Executive Summary / Key Takeaways

• United Homes Group (UHG) is executing a comprehensive operational and strategic transformation, leveraging its "land-light" model, a significant product refresh, and aggressive cost reduction initiatives to enhance profitability and capital efficiency.
• The company's newly designed homes are demonstrating strong performance, achieving average gross margins of approximately 24%, while identified direct construction cost savings exceed $3.5 million for homes expected to close in 2025.
• Despite a reported net loss of $31.3 million in the third quarter of 2025, primarily driven by non-cash derivative adjustments, and a 23.5% year-over-year revenue decline, management projects overall gross margin improvement in 2025 compared to 2024.
• UHG is contending with significant corporate governance instability following recent board resignations, which has raised concerns among key stakeholders and presents potential operational and compliance risks.
• The company's strategic focus on affordable housing in high-growth Southeastern markets, coupled with a shift towards a build-to-order model emphasizing presales, is central to its long-term competitive strategy against larger national homebuilders.

Setting the Scene for United Homes Group

United Homes Group, Inc. (UHG) operates as a homebuilding company primarily focused on single-family residential homes across the high-growth markets of South Carolina, North Carolina, and Georgia. The company's journey began with Great Southern Homes, Inc. (GSH) in 2004, culminating in a transformative business combination in March 2023 that established UHG as a publicly traded entity. This history has shaped UHG's foundational strategy, which centers on a "land-light" operating model designed to mitigate capital intensity and risk inherent in the cyclical homebuilding industry.

The residential construction sector is inherently sensitive to macroeconomic shifts, including interest rate fluctuations, consumer confidence, employment levels, and the supply dynamics of land and building materials. Currently, the industry faces challenges from elevated mortgage rates and affordability concerns, which have led to inconsistent demand trends. However, UHG's target markets in the Southeast benefit from robust job creation, consistent in-migration, and a business-friendly climate, underpinning a persistent need for new housing. UHG positions itself to capitalize on these favorable demographics by focusing on entry-level and move-up buyers, a segment often characterized by strong, undersupplied demand.

The Land-Light Advantage: UHG's Operational Moat

UHG's "land-light" strategy is a core operational differentiator, enabling the company to manage risk and optimize capital deployment. This approach involves procuring land or lots primarily through lot option contracts with third-party and related-party land developers, rather than outright ownership. This model allows UHG the right, but not the obligation, to purchase lots at predetermined prices at a future date, effectively deferring significant capital outlays and reducing financial exposure associated with long-term land holdings. The maximum exposure to loss from these option contracts is limited to non-refundable lot deposits and capitalized pre-acquisition costs. As of September 30, 2025, UHG had lot deposits of $41.9 million related to option contracts with an aggregate remaining purchase price of $320.5 million. This contrasts sharply with traditional land-heavy models, which tie up substantial capital and expose builders to greater market fluctuations.

This capital-efficient approach is a strategic advantage, particularly when compared to some larger, more vertically integrated competitors. While companies like NVR also employ asset-light strategies, UHG's regional focus allows for tailored relationships with local land developers, potentially enhancing flexibility. The "land-light" model is crucial for UHG's return-focused strategy, aiming to improve inventory turns by minimizing the capital locked in undeveloped land.

Innovation in Product and Process: Driving Margin Expansion

UHG is actively pursuing operational excellence through a dual focus on product innovation and cost efficiency, which serve as critical differentiators in a competitive market. Recognizing that its product lineup had become "stale," the company initiated a comprehensive product refresh in the fourth quarter of 2024. This involves updating floor plans and home designs to better align with contemporary buyer preferences. The early results from these newly designed homes are highly encouraging, with an average gross margin of approximately 24% on homes closed in the first quarter of 2025, and a similar margin profile for 95 newly designed homes in backlog as of May 2025. This represents a significant improvement, with gross margins on refreshed homes trending approximately 300 basis points higher than legacy products. Management explicitly anticipates that overall gross margins will be higher in 2025 compared to 2024 as these refreshed products constitute a larger share of closings.

Concurrently, UHG has launched a rigorous direct cost reduction initiative, competitively rebidding all direct cost categories with multiple vendors. This effort has already identified over $3.5 million in direct construction cost savings for homes expected to close in 2025, with further savings anticipated as the initiative progresses through the second half of the year. These cost efficiencies, coupled with a 16-day reduction in average cycle time in Q1 2025 compared to the prior year, underscore UHG's commitment to becoming a more efficient builder. The company is also strategically shifting towards a more balanced approach, emphasizing presold homes over a high-spec inventory strategy, particularly in its move-up product lines. This allows UHG to capitalize on higher-margin customization options and upgrades, providing better visibility into delivery outlooks and reducing capital tied up in standing inventory.

