United Homes Group, Inc. - Quarter Report: 2024 March (Form 10-Q)

Termination of existing lease Noncash exercise of employee stock options Settlement of RSUs Promissory note issued for sale of property and equipment Settlement of co-obligor debt to affiliates Release of guarantor from GSH to shareholder Noncash distribution to owners of Other Affiliates Earnest money receivable from Other Affiliates Recognition of previously capitalized deferred transaction costs Modification to existing lease Recognition of derivative liability related to earnout Recognition of derivative liability related to equity incentive plan Recognition of warrant liability upon Business Combination Forfeiture of private placement warrants upon Business Combination ()Issuance of common stock upon the reverse recapitalization Recognition of deferred tax asset upon Business Combination Recognition of income tax payable upon Business Combination Recognition of assumed assets and liabilities upon Business Combination, net Total non-cash financing activities$ $

The accompanying unaudited Notes to the Condensed Consolidated Financial Statements are an integral part of these statements.

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UNITED HOMES GROUP, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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and $, respectively, which is included in Developed lots and land under construction on the Condensed Consolidated Balance Sheets

–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 March 31, 2024 and December 31, 2023, the amount of developed lots included in inventory was $ and $, respectively. Developed lots purchased at fair value from third parties and related parties was $ and $ as of March 31, 2024 and December 31, 2023, respectively, which is included in Developed lots and land under construction on the Condensed Consolidated Balance Sheets.

–Real estate inventory not owned - In 2024, the Company entered into a land banking arrangement which resulted in the Company selling certain finished lots it owns to a land banker and simultaneously entering into option agreements to repurchase those finished lots. In accordance with ASC 606, Revenue from contracts with customers, these transactions are considered a financing arrangement rather than a sale because of the Company's options to repurchase these finished lots at a higher price. As of March 31, 2024, $ was recorded to Real estate inventory not owned, with a corresponding amount of approximately $ recorded to

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and $, 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 March 31, 2024 and December 31, 2023, the amount of inventory related to finished homes included in homes under construction and finished homes was $ and $, respectively.

yearsArchitectural Designs

to years

Non-compete Agreement years

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and $, respectively, of assets related to the shared services agreement included within Due from related party on the Condensed Consolidated Balance Sheets, and $ and $, respectively, of assets related to lot purchase agreements included within Lot purchase agreement deposits on the Condensed Consolidated Balance Sheets. 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 or third parties.

As discussed above, the Company has entered into a land banking arrangement with a separate third-party to transfer developed lots to the third-party while retaining the right to repurchase the lots through option agreements. Under the terms of these option agreements, the Company obtains the right, but not the obligation, to repurchase the lots over a specified period of time at pre-determined prices. Consistent with ASC 606, the Company is required to continue recognizing the finished lots sold on its Condensed Consolidated Balance Sheets as the arrangement is accounted for as a financing arrangement rather than a sale. At the time the Company sells finished lots to the land banker and simultaneously enters into option agreements to repurchase those finished lots, the net cash received by the land banker represents approximately % of the carrying value of the associated finished lots. Management determined it holds a variable interest in the land banker through its potential to absorb some of the third-party’s first dollar risk of loss by not receiving an amount equal to or greater than the value of the associated finished lots the Company continues to recognize on its Condensed Consolidated Balance Sheets as Real estate inventory not owned. Management determined that the land banker is a VIE, however, the Company is not the primary beneficiary of the VIE as it does not have the power to direct the VIE’s significant activities related to land development. The maximum exposure to loss with respect to the land banking arrangement is limited to the value of the Real estate inventory not owned not financed by the land banker, which was $ as of March 31, 2024.

and $, respectively, and for the three months ended March 31, 2024 and 2023, revenue recognized over time from construction activities on land owned by customers totaled $ and $, respectively.

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and $, respectively, in advertising and marketing costs.

reportable segments: South Carolina and Other. The South Carolina reporting segment primarily represents UHG’s South Carolina homebuilding operations. This segment operates in the Upstate, Midlands, and Coastal regions of South Carolina, as well as a smaller presence in Georgia. The Other segment consists of UHG’s homebuilding operations in Raleigh, NC and mortgage operations conducted through a mortgage banking joint venture, Homeowners Mortgage, LLC which do not meet the quantitative thresholds to be disclosed separately.

The CODM reviews the results of operations, including total revenue and pretax income to assess profitability and allocate resources.

$ Other Total segment revenues Reconciling items from equity method investments()()Consolidated revenues$ $

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$ Other() Total segment income before taxes Corporate reconciling items (2):Unallocated corporate overhead() Stock-based compensation expense()()Corporate investment income Corporate interest expense() Change in fair value of derivative liabilities ()Consolidated income (loss) before taxes$ $()

As of March 31, 2024

As of December 31, 2023

As of March 31, 2024

As of December 31, 2023

Assets

Goodwill(3)

South Carolina

Other

Total segment assets

Corporate reconciling items (2):

Cash and cash equivalents

—

Deferred tax asset

—

Operating lease right-of-use assets

—

Capitalized interest (4)

—

Prepaid expenses and other assets

—

Other

—

Consolidated assets

___________________________

(1)The Company’s revenue includes revenue recognized at a point in time from production home closings, as well as revenue recognized over time from construction activities on land owned by customers. For the three months ended March 31, 2024 substantially all point in time revenue and over time revenue was recognized at the South Carolina segment. For the three months ended March 31, 2023, all point in time and over time revenue was recognized at the South Carolina segment.

(2)The corporate reconciling items included prior to consolidated income before taxes include unallocated corporate overhead (which includes all management incentive compensation), stock-based compensation expense, corporate interest income and expense, changes in fair value of derivative liabilities, and other corporate level items. Similarly, reconciling items included prior to consolidated assets include corporate cash and cash equivalents, deferred tax assets attributable to the corporate entity, and operating lease right-of-use assets. The Company’s overhead functions, such as accounting, treasury, and human resources, are centrally performed and the costs and related assets are not allocated to the Company’s operating segments. Corporate interest expense primarily consists of interest charges on the Convertible notes. Prior to the merger with DHHC, Legacy UHG did not have a corporate function and therefore did not maintain any corporate level accounts. Following the merger, the Company has implemented a corporate level accounting function, resulting in the need for certain reconciling adjustments which did not exist prior to the Business Combination.

(3)In 2024, the company acquired selected assets of Creekside Custom Homes, LLC, which resulted in the acquisition of goodwill. See Note 4 - Business acquisitions for further details.

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in cash. The acquisition allows UHG to further expand its presence in the coastal region of South Carolina, particularly in the Myrtle Beach, South Carolina area.

