Homebuilding Revenues Up 19%, Home Closings
Up 12%
Return on Participating Equity of
42.2%
Dream Finders Homes, Inc. (the “Company,” “Dream Finders Homes,”
“Dream Finders” or “DFH”) (NYSE: DFH) announced its financial
results for the second quarter ended June 30, 2023.
Second Quarter 2023 Highlights (As Compared to Second Quarter
2022, unless otherwise noted)
- Homebuilding revenues increased 19% to $943 million from $791
million
- Home closings increased 12% to 1,846 from 1,649
- Net new orders increased 16% to 1,655 from 1,426
- Gross margin as a percentage of homebuilding revenues decreased
60 basis points to 19.1% from 19.7%
- Adjusted gross margin (non-GAAP) as a percentage of
homebuilding revenues increased 140 basis points to 27.1% from
25.7%
- Pre-tax income increased 7% to $96 million from $90
million
- Net income attributable to DFH increased 10% to $69 million, or
$0.70 per basic share, from $63 million, or $0.64 per basic
share
- Average sales price of homes closed increased 9% to $504,683
from $463,447
- Active community count increased 8% to 220 from 203
- Backlog of sold homes of 5,288 homes, valued at $2.5
billion
- Return on participating equity of 42.2% for the trailing twelve
months ended June 30, 2023, compared to 44.0% for the trailing
twelve months ended June 30, 2022
- Total liquidity, comprised of cash and cash equivalents, and
availability under the revolving credit facility, of $511 million
as of June 30, 2023, compared to $487 million as of December 31,
2022
- On July 19, 2023, commitments under the revolving credit
facility increased to $1.2 billion from $1.1 billion as of June 30,
2023
Management Commentary
Patrick Zalupski, Dream Finders Homes Chairman and CEO, said,
“DFH continued its positive momentum in the second quarter of 2023,
delivering revenue growth of 19%, along with pre-tax income of $96
million and earnings per basic share of $0.70, which increased 7%
and 9%, respectively, compared to the year-ago quarter. These are
both second quarter Company records. Home closings of 1,846 and net
new orders of 1,655 increased 12% and 16%, respectively, compared
to the year-ago quarter. In the second quarter, we experienced an
encouraging increase in net sales sequentially and over the prior
year quarter. We continue to focus on managing construction times
and increasing inventory turnover. The ongoing housing supply
shortage, coupled with increased demand as the housing market
continues to normalize, has resulted in better-than-expected sales
activity and operating results across our segments.
"During the first half of 2023, our MHI acquisition performed
better than we anticipated at the beginning of the year. As part of
the MHI transaction, we agreed to pay the former owner 25% of
pre-tax earnings in excess of a threshold for a period of four
years after closing of the transaction. Based on actual pre-tax
income to date and the current backlog, we revised MHI’s earnings
projections for the remainder of the earnout period (ending on
September 30, 2025). As a result, our liability for the related
earnout payment to the previous owner was also adjusted, as
required by GAAP. The impact of the adjustment was $16.6 million in
additional expense to account for the present value of these
projected incremental future earnout payments, which will occur
through the third quarter of 2025. GAAP requires us to book this
incremental expense at the time our expectations of future earnings
change rather than when the actual earnings occur. While the second
quarter earnings are negatively impacted by this adjustment, it is
a function of increased actual results to date, as well as
increased expectations of future earnings from the MHI acquisition,
which we clearly view as overall positive news. If we continue to
outperform our revised pre-tax earnings expectations for MHI — and
I hope we do — there may be additional future contingent
consideration liability adjustments. The earnout runs through the
third quarter of 2025; thereafter, DFH will retain 100% of the
earnings.
"Return on equity of 42.2% for the trailing twelve months
remains among the best in the industry. We continued to delever the
balance sheet to a net debt to capitalization ratio of 38.8%, the
lowest in Company history. We also accumulated record total
available liquidity of $511 million. On July 19th, we raised
additional available liquidity through the execution of an
amendment to our revolving line of credit where we received $115
million of additional commitments through June 2, 2025, while
extending $1.1 billion of new and existing commitments through July
17, 2026. Due largely to our history of growth, I believe it is
somewhat under-appreciated how much pride we take in managing our
balance sheet. As I mentioned recently in my 2022 annual
shareholder letter, DFH has successfully deleveraged from 78.4% net
debt to capitalization on December 31, 2014 to 42.9% on December
31, 2022. This was all done while achieving a compounded annual
growth of 78% in earnings over the same 8 years. This validates our
belief that you can grow earnings while continuing to delever.
"Although uncertainty remains for 2023, we have set ourselves up
for another successful year and have increased guidance to
approximately 6,500 closings for the fiscal calendar year.”
Share Buyback Program
In June 2023, the Company’s Board of Directors approved a share
buyback program under which the Company can repurchase up to $25
million of its Class A common stock through June 30, 2026 in open
market purchases, privately negotiated transactions, or otherwise
in compliance with Rule 10b-18 under the Securities Exchange Act of
1934, as amended. The actual timing, number and value of shares
repurchased under the share buyback program will depend on a number
of factors, including constraints specified in any Rule 10b5-1
trading plans, price, general business and market conditions, and
alternative investment opportunities. The share buyback program
does not obligate the Company to acquire any specific number of
shares in any period, and may be expanded, extended, modified or
discontinued at any time. The Company has not repurchased any
shares under the share buyback program.
