
Capital contribution
in joint venture | |
| — | | |
| (49,000 | ) |
Net cash flows
used in investing activities | |
| (2,097,455 | ) | |
| (151,612 | ) |
Cash flows from financing activities: | |
| | | |
| | |
Proceeds from homebuilding debt | |
| 42,500,000 | | |
| 129,089,631 | |
Repayments of homebuilding debt | |
| (90,055,992 | ) | |
| (100,495,213 | ) |
Proceeds from other affiliate debt | |
| 136,773 | | |
| 9,456,206 | |
Repayments of other affiliate debt | |
| — | | |
| (918,453 | ) |
Payment of deferred financing costs | |
| (3,240,984 | ) | |
| — | |
Repayments on equipment financing | |
| — | | |
| (142,536 | ) |
Distributions and net transfer to shareholders
and other affiliates | |
| (17,896,302 | ) | |
| (51,027,000 | ) |
Changes in net due to and
due from shareholders and other affiliates | |
| — | | |
| (37,607,535 | ) |
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 | |
| 5,765 | | |
| — | |
Net cash flows
provided by (used in) financing activities | |
| 25,613,741 | | |
| (51,644,900 | ) |
Net change in cash and cash equivalents | |
| 69,004,870 | | |
| (32,132,160 | ) |
Cash and cash equivalents,
beginning of year | |
| 12,238,835 | | |
| 51,504,887 | |
Cash and cash
equivalents, end of year | |
$ | 81,243,705 | | |
$ | 19,372,727 | |
Supplemental cash flow information: | |
| | | |
| | |
Cash paid for
interest | |
$ | 12,265,939 | | |
$ | 2,969,521 | |
Cash paid for
income taxes | |
$ | 5,299,436 | | |
$ | — | |
Non-cash investing and financing activities: | |
| | | |
| | |
Additions of right-of-use lease assets
and liabilities | |
| 272,543 | | |
| 1,149,832 | |
Acquisition of developed lots from related
parties in settlement of due from Other Affiliates | |
| — | | |
| 13,822,570 | |
Conversion of other affiliates debt
to homebuilding debt | |
| — | | |
| 1,414,681 | |
Promissory note issued for sale of property
and equipment | |
| 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 owners 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 | |
| (40,968 | ) | |
| — | |
Recognition of derivative liability
related to earnout | |
| 242,211,404 | | |
| — | |
Recognition of derivative liability
related to equity incentive plan | |
| 1,279,139 | | |
| — | |
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
financing activities | |
$ | 320,077,435 | | |
$ | 16,387,083 | |
The accompanying notes to the condensed consolidated
financial statements are an integral part of these statements.
UNITED HOMES GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 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 a land-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, North 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 nine months ended September 30, 2022, and the Statement of Cash Flows for the nine months ended September 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.
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 9 - 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”);
•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 15 - 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 15 - 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 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 13 - 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 | % |
1Represents
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.
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 Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). The accompanying
Condensed Consolidated Financial Statements as of September 30, 2023 and for the three and nine months ended September 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 September 30, 2023, results of operations for the
three and nine months ended September 30, 2023 and 2022 and cash flows for the nine months ended September 30, 2023 and 2022.
The financial data and other information disclosed in these notes related to the three and nine months ended September 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 nine months ended September 30, 2023 and 2022 are not necessarily indicative of results to be
expected for the year ended 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 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 September 30, 2023 and December 31, 2022, the amount of developed lots included in inventory was
$23,725,065 and $16,205,448, respectively. Developed lots purchased at fair value from third parties and related parties was $23,150,065
and $10,052,179 as of September 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, materials and overhead
costs related to home construction, capitalized interest, real estate taxes and land option fees. As of September 30, 2023 and December 31,
2022, the amount of inventory related to homes under construction included in homes under construction and finished homes was $85,322,597
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 September 30, 2023 and December 31,
2022, the amount of inventory related to finished homes included in homes under construction and finished homes was $23,498,419 and $22,133,926,
respectively.
Goodwill - Goodwill represents the
excess of purchase price over the fair value of the assets acquired and the liabilities assumed in a business combination. See Note
4 - Business Combinations, for details on recent acquisitions. In accordance with ASC Topic 350, Intangibles-Goodwill
and Other, the Company evaluates goodwill for potential impairment on at least an annual basis. The Company has the option to
perform a qualitative or quantitative assessment to determine whether the fair value of a reporting unit exceeds its carrying value.
Qualitative factors may include, but are not limited to economic conditions, industry and market considerations, cost factors,
overall financial performance of the reporting units and other entity and reporting unit specific events. If the qualitative
assessment indicates that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount,
then a quantitative assessment is performed to determine the reporting unit’s fair value. If the reporting unit’s
carrying value exceeds its fair value, then an impairment loss is recognized for the amount of the excess of the carrying amount
over the reporting unit’s fair value.
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 in which the Company will 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 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 September 30, 2023 the Company recognized
$77,333 of assets related to the services agreement included within Due from related party on the Condensed Consolidated Balance Sheets,
and $20,138,083 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 September 30, 2023 and
2022, revenue recognized at a point in time from speculative home closings totaled $84,644,068, and $105,694,086, respectively, and for
the three months ended September 30, 2023 and 2022, revenue recognized over time from construction activities on land owned by customers
totaled $3,084,023, and $5,352,147, respectively. For the nine months ended September 30, 2023 and 2022, revenue recognized at a
point in time from speculative home closings totaled $294,749,743, and $345,566,071, respectively, and for the nine months ended September 30,
2023 and 2022, revenue recognized over time from construction activities on land owned by customers totaled $9,896,679, and $16,385,703,
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 September 30, 2023 and 2022, the Company incurred $511,505 and
$460,457, respectively, in advertising and marketing costs. For the nine months ended September 30, 2023 and 2022, the Company incurred
$1,485,185 and $2,286,890, 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 nine months ended September 30,
2022, nor was there any recorded liability for uncertain tax positions.
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 14 - 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 September 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 14 - 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 15 - 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 15 - 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
5 - 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 the Private Placement Warrants were not transferable, assignable or salable until 30 days after the
completion of the Business Combination, subject to certain exceptions. During the three and nine months ended September 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 and were issued an additional 744,588 UHG Class A
Common Shares. The aggregate proceeds received from the Convertible Note Investors was $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 13 - Convertible Note, would need to be bifurcated, the contingencies themselves
are either entirely within the Company’s control or based on an event for which 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 13 - 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 8 - 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 - Business Combinations
In August 2023, the Company entered the Raleigh, North Carolina
market through the acquisition of selected assets of Herring Homes, LLC (“Herring Homes”) for a purchase price of $2,166,516
in cash. The results of operations have been included in the financial statements since August 18, 2023, the effective date of the
acquisition. The purchase price for the acquisition was allocated based on estimated fair value of the assets and liabilities at the date
of the acquisition. The Company recognized the excess purchase price over the fair value of the net assets acquired as goodwill of $500,000.
The goodwill arising from the acquisition consists largely of the expected synergies from establishing a market presence in Raleigh and
the experience and reputation of the acquired management team. The remaining basis of $1,666,516 is primarily comprised of the fair value
of the acquired developed lots and lot purchase agreement deposits with limited other assets and liabilities. Transaction costs were not
material and were expensed as incurred.
The Company has entered into an agreement with Herring Homes, LLC to
provide certain services including providing the use of UHG employees to finish unacquired WIP and treasury management in exchange for
fees outlined in the agreement. For the three and nine months ended September 30, 2023, the Company recorded $50,000, $95,086, and
$88,931 in Revenue, Other (expense) income, net, and Cost of sales, respectively. Subsequent to the acquisition, UHG acquired 50 lots
for a fair value of $4.9 million in the Raleigh, North Carolina market.
Note 5 - 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.