The acquisition was accounted for as a business combination under ASC 805, Business Combinations under the acquisition method, and the results of operations have been included in the Condensed Consolidated Financial Statements since the date of acquisition. The purchase price for the acquisition was allocated based on estimated fair value of the acquired assets and assumed liabilities as of January 26, 2024. The amounts for intangible assets were based on third-party valuations performed. The Company recognized the excess purchase price over the fair value of the net assets acquired as goodwill of $ (all of which is tax deductible). The goodwill arising from the acquisition consists largely of the expected synergies from expanding the Company’s market presence in South Carolina and the experience and reputation of the acquired management team.

For the three months ended March 31, 2024, the Company recorded Revenue and Net income of $ and $, respectively, related to Creekside operations. Transaction costs of $ related to this transaction were expensed as incurred within the Selling, general and administrative expense line item in the Condensed Consolidated Statement of Operations.

The purchase price allocation is preliminary and subject to change during its measurement period. The Company has not yet completed its evaluation and determination of certain assets acquired and liabilities assumed, primarily (i) the final valuation of intangible assets, and (ii) the final assessment and valuation of certain other assets acquired and liabilities assumed, such as inventory, which could also impact goodwill during the measurement period. Although not expected to be significant, such adjustments may result in changes in the valuation of assets and liabilities acquired.

Lot purchase agreement deposits Property and equipment, net Intangible assets Goodwill Liabilities()Total purchase price$

Herring Homes

On August 18, 2023, the Company completed the acquisition of selected assets of Herring Homes, LLC (“Herring Homes”), a North Carolina homebuilder, for a purchase price of $ in cash. The acquisition allows the Company to expand its presence into the Raleigh, North Carolina market.

The acquisition was accounted for as a business combination under ASC 805 under the acquisition method, and the results of operations have been included in the Condensed Consolidated Financial Statements since the date of acquisition. The purchase price for the acquisition was allocated based on estimated fair value of the assets and liabilities as of August 18, 2023. The Company recognized the excess purchase price over the fair value of the net assets acquired as goodwill of $. 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 $ 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.

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lots and homes under construction in separate transactions for a fair value of $ million and $ million, respectively, in the Raleigh, North Carolina market.

Rosewood

On October 25, 2023, the Company completed the acquisition of % of the common stock of Rosewood Communities, Inc., a South Carolina corporation (“Rosewood”) (the “Rosewood Acquisition”) for a purchase price of $, of which $ was in cash. The remaining purchase price is related to a $ warranty cost reserve and contingent consideration based on % of the EBITDA attributable to Rosewood’s business through December 31, 2025. The initial estimate of the contingent consideration is approximately $, which will be recorded as compensation expense if and when it is earned. The acquisition allows the Company to further expand its presence in the Upstate region of South Carolina.

The acquisition was accounted for as a business combination under ASC 805 under the acquisition method, and the results of operations have been included in the Condensed Consolidated Financial Statements since the date of acquisition. The purchase price for the acquisition was allocated based on estimated fair value of the assets and liabilities as of October 25, 2023. The amounts for intangible assets were based on third-party valuations performed. The Company recognized the excess purchase price over the fair value of the net assets acquired as goodwill of $ (all of which is tax deductible). The goodwill arising from the acquisition consists largely of the expected synergies from expanding the Company’s market presence in South Carolina and the experience and reputation of the acquired management team.

Transaction costs of $ related to this transaction were expensed as incurred within the Selling, general and administrative expense line item in the Condensed Consolidated Statement of Operations.

Inventories Lot purchase agreement deposits Other assets Property and equipment, net Intangible assets Goodwill Liabilities()Total purchase price$

In connection with the Rosewood acquisition, the Company recorded contingent consideration based on the estimated EBITDA attributable to Rosewood’s business through December 31, 2025. The measurement of contingent consideration was based on projected cash flows such as revenues, gross margin, overhead expenses and EBITDA and discounted to present value. The Company recorded the fair value of the contingent consideration within Other accrued expenses and liabilities on the acquisition date. The estimated earn-out payments are subsequently remeasured to fair value at each reporting date based on the estimated future earnings of the acquired entity and the re-assessment of risk-adjusted discount rates. Maximum potential exposure for contingent consideration is not estimable based on the contractual terms of the contingent consideration agreement, which allows for a percentage payout based on a potentially unlimited range of EBITDA.

Unaudited Pro Forma Financial Information

The following unaudited pro forma condensed consolidated results of operations are provided for illustrative purposes only and have been presented as if the Creekside acquisition had occurred on January 1, 2023. The disclosure of Rosewood is included for comparative purposes and reflects revenue and net income balances as if the acquisition closed on January 1, 2022. Unaudited pro forma net income adjusts the operating results of the stated acquisitions to reflect the additional costs that would have been recorded assuming the fair value adjustments had been applied as of the beginning of

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$ Net Income (Loss)$ $()

. See Note 13 - Convertible note payable 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, Contingent consideration, 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.

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$ $ $ Derivative private placement warrant liability Derivative public warrant liability Derivative stock option liability Total derivative liability Contingent consideration Total fair value$ $ $ $

Fair Value Measurements as of December 31, 2023

Level 1

Level 2

Level 3

Total

Contingent earnout liability

Derivative private placement warrant liability

Derivative public warrant liability

Derivative stock option liability

Total derivative liability

Contingent consideration

Total fair value

Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period. There were transfers to/from levels during the three month period ended March 31, 2024 and the year ended December 31, 2023.

$ $ $ Exercise of liability awards ()

December 31, 2023

Weighted average interest rate

Homebuilding Debt - Wells Fargo Syndication

Private Investor Debt

Total

Wells Fargo Bank

—

Regions Bank

—

Flagstar Bank

—

United Bank

—

Third Coast Bank

—

Other Notes Payable

—

Total debt on contracts

Homebuilding Debt - Wells Fargo Syndication

In July 2021, the Nieri Group entities entered into a $ Syndicated Credit Agreement (“Syndicated Line”) with Wells Fargo Bank, National Association (“Wells Fargo”). The Syndicated Line was a revolving credit facility with a maturity date of July 2024, and an option to extend the maturity date for that could be exercised upon approval from Wells Fargo. The Syndicated Line also included a $ 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 $, 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, lenders exited the Syndicated Line, and lenders joined as new participants of the Syndicated Line. An additional amendment (“Third Amendment”) was entered into on December 22, 2023 (“Third Amendment Date”) and amended financial covenants that are described below. On January 26, 2024 (“Fourth Amendment Date”), the Company entered into a new amendment (“Fourth Amendment”). As a result of this amendment the Company established a process for the joinder of additional subsidiary borrowers of the Company, and Rosewood was joined, jointly and severally with the Company and GSH as a borrower to 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.

