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Dream Finders Announces First Quarter 2023 Results

Homebuilding Revenues Up 16%, Home Closings Up 11%

Return on Participating Equity Improved 510 bps to 46.0%

Dream Finders Homes, Inc. (the “Company”, “Dream Finders Homes”, “Dream Finders” or “DFH”) (NYSE: DFH) announced its financial results for the first quarter ended March 31, 2023.

First Quarter 2023 Highlights (As Compared to First Quarter 2022, unless otherwise noted)

  • Homebuilding revenues increased 16% to $767 million from $662 million
  • Home closings increased 11% to 1,517 from 1,371
  • Gross margin as a percentage of homebuilding revenues decreased 170 basis points to 17.0% from 18.7%
  • Pre-tax income increased 10% to $69 million, compared to $63 million
  • Net income attributable to DFH increased 12% to $49 million, or $0.49 per basic share, compared to $44 million, or $0.43 per basic share
  • Average sales price of homes closed increased 4% to $490,553 from $470,218
  • Active community count increased 7% to 220 from 206
  • Backlog of sold homes of 5,479 homes, valued at $2.5 billion
  • Return on participating equity increased to 46.0% for the trailing twelve months ended March 31, 2023, compared to 40.9% for the trailing twelve months ended March 31, 2022
  • Total liquidity, comprised of cash and cash equivalents, and availability under the revolving credit facility, of $453 million as of March 31, 2023, compared to $487 million as of December 31, 2022

Management Commentary

Patrick Zalupski, Dream Finders Homes Chairman and CEO, said, “Coming off a record fourth quarter in 2022, DFH maintained positive momentum in the first quarter of 2023, delivering revenue growth of 16% along with pre-tax income of $69 million and earnings per basic share of $0.49, which increased 10% and 12%, respectively, compared to the year-ago quarter. These are all first quarter Company records. We are pleased with our modest progress in bringing down construction times, which ultimately will allow us to increase our inventory turns and maintain an industry-leading ROE. Net new orders in the first quarter, while down year over year, felt healthy and this demand persisted, with April net new orders increasing year over year. Supply remains low in our markets, and we believe our high-quality locations offer some resiliency against potential headwinds in the economy. Although plenty of uncertainty remains for 2023, DFH is poised to deliver another solid year.”

First Quarter 2023 Results

Homebuilding revenues in the first quarter 2023 increased 16% to $767 million, compared to $662 million in the first quarter 2022. Home closings increased 11% to 1,517, compared to 1,371 in the first quarter 2022. Average sales price (“ASP”) of homes closed for the first quarter 2023 increased to $490,553, compared to $470,218 in the first quarter 2022.

Homebuilding gross margin percentage in the first quarter 2023 was 17.0%, compared to 18.7% in the first quarter 2022. The gross margin decrease was attributable to increases in cost of funds, as well as closing costs, as we continue to incentivize homebuyers to close homes.

Selling, general and administrative expense (“SG&A”) as a percentage of homebuilding revenues improved 100 basis points (“bps”) to 8% in the first quarter 2023, compared to 9% in the first quarter 2022, as a result of our continued cost management efforts. In the first quarter 2023, SG&A included a $2 million charge related to write-offs of earnest deposits and due diligence costs for lot option contracts that were terminated.

Net income attributable to DFH in the first quarter 2023 was $49 million, or $0.49 per basic share, compared to $44 million, or $0.43 per basic share in the first quarter 2022, representing increases of 12% and 14%, respectively. The Company recorded $5 million of contingent consideration revaluation expense in the first quarter 2023 primarily as a result of better-than-expected financial results and adjusted projections for the McGuyer Homebuilders, Inc. (“MHI”) acquisition.

We consider basic earnings per share (“EPS”) to be a more meaningful metric of our profitability, as the diluted EPS calculation is impacted by the volatility of the price of our common stock and fluctuates outside of our control. In addition, the holders of the convertible preferred stock cannot trigger the conversion feature until September 29, 2026, the fifth year following its issuance. The Company does not intend for the preferred stock to convert into Class A common stock.

Net new orders in the first quarter 2023 were 1,448, a sequential improvement of 31% compared to the fourth quarter 2022 net new orders of 1,107. Net new orders in the first quarter 2022 were 2,402. The decrease from the first quarter 2022 is mainly attributable to built-for-rent sales contracts that did not repeat in the first quarter 2023. Due to the time and effort involved in the execution of these types of bulk sales arrangements, results can be lumpy from quarter to quarter and could vary significantly. The cancellation rate in the first quarter 2023 was 20.9%, an improvement of 1,120 bps compared to the fourth quarter 2022 cancellation rate of 32.1%. The first quarter 2022 cancellation rate was 13.4%, reflective of all-time low levels of cancellations that were observed throughout the industry. Despite continued economic uncertainty and elevated mortgage rates in the first quarter 2023, housing market demand started to show signs of stabilization. These sequential improvements in net new orders and the cancellation rate are reflective of our ability to adjust our operations to current market conditions by focusing on aggressive sales incentives, pacing starts consistently and maintaining adequate levels of quick move-in homes in our communities.