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, and Accounts payable, the carrying amounts of these instruments
approximate their fair value. Lot purchase agreement deposits are recorded at the agreed-upon contract value, which approximates
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 8 - 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 September 30, 2023, the fair value of the
convertible note is $142,700,000. See Note 13 - 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 16 - Warrant liability,
Note 15 - Earnout Shares, Note 14 - Share-based compensation, and Note 13 - 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 September 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 September 30, 2023 | |
| |
Level 1 | | |
Level 2 | | |
Level 3 | | |
Total | |
Contingent earnout liability | |
$ | — | | |
$ | — | | |
$ | 50,989,047 | | |
$ | 50,989,047 | |
Derivative private placement warrant liability | |
| — | | |
| — | | |
| 2,046,998 | | |
| 2,046,998 | |
Derivative public warrant liability | |
| 5,261,250 | | |
| — | | |
| — | | |
| 5,261,250 | |
Derivative stock option liability | |
| — | | |
| — | | |
| 244,639 | | |
| 244,639 | |
Total Derivative Liability | |
$ | 5,261,250 | | |
$ | — | | |
$ | 53,280,684 | | |
$ | 58,541,934 | |
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 nine month period ended September 30,
2023 and the year ended December 31, 2022.
The following table presents a roll forward of
the Level 3 liabilities measured at fair value on a recurring basis:
| |
Contingent earnout liability | | |
Derivative private placement warrant liability | | |
Derivative stock option 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 | |
Recognition | |
| | | |
| | | |
$ | 89,454 | |
Change in fair value | |
| (148,722,530 | ) | |
| (296,666 | ) | |
| (338,965 | ) |
Liability at September 30, 2023 | |
$ | 50,989,047 | | |
$ | 2,046,998 | | |
$ | 244,639 | |
Note 6 - Capitalized interest
The Company accrues interest on the Company’s
Homebuilding debt. That debt is used to finance homebuilding operations (see Note 8 - Homebuilding debt and other affiliate debt)
and the associated interest is capitalized during active development of the home and included within inventory for Homes under construction
and finished homes. Capitalized interest is expensed to Cost of sales upon the sale of the home. The Company also accrued interest on
the Company’s Convertible note payable. During periods in which the Company’s active inventory is lower than its debt level,
a portion of the interest incurred is reflected as interest expense within Other (expense) income, net in the period incurred (see Note
13 - Convertible Note). Capitalized interest activity is summarized in the table below for the three and nine months ended September 30,
2023 and 2022:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Capitalized interest at beginning of the period: | |
$ | 847,951 | | |
$ | 969,337 | | |
$ | 1,250,460 | | |
$ | 1,190,318 | |
Interest incurred | |
| 4,779,675 | | |
| 1,623,028 | | |
| 12,343,274 | | |
| 3,361,561 | |
Interest expensed: | |
| | | |
| | | |
| | | |
| | |
Amortized to cost of sales | |
| (1,531,318 | ) | |
| (1,582,819 | ) | |
| (6,078,117 | ) | |
| (3,542,333 | ) |
Directly to interest expense | |
| (2,039,512 | ) | |
| — | | |
| (5,458,821 | ) | |
| — | |
Capitalized interest at September 30: | |
$ | 2,056,796 | | |
$ | 1,009,546 | | |
$ | 2,056,796 | | |
$ | 1,009,546 | |
Note 7 - Property and equipment
Property and equipment consisted of the following
as of September 30, 2023 and December 31, 2022:
Asset Group | |
September 30, 2023 | | |
December 31, 2022 | |
Furniture and fixtures | |
$ | 507,972 | | |
$ | 688,487 | |
Leasehold improvements | |
| 380,187 | | |
| 380,187 | |
Machinery and equipment | |
| 55,882 | | |
| 1,037,231 | |
Office equipment | |
| 23,221 | | |
| 165,774 | |
Vehicles | |
| 176,455 | | |
| 750,950 | |
Total Property and equipment | |
$ | 1,143,717 | | |
$ | 3,022,629 | |
Less: Accumulated depreciation | |
| (500,363 | ) | |
| (1,636,931 | ) |
Property and equipment, net | |
$ | 643,354 | | |
$ | 1,385,698 | |
Depreciation expense, included within Selling,
general and administrative expense on the Condensed Consolidated Statements of Operations was $23,594 and $89,667 for the three months
ended September 30, 2023 and 2022, respectively and $154,474 and $264,884, for the nine months ended September 30, 2023 and
2022, respectively.
Note 8 - 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 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 is accrued based on the total
syndication balance and is paid monthly. As the average construction time for homes is less than one year, all outstanding debt is considered
short-term as of September 30, 2023 and December 31, 2022.
The following table and descriptions summarize
the Company’s debt as of September 30, 2023 and December 31, 2022:
| |
September 30, 2023 | |
| |
Weighted average interest rate | | |
Homebuilding Debt - Wells Fargo Syndication | |
Wells Fargo Bank | |
| 8.02 | % | |
$ | 16,844,806 | |
Regions Bank | |
| 8.02 | % | |
| 14,253,298 | |
Flagstar Bank | |
| 8.02 | % | |
| 12,957,543 | |
United Bank | |
| 8.02 | % | |
| 10,366,035 | |
Third Coast Bank | |
| 8.02 | % | |
| 7,774,526 | |
Total debt on contracts | |
| | | |
$ | 62,196,208 | |
| |
December 31, 2022 | |
| |
Weighted average interest rate | | |
Homebuilding Debt - Wells Fargo 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 was 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 could be exercised upon approval from Wells Fargo. The Syndicated Line
also included 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 (“First Amendment”) on March 30, 2023 (“Amendment Date”) in
connection with the Business Combination (as defined in Note 1 - Nature of operations and basis of presentation) and made GSH
the sole borrower of the Syndicated Line. An additional amendment and restatement (“Second Amendment”) was entered into
on August 10, 2023 (“Second Amendment Date”). As a result of the Second Amendment, UHG became a co-borrower of the
Syndicated Line, the maximum borrowing capacity was increased to $240,000,000, and the maturity date was extended to August 10,
2026. In addition, Wells Fargo Bank and Regions Bank increased their participation in the Syndicated Line, three lenders exited the
Syndicated Line, and three lenders joined as new participants of the Syndicated Line. No other significant terms of the arrangements
were changed other than those relating to the financial covenants and interest rate terms described below.
The remaining availability to be drawn down on
the Syndicated Line was $48,776,907 as of September 30, 2023 and $12,015,246 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, no less than $70 million plus 25% of quarterly earnings on and after June 30, 2023 until
the Second Amendment Date, no less than the sum of (x) $70 million and (y) 25% of positive actual consolidated earnings earned
in any fiscal quarter end, plus 100% of new equity contributed to the Company, plus 100% of any new equity contributed as well as increases
from an equity issuance or repurchase of equity interests on or after the Second Amendment Date (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, 2.50 to 1.00 for any fiscal
quarter after the Amendment Date until December 31, 2023, and 2.25 to 1.00 for any fiscal quarter thereafter (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 until the Second Amendment Date, and not less than the greater of i) $20,000,000 or ii) an amount equal to 1.50x the trailing
twelve month interest incurred on or after the Second Amendment Date and (e) unrestricted cash of not less than $7,500,000 until
the Second Amendment Date and not less than 50% of the required liquidity on or after the Second Amendment Date. The Company was in compliance
with all debt covenants as of September 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 First Amendment, 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 in lieu of Additional paid-in
capital. For the nine months ended September 30, 2023 and 2022, Other Affiliates borrowed $136,773, and $9,456,206, 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 September 30, 2023.
In connection with the amendments of the
Syndicated Line, the Company incurred debt issuance costs, of which $3,240,984 is deferred and will be amortized over the remaining
life of the Syndicated Line. The amendments are accounted for as modifications of an existing line of credit under ASC 470, Debt
for any lenders that continue to participate in the Syndicated Line, therefore, any previously unamortized deferred costs related to
those lenders continue to be amortized over the remaining life of the Syndicated Line. The Company expensed all remaining
unamortized deferred costs for any lenders that no longer participate in the Syndicated Line as of the Second Amendment Date. The
Company recognized $358,325 and $81,149, respectively, of amortized deferred financing costs within Other (expense) income, net for
the three months ended September 30, 2023 and 2022, respectively. The Company recognized $694,219 and $283,157 of amortized
deferred financing costs within Other (expense) income, net for the nine months ended September 30, 2023 and 2022,
respectively. Outstanding deferred financing costs related to the Company’s Homebuilding debt were $3,257,825 and $690,804 as
of September 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 9 - 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.