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as of March 31, 2024 and $ as of December 31, 2023. The Company pays a fee ranging between and 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 (i) $ million, (ii) % of positive actual consolidated earnings earned in any fiscal quarter end, (iii) % of new equity contributed to the Company, (iv) % of any increase in tangible net worth resulting from an equity issuance upon the conversion or exchange of any security constituting indebtedness that is convertible or exchangeable, or is being converted or exchanged, for equity interests; and (v) % of the amount of any repurchase of equity interests in the Company, (b) a maximum leverage covenant that prohibits the leverage ratio from exceeding to 1.00, (c) a minimum debt service coverage ratio to be no less than to 1.00 for any fiscal quarter, (d) a minimum liquidity amount of not less the greater of i) $ or ii) an amount equal to x the trailing twelve month interest incurred, and (e) unrestricted cash of not less than % of the required liquidity at all times. The Company was in compliance with all debt covenants as of March 31, 2024 and December 31, 2023.

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 basis points to 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.

In connection with the amendments of the Syndicated Line, the Company incurred debt issuance costs, of which $ 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 $ and $ of amortized deferred financing costs within Other (expense) income, net for the three months ended March 31, 2024 and 2023, respectively. Outstanding deferred financing costs related to the Company’s Homebuilding debt were $ and $ as of March 31, 2024 and December 31, 2023, respectively, and are included in Prepaid expenses and other assets on the Condensed Consolidated Balance Sheets as the debt is a revolving arrangement.

Homebuilding Debt - Other

As a result of the Creekside acquisition, the Company assumed a series of construction loans with a financial institution. The loans have an interest rate of % and a maturity date of January 26, 2025. The outstanding balance of these arrangements was $ as of March 31, 2024.

Private Investor Debt

The Company had other borrowings with private investors totaling $ and $ as of March 31, 2024 and December 31, 2023, respectively, which are comprised of other notes payable and mortgage loans acquired in the normal course of business. The other notes payable have maturities ranging up to . The effective interest rates on these notes range from % to %. The mortgage loans contain release fee arrangements with no interest rate that are to be repaid through January 26, 2027.

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)$ $()Other activities()()()Total financing cash flows$()$()$()Non-cash activitiesSettlement of co-obligor debt to other affiliates$ $ $ Release of guarantor from GSH to shareholder Credit for earnest money deposits Total non-cash activity$ $ $

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.

Sale-leaseback

In December 2022, Legacy UHG closed on sale-leaseback transactions with related parties, whereby it is the lessee. The 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 $ and $ for the three months ended March 31, 2024 and 2023, respectively.

Leases

In addition to the transactions above, Legacy UHG has entered into 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.

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term, under the rate per square foot previously approved by the Related Party Transactions Committee.

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 months ended March 31, 2024 and 2023, the Company allocated overhead costs to the related party in the amount of $ and $, respectively, and was charged for property maintenance services and consulting services in the amount of $ and $, respectively, by the same related party. The remaining balance outstanding as of March 31, 2024 and December 31, 2023 was a receivable of $ and $, respectively, 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 March 31, 2024 and 2023, Revenue of $ and $, respectively, and Cost of sales of $ and $, respectively, were recognized in the Condensed Consolidated Statement of Operations.

Other

The Company utilizes a related party vendor to perform certain civil engineering services. For the three months ended March 31, 2024 and 2023, expenses of and $, respectively, were recognized in the Condensed Consolidated Statement of Operations.

% - % 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 over a specified period of time. Such agreements 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 March 31, 2024 all interests in lot purchase agreements, including with related parties, are recorded within Lot purchase agreement deposits on the Condensed Consolidated Balance Sheet and presented in the table below.

$ Remaining purchase price Total contract value$ $

Out of the lot purchase agreement deposits outstanding as of March 31, 2024 and December 31, 2023, $ and $ are with related parties.

The Company has the right to cancel or terminate the lot purchase agreements at any time for any reason. The legal obligation and economic loss resulting from a cancellation or termination is limited to the amount of the deposits paid. The cancellation or termination of a lot purchase agreement results in the Company recording a write-off of the nonrefundable deposit to Cost of sales. For the three months ended March 31, 2024 and 2023, the Company had no

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$ Reserves provided Payments for warranty costs and other ()()Warranty reserves at end of the period$ $

office space in North Carolina with a third party. The office leases have a remaining lease term of up to , 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 $ and $ within Selling, general, and administrative expense on the Condensed Consolidated Statements of Operations for the three months ended March 31, 2024 and 2023, respectively.

Operating lease expense included variable lease expense of $ and $ for the three months ended March 31, 2024 and 2023, respectively. The weighted-average discount rate for the operating leases was % and % during the three months ended March 31, 2024 and 2023, respectively. The weighted-average remaining lease term was and years for the three months ended March 31, 2024 and 2023, respectively.

2025202620272028 and thereafter Total undiscounted operating lease liabilities$ Interest on operating lease liabilities()Total present value of operating lease liabilities$

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 $ and $ 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 March 31, 2024 and 2023, respectively.

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million in original principal amount of Notes at a % original issue discount and were issued an additional UHG Class A Common Shares. The aggregate proceeds of the PIPE Investment were $ million and were allocated between the securities issued.

The Notes mature on March 30, 2028, and bear interest at a rate of %. The Company has the option to pay any accrued and unpaid interest at a rate in excess of % 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 % in cash rather than PIK Interest. The effective interest rate on the Notes is %.

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 of $ (“Initial Conversion Price”). 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 $ for trading days in a 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 - Derivatives and Hedging - Embedded Derivatives.

The Notes may be redeemed by the Company at any time prior to 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.

$ Unamortized Discount()()Carrying Value$ $

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million for the Notes for the three months ended March 31, 2024. Interest expense included within Cost of sales on the Condensed Consolidated Statements of Operations was $ million for the Notes for the three months ended March 31, 2024.

% %Expected volatility % %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 of comparable publicly traded companies.

$ Granted Exercised() Forfeited() Outstanding, March 31, 2024 $ Options exercisable at March 31, 2024 $

On February 16, 2024, the Company granted performance-based stock options to a non-employee consultant that vest upon the occurrence of a specified event. The grant date fair value of the options is $, which was determined using the Black-Scholes option-pricing model. As of March 31, 2024, the Company determined the performance condition would not be met and the options were forfeited. compensation expense related to these stock options was recorded.

On February 26, 2024, the Company granted stock options to directors that vest annually in equal installments over . The options also include a clause which accelerates the vesting of the options on the date, if any, that the VWAP of the Company’s Class A common stock for out of the preceding consecutive trading days is greater than or equal to $. The grant date fair value of the options was $ and was determined using the Black-Scholes and Monte Carlo models. As of March 31, 2024, the accelerator had not been triggered.

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and $, respectively. As of March 31, 2024, there was unrecognized stock compensation expense related to non-vested stock option arrangements totaling $. The weighted average period over which the unrecognized stock compensation expense is expected to be recognized is years.

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, Derivatives and Hedging as a derivative liability and marked to market at each reporting period end. As of March 31, 2024, and December 31, 2023, the derivative liability of stock options amounts to $ and $, respectively, and is included within Derivative liability on the Condensed Consolidated Balance Sheet.