As of March 31, 2023, return on participating equity (“ROE”) was 46.0%, an improvement of 510 bps compared to the first quarter 2022. ROE is calculated as net income attributable to DFH less preferred distributions for the trailing twelve-month period, divided by average participating stockholders’ equity. Average participating stockholders’ equity is based on beginning and ending balances for the trailing twelve-month period.

As of March 31, 2023, DFH had a backlog of 5,479 homes, valued at $2.5 billion, remaining relatively consistent compared to the backlog of 5,548 homes, valued at $2.5 billion as of December 31, 2022. As of March 31, 2023, the ASP in backlog was $462,576.

Full Year 2023 Outlook

Dream Finders Homes maintains its guidance of approximately 6,000 home closings for the full year 2023. Further deterioration of general economic conditions, including interest rate increases and mortgage availability, as well as any further COVID-19 governmental restrictions on land development, home construction or home sales or additional supply chain challenges could negatively affect the Company’s ability to achieve this number of home closings in 2023. As of March 31, 2023, the Company backlog was 5,479 homes, with approximately 1,649 of the homes in backlog expected to be delivered in 2024 and beyond.

The following table shows the backlog units and ASP as of March 31, 2023 by segment:

 

As of March 31, 2023

(unaudited)

Backlog:

Units

 

Average Sales Price

Jacksonville

1,674

 

$

316,111

Colorado

88

 

 

615,284

Orlando

850

 

 

626,819

The Carolinas

679

 

 

319,313

Texas

1,171

 

 

688,086

Other (1)

1,017

 

 

389,164

Total

5,479

 

$

462,576

(1)

Austin, TX; Washington D.C.; Savannah, GA; Hilton Head and Bluffton, S.C.; Active Adult and Custom Homes. Austin refers to legacy DFH operations in Texas, exclusive of MHI.

About Dream Finders Homes, Inc.

Dream Finders Homes (NYSE: DFH) is a homebuilder based in Jacksonville, FL. Dream Finders Homes builds single-family homes in Florida, Texas, North Carolina, South Carolina, Georgia, Colorado, and the Washington, D.C. metropolitan area, which includes Northern Virginia and Maryland. Through its mortgage and title joint ventures, DFH also provides mortgage financing and title services to its homebuyers. Dream Finders Homes achieves its industry-leading growth and returns by maintaining an asset-light homebuilding model. For more information, please visit www.dreamfindershomes.com.

Forward-Looking Statements

This press release includes forward-looking statements regarding future events, including projected 2023 home closings and market conditions and possible or assumed future results of operations, including statements regarding the Company’s strategies and expectations as they relate to market opportunities and growth. All forward-looking statements are based on Dream Finders Homes’ beliefs as well as assumptions made by and information currently available to Dream Finders Homes. These statements reflect Dream Finders Homes’ current views with respect to future events and are subject to various risks, uncertainties and assumptions. These risks, uncertainties and assumptions are discussed in Dream Finders Homes’ Annual Report on Form 10-K for the year ended December 31, 2022, and other filings with the U.S. Securities and Exchange Commission. Dream Finders Homes undertakes no obligation to update or revise any forward-looking statement except as may be required by applicable law.

Dream Finders Homes, Inc.

Condensed Consolidated Statements of Comprehensive Income and Other Financial and Operating Data

(In thousands, except per share amounts and Other Financial and Operating Data, unless otherwise noted)

(Unaudited)

 

 

 

 

 

For the Three Months Ended

March 31,

(unaudited)

 

 

 

2023

 

 

 

2022

 

Revenues:

 

 

 

 

Homebuilding

 

$

767,476

 

 

$

662,473

 

Other

 

 

1,944

 

 

 

1,593

 

Total revenues

 

 

769,420

 

 

 

664,066

 

Homebuilding cost of sales

 

 

637,344

 

 

 

538,868

 

Selling, general and administrative expense

 

 

60,761

 

 

 

61,710

 

Income from unconsolidated entities

 

 

(2,958

)

 

 

(2,960

)

Contingent consideration revaluation

 

 

5,316

 

 

 

4,192

 

Other income, net

 

 

(430

)

 

 

(956

)

Income before income taxes

 

 

69,387

 

 

 

63,212

 

Income tax expense

 

 

(17,636

)

 

 

(16,878

)

Net and comprehensive income

 

 

51,751

 

 

 

46,334

 

Net and comprehensive income attributable to noncontrolling interests

 

 

(2,662

)

 

 

(2,618

)

Net and comprehensive income attributable to Dream Finders Homes, Inc.