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 nine months ended September 30, 2023 and 2022.
| |
Nine Months ended September 30, 2023 | |
| |
Land Development Affiliates | | |
Other Operating 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 | |
| |
Nine Months ended September 30, 2022 | |
| |
Land Development
Affiliates | | |
Other Operating
Affiliates | | |
Total | |
Financing cash flows: | |
| | | |
| | | |
| | |
Land development expense | |
$ | (29,264,304 | ) | |
$ | (665,777 | ) | |
$ | (29,930,081 | ) |
Other activities | |
| (1,928,677 | ) | |
| (748,777 | ) | |
| (2,677,454 | ) |
Cash transfer | |
| — | | |
| (5,000,000 | ) | |
| (5,000,000 | ) |
Total financing cash flows | |
$ | (31,192,981 | ) | |
$ | (6,414,554 | ) | |
$ | (37,607,535 | ) |
| |
| | | |
| | | |
| | |
Non-cash activities | |
| | | |
| | | |
| | |
Acquisition of developed lots | |
| 13,822,570 | | |
| — | | |
| 13,822,570 | |
Total non-cash activity | |
$ | 13,822,570 | | |
$ | — | | |
$ | 13,822,570 | |
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.
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 four separate operating lease agreements with a related party. The terms of the leases, including rent expense and
future minimum payments, are described in Note 12 - 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 nine months ended September 30,
2023 the Company allocated overhead costs to the related party in the amount of $64,614 and $375,805, respectively, and was charged for
property maintenance services in the amount of $0 and $71,672, respectively, by the same related party. The remaining balance outstanding
as of September 30, 2023 is a receivable of $77,333 and is presented within Due from related party on the Condensed Consolidated
Balance Sheet.
General contracting
The Company has been engaged as a general contractor
by several related parties. For the three months ended September 30, 2023 and 2022, Revenue of $1,002,900 and $582,225, respectively,
and Cost of sales of $953,802 and $342,686, respectively, were recognized in the Statement of Operations. For the nine months ended September 30,
2023 and 2022, Revenue of $2,435,186 and $1,437,235, respectively, and Cost of sales of $2,165,259 and $1,197,695, respectively, were
recognized in the Statement of Operations.
Other
The Company utilizes a related party vendor to
perform certain civil engineering services. For the three and nine months ended September 30, 2023, expenses of $13,125 and $61,037,
respectively, were recognized in the Statement of Operations.
Note 10 - Lot purchase agreement deposits
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 approximately 10% - 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 September 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 September 30, 2023 and December 31, 2022:
| |
September 30, 2023 | | |
December 31, 2022 | |
Lot purchase agreement deposits | |
$ | 24,605,584 | | |
$ | 3,804,436 | |
Remaining purchase price | |
| 205,799,113 | | |
| 65,451,928 | |
Total contract value | |
$ | 230,404,697 | | |
$ | 69,256,364 | |
Out of the $24,605,584 lot purchase agreement
deposits outstanding as of September 30, 2023, $20,138,083 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 and nine months ended September 30, 2023 and 2022, the Company
had no 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 11 - 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:
| |
Nine Months Ended September 30, 2023 | | |
Year Ended December 31, 2022 | |
Warranty reserves at beginning of the period | |
$ | 1,371,412 | | |
$ | 1,275,594 | |
Reserves provided | |
| 754,027 | | |
| 1,156,027 | |
Payments for warranty costs and other | |
| (751,558 | ) | |
| (1,060,209 | ) |
Warranty reserves at end of the period | |
$ | 1,373,881 | | |
$ | 1,371,412 | |
Note 12 - Commitments and contingencies
Leases
The Company leases several office spaces in South
Carolina under operating lease agreements with related parties, and one office space in North Carolina with a third party. The office
leases 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 $229,407 and $95,185
within Selling, general, and administrative expense on the Condensed Consolidated Statements of Operations for the three months ended
September 30, 2023 and 2022, respectively. The Company recognized an operating lease expense of $617,194 and $418,147 within Selling,
general, and administrative expense on the Condensed Consolidated Statements of Operations for the nine months ended September 30,
2023 and 2022, respectively.
Operating lease expense included variable lease
expense of $15,578 and $27,822 for the three months ended September 30, 2023 and 2022, respectively, Operating lease expense included
variable lease expense of $36,037 and $64,048 for the nine months ended September 30, 2023 and 2022, respectively.
The weighted-average discount rate for the operating
leases was 7.25% and 3.21% during the nine months ended September 30, 2023 and 2022, respectively.
The weighted-average remaining lease term was
1.91 and 2.33 years for the nine months ended September 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 $59,075 and $195,125, respectively, for the three and nine months ended September 30, 2023.
The maturity of the contractual, undiscounted
operating lease liabilities as of September 30, 2023 are as follows:
| |
Lease Payment | |
2023 | |
$ | 145,691 | |
2024 | |
| 395,064 | |
2025 | |
| 190,073 | |
2026 | |
| 43,094 | |
2027 and thereafter | |
| — | |
Total undiscounted operating lease liabilities | |
$ | 773,922 | |
Interest on operating lease liabilities | |
| (50,653 | ) |
Total present value of operating lease liabilities | |
$ | 723,269 | |
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 $73,409
and $20,067 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 September 30, 2023 and 2022, respectively, and $256,282 and $74,582 for the nine
months ended September 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 13 - 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.
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 for which 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 September 30, 2023:
| |
September 30, 2023 | |
Beginning Balance – Par | |
$ | 80,000,000 | |
Unamortized Discount | |
| (12,425,292 | ) |
Carrying Value | |
$ | 67,574,708 | |
Interest expense included within Other (expense)
income, net on the Condensed Consolidated Statements of Operations was $2.0 million and $5.5 million for the Notes for the three
and nine months ended September 30, 2023, respectively. Interest expense included within Cost of sales on the Condensed Consolidated
Statements of Operations was $0.3 million and $0.3 million for the Notes for the three and nine months ended September 30,
2023, respectively.
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 September 30,
2023.
| |
September 30, 2023 | | |
March 30, 2023 | |
Risk-free interest rate | |
| 4.70 | % | |
| 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 14 - 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.
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.
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.
| |
Stock options | | |
Weighted-Average Per share Exercise price | |
Outstanding, December 31, 2022 | |
| 870,567 | | |
$ | 2.81 | |
Granted | |
| 3,300,000 | | |
| 11.46 | |
Exercised | |
| (2,054 | ) | |
| 2.81 | |
Forfeited | |
| (114,283 | ) | |
| 2.81 | |
Outstanding, September 30, 2023 | |
| 4,054,230 | | |
| 9.85 | |
Options exercisable at September 30, 2023 | |
| 193,646 | | |
$ | 2.81 | |
The aggregate intrinsic value of the stock options
outstanding was $2,104,020 and $7,460,132 as of September 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. Stock compensation expense included in the Condensed Consolidated Statements of Operations for the three
months ended September 30, 2023 and 2022 was $1,100,007 and $51,116, respectively, and $1,561,616 and $145,826 for the nine
months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, there was unrecognized stock
compensation expense related to non-vested stock option arrangements totaling $16,417,253. The weighted average period over which
the unrecognized stock compensation expense is expected to be recognized is 3.43 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.
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 nine months ended September 30,
2023.
Inputs | |
Nine Months Ended September 30, 2023 | | |
March 30, 2023 | | |
January 19, 2022 | |
Risk-free interest rate | |
| 3.97% - 4.68% | | |
| 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 | |
| $3.00 - $5.38 | | |
$ | 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 $244,639 and is included within Derivative liability on the Condensed Consolidated Balance Sheet
as of September 30, 2023.
Restricted Stock Units (“RSUs”)
On September 12, 2023, the Company
granted time-based restricted stock units to certain participants under the 2023 Plan that are stock-settled with UHG Class A
Common Shares. The time-based restricted stock units granted under the 2023 Plan vest annually over four years. Stock-based
compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was
$6,007 for the three and nine months ended September 30, 2023. As of September 30, 2023, there was unrecognized pre-tax
compensation expense of $481,600 related to time-based restricted stock units that is expected to be recognized over a
weighted-average period of 3.95 years.