Restricted Stock Units (“RSUs”)

The Company grants time-based RSUs 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 typically vest annually over . On February 26, 2024 the Company separately granted RSUs to certain members of the Board of Directors that immediately vested on the date of the grant.

Stock-based compensation expense included in Selling, general and administrative expense in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $ for the three months ended March 31, 2024, including $ related to the immediate vesting RSUs. As of March 31, 2024, there was unrecognized pre-tax compensation expense of $ related to time-based restricted stock units that is expected to be recognized over a weighted-average period of years.

$ Granted Exercised() Forfeited() Outstanding, March 31, 2024 $

Performance-Based Restricted Stock Units (“PSUs”)

On February 16, 2024, the Company granted PSUs to certain employees. The Company granted a total of PSUs, which will vest upon the date, if any, that the volume weighted average price of the Company’s Class A common stock for out of the preceding consecutive trading days is greater than or equal to $ during the period through March 30, 2028. The grant date fair value of each such PSU was $, which was determined using the Monte Carlo simulation method. Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for PSUs was $ for the three months ended March 31, 2024. As of March 31, 2024, there was unrecognized pre-tax compensation expense of $ related to PSUs that is expected to be recognized over a weighted-average period of years.

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$ Granted

The change in the fair value of the Earnout Shares between December 31, 2023 and March 31, 2024 resulted in a gain of $ million and was primarily attributable to the decrease in the current stock price of the Company from $ as of December 31, 2023 to $ as of March 31, 2024.

The change in the fair value of the Earnout Shares between March 30, 2023 and March 31, 2023 resulted in a loss of $ million and was primarily attributable to the increase in the current stock price of the Company from $ as of March 30, 2023 to $ as of March 31, 2023.

As none of the earnout Triggering Events have occurred as of March 31, 2024, no shares have been distributed.

of the Private Placement Warrants were forfeited. The remaining 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 months ended March 31, 2024 and March 31, 2023 was de minimis. These changes are included in Change in fair value of derivative liabilities on the Condensed Consolidated Statement of Operations.

$ Exercise price$ $ Expected life (in years) Risk-free interest rate % %Expected volatility % %Expected dividend yield

million and gain of $ million, respectively. These changes are included in Change in fair value of derivative liabilities on the Condensed Consolidated Statement of Operations.

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for the three months ended March 31, 2024 as compared to an income tax benefit of $ for the three months ended March 31, 2023. 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. Excluding discrete items related to fair value adjustments on derivative liabilities, the Company's estimated effective tax rate as of March 31, 2024 is % as compared to % as of March 31, 2023. This differs from the federal statutory rate of % primarily due to state income tax expense and nondeductible expenses.

% of the participant’s base salary rate at % and % of the next % for a maximum contribution of %. In addition, participants become % vested with respect to employer contributions after completing of service starting in 2021. Administrative costs for the plan were paid by the Company.

Total contributions paid to the plans for Legacy UHG’s employees for the three months ended March 31, 2024 and 2023 were approximately $, and $, respectively. These amounts are recorded in Selling, general and administrative expenses on the Condensed Consolidated Statements of Operations.

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$()Basic income (loss) available to common shareholders$ $()Effect of dilutive securities:Add back:Interest on Convertible note, net of tax Change in fair value of stock options - liability classified, net of tax() Diluted income available to common shareholders$ $()Weighted-average number of common shares outstanding - basic Effect of dilutive securities:Convertible notes Stock options - liability classified Stock warrants Restricted stock units Weighted-average number of common shares outstanding - diluted Net earnings per common share:Basic$ $()Diluted$ $()

Private placement warrants Public warrants Stock options - equity classified Convertible notes Total anti-dilutive features

The Company’s Earnout Shares and PSUs are excluded from the anti-dilutive table above for the three months ended March 31, 2024, as the underlying shares remain contingently issuable as the Earnout Triggering Events and performance-based conditions, respectively, have not been satisfied.

million, which will provide capital for future land development into finished lots.

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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 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. In 2023, 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 March 31, 2024 consists of approximately 10,900 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 14,000 homes and currently builds in 63 active subdivisions at prices that generally range from approximately $200,000 to approximately $600,000. For the three months ended March 31, 2024 and 2023, UHG had 384 and 389 net new orders, and generated approximately $100.8 million and $94.8 million in revenue on 311 and 328 closings, respectively.

UHG’s strategy to grow its business is multifaceted. UHG expects to grow organically, both arising out of its historical operations and through expansion of its business verticals. UHG’s business verticals are positioned to further drive the Company’s growth include its mortgage joint venture Homeowners Mortgage, LLC (the “Joint Venture”) and its build-to-rent (“BTR”) platform, pursuant to which UHG will continue to 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. In addition, 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 revenues increased from approximately $94.8 million for the three months ended March 31, 2023 to $100.8 million for the three months ended March 31, 2024. For the three months ended March 31, 2024, UHG generated net income of approximately $24.9 million, which included $26.4 million related to the change in fair value of derivative liabilities, gross profit of 16.0%, adjusted gross profit of 20.4%, and adjusted EBITDA margin of 7.2%, representing an increase of $229.4 million, a decrease of 1.7%, an increase of 0.2%, and a decrease of 1.8%, respectively, from the three months ended March 31, 2023.

Adjusted gross profit, EBITDA, adjusted EBITDA, and EBITDA margin are not financial measures under generally accepted accounting principles in the United States of America (“GAAP”). See “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.

In recent years 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, mostly in the form of buyer financing incentives such as mortgage rate buy downs, mortgage forward commitments, or cash incentives applied against

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closing costs. While UHG cannot predict the extent to which the aforementioned factors will impact its performance, it believes that its land-light business model positions it 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.

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.

Prior to the Closing Date, Legacy UHG’s historical financial records, including the historical financial position, results of operations, and cash flows of Legacy UHG were prepared on a carve-out basis in accordance with GAAP. 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 of the Notes to the Condensed Consolidated Financial Statements included elsewhere in this quarterly report for more information on the Business Combination and Basis of Presentation.

Recent Developments

Creekside Custom Homes Acquisition

On January 26, 2024, the Company completed the acquisition of selected assets of Creekside Custom Homes, LLC, a South Carolina corporation (“Creekside”) (the “Creekside Acquisition”) for $12,742,895 in cash. In the preliminary purchase allocation, UHG recognized the excess purchase price over the fair value of the net assets acquired as goodwill of $3,573,040. The goodwill arising from the acquisition consists largely of the expected synergies from expanding the Company’s market presence in South Carolina and the experience and reputation of the acquired management team. The remaining basis is primarily comprised of the fair value of inventory, lot purchase agreement deposits acquired, and intangible assets of $10,478,116, $3,055,500, and $442,000 respectively, offset by $4,825,761 of liabilities acquired.

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

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incentives in the form of mortgage rate buydowns and closings costs. In addition, Cost of sales includes payroll, including capitalized bonuses for UHG’s 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. Developed land is acquired from related parties 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, increases UHG’s Cost of sales.