 

$

49,089

 

 

$

43,716

 

 

 

 

 

 

Earnings per share

 

 

 

 

Basic

 

$

0.49

 

 

$

0.43

 

Diluted

 

$

0.45

 

 

$

0.42

 

Weighted-average number of shares

 

 

 

 

Basic

 

 

92,940,291

 

 

 

92,758,939

 

Diluted

 

 

108,822,306

 

 

 

102,496,876

 

Other Financial and Operating Data

 

 

 

 

Active communities at end of period(1)

 

 

220

 

 

 

206

 

Home closings

 

 

1,517

 

 

 

1,371

 

Average sales price of homes closed(2)

 

$

490,553

 

 

$

470,218

 

Net new orders

 

 

1,448

 

 

 

2,402

 

Cancellation rate

 

 

20.9

%

 

 

13.4

%

Backlog (at period end) - homes

 

 

5,479

 

 

 

7,413

 

Backlog (at period end, in thousands) - value

 

$

2,534,454

 

 

$

3,443,709

 

Gross margin (in thousands)(3)

 

$

130,132

 

 

$

123,605

 

Gross margin %(4)

 

 

17.0

%

 

 

18.7

%

Net profit margin %

 

 

6.4

%

 

 

6.6

%

(1)

A community becomes active once the model is completed or the community has its fifth net new order. A community becomes inactive when it has fewer than five units remaining to sell.

(2)

Average sales price of homes closed is calculated based on homebuilding revenues, excluding the impact of deposit forfeitures, percentage of completion revenues and land sales, over homes closed.

(3)

Gross margin is homebuilding revenues less homebuilding cost of sales.

(4)

Calculated as a percentage of homebuilding revenues.

 

Three Months Ended

March 31,

 

2023

(unaudited)

 

2022

(unaudited)

Home Closings:

Units

 

Average Sales Price

 

Units

 

Average Sales Price

Jacksonville

287

 

$

423,483

 

269

 

$

453,134

Colorado

74

 

 

592,553

 

70

 

 

557,092

Orlando

234

 

 

492,931

 

106

 

 

436,542

The Carolinas

320

 

 

334,257

 

252

 

 

331,425

Texas

421

 

 

648,480

 

483

 

 

570,236

Other (1)

181

 

 

461,114

 

191

 

 

411,324

Total

1,517

 

$

490,553

 

1,371

 

$

470,218

(1)

Austin, TX; Washington D.C.; Savannah, GA; Hilton Head and Bluffton, S.C.; Active Adult and Custom Homes. Austin refers to legacy DFH operations in Texas, exclusive of MHI.

Dream Finders Homes, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

March 31, 2023

 

December 31, 2022

Assets

 

 

 

 

Cash and cash equivalents

 

$

266,569

 

$

364,531

Restricted cash (VIE amounts of $8,603 and $4,372)

 

 

30,882

 

 

30,599

Accounts receivable (VIE amounts of $587 and $580)

 

 

33,564

 

 

43,490

Inventories:

 

 

 

 

Construction in process and finished homes

 

 

1,138,690

 

 

1,175,107

Company owned land and lots

 

 

291,106

 

 

196,563

VIE owned land and lots

 

 

5,064

 

 

6,515

Total inventories

 

 

1,434,860

 

 

1,378,185

Lot deposits

 

 

262,323

 

 

277,258

Other assets (VIE amounts of $1,650 and $1,877)

 

 

64,134

 

 

59,438

Investments in unconsolidated entities

 

 

13,495

 

 

14,008

Property and equipment, net

 

 

7,564

 

 

7,337

Operating lease right-of-use assets

 

 

23,199

 

 

24,084

Goodwill

 

 

172,207

 

 

172,207

Total assets

 

$

2,308,797

 

$

2,371,137

 

 

 

 

 

Liabilities

 

 

 

 

Accounts payable (VIE amounts of $481 and $353)

 

$

134,741

 

$

134,702

Accrued expenses (VIE amounts of $3,210 and $4,434)

 

 

103,963

 

 

184,051

Customer deposits

 

 

165,859

 

 

145,654

Construction lines of credit

 

 

915,992

 

 

966,248

Operating lease liabilities

 

 

23,802

 

 

24,661

Contingent consideration

 

 

113,965

 

 

115,128

Total liabilities

 

$

1,458,322

 

$

1,570,444

 

 

 

 

 

Mezzanine Equity

 

 

 

 

Preferred mezzanine equity

 

 

156,259

 

 

156,045

Stockholders’ Equity

 

 

 

 

Class A common stock, $0.01 per share, 289,000,000 authorized, 32,775,526 and 32,533,883 outstanding as of March 31, 2023 and December 31, 2022, respectively.

 

 

327

 

 

325

Class B common stock, $0.01 per share, 61,000,000 authorized, 60,226,153 outstanding

 

 

602

 

 

602

Additional paid-in capital

 

 

267,185

 

 

264,757

Retained earnings

 

 

411,494

 

 

365,994

Noncontrolling interests

 

 

14,608

 

 

12,970

Total mezzanine and stockholders’ equity

 

 

850,475

 

 

800,693

Total liabilities, mezzanine equity and stockholders’ equity

 

$

2,308,797

 

$

2,371,137

 

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