The time-based restricted stock unit activity
for the nine months ended September 30, 2023 was as follows:
| |
Units Outstanding | | |
Weighted-Average Grant Date Fair Value Per Unit | |
Outstanding, December 31, 2022 | |
| — | | |
$ | — | |
Granted | |
| 73,992 | | |
| 6.59 | |
Exercised | |
| — | | |
| — | |
Forfeited | |
| — | | |
| — | |
Outstanding, September 30, 2023 | |
| 73,992 | | |
| 6.59 | |
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 nine month period ended September 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.
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 September 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 nine months ended September 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 15 - Earnout Shares
for the assumptions and inputs used in the valuation of the Earnout Shares.
Note 15 - 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 September 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 September 30, 2023, the fair value
of the Earnout Shares was $2.86 per share issuable upon Triggering Event I, $2.26 per share issuable upon Triggering Event II and $1.81
per share issuable upon Triggering Event III.
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 | |
September 30,
2023 | | |
March 30,
2023 | |
Current stock price | |
$ | 5.60 | | |
$ | 12.68 | |
Stock price targets | |
| $12.50, $15.00, $17.50 | | |
| $12.50, $15.00, $17.50 | |
Expected life (in years) | |
| 4.50 | | |
| 5.00 | |
Earnout period (in years) | |
| 4.50 | | |
| 4.75 | |
Risk-free interest rate | |
| 4.70 | % | |
| 3.75 | % |
Expected volatility | |
| 40 | % | |
| 40 | % |
Expected dividend yield | |
| — | % | |
| — | % |
The change in the fair value of the Earnout Shares
between March 30, 2023 and September 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 $5.60 as of September 30, 2023.
As none of the earnout Triggering Events have
occurred as of September 30, 2023, no shares have been distributed.
Note 16 - 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 is recognized in accordance with ASC 815 as a derivative liability
and marked to market at each reporting period end. The change in fair value of the private placement warrant liability for the three and
nine months ended September 30, 2023 resulted in a gain of $0.3 million and loss of $2.3 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 | |
September 30, 2023 | | |
March 30, 2023 | |
Current stock price | |
$ | 5.60 | | |
$ | 12.68 | |
Exercise price | |
$ | 11.50 | | |
$ | 11.50 | |
Expected life (in years) | |
| 4.50 | | |
| 5.00 | |
Risk-free interest rate | |
| 4.70 | % | |
| 3.75 | % |
Expected volatility | |
| 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 is recognized in accordance with ASC 815 as a derivative
liability and marked to market at each reporting period end. The change in fair value of the public warrant liability for the three and
nine months ended September 30, 2023 resulted in a gain of $0.3 million and loss of $4.4 million, respectively. These changes are
included in Change in fair value of derivative liabilities on the Condensed Consolidated Statement of Operations.
Note 17 - Income taxes
For the three and nine months ended September 30,
2023, the Company recognized income tax expense of $1,735,839 and $2,372,300, respectively, which includes discrete items of $982,981
for adjustments to deferred revenue and deferred costs during the quarter. 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 effective tax rate for the nine months ended September 30,
2023, including the impact of discrete items, is 44.7%. Excluding discrete items, the Company’s annual effective tax rate 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, the Company has recorded, for the nine months ended September 30, 2023, discrete items
of $982,981 in order to establish various deferred tax balances, primarily attributable to timing differences in revenue recognition.
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 nine months ended September 30, 2023.
Note 18 - 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 September 30, 2023 and 2022 were approximately $51,570, and $36,517, respectively,
and $168,682 and $134,862 for the nine months ended September 30, 2023 and 2022, respectively. These amounts are recorded in Selling,
general and administrative expenses on the Condensed Consolidated Statements of Operations.
Note 19 - 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 nine months ended September 30,
2023 reflects the equity structure of DHHC, including the equity interests issued by DHHC to effect the business combination.
The following table sets forth the computation
of the Company’s basic and diluted net profit per share:
| |
Three Months Ended September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Net income | |
$ | 150,842,687 | | |
$ | 15,672,957 | | |
$ | 191,701,118 | | |
$ | 58,592,891 | |
Basic income available to common shareholders | |
$ | 150,842,687 | | |
$ | 15,672,957 | | |
$ | 191,701,118 | | |
$ | 58,592,891 | |
Effect of dilutive securities: | |
| | | |
| | | |
| | | |
| | |
Add back: | |
| | | |
| | | |
| | | |
| | |
Interest on Convertible note, net of tax | |
| 1,752,570 | | |
| — | | |
| 4,276,020 | | |
| — | |
Change in fair value of stock options - liability classified, net of tax | |
| (250,156 | ) | |
| — | | |
| (306,489 | ) | |
| — | |
Diluted income available to common shareholders | |
$ | 152,345,101 | | |
$ | 15,672,957 | | |
$ | 195,670,649 | | |
$ | 58,592,891 | |
Weighted-average number of common shares outstanding - basic | |
| 48,356,057 | | |
| 37,347,350 | | |
| 44,723,915 | | |
| 34,884,887 | |
Effect of dilutive securities: | |
| | | |
| | | |
| | | |
| | |
Convertible notes | |
| 16,000,000 | | |
| — | | |
| 8,379,450 | | |
| — | |
Stock options - equity classified | |
| — | | |
| 472,719 | | |
| 206,271 | | |
| 180,840 | |
Stock options - liability classified | |
| 43,259 | | |
| — | | |
| 70,894 | | |
| — | |
Stock warrants | |
| 406,708 | | |
| 889,583 | | |
| 775,027 | | |
| 305,594 | |
Weighted-average number of common shares outstanding - diluted | |
| 64,806,024 | | |
| 38,709,652 | | |
| 54,155,557 | | |
| 35,371,321 | |
Net earnings per common share: | |
| | | |
| | | |
| | | |
| | |
Basic | |
$ | 3.12 | | |
$ | 0.42 | | |
$ | 4.29 | | |
$ | 1.68 | |
Diluted | |
$ | 2.35 | | |
$ | 0.40 | | |
$ | 3.61 | | |
$ | 1.66 | |
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 September 30, | | |
Nine Months Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Private placement warrants | |
| 2,966,664 | | |
| — | | |
| 23,618 | | |
| — | |
Public warrants | |
| 8,625,000 | | |
| — | | |
| 68,664 | | |
| — | |
Stock options - equity classified | |
| 3,914,673 | | |
| — | | |
| — | | |
| — | |
Restricted stock units | |
| 14,477 | | |
| — | | |
| 4,826 | | |
| — | |
Total anti-dilutive features | |
| 15,520,814 | | |
| — | | |
| 97,108 | | |
| — | |
The Company’s 21,886,378 Earnout Shares
are excluded from the anti-dilutive table above for the three and nine months ended September 30, 2023, as the underlying shares
remain contingently issuable as the Earnout Triggering Events have not been satisfied.
Note 20 - Subsequent events
Management has performed an evaluation of subsequent
events after the Balance Sheet date of September 30, 2023 through the date the Condensed Consolidated Financial Statements were issued.
On October 25, 2023 (“the Closing Date”),
the Company completed the acquisition of 100% of the common stock of Rosewood Communities, Inc., a South Carolina corporation (“Rosewood”)
(the “Rosewood Acquisition”). The purchase price for the Rosewood Acquisition consisted of (a) cash at the Closing in
the amount of $13.0 million, subject to a customary post-closing adjustment based on the Closing Book Value of Rosewood as of the Closing
Date, (b) a warranty reserve of $0.3 million to be used to satisfy Rosewood warranty claims, and (c) the potential future payment
of an earnout generally equal to 25% of EBITDA attributable to Rosewood’s business through December 31, 2025. In addition,
the Company paid off approximately $10.0 million of liabilities of Rosewood. The Company has not yet completed its evaluation and determination
of consideration paid and certain assets and liabilities acquired in accordance with ASC 805, Business Combinations.
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. See
“Cautionary Note Regarding Forward-Looking Statements.”
Overview
UHG designs, builds and sells homes in South Carolina,
North Carolina and Georgia. The geographical markets in which UHG presently operates its homebuilding business are currently high-growth
markets, with substantial in-migrations and employment growth. Prior to the Business Combination (discussed below), GSH’s business
historically consisted of both homebuilding operations and land development operations. Recently, GSH 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 a land-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’s pipeline as of September 30,
2023 consists of 8,635 lots, which includes 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 party lot option contracts.