Selling, General and Administrative Expense

Selling general and administrative (“SG&A”) expenses consist of corporate and marketing overhead expenses such as payroll, insurance, IT, office expenses, advertising, outside professional services, travel expenses, lease expenses, public company expenses, transaction expenses, stock compensation expense associated with the equity classified Earnout Shares issued in connection with the Business Combination and stock compensation expense associated with the 2023 Plan. UHG recognizes these costs in the period they are incurred.

Prior to the Business Combination, a portion of the 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, gain or loss upon sale or retirement of depreciable assets, a portion of interest expense on the Notes entered into in connection with the Business Combination, investment income, management fees, and miscellaneous vendor and credit card rebates.

Equity in Net Earnings from Investment in Joint Venture

The Company owns a 49% equity stake in Homeowners Mortgage, LLC, a mortgage banking joint venture which is accounted for under the equity method and is not consolidated.

Change in Fair Value of Derivative Liabilities

Change in fair value of derivative liabilities includes certain stock options (as discussed in Note 14 - Stock-based compensation of the Notes to the Condensed Consolidated Financial Statements contained in this report) 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 of the Notes to the Condensed Consolidated Financial Statements contained in this report), warrants issued in a private placement by DHHC (the “Private Placement Warrants”, as discussed in Note 16 - Warrant liability of the Notes to the Condensed Consolidated Financial Statements contained in this report) and certain Earnout Shares issued in connection with the Business Combination (as discussed in Note 15 - Earnout shares of the Notes to the Condensed Consolidated Financial Statements contained in this report). 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, SG&A 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 Benefit

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

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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 (Loss)

Net income (loss) is income before taxes adjusted for income tax benefit.

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, amortization included in homebuilding cost of sales (primarily adjustments resulting from the application of purchase accounting in connection with acquisitions) and non-recurring remediation costs.

Results of Operations

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

The following table presents summary results of operations for the periods indicated:

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	Three Months Ended March 31,
	2024			2023			Amount Change			% Change
Statements of Operations
Revenue, net of sales discounts	$	100,838,245		$	94,826,702		$	6,011,543		6.3	%
Cost of sales	84,744,198			78,048,929			6,695,269			8.6	%
Selling, general and administrative expense	17,054,499			16,687,401			367,098			2.4	%
Other (expense) income, net	(1,962,845)			202,715			(2,165,560)			(1,068.3)	%
Equity in net earnings from investment in joint venture	318,299			245,808			72,491			29.5	%
Change in fair value of derivative liabilities	26,379,710			(207,064,488)			233,444,198			(112.7)	%
Income (loss) before taxes	$	23,774,712		$	(206,525,593)		$	230,300,305		(111.5)	%
Income tax benefit	(1,163,512)			(2,021,265)			(857,753)			42.4	%
Net income (loss)	$	24,938,224		$	(204,504,328)		$	229,442,552		(112.2)	%
Other Financial and Operating Data:
Active communities at end of period(a)	63			52			11			21.2	%
Home closings	311			328			(17)			(5.2)	%
Average sales price of homes closed(b)	$	335,057		$	314,250		$	20,807		6.6	%
Net new orders (units)	384			389			(5)			(1.3)	%
Cancellation rate	9.6		%	13.4		%	(3.8)		%	(28.4)	%
Backlog	262			320			(58)			(18.1)	%
Gross profit	$	16,094,047		$	16,777,773		$	(683,726)		(4.1)	%
Gross profit %(c)	16.0		%	17.7		%	(1.7)		%	(9.6)	%
Adjusted gross profit(d)	$	20,613,862		$	19,164,605		$	1,449,257		7.6	%
Adjusted gross profit %(c)	20.4		%	20.2		%	0.2		%	1.0	%
EBITDA(d)	$	29,921,455		$	(204,010,458)		$	233,931,913		(114.7)	%
EBITDA margin %(c)	29.7		%	(215.1)		%	244.8		%	(113.8)	%
Adjusted EBITDA(d)	$	7,283,518		$	8,517,210		$	(1,233,692)		(14.5)	%
Adjusted EBITDA margin %(c)	7.2		%	9.0		%	(1.8)		%	(20.0)	%

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(a)UHG had 6 communities in closeout for the three months ended March 31, 2024 and 9 communities in closeout for the three months ended March 31, 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 and build to rent 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 “Non-GAAP Financial Measures.”

Revenues: Revenues for the three months ended March 31, 2024 were $100.8 million, an increase of $6.0 million, or 6.3%, from $94.8 million for the three months ended March 31, 2023. The increase in revenues was primarily attributable to the increase in average sales price of production-built homes, partially offset by the decrease in production-built home closings. 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 March 31, 2024 was $335,057, an increase of $20,807, or 6.6%, from the average sales price of production-built homes closed of $314,250 for the three months ended March 31, 2023.

Cost of Sales and Gross Profit: Cost of sales for the three months ended March 31, 2024 was $84.7 million, an increase of $6.7 million, or 8.6%, from $78.0 million for the three months ended March 31, 2023. The increase in Cost of sales was largely attributable to an increase in incentives, primarily in the form of mortgage rate buydowns and closing costs, as well as an increase in interest expense and the amortization of purchase accounting adjustments. The increase was partially offset by a decrease in number of homes closed. UHG closed 311 homes during the three months ended March 31, 2024, a decrease of 17 home closings, or 5.2%, as compared to 328 homes closed during the three months ended March 31, 2023.

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Gross profit for the three months ended March 31, 2024 was $16.1 million, a decrease of $0.7 million, or 4.2%, from $16.8 million for the three months ended March 31, 2023, 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 March 31, 2024 was 16.0%, a decrease of 1.7%, as compared 17.7% for the three months ended March 31, 2023.

Adjusted Gross Profit: Adjusted gross profit for the three months ended March 31, 2024 was $20.6 million, an increase of $1.4 million, or 7.3%, as compared to $19.2 million for the three months ended March 31, 2023. Adjusted gross profit as a percentage of revenue for the three months ended March 31, 2024 was 20.4%, an increase of 0.2%, as compared to 20.2% for the three months ended March 31, 2023. The increase in adjusted gross profit as a percentage of revenue was attributable to slightly lower costs of sales which was driven by higher incentives offset by lower lumber costs. 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 “Non-GAAP Financial Measures.”

Selling, General and Administrative Expense: Selling, general and administrative expense for the three months ended March 31, 2024 was $17.1 million, an increase of $0.4 million, or 2.4%, from $16.7 million for the three months ended March 31, 2023. The overall increase was driven by an increase of $0.8 million in public company expenses to support the Company’s growth and meet the regulatory standards of a public company, and an increase in rent expense of $0.2 million, partially offset by a decrease in salaries, wages, and related expenses of $0.6 million, primarily attributable to lower stock-based compensation.

