Shares of United Homes Group, Inc. (UHG Quick QuoteUHG - Free Report) have lost 10.8% since the company reported its earnings for the quarter ended March 31, 2025. This contrasts with the S&P 500 Index’s 0.6% gain over the same period. Over the past month, UHG stock has plunged 17.2%, underperforming the S&P 500, which recorded an 11.8% gain.

Revenue and Earnings Overview

For the first quarter of 2025, UHG posted revenues of $87 million, down 13.7% from $100.8 million in the year-ago period. This decline was primarily due to an 18.9% year-over-year drop in home closings, which totaled 252 units versus 311 a year earlier. Despite a decrease in units sold, the average sales price of production-built homes rose 2.9% to approximately $345,000 compared with $335,000 in first-quarter 2024.

Net income came in at $18.2 million, or $0.31 per diluted share, down 27.1% from $24.9 million, or $0.44 per share, in the prior-year quarter. This figure includes a $21.2 million non-cash gain related to the fair value adjustment of derivative liabilities tied to earnout considerations. Adjusted EBITDA was $2.9 million, a 60.6% decrease from $7.3 million in the prior year, reflecting continued margin pressure despite operational improvements.

Other Key Business Metrics

Gross profit for the quarter fell 12.2% year over year to $14.1 million from $16.1 million. Reported gross margin was 16.2%, a slight increase from 16% in first-quarter 2024, due to reduced interest expense within cost of sales. However, adjusted gross profit for the three months ended March 31, 2025, was $16.4 million, down 20.4% from $20.6 million for the three months ended March 31, 2024. Adjusted gross margin dropped to 18.8% from 20.4%, pressured by elevated incentives.

Although net new orders declined 22.9% to 296 homes from 384, United Homes noted a sequential improvement in both sales pace and margins as the quarter progressed. The order momentum picked up in the latter half of February and sustained through March, with April orders up 6% year over year. Regionally, Raleigh and Rosewood posted substantial order growth, up 325% and 113%, respectively. Segmentally, the Midlands region delivered the highest closings at 124 homes, though this represented a 17% year-over-year decline. The Upstate market experienced the steepest decline in closings, at 44%. UHG also reduced its average construction cycle time by 16 days compared to the same period last year, thanks to improved labor and material availability, as well as internal efficiencies.

Selling, general and administrative (SG&A) expenses totaled $16.2 million, or 18.6% of revenues, including $2 million in non-cash stock-based compensation, down 5.2% from $17.1 million. Adjusted SG&A, which excludes this charge, stood at 16.3% of revenues. United Homes reported available liquidity of $86.9 million, including $25 million in cash and $61.9 million in unused committed credit facility capacity.

Management Commentary

Interim CEO Jamie Pirrello acknowledged the quarter as a “tale of two halves,” citing slow January sales due to seasonality and adverse weather, which led to fewer closings in the back half of the quarter. However, demand began to rebound by late February and continued into March and April.

President Jack Micenko noted a 400 basis-point sequential gross margin improvement within the quarter, highlighting the performance of 23 newly refreshed home designs that achieved gross margins of around 24%. An additional 27 of these homes closed in April, and United Homes had 91 such homes in backlog as of April 30.

CFO Keith Feldman emphasized that UHG’s cost-reduction strategy has already identified over $3.5 million in direct construction savings, with a bulk of the benefit expected to be realized in the second half of the year. The company also saw $1 million in first-quarter savings from reduced interest expense following a refinancing initiative compared with fourth-quarter 2024.

Factors Influencing Headline Numbers

The year-over-year declines in revenues, earnings and gross profit were primarily attributed to fewer home closings resulting from a weak start to the quarter. Aggressive sales incentives and discounting of completed spec inventory further compressed margins. However, United Homes began to pivot toward a greater mix of presold homes, which command higher margins through customization options and fewer price concessions.

Cycle times improved due to better material and labor availability, resulting in a 16-day reduction in the average build cycle compared to the previous year. The move toward presales is expected to enhance delivery predictability and reduce working capital tied up in standing inventory.

Guidance and Outlook

While formal guidance was not provided, management expressed optimism for the remainder of 2025. April orders were up 6% year over year, and the company expects margin enhancement to continue as refreshed home designs and cost savings ramp up. Additionally, UHG plans to launch 10 new communities in the second quarter and 18 in the third quarter, many of which will feature its new home designs, which are receiving strong buyer reception and higher margins.

Other Developments

No acquisitions, divestitures, or significant restructuring actions were disclosed during the quarter. However, UHG remains committed to its asset-light, land-light strategy, maintaining control over approximately 7,500 lots through a mix of ownership, options, and land banking arrangements. The company is also evaluating geographic expansion based on favorable demographic and economic trends.