Since its founding in 2004, UHG has delivered
approximately 13,000 homes and currently builds in approximately 63 active subdivisions at prices that generally range from $200,000
to $500,000. For the three months ended September 30, 2023 and 2022, UHG had 272 and 175 net new orders, and generated approximately
$87.7 million and $111.0 million in revenue on 283 and 343 closings, respectively. For the nine months ended September 30, 2023
and 2022, UHG had 1,002 and 988 net new orders, and generated approximately $304.6 million and $362.0 million in revenue on 996 and 1,216
closings, respectively.
UHG’s plan to grow its business is multifaceted.
UHG plans to continue to execute its external growth strategy, expanding into new markets and increasing community count via targeted
acquisitions of complementary private homebuilders and homebuilding operations. UHG also expects to grow both organically, arising out
of its historical operations, and through expansion of its business verticals. Organically, community count is expected to continue to
increase in 2023, and UHG expects the average community size to increase, based on new communities currently under development. UHG’s
business verticals positioned to further drive the Company’s growth include 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. 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 $111.0
million for the three months ended September 30, 2022 to $87.7 million for the three months ended September 30, 2023. For the
three months ended September 30, 2023, UHG generated net income of approximately $150.8 million, which included $149.7 million related
to the change in fair value of derivative liabilities, gross profit of 19.8%, adjusted gross profit of 22.1%, and adjusted EBITDA margin
of 10.0%, representing an increase of $135.1 million, and a decrease of (6.3)%, (5.4)%, and (6.2)%, respectively, from the three months
ended September 30, 2022.
UHG revenues decreased from approximately $362.0
million for the nine months ended September 30, 2022 to $304.6 million for the nine months ended September 30, 2023. For the
nine months ended September 30, 2023, UHG generated net income of approximately $191.7 million, which included 185.0 million related
to the change in fair value of derivative liabilities, gross profit of 19.1%, adjusted gross profit of 21.2%, and adjusted EBITDA margin
of 10.0% representing an increase of $133.1 million, and a decrease of (7.8)%, (6.5)%, and (8.0)%, respectively, from the nine months
ended September 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.
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 2023, mostly in the form of buyer financing incentives such as mortgage rate buy downs,
mortgage forward commitments, or cash incentives applied against 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. 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 land-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 nine months ended September 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.
Recent Developments
Herring Homes Acquisition
In August 2023, UHG entered the Raleigh,
North Carolina market through the acquisition of selected assets of Herring Homes, LLC (“Herring Homes”) for a purchase price
of $2.2 million in cash. UHG recognized the excess purchase price over the fair value of the net assets acquired as goodwill of $0.5 million.
The goodwill arising from the acquisition consists largely of the expected synergies from establishing a market presence in Raleigh and
the experience and reputation of the acquired management team. The remaining basis of approximately $1.7 million is primarily comprised
of the fair value of 12 acquired developed lots and lot purchase agreement deposits with limited other assets and liabilities. Subsequent
to the acquisition, UHG acquired 50 lots for a fair value of $4.9 million in the Raleigh, North Carolina market.
Rosewood Communities Acquisition
On October 25, 2023 (“the Closing Date”),
subsequent to the third quarter, the Company completed the acquisition of 100% of the common stock of Rosewood Communities, Inc (“Rosewood”)
(the “Rosewood Acquisition”). The purchase price for the Rosewood Acquisition consisted of (a) cash at the Closing in
the amount of $13.0 million, subject to customary post-closing adjustment based on the Closing Book Value of Rosewood as of the Closing
Date, (b) a warranty reserve of $0.3 million to be used to satisfy Rosewood warranty claims, and (c) the potential future payment
of an earnout generally equal to 25% of EBITDA attributable to Rosewood’s business through December 31, 2025. In addition,
the Company paid off approximately $10.0 million of liabilities of Rosewood. The acquisition is expected to expand UHG’s existing
footprint in the Greenville and Clemson markets.
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 predominantly 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.
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 construction of the home 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, a portion
of interest expense on the Convertible Note entered into in connection with the Business Combination, investment 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 nine months ended September 30, 2023
was $0.9 million, increasing the investment in joint venture as of September 30, 2023 to $1.1 million.
Change in Fair Value of Derivative Liabilities
Change in fair value of derivative
liabilities includes certain stock options (as discussed in Note 14 - 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 16 - 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 16 - 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 15 - 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 (losses) from investment in joint venture,
and change in fair value of derivative liabilities.
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 and non-recurring remediation costs.
Results of Operations
Three Months Ended September 30, 2023
Compared to Three Months Ended September 30, 2022
The following table presents summary results of
operations for the periods indicated:
| |
Three Months Ended September 30, | | |
| | |
| |
| |
2023 | | |
2022 | | |
Amount Change | | |
% Change | |
Statements of Operations | |
| | |
| | |
| | |
| |
Revenue, net of sales discounts | |
$ | 87,728,091 | | |
$ | 111,046,233 | | |
$ | (23,318,142 | ) | |
| (21.0 | )% |
Cost of sales | |
| 70,317,796 | | |
| 82,107,334 | | |
| (11,789,538 | ) | |
| (14.4 | )% |
Selling, general and administrative expense | |
| 13,629,713 | | |
| 13,266,455 | | |
| 363,258 | | |
| 2.3 | % |
Other (expense) income, net | |
| (1,199,140 | ) | |
| 49,513 | | |
| (1,248,653 | ) | |
| | NM |
Equity in net earnings (losses) from investment in joint venture | |
| 293,923 | | |
| (49,000 | ) | |
| 342,923 | | |
| (699.8 | )% |
Change in fair value of derivative liabilities | |
| 149,703,161 | | |
| — | | |
| 149,703,161 | | |
| | NM |
Income before taxes | |
$ | 152,578,526 | | |
$ | 15,672,957 | | |
$ | 136,905,569 | | |
| 872.0 | % |
Income tax expense | |
| (1,735,839 | ) | |
| — | | |
| (1,735,839 | ) | |
| | NM |
Net Income | |
$ | 150,842,687 | | |
$ | 15,672,957 | | |
$ | 135,169,730 | | |
| 860.5 | % |
Other Financial and Operating Data: | |
| | | |
| | | |
| | | |
| | |
Active communities at end of period(a) | |
| 53 | | |
| 57 | | |
| (4 | ) | |
| (7.0 | )% |
Home closings | |
| 283 | | |
| 343 | | |
| (60 | ) | |
| (17.5 | )% |
Average sales price of homes closed(b) | |
$ | 315,836 | | |
$ | 314,566 | | |
$ | 1,270 | | |
| 0.4 | % |
Net new orders (units) | |
| 272 | | |
| 175 | | |
| 97 | | |
| 55.4 | % |
Cancellation rate | |
| 14.7 | % | |
| 16.0 | % | |
| (1.3 | )% | |
| (8.1 | )% |
Backlog | |
| 282 | | |
| 391 | | |
| (109 | ) | |
| (27.9 | )% |
Gross profit | |
$ | 17,410,295 | | |
$ | 28,938,899 | | |
$ | (11,528,604 | ) | |
| (39.8 | )% |
Gross profit %(c) | |
| 19.8 | % | |
| 26.1 | % | |
| (6.3 | )% | |
| (24.1 | )% |
Adjusted gross profit(d) | |
$ | 19,388,940 | | |
$ | 30,520,195 | | |
$ | (11,131,255 | ) | |
| (36.4 | )% |
Adjusted gross profit %(c) | |
| 22.1 | % | |
| 27.5 | % | |
| (5.4 | )% | |
| (19.6 | )% |
EBITDA(d) | |
$ | 156,561,832 | | |
$ | 17,336,208 | | |
$ | 139,225,624 | | |
| 803.1 | % |
EBITDA margin %(c) | |
| 178.5 | % | |
| 15.6 | % | |
| 162.9 | % | |
| 1,044.2 | % |
Adjusted EBITDA(d) | |
$ | 8,797,192 | | |
$ | 17,992,841 | | |
$ | (9,195,649 | ) | |
| (51.1 | )% |
Adjusted EBITDA margin %(c) | |
| 10.0 | % | |
| 16.2 | % | |
| (6.2 | )% | |
| (38.3 | )% |
NM - Not Meaningful
| (a) | UHG had 6 communities in closeout for the three months ended
September 30, 2023 and 8 communities in closeout for the three months ended September 30, 2022. These communities are not included
in the count of “Active communities at end of period.” |
| (b) | Average sales price of homes closed, 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 September 30, 2023 were $87.7 million, a decrease of $23.3 million, or 21.0%, from $111.0 million for the three months ended
September 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 September 30, 2023 was $315,836, an increase
of $1,270, or 0.4%, from the average sales price of production-built homes closed of $314,566 for the three months ended September 30,
2022. A decrease in revenues of $21.4 million was due to a decrease in the number of production-built homes sold and was offset by an
increase of $0.4 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 $2.3 million.