Other (Expense) Income, Net: Total Other (expense) income, net for the three months ended March 31, 2024 was $2.0 million of expense, a decrease of $2.2 million, from $0.2 million of income for the three months ended March 31, 2023. The decrease in Other (expense) income, net was primarily attributable to an increase in interest expense on the Convertible Notes of $2.1 million.

Equity in Net Earnings from Investment in Joint Venture: Equity in net earnings from investment in joint venture for the three months ended March 31, 2024 was $0.3 million, an increase of $0.1 million, from $0.2 million for the three months ended March 31, 2023. The increase in equity in net earnings from investment in joint venture increased the investment in joint venture as of March 31, 2024 to $1.7 million.

Change in Fair Value of Derivative Liabilities: Change in fair value of derivative liabilities for the three months ended March 31, 2024 was a gain of $26.4 million as compared to a loss of $207.1 million for the three months ended March 31, 2023. Under ASC 815, derivative liabilities are marked to market each reporting period with changes recognized on the Condensed Consolidated Statement of Operations. This change was primarily attributable to a gain of $26.4 million related to the Earnout Shares.

Income Tax Benefit: Income tax benefit for the three months ended March 31, 2024 was $1.2 million as compared to $2.0 million for the three months ended March 31, 2023. 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 March 31, 2024 is 33.4% as compared to 25.3% as of March 31, 2023.

Net Income (Loss): Net income (loss) for the three months ended March 31, 2024 was $24.9 million, an increase of $229.4 million, or 112.2%, from a loss of $204.5 million for the three months ended March 31, 2023. The increase in Net income was primarily attributable to the increase in income before taxes of $230.2 million, or 111.5%, during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 (which is primarily attributable to the change in fair value of derivative liabilities), partially offset by a decrease in income tax benefit of $0.8 million, during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Non-GAAP Financial Measures

Adjusted Gross Profit

Adjusted gross profit is a non-GAAP financial measure used by management of the Company as a supplemental measure in evaluating operating performance. The Company defines adjusted gross profit as gross profit excluding the effects of capitalized interest expensed in cost of sales, amortization included in homebuilding cost of sales (primarily adjustments resulting from the application of purchase accounting in connection with acquisitions), and non-recurring remediation costs. The Company’s management believes this information is meaningful because it separates the impact that

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capitalized interest, purchase accounting adjustments, and non-recurring remediation costs directly expensed in cost of sales have on gross profit to provide a more specific measurement of the Company’s gross profits. However, because adjusted gross profit information excludes certain balances expensed in cost of sales, which have real economic effects and could impact the Company’s results of operations, the utility of adjusted gross profit information as a measure of the Company’s operating performance may be limited. Other companies may not calculate adjusted gross profit information in the same manner that the Company does. Accordingly, adjusted gross profit information should be considered only as a supplement to gross profit information as a measure of the Company’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 March 31,
	2024			2023
Revenue, net of sales discounts	$	100,838,245		$	94,826,702
Cost of sales	84,744,198			78,048,929
Gross profit	$	16,094,047		$	16,777,773
Interest expense in cost of sales	3,513,019			2,386,832
Amortization in homebuilding cost of sales(a)	948,336			—
Non-recurring remediation costs	58,460			—
Adjusted gross profit	$	20,613,862		$	19,164,605
Gross profit %(b)	16.0		%	17.7		%
Adjusted gross profit %(b)	20.4		%	20.2		%

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(a) Represents expense recognized resulting from purchase accounting adjustments

(b) 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 the Company. The Company 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, and (iv) taxes. UHG defines adjusted EBITDA as EBITDA before stock-based compensation expense, transaction cost expense, non-recurring loss on disposal of leasehold improvements, non-recurring remediation costs, amortization included in homebuilding cost of sales (adjustments resulting from the application of purchase accounting in connection with acquisitions), and change in fair value of derivative liabilities. Management of the Company believes EBITDA and adjusted EBITDA are useful because they provide a more effective evaluation of UHG’s operating performance and allow comparison of UHG’s results of operations from period to period without regard to UHG’s financing methods or capital structure or other items that impact comparability of financial results from period to period such as fluctuations in interest expense or effective tax rates, levels of depreciation or amortization, or unusual items. EBITDA and adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. UHG’s computations of EBITDA and adjusted EBITDA may not be comparable to EBITDA or adjusted EBITDA of other companies.

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.

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	Three Months Ended March 31,
	2024			2023
Net income (loss)	$	24,938,224		$	(204,504,328)
Interest expense in cost of sales	3,513,019			2,386,832
Interest expense in other income, net	2,142,192			—
Depreciation and amortization	450,042			214,930
Taxes	(1,122,022)			(2,107,892)
EBITDA	$	29,921,455		$	(204,010,458)
Stock-based compensation expense	1,509,964			4,499,156
Transaction cost expense	1,225,013			964,024
Non-recurring remediation costs	58,460			—
Amortization in homebuilding cost of sales(b)	948,336			—
Change in fair value of derivative liabilities	(26,379,710)			207,064,488
Adjusted EBITDA	$	7,283,518		$	8,517,210
EBITDA margin(a)	29.7		%	(215.1)		%
Adjusted EBITDA margin(a)	7.2		%	9.0		%

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(a) Calculated as a percentage of revenue

(b) Represents expense recognized resulting from purchase accounting adjustment

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 March 31, 2024, UHG had approximately $28.7 million in cash and cash equivalents, a decrease of $28.0 million, from $56.7 million as of December 31, 2023. 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 March 31, 2024 and December 31, 2023, UHG had approximately $63.3 million, and $24.4 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 has used proceeds received from the Business Combination and the PIPE Investments for general corporate purposes, including corporate operating expenses and for the acquisitions of homebuilders which closed in 2023 and January of 2024. UHG believes that its current cash holdings including proceeds from the Business Combination and PIPE Investments, as well as cash generated from continuing operations, cash available under its revolving lines of credit and cash obtained from land banking arrangements, 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

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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. 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.

The Company’s strategy is to acquire developed lots through related parties, unrelated third party land developers, and land bankers pursuant to lot purchase agreements and land banking arrangements. When entering into these contracts, the Company agrees to purchase finished lots at predetermined prices, time frames, and quantities that match expected selling pace in the community. Most lot purchase agreements require the Company to pay a nonrefundable cash deposit of approximately 15% - 20% of the agreed-upon fixed purchase price of the developed lots. Refer to Note 2 - Summary of significant accounting policies and Note 10 - Lot purchase agreement deposits of the Notes to the Condensed Consolidated Financial Statements for additional information.

Homebuilding Debt

Prior to the Business Combination, Legacy UHG, jointly with its Other Affiliates (see Note 1 - Nature of operations and basis of presentation of the Notes to the 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.