Financial Performance: A Period of Transition and Strategic Response

UHG's recent financial performance reflects both market headwinds and the early impacts of its strategic initiatives. For the three months ended September 30, 2025, the company reported revenue of $90.8 million, a decrease of 23.5% from $118.6 million in the prior-year period. This decline was primarily driven by a 29% decrease in home closings, partially offset by an 8% increase in the average sales price of production-built homes to $345,920. The gross margin for the quarter stood at 17.7%, a 1.2 percentage point decrease year-over-year, largely due to increased discounting to stimulate sales, though this was partially mitigated by direct construction cost savings.

The company recorded a net loss of $31.3 million for the third quarter of 2025, significantly impacted by a $27.2 million non-cash loss related to the change in fair value of derivative liabilities, predominantly from potential earn-out consideration and warrants. Selling, general and administrative (SG&A) expenses decreased by $1.1 million to $17.6 million, primarily due to a $2.2 million reduction in commission expense from fewer closings and broker incentives. Other expense, net, also saw a $1.5 million decrease, driven by a $1.4 million reduction in interest expense following the December 2024 refinancing of corporate debt. This refinancing reduced UHG's leverage by $10 million and is expected to lower cash interest expense by approximately $4 million annually.

From a segment perspective, GSH South Carolina experienced a $7.3 million decrease in income before taxes for Q3 2025, attributed to lower gross profit from decreased closings and higher operating and interest costs as a percentage of revenue. Conversely, the Rosewood segment saw its income before taxes increase by $0.7 million, propelled by a 75% rise in home closings and a 5.7% increase in gross margin, resulting from lower direct construction costs. The "Other" segment, including Raleigh, NC operations, also showed improvement with a $0.3 million decrease in loss before taxes due to increased gross margin and reduced operating expenses.

UHG's liquidity as of September 30, 2025, included $25.6 million in cash and cash equivalents, alongside $57.5 million in unused committed capacity under its Syndicated Line. While the company believes its current liquidity is sufficient for short- and long-term needs, continued operational headwinds could adversely impact profitability and cash flows. Net cash flows used in operating activities increased by $9 million during the nine months ended September 30, 2025, primarily due to a $46 million increase in cash used in inventory, partially offset by reductions in cash used in lot deposits and accounts payables.

Competitive Landscape: Positioning for Growth in the Southeast

UHG operates in a highly competitive residential construction market, facing both national powerhouses and regional players. Its primary direct competitors include industry giants like D.R. Horton , Lennar , PulteGroup , and NVR , all of whom have a significant presence in the Southeast.

D.R. Horton , a volume-driven national builder, often benefits from superior scale and operational efficiency in land acquisition and construction. UHG, with its more regional focus and emphasis on customization, seeks to differentiate itself by fostering stronger community relationships and offering tailored designs, potentially appealing to buyers seeking more personalized service. However, UHG's operational scale is notably smaller, which can translate to lower efficiency in supply chain management compared to D.R. Horton's (DHI) extensive network.

Lennar , another major player, emphasizes integrated community development and technological innovation, including smart home features. While UHG's product refresh aims to enhance appeal, Lennar's advanced technological integration could lead to faster construction cycles and greater operational efficiency. UHG's unique value proposition lies in its hands-on, localized service, which could foster stronger customer loyalty. However, UHG may trail Lennar (LEN) in the speed of innovation and broader market share capture.

PulteGroup focuses on quality craftsmanship and customer-centric designs, often targeting move-up buyers, a segment UHG also serves with its Rosewood brand. UHG's custom build options offer a differentiator, potentially attracting buyers seeking personalization beyond PulteGroup's standard offerings. Yet, PulteGroup (PHM) generally exhibits greater efficiency in its supply chain and construction processes due to its national scale.

NVR , like UHG, employs a land-light strategy, primarily in the mid-Atlantic and Southeast. NVR's model often results in lower operating costs and robust cash flow generation, setting a high bar for capital efficiency. UHG's full-service custom builds may offer more comprehensive design options, but it must continually refine its cost structure to compete effectively against NVR's (NVR) streamlined operations.