Cost of Sales and Gross Profit: Cost
of sales for the three months ended September 30, 2023 was $70.3 million, a decrease of $11.8 million, or 14.4%, from $82.1
million for the three months ended September 30, 2022. The decrease in Cost of sales was primarily attributable to the decrease
in number of homes sold. UHG closed 283 homes during the three months ended September 30, 2023, a decrease of 60 home closings,
or 17.5%, as compared to 343 homes closed during the three months ended September 30, 2022. This was partially offset by an
increase in the average cost to complete a home due to higher incentives, primarily in the form of mortgage rate buydowns and
closing costs.
Gross profit for the three months ended September 30,
2023 was $17.4 million, a decrease of $11.5 million, or 39.8%, from $28.9 million for the three months ended September 30, 2022,
due to the decrease 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 September 30, 2023 was 19.8%, a decrease of 6.3%, as compared 26.1% for the three months ended September 30,
2022.
Adjusted Gross
Profit: Adjusted gross profit for the three months ended September 30, 2023 was $19.4 million, a decrease of $11.1 million, or
36.4%, as compared to $30.5 million for the three months ended September 30, 2022. Adjusted gross profit as a percentage of
revenue for the three months ended September 30, 2023 was 22.1%, a decrease of 5.4%, as compared to 27.5% for the three months ended
September 30, 2022. The adjusted gross profit as a percentage of revenue decrease was attributable to an $11.5 million decrease
in gross profit for the three months ended September 30, 2023 as compared to September 30, 2022, offset by non-recurring remediation
costs of $0.4 million. 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 September 30, 2023 was $13.6 million, an increase of $0.3
million, or 2.3%, from $13.3 million for the three months ended September 30, 2022. The increase in selling, general and administrative
expense was attributable to an increase of $1.1 million related to stock compensation expense, public company expenses of $0.6 million
and an increase in insurance expenses of $0.8 million, offset by a decrease in consulting and audit fees of $1.2 million and a decrease
in commissions expense of $1.0 million for the three months ended September 30, 2023.
Other (Expense) Income, Net: Total Other
(expense) income, net for the three months ended September 30, 2023 was $(1.2) million of expense, a decrease of $1.3 million, from
$0.1 million for the three months ended September 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 $2.0 million, partially
offset by a decrease in investment income of $0.7 million.
Equity in Net Earnings (Losses) from
Investment in Joint Venture: Equity in net earnings (losses) from investment in joint venture for the three months ended
September 30, 2023 was $0.3 million compared to $(0.1) million for the three months ended September 30, 2022, due to the
joint venture initially incurring losses as it established operations. The increase in equity in net earnings (losses) from
investment in joint venture increased the investment in joint venture as of September 30, 2023 to $1.1 million. There were no
impairment losses related to the Company’s investment in the joint venture recognized during the three months ended
September 30, 2023.
Change in Fair Value of Derivative Liabilities:
Change in fair value of derivative liabilities for the three months ended September 30, 2023 was a gain of $149.7 million as compared
to zero for the three months ended September 30, 2022. Under ASC 815, derivative liabilities are marked to market each reporting
period with changes recognized on the Statement of Operations. This change was attributable to a change in fair value of $148.7 million
related to the Earnout Shares, $0.3 million related to the stock options issued under the 2023 Incentive Plan that are accounted for as
derivative liabilities under ASC 815, $0.4 million related to the Public Warrants and $0.3 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 September 30, 2023 was $1.8 million as compared to zero for the three months ended September 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 three months ended September 30, 2023 is 26.2%.
Net Income: Net income for the three months
ended September 30, 2023 was $150.8 million, an increase of $135.1 million, or 860.5%, from $15.7 million for the three months ended
September 30, 2022. The increase in Net income was primarily attributable to the increase in income before taxes of $136.9 million,
or 872.0%, during the three months ended September 30, 2023 as compared to the three months ended September 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 $1.8 million, during the three months ended September 30, 2023 as compared to the three months ended September 30, 2022.
Nine Months Ended September 30, 2023 Compared to Nine Months
Ended September 30, 2022
The following table presents summary results
of operations for the periods indicated:
| |
Nine Months
Ended September 30, | | |
| | |
| |
| |
2023 | | |
2022 | | |
Amount Change | | |
% Change | |
Statements of Operations | |
| | |
| | |
| | |
| |
Revenue, net of sales discounts | |
$ | 304,646,422 | | |
$ | 361,951,774 | | |
$ | (57,305,352 | ) | |
| (15.8 | )% |
Cost of sales | |
| 246,540,874 | | |
| 264,730,624 | | |
| (18,189,750 | ) | |
| (6.9 | )% |
Selling, general and administrative expense | |
| 46,652,432 | | |
| 38,892,250 | | |
| 7,760,182 | | |
| 20.1 | % |
Other (expense) income, net | |
| (3,291,755 | ) | |
| 312,991 | | |
| (3,604,746 | ) | |
| (1200.0 | )% |
Equity in net earnings (losses) from
investment in joint venture | |
| 930,405 | | |
| (49,000 | ) | |
| 979,405 | | |
| (1998.8 | )% |
Change in fair value
of derivative liabilities | |
| 184,981,652 | | |
| — | | |
| 184,981,652 | | |
| | NM |
Income before taxes | |
$ | 194,073,418 | | |
$ | 58,592,891 | | |
$ | 135,480,527 | | |
| 231.2 | % |
Income tax expense | |
| (2,372,300 | ) | |
| — | | |
| (2,372,300 | ) | |
| | NM |
Net income | |
$ | 191,701,118 | | |
$ | 58,592,891 | | |
$ | 133,108,227 | | |
| 227.1 | % |
Other Financial and Operating Data: | |
| | | |
| | | |
| | | |
| | |
Active communities at end of period(a) | |
| 53 | | |
| 57 | | |
| (4 | ) | |
| (7.0 | )% |
Home closings | |
| 996 | | |
| 1,216 | | |
| (220 | ) | |
| (18.1 | )% |
Average sales price of homes closed(b) | |
$ | 314,232 | | |
$ | 295,103 | | |
$ | 19,129 | | |
| 6.5 | % |
Net new orders (units) | |
| 1,002 | | |
| 988 | | |
| 14 | | |
| 1.4 | % |
Cancellation rate | |
| 14.6 | % | |
| 15.4 | % | |
| (0.8 | )% | |
| (5.2 | )% |
Backlog | |
| 282 | | |
| 391 | | |
| (109 | ) | |
| (27.9 | )% |
Gross profit | |
$ | 58,105,548 | | |
$ | 97,221,150 | | |
$ | (39,115,602 | ) | |
| (40.2 | )% |
Gross profit %(c) | |
| 19.1 | % | |
| 26.9 | % | |
| (7.8 | )% | |
| (29.0 | )% |
Adjusted gross profit(d) | |
$ | 64,630,992 | | |
$ | 100,387,715 | | |
$ | (35,756,723 | ) | |
| (35.7 | )% |
Adjusted gross profit %(c) | |
| 21.2 | % | |
| 27.7 | % | |
| (6.5 | )% | |
| (23.5 | )% |
EBITDA(d) | |
$ | 206,490,991 | | |
$ | 61,972,322 | | |
$ | 144,518,669 | | |
| 233.2 | % |
EBITDA margin %(c) | |
| 67.8 | % | |
| 17.1 | % | |
| 50.7 | % | |
| 296.5 | % |
Adjusted EBITDA(d) | |
$ | 30,423,664 | | |
$ | 65,114,359 | | |
$ | (34,690,695 | ) | |
| (53.3 | )% |
Adjusted EBITDA margin %(c) | |
| 10.0 | % | |
| 18.0 | % | |
| (8.0 | )% | |
| (44.4 | )% |
NM - Not Meaningful
| (a) | UHG had 6 communities
in closeout for the nine months ended September 30, 2023 and 8 communities in closeout
for the nine months ended September 30, 2023. These communities are not included in
the count of “Active communities at end of period.” |
| (b) | Average sales price of
homes closed, 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 nine months
ended September 30, 2023 were $304.6 million, a decrease of $57.4 million, or 15.8%, from $362.0 million for the nine months ended
September 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 nine months ended September 30, 2023 was $314,232, an increase
of $19,129, or 6.5%, from the average sales price of production-built homes closed of $295,103 for the nine months ended September 30,
2022. A decrease in revenues of $68.8 million due to the decrease in number of production-built homes sold is offset by $18.0 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 $6.5 million.