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 (“Other Affiliates’ debt”). For the three months ended March 31, 2024 and 2023, Other Affiliates borrowed zero, and $136,773, respectively. These amounts are recorded on the Condensed Consolidated 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. As a result there is no remaining debt balance associated with Other Affiliates as of March 31, 2023. 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 - Wells Fargo Syndication, 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 homebuilding debt is considered short-term as of March 31, 2024 and December 31, 2023.

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The following table and descriptions provide a summary of Company’s material debt under the revolving lines of credit for the periods indicated:


	March 31, 2024
	Weighted average interest rate		Homebuilding Debt - Wells Fargo Syndication		Homebuilding Debt - Other		Private Investor Debt		Total
Wells Fargo Bank	8.57	%	$	18,740,639	$	—	$	—	$	18,740,639
Regions Bank	8.57	%	15,857,465		—		—		15,857,465
Flagstar Bank	8.57	%	14,415,877		—		—		14,415,877
United Bank	8.57	%	11,532,701		—		—		11,532,701
Third Coast Bank	8.57	%	8,649,526		—		—		8,649,526
Other Notes Payable			—		2,216,853		2,569,327		4,786,180
Total debt on contracts			$	69,196,208	$	2,216,853	$	2,569,327	$	73,982,388


	December 31, 2023
	Weighted average interest rate		Homebuilding Debt - Wells Fargo Syndication		Private Investor Debt		Total
Wells Fargo Bank	8.13	%	$	20,907,306	$	—	$	20,907,306
Regions Bank	8.13	%	17,690,798		—		17,690,798
Flagstar Bank	8.13	%	16,082,543		—		16,082,543
United Bank	8.13	%	12,866,035		—		12,866,035
Third Coast Bank	8.13	%	9,649,526		—		9,649,526
Other Notes Payable			—		3,255,221		3,255,221
Total debt on contracts			$	77,196,208	$	3,255,221	$	80,451,429

Homebuilding Debt - 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. An additional amendment (“Third Amendment”) was entered into on December 22, 2023 (“Third Amendment Date”) and amended two financial covenants that are described below. On January 26, 2024 (“Fourth Amendment Date”), the Company entered into a new amendment (“Fourth Amendment”). As a result of this amendment the Company established a process for the joinder of additional subsidiary borrowers of the Company, and Rosewood was joined, jointly and severally with the Company and GSH as a borrower to 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 $63,272,797 as of March 31, 2024 and $24,398,576 as of December 31, 2023. 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 (i) $70 million, (ii) 25% of positive actual consolidated earnings earned in any fiscal quarter end, (iii) 100% of new

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equity contributed to the Company, (iv) 100% of any increase in tangible net worth resulting from an equity issuance upon the conversion or exchange of any security constituting indebtedness that is convertible or exchangeable, or is being converted or exchanged, for equity interests; and (v) 100% of the amount of any repurchase of equity interests in the Company, (b) a maximum leverage covenant that prohibits the leverage ratio from exceeding 2.25 to 1.00, (c) a minimum debt service coverage ratio to be no less than 2.00 to 1.00 for any fiscal quarter, (d) a minimum liquidity amount of not less the greater of i) $30,000,000 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 at all times. The Company was in compliance with all debt covenants as of March 31, 2024 and December 31, 2023.

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.

Homebuilding Debt - Other

As a result of the Creekside acquisition, the Company assumed a series of construction loans with a financial institution. The loans have an interest rate of 8.25% and a maturity date of January 26, 2025. The outstanding balance of these arrangements was $2,216,853 as of March 31, 2024.

Private Investor Debt

The Company had other borrowings totaling $2,569,327 and $3,255,221 as of March 31, 2024 and December 31, 2023, respectively, which are comprised of other notes payable and mortgage loans acquired in the normal course of business. The other notes payable have maturities ranging up to two years. The effective interest rates on these notes range from 6.79% to 7.69%. The mortgage loans contain release fee arrangements with no interest rate that are to be repaid through January 26, 2027.

Convertible Note

The Company entered into a Convertible Note Agreement in connection with the closing of the Business Combination. The Notes have an outstanding balance of $68,526,995 and $68,038,780, as of March 31, 2024 and December 31, 2023, respectively, and mature on March 30, 2028. The Notes bear interest at a rate of 15%. Future interest payments on the remaining outstanding Notes totaled approximately $60,273,006, with approximately $14,220,410 due within the next twelve months. Refer to Note 13 - Convertible note payable of the Notes to the Condensed Consolidated Financial Statements contained in this report for additional information.

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 March 31, 2024, the future minimum lease payments required under these leases totaled $6.6 million, with $1.5 million payable within the next twelve months. Further information regarding Company’s leases is provided in Note 12 - Commitments and contingencies of the Notes to the Condensed Consolidated Financial Statements.

Cash Flows

Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

The following table summarizes UHG’s cash flows for the periods indicated:

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	Three Months Ended March 31,
	2024		2023
Net cash flows (used in) provided by operating activities	$	(17,897,583)	$	23,051,836
Net cash flows (used in) provided by investing activities	(12,752,495)		6,871
Net cash flows provided by financing activities	2,628,754		75,613,874

Operating Activities

Net cash flows used in operating activities during the three months ended March 31, 2024 was $17.9 million, as compared to cash flows provided of $23.1 million for the three months ended March 31, 2023. The difference in cash flows period over period is a decrease of $41.0 million. This change is primarily attributable to a decrease in cash provided by net income adjusted for non-cash transactions and cash provided by a change in inventory of $7.1 million and $25.2 million, respectively, and an increase in cash used in accounts payable of $7.4 million.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2024 was attributable to cash paid to acquire the homebuilding assets of Creekside Custom Homes of $12.7 million.

Net cash provided by investing activities for the three months ended March 31, 2023 was attributable to proceeds of from the sale of property and equipment of $0.1 million offset by the purchase of additional property and equipment of $0.1 million.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2024 was $2.6 million compared to net cash used in financing activities of $75.6 million for the three months ended March 31, 2023. The difference in cash flows period over period is $73.0 million. The decrease in financing activities was primarily attributable to proceeds from homebuilding debt and land banking arrangements, net of debt issuance costs, of $37.7 million, partially offset by repayment of homebuilding debt of $35.1 million during the three months ended March 31, 2024. In contrast, during the three months ended March 31, 2023, cash flows provided by financing activities included cash received of $94.4 million as a result of the merger, PIPE, and recapitalization transactions, partially offset by distributions and net transfers to shareholders and other affiliates of $17.9 million.

Critical Accounting Estimates

There have been no significant changes to the Company’s critical accounting policies during the three months ended March 31, 2024 as compared to those disclosed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, aside from those included below.

Stock-Based Compensation

As of March 31, 2024, the Company had four types of stock-based compensation outstanding: stock options, restricted stock units (“RSUs”), performance-based restricted stock units (“PSUs”) with a market condition and stock warrants. Stock option, RSU, and PSU awards are expensed on a straight-line basis over the requisite service period of the entire award from the date of grant through the period of the last separately vesting portion of the grant. For grants that include graded vesting and either a market or performance condition, the Company utilizes the graded vesting method to recognize compensation expense. The Company accounts for forfeitures when they occur. The Company’s stock warrant awards do not contain a service condition and are expensed on the grant date.