Financially, UHG's latest TTM gross profit margin of 17.15% and EBITDA margin of 2.01% indicate a need for improvement compared to the historical performance of larger, more established competitors who typically demonstrate stronger profitability metrics due to scale and diversified revenue streams. For instance, while specific TTM margins for competitors are not provided, their historical P/E and P/B ratios (e.g., DHI P/E 11.04, LEN P/E 11.69, PHM P/E 8.88, NVR P/E 14.56 as of November 2025) suggest more consistent earnings power than UHG's current TTM Net Profit Margin of -4.49% and negative P/E ratio.

Indirect competitors include modular home providers and rental operators, which could impact UHG's market share by offering faster or more affordable housing alternatives. UHG's strategic response involves maintaining competitive pricing, as evidenced by its Q2 2025 average sales price of $349,000, significantly below the U.S. median of $402,000 and average of $501,000 for new homes. The company also leverages financing incentives to address affordability, a key tool in competing with the resale market.

Outlook and Strategic Trajectory: Building for the Future

UHG's management expresses optimism regarding the company's future trajectory, driven by the ongoing execution of its strategic initiatives. A key assumption underpinning this outlook is the continued strength of housing fundamentals in the Carolinas and Georgia, characterized by sustained in-migration and employment growth. Management explicitly guides for "gross margins be higher in 2025 compared to 2024 as a result of this product transition." The identified direct construction cost savings of over $3.5 million for 2025 are expected to "ramp up through the third and fourth quarters," contributing to margin expansion.

The shift towards a greater emphasis on presold homes, particularly for the newly refreshed product, is anticipated to "dampen" the margin impact of elevated incentives, as these homes command higher margins from customization. UHG plans to significantly boost its sales efforts through new community openings, with 10 communities slated for Q2 2025 and an additional 18 in Q3 2025, most of which will feature the higher-margin refreshed product. The company's "land-light" strategy remains central to its disciplined capital allocation, ensuring a capital-efficient and risk-averse growth path.

Key Risks and Challenges: Navigating Headwinds

Despite the strategic initiatives, UHG faces significant risks and challenges that warrant close investor attention. Foremost among these are the severe corporate governance issues stemming from recent board resignations. On October 19, 2025, a director resigned, followed by the resignation of two more directors on November 7, 2025, and the stated intent of three others to remain only temporarily to ensure an orderly transition. This situation has caused "significant operational difficulty," with "numerous key counterparties, including UHGs auditors, lenders, land banking partners, and insurers concern regarding UHGs ongoing corporate governance." The company faces a tangible risk of delisting from Nasdaq if it cannot timely identify and recruit additional independent board members to comply with listing rules. Furthermore, a failure to seat an adequate Audit Committee could prevent UHG from obtaining an audit opinion, leading to defaults under its debt arrangements and inability to meet SEC reporting obligations. The unwillingness of a historical surety bond issuer to issue new bonds until replacement directors are seated highlights the immediate operational impact of these governance concerns.

Market risks also persist, with "demand trends during the second quarter inconsistent as homebuyers continue to weigh their desire for homeownership in the reality of high mortgage rates and concerns over affordability." A 100 basis point increase in interest rates would negatively affect UHG's net income by approximately $1.5 million. The competitive landscape, where "most builders sacrificing gross margin for volume," necessitates continued sales incentives, which can pressure UHG's profitability. Supply chain disruptions and increased costs for building materials due to trade policies also remain potential headwinds.

Conclusion

United Homes Group is at a pivotal juncture, actively transforming its operations to forge a path toward sustainable profitability and growth amidst a challenging market backdrop. The company's "land-light" strategy, coupled with a proactive product refresh and aggressive cost reduction initiatives, forms the core of its investment thesis. These strategic pillars are designed to enhance capital efficiency, improve gross margins, and strengthen UHG's competitive position in the high-growth Southeastern housing markets. The early success of its refreshed product, yielding significantly higher margins, and the identified cost savings underscore the potential of these initiatives to drive future financial performance.

However, the immediate future is clouded by substantial corporate governance challenges, including widespread board resignations and concerns from critical business partners. The company's ability to swiftly address these governance issues and restore stakeholder confidence will be paramount to mitigating operational disruptions and ensuring compliance. While UHG's focus on affordable housing and its disciplined approach to land acquisition provide a solid foundation, investors must weigh the promising operational improvements against the significant corporate governance and market-related risks. The success of UHG's blueprint for growth hinges on its execution of these strategic transformations while effectively stabilizing its corporate leadership structure.