Cost of Sales and Gross Profit: Cost of
sales for the nine months ended September 30, 2023 was $246.5 million, a decrease of $18.2 million, or 6.9%, from $264.7 million
for the nine months ended September 30, 2022. The decrease in Cost of sales was primarily attributable to the decrease in number
of homes sold. UHG closed 996 homes during the nine months ended September 30, 2023, a decrease of 220 home closings, or 18.1%,
as compared to 1,216 homes closed during the nine months ended September 30, 2022. This was partially offset by an increase in the
average cost to complete a home as a result of higher direct costs, including houses constructed in 2022 with higher lumber costs, and
incentives, primarily in the form of mortgage rate buydowns and closing costs.
Gross profit for the nine months ended September 30,
2023 was $58.1 million, a decrease of $39.1 million, or 40.2%, from $97.2 million for the nine months ended September 30, 2022,
due to a decrease in the number of home closings and increased cost per home as described above. Gross profit as a percentage of revenue
for the nine months ended September 30, 2023 was 19.1%, a decrease of 7.8%, as compared 26.9% for the nine months ended September 30,
2022.
Adjusted Gross
Profit: Adjusted gross profit for the nine months ended September 30, 2023 was $64.6 million, a decrease of $35.8 million,
or 35.7%, as compared to $100.4 million for the nine months ended September 30, 2022. Adjusted gross profit as a percentage
of revenue for the nine months ended September 30, 2023 was 21.2%, a decrease of 6.5%, as compared to 27.7% for the nine months
ended September 30, 2022. The adjusted gross profit as a percentage of revenue decrease was attributable to a $39.1 million decrease
in gross profit for the nine months ended September 30, 2023 as compared to September 30, 2022. This decrease was partially
offset when excluding interest expense included in cost of sales, which increased by $2.9 million due to higher interest rates period
over period and the inclusion of convertible note interest in 2023, as well as non-recurring remediation costs of $0.4 million.
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 nine months ended September 30, 2023 was $46.7 million, an increase of $7.8
million, or 20.1%, from $38.9 million for the nine months ended September 30, 2022. The increase in selling, general and administrative
expense was attributable to an increase of $4.6 million related to stock compensation expense, $0.6 million of miscellaneous expense,
and $5.1 million of general & administrative expenses, which includes $2.1 million of consulting and audit expenses, and public
company expenses of $1.2 million. This increase was offset by a decrease of $2.5 million in commission expenses.
Other (Expense) Income, Net: Total other
(expense) income, net for the nine months ended September 30, 2023 was $(3.3) million of expense, a decrease of $3.6 million, or
1200.0%, from $0.3 million of income for the nine months ended September 30, 2022. The decrease in other (expense) income was
primarily attributable to an increase of $5.5 million of interest expense on the Convertible Notes issued in connection with the Business
Combination, offset by an increase in investment income of $2.2 million.
Equity in Net Earnings (Losses) from Investment
in Joint Venture: Equity in net earnings (losses) from investment in joint venture for the nine months ended September 30, 2023
was $0.9 million compared to $(0.1) million for the nine months ended September 30, 2022, due to the joint venture initially incurring
losses as it established operations. The increase in equity in net earnings (losses) from investment in joint venture increased the investment
in joint venture as of September 30, 2023 to $1.1 million. There were no impairment losses related to the Company’s investment
in the joint venture recognized during the nine months ended September 30, 2023.
Change in Fair Value of Derivative Liabilities:
Change in fair value of derivative liabilities for the nine months ended September 30, 2023 was a gain of $185.0 million as
compared to zero for the nine months ended September 30, 2022. This change was primarily attributable to a change in fair value
of $191.2 million related to the Earnout Shares and $0.4 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 $4.3 million related to
the Public Warrants and $2.3 million related to the Private Placement Warrants issued in connection with the Business Combination.
Income Tax Expense: Income tax expense
for the nine months ended September 30, 2023 was $2.4 million as compared to zero for the nine months ended September 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 nine months ended September 30, 2023 is 26.2%.
Net Income: Net income for the nine months
ended September 30, 2023 was $191.7 million, an increase of $133.1 million, or 227.1%, from $58.6 million for the nine months ended
September 30, 2022. The increase in net income was primarily attributable to the increase in income before taxes of $135.5 million,
or 231.2%, during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 (which is
primarily attributable to the change in fair value of derivative liabilities), and by an increase in income tax expense of $2.4 million,
during the nine months ended September 30, 2023 as compared to zero during the nine months ended September 30, 2022.
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 and non-recurring remediation costs. UHG’s
management believes adjusted gross profit provides useful information to investors 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 September 30 | | |
Nine Months
Ended September 30 | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Revenue, net of sales discounts | |
$ | 87,728,091 | | |
$ | 111,046,233 | | |
$ | 304,646,422 | | |
$ | 361,951,774 | |
Cost of sales | |
| 70,317,796 | | |
| 82,107,334 | | |
| 246,540,874 | | |
| 264,730,624 | |
Gross profit | |
$ | 17,410,295 | | |
$ | 28,938,899 | | |
$ | 58,105,548 | | |
$ | 97,221,150 | |
Interest expense in cost of sales | |
| 1,531,318 | | |
| 1,581,296 | | |
| 6,078,117 | | |
| 3,166,565 | |
Non-recurring remediation
costs | |
| 447,327 | | |
| — | | |
| 447,327 | | |
| — | |
Adjusted gross
profit | |
$ | 19,388,940 | | |
$ | 30,520,195 | | |
$ | 64,630,992 | | |
$ | 100,387,715 | |
Gross profit %(a) | |
| 19.8 | % | |
| 26.1 | % | |
| 19.1 | % | |
| 26.9 | % |
Adjusted gross profit
%(a) | |
| 22.1 | % | |
| 27.5 | % | |
| 21.2 | % | |
| 27.7 | % |
(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, non-recurring remediation costs and change in fair value of derivative liabilities. Management of
UHG believes EBITDA and adjusted EBITDA provide useful information to investors because they enable 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.