The fair value of stock option awards, granted or modified, is determined on the grant date (or modification or acquisition dates, if applicable) at fair value, using the Black‑Scholes option pricing model. The fair value and requisite service period of PSU awards with a market condition are determined using a Monte Carlo simulation model. These models require the input of highly subjective assumptions, including the option's expected term and stock price volatility. The grant date fair value of the RSUs is the closing price of UHG’s common stock on the date of the grant. Refer to Note 14 - Stock-based compensation of the Notes to the Consolidated Financial Statements contained in this report for additional information.

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Land Banking

During the first quarter of 2024, the Company entered into a land banking arrangement with a separate third-party to transfer developed lots to the third-party while retaining the right to repurchase the lots through option agreements. Under the terms of these option agreements, the Company obtains the right, but not the obligation, to repurchase the lots over a specified period of time at pre-determined prices. Consistent with ASC 606, the Company is required to continue recognizing the finished lots sold on its Condensed Consolidated Balance Sheets as the arrangement is accounted for as a financing arrangement rather than a sale. At the time the Company sells finished lots to the land banker and simultaneously enters into option agreements to repurchase those finished lots, the net cash received by the land banker represents approximately 80% of the carrying value of the associated finished lots. Management determined it holds a variable interest in the land banker through its potential to absorb some of the third-parties’ first dollar risk of loss by not receiving an amount equal to or greater than the value of the associated finished lots the Company continues to recognize on its Condensed Consolidated Balance Sheets as Real estate inventory not owned.

Management determined that the land banker is a VIE, however, the Company is not the primary beneficiary of the VIE as it does not have the power to direct the VIE’s significant activities related to land development.

Off-Balance Sheet Arrangements

Land-Light Acquisition Strategy

The Company operates a land-light and capital efficient lot acquisition strategy primarily through lot purchase agreements. These contracts generally allow the Company to forfeit its right to purchase the lots for any reason, and its sole legal obligation and economic loss as a result of such forfeitures is limited to the amount of the deposits paid pursuant to such agreements. The Company does not have any financial guarantees or completion obligations, and does not guarantee lot purchases on a specific performance basis under these agreements.

UHG’s pipeline as of March 31, 2024 consists of approximately 10,900 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. The entire risk of loss pertaining to the aggregate purchase price of contractual commitments resulting from non-performance under finished lot purchase agreements is limited to approximately $38.7 million in Lot purchase agreement deposits as of March 31, 2024.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

UHG’s operations are interest rate sensitive. As overall housing demand is adversely affected by increases in interest rates, a significant increase in interest rates may negatively affect the ability of homebuyers to secure adequate financing. Higher interest rates could adversely affect UHG’s revenues, gross profits and net income.

UHG is subject to market risk on its debt instruments primarily due to fluctuations in interest rates. UHG utilizes both fixed-rate and variable-rate debt. For fixed-rate debt, changes in interest rates generally affect the fair value of the debt instrument but not earnings or cash flows. Conversely, for variable-rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect the Company’s future earnings and cash flows. UHG has not entered into, nor does it intend to enter into in the future, derivative financial instruments for trading or speculative purposes or to hedge against interest rate fluctuations

The interest rate on the borrowings under the Syndicated Line is based upon adjusted daily simple SOFR plus an applicable margin ranging between 275 basis points and 350 basis points, based upon UHG’s leverage ratio. Therefore, UHG is exposed to market risks related to fluctuations in interest rates on its outstanding debt under the Syndicated Line. As of March 31, 2024, UHG had $69.2 million outstanding under the Syndicated Line, which carried a weighted average interest rate of 8.57%. A 100 basis point increase in overall interest rates would negatively affect the Company’s net income by approximately $0.7 million.

The fair value of the outstanding Notes is subject to market risk and other factors due to the convertible features. 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 $5.58 per share. Going forward, the fair value of the Notes will generally increase as the common stock price increases and will generally decrease as the common stock price declines in value. The Notes are

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carried at amortized cost and the fair value is presented for disclosure purposes only. The interest and market value changes affect the fair value of the Notes, but do not impact UHG’s financial position, cash flows, or results of operations due to the fixed nature of the debt obligation.

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.

UHG identified material weaknesses in its internal controls in the following areas: ineffective tax review controls; lack of second level reviews in business processes; lack of formal control review and documentation required by COSO principles; ineffective Information Technology General Controls (“ITGCs”) related to certain systems, applications, and tools used for financial reporting; and the Company did not establish effective user access and segregation of duties controls across financially relevant functions.

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 misstatements 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.

•reviewing and enhancing its system of internal controls across all departments to ensure that financial statement line items and disclosures are addressed by sufficiently precise controls;

•continuing to enhance the adoption of the COSO framework in order to develop and deploy control activities and assess the effectiveness of internal controls over financial reporting;

•assessing and updating its internal controls related to the financial statement review process, including review controls over manual journal entries and account reconciliations;

•evaluating and improving IT general controls over information systems relevant to financial reporting, including privileged access and segregation of duties;

•realigning existing personnel and the adding both internal and external personnel to strengthen management’s review and documentation over internal control over financial reporting; and

•implementing a more thorough second level review process over the tax provision.

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

Except for the efforts to begin remediating the material weaknesses described above, there were no changes during the quarter ended March 31, 2024 in UHG’s internal control over financial reporting that have materially affected, or are reasonably likely to material affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Reference is made to Note 12 - Commitments and contingencies, incorporated herein by reference, to the Company’s 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 Part I, Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. 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 March 31, 2024, 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)None.

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.

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EXHIBIT INDEX

The following exhibits are included in this report on Form 10-Q for the period ended March 31, 2024 (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 American 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†						Second Amendment to the Second Amended and Restated Credit Agreement and Omnibus Amendment to Loan Documents, dated as of January 26, 2024, among United Homes Group, Inc., Great Southern Homes, Inc., Rosewood Communities, Inc., Wells Fargo Bank, National Association, and the lenders party thereto (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 29, 2024)
10.2						Form of Time-Based Stock Option Award and Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 23, 2024)
10.3						Form of Performance Stock Unit Award and Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on February 23, 2024)
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 or furnished herewith.
**			Certain of the exhibits and schedules to the Exhibit have been omitted in accordance with Regulation S-K Item 601(a)(5). The Company agrees to furnish a copy of all omitted exhibits and schedules to the SEC upon its request.
†			Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.

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.

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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: May 10, 2024	By:	/s/ Keith Feldman
		Keith Feldman
		Chief Financial Officer
		(Principal Financial and Accounting Officer)

United Homes Group, Inc. - Quarter Report: 2024 March (Form 10-Q)

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