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 September 30, | | |
Nine Months
Ended September 30, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
Net income | |
$ | 150,842,687 | | |
$ | 15,672,957 | | |
$ | 191,701,118 | | |
$ | 58,592,891 | |
Interest expense in cost of sales | |
| 1,531,318 | | |
| 1,581,296 | | |
| 6,078,117 | | |
| 3,166,565 | |
Interest expense in other (expense) income,
net | |
| 2,039,512 | | |
| — | | |
| 5,458,821 | | |
| — | |
Depreciation and amortization | |
| 381,917 | | |
| 89,667 | | |
| 848,693 | | |
| 264,884 | |
Taxes | |
| 1,766,398 | | |
| (7,712 | ) | |
| 2,404,242 | | |
| (52,018 | ) |
EBITDA | |
$ | 156,561,832 | | |
$ | 17,336,208 | | |
$ | 206,490,991 | | |
$ | 61,972,322 | |
Stock-based compensation expense | |
| 1,106,014 | | |
| 51,116 | | |
| 6,015,700 | | |
| 1,372,626 | |
Transaction cost expense | |
| 385,180 | | |
| 605,517 | | |
| 2,451,298 | | |
| 1,769,411 | |
Non-recurring remediation costs | |
| 447,327 | | |
| — | | |
| 447,327 | | |
| — | |
Change in fair value
of derivative liabilities | |
| (149,703,161 | ) | |
| — | | |
| (184,981,652 | ) | |
| — | |
Adjusted EBITDA | |
$ | 8,797,192 | | |
$ | 17,992,841 | | |
$ | 30,423,664 | | |
$ | 65,114,359 | |
EBITDA margin(a) | |
| 178.5 | % | |
| 15.6 | % | |
| 67.8 | % | |
| 17.1 | % |
Adjusted EBITDA margin(a) | |
| 10.0 | % | |
| 16.2 | % | |
| 10.0 | % | |
| 18.0 | % |
(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 September 30, 2023, UHG had approximately $81.2 million in cash and cash equivalents, an increase of $69.0 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 September 30, 2023 and December 31, 2022, UHG had approximately
$48.8 million, and $12.0 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 materials relative to what was experienced in 2022, 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’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 approximately 10% - 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. As of September 30,
2023 and December 31, 2022, the Company’s lot deposits related to finished lot purchase contracts were $24.6 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 September 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 had 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 at December 31, 2022. 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 is accrued based on
the total syndication balance and is paid monthly. As the average construction time for homes is less than one year, all outstanding
debt is considered short-term as of September 30, 2023 and December 31, 2022.
The following table and descriptions provide
a summary of Company’s material debt under the revolving lines of credit for the periods indicated:
| |
September 30,
2023 | |
| |
Weighted
average
interest rate | | |
Homebuilding
Debt -
Wells Fargo
Syndication | |
Wells Fargo Bank | |
| 8.02 | % | |
$ | 16,844,806 | |
Regions Bank | |
| 8.02 | % | |
| 14,253,298 | |
Flagstar Bank | |
| 8.02 | % | |
| 12,957,543 | |
United Bank | |
| 8.02 | % | |
| 10,366,035 | |
Third Coast Bank | |
| 8.02 | % | |
| 7,774,526 | |
Total debt on
contracts | |
| | | |
$ | 62,196,208 | |
| |
December 31,
2022 | |
| |
Weighted
average
interest rate | | |
Homebuilding
Debt -
Wells Fargo
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 was a three-year revolving credit facility, previously with a maturity date of July 2024, and
an option to extend the maturity date for one year that could be exercised upon approval from Wells Fargo. The Syndicated Line also included
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) and made GSH the sole borrower of the Syndicated Line. An additional
amendment and restatement (“Second Amendment”) was entered into on August 10, 2023 (“Second Amendment Date”).
As a result of the Second Amendment, UHG became a co-borrower of the Syndicated Line, the maximum borrowing capacity was increased to
$240,000,000, and the maturity date was extended to August 10, 2026. In addition, Wells Fargo Bank and Regions Bank increased their
participation in the Syndicated Line, three lenders exited the Syndicated Line, and three lenders joined as new participants of the Syndicated
Line. No other significant terms of the arrangements were changed other than those relating to the financial covenants and interest rate
terms described below.
The remaining availability on the Syndicated
Line was $48.8 million and $12.0 million as of September 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
which were updated as part of the Second Amendment, including (a) a minimum tangible net worth of no less than the sum of (x) $70
million and (y) 25% of positive actual consolidated earnings earned in any fiscal quarter end, plus 100% of new equity contributed
to the Company, plus 100% of any new equity contributed as well as increases from an equity issuance or repurchase of equity interests
(b) a maximum leverage covenant that prohibits the leverage ratio from exceeding 2.25 to 1.00 for any fiscal quarter (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 the greater of i) $20,000,000 or ii) an amount equal to 1.50x the trailing twelve month interest incurred and (e) unrestricted
cash of not less than 50% of the required liquidity. The Company was in compliance with all debt covenants as of September 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 First Amendment, 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
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
September 30, 2023.
Leases
The Company leases several office spaces in South
Carolina under operating lease agreements with related parties, and one office space in North Carolina with a third party. The office
leases 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 September 30, 2023, the future minimum lease payments required
under these leases totaled $0.8 million, with $0.1 million payable within 12 months. Further information regarding Company’s leases
is provided in Note 12 - Commitments and contingencies to the UHG Condensed Consolidated Financial Statements.
Cash Flows
Nine Months Ended September 30, 2023
Compared to Nine Months Ended September 30, 2022
The following table summarizes UHG’s cash
flows for the periods indicated:
| |
Nine Months
Ended September 30, | |
| |
2023 | | |
2022 | |
Net cash flows provided by
operating activities | |
$ | 45,488,584 | | |
$ | 19,664,352 | |
Net cash flows used in investing activities | |
| (2,097,455 | ) | |
| (151,612 | ) |
Net cash flows provided by (used in)
financing activities | |
| 25,613,741 | | |
| (51,644,900 | ) |
Operating Activities
Net cash flows provided by operating activities
during the nine months ended September 30, 2023 was $45.5 million, as compared to cash flows provided of $19.7 million for
the nine months ended September 30, 2022. The difference in cash flows period over period is $25.8 million. This change is primarily
attributable to cash provided by a decreased investment in inventory of $48.8 million, partially offset by an increase in lot purchase
deposits of $17.9 million during the nine months ended September 30, 2023. This change was also partially offset by changes in net
income adjusted for non-cash transactions provided of $14.2 million for the nine months ended September 30, 2023, as compared
to cash flows provided of $61.0 million for the nine months ended September 30, 2022. For the nine months ended September 30,
2022, cash used to increase investments in inventory and accounts receivable was $47.0 million and $1.9 million, respectively, partially
offset by an increase in accounts payable of $7.1 million, respectively.
Investing Activities
Net cash used in
investing activities for the nine months ended September 30, 2023 was attributable cash paid to acquire certain assets of Herring
Homes of $2.2 million, offset by 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
nine months ended September 30, 2022 was attributable to the purchase of additional property and equipment of $0.2 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 nine months ended September 30, 2023 was $25.6 million compared to net cash used in financing activities of $51.6 million
for the nine months ended September 30, 2022. The difference in cash flows period over period is $77.2 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 $42.5 million, partially offset by repayment of homebuilding debt
of $90.1 million, distributions and net transfers to shareholders and other affiliates of $17.9 million, and the payment of deferred
financing costs of $3.2 million during the nine months ended September 30, 2023. In contrast, during the nine months ended September 30,
2022, cash flows used in financing activities included $101.4 million for repayment of homebuilding and other affiliate debt, $51.0 million
of cash flows used in distributions and net transfers to shareholders and other affiliates, and $37.6 million in changes in net due to
and due from shareholders and other affiliates, partially offset by $129.1 million of proceeds from homebuilding debt and $9.5 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 in which the Company will 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.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
The interest rate on the borrowings under our
Syndicated Line is based upon adjusted daily simple 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 September 30, 2023, we had $62.2 million outstanding under our Syndicated Line, which carried
a weighted average rate of 8.02%. 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 nine months ended September 30, 2023. During the three and
nine months ended September 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.
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;
•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.
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 nine months ended September 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 quarter ended September 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.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Reference is made to Note 12 - 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 September 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.
EXHIBIT INDEX
The following exhibits are
included in this report on Form 10-Q for the period ended September 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) |
10.1 |
|
Employment
Agreement, dated July 17, 2023, by and between the Company and John G. Micenko Jr. (incorporated by reference to Exhibit 10.1
to the Company’s Current Report on Form 8-K filed on July 17, 2023) |
10.2† |
|
Second
Amended and Restated Credit Agreement, dated as of August 10, 2023, among United Homes Group, Inc., Great Southern Homes, Inc.,
Wells Fargo Bank, National Association, Wells Fargo Securities, LLC, and the lenders party thereto (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on August 11, 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.
** Furnished herewith.
†Certain
of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). Upon request,
the Company agrees to furnish copies of such omitted exhibits and schedules.
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.
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: November 14,
2023 |
By: |
/s/ Keith Feldman |
|
|
Keith
Feldman |
|
|
Chief
Financial Officer |
|
|
(Principal
Financial and Accounting Officer) |
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