Second Quarter 2023 Results
Homebuilding revenues in the second quarter 2023 increased 19%
to $943 million, compared to $791 million in the second quarter
2022. Home closings increased 12% to 1,846, compared to 1,649 in
the second quarter 2022. Average sales price (“ASP”) of homes
closed for the second quarter 2023 increased 9% to $504,683,
compared to $463,447 in the second quarter 2022.
Homebuilding gross margin percentage in the second quarter 2023
was 19.1%, compared to 19.7% in the second quarter 2022. The gross
margin percentage decrease was primarily attributable to increases
in cost of funds as well as closing costs, as we continue to assist
homebuyers through our mortgage buydown programs. The decrease was
partially offset by cost and cycle time improvements across our
segments. The latter is evidenced by the sequential increase in
homebuilding gross margin percentage of 210 basis points (“bps”)
from 17.0% in the first quarter 2023.
Adjusted gross margin as a percentage of homebuilding revenues
for the three months ended June 30, 2023 was 27.1%, an increase of
140 bps compared to 25.7% for the three months ended June 30, 2022.
The adjusted gross margin percentage improved, despite increased
closing costs, due to overall price appreciation and proactive cost
management efforts. Adjusted gross margin is a non-GAAP financial
measure. See “Reconciliation of Non-GAAP Financial Measures.”
Selling, general and administrative expense (“SG&A”) as a
percentage of homebuilding revenues in the second quarter 2023
remained consistent at 8% compared to the second quarter 2022.
Net income attributable to DFH in the second quarter 2023
increased 10% to $69 million, or $0.70 per basic share, from $63
million, or $0.64 per basic share in the second quarter 2022. The
Company recorded $18 million of contingent consideration
revaluation expense in the second quarter 2023 compared to $5
million in the second quarter 2022. The increase is primarily due
to better-than-projected financial results during the second
quarter 2023, leading to revised projections for expected future
earnout payments for the McGuyer Homebuilders, Inc. (“MHI”)
acquisition, which comprises our Texas segment.
Net new orders in the second quarter 2023 were 1,655, an
increase of 16% compared to 1,426 net new orders for the second
quarter 2022. The cancellation rate in the second quarter 2023 was
15.6%, an improvement of 540 bps compared to the second quarter
2022 cancellation rate of 21.0%. Despite the economic uncertainty
and elevated mortgage rates that persisted into the first half of
2023, housing market demand continues to normalize. The
improvements in net new orders and the cancellation rate are
reflective of our successful sales incentives and availability of
quick move-in homes in our communities.
As of June 30, 2023, return on participating equity (“ROE”) was
42.2% compared to 44.0% as of June 30, 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 June 30, 2023, our construction lines of credit balance
decreased by $40 million compared to March 31, 2023, consistent
with our increased focus on balance sheet management. For the
year-to-date period ended June 30, 2023, the construction lines of
credit balance decreased by $90 million. As a result, our total
liquidity as of June 30, 2023 was $511 million.
As of June 30, 2023, DFH had a backlog of 5,288 homes, valued at
$2.5 billion, remaining relatively consistent compared to the
backlog of 5,479 homes, valued at $2.5 billion as of March 31,
2023. As of June 30, 2023, the ASP in backlog was $470,192.
Full Year 2023 Outlook
Dream Finders Homes is updating its guidance and now expects
approximately 6,500 home closings for the full year 2023 compared
to a previous outlook of approximately 6,000 homes. The update is a
result of the improved sales activity year-to-date as the housing
market continues to assimilate mortgage rates, and management is
able to release starts and manage the construction cycle more
efficiently. Deterioration of general economic conditions,
including interest rate increases and mortgage availability, as
well as any governmental restrictions on land development, home
construction or home sales or supply chain challenges could
negatively affect the Company’s ability to achieve this number of
home closings in 2023. As of June 30, 2023, the Company backlog was
5,288 homes, with approximately 2,286 of the homes in backlog
expected to be delivered in 2024 and beyond.
The following table shows the backlog units and ASP as of June
30, 2023 by segment:
As of June 30, 2023
(unaudited)
Backlog:
Units
Average Sales Price
Jacksonville
1,509
$
311,473
Colorado
132
610,668
Orlando
784
639,448
The Carolinas
618
400,953
Texas
1,260
326,814
Other (1)
985
664,696
Total
5,288
$
470,192
(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 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 Quarterly Report on Form 10-Q for the quarter ended March
31, 2023, 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
June 30,
(unaudited)
For the Six Months
Ended
June 30,
(unaudited)
2023
2022
2023
2022
Revenues:
Homebuilding
$
942,880
$
791,230
$
1,710,356
$
1,453,703
Other
2,459
1,904
4,403
3,497
Total revenues
945,339
793,134
1,714,759
1,457,200
Homebuilding cost of sales
762,855
635,422
1,400,199
1,174,290
Selling, general and administrative
expense
73,709
66,015
134,470
127,725
Income from unconsolidated entities
(4,704
)
(3,334
)
(7,662
)
(6,294
)
Contingent consideration revaluation
18,266
5,042
23,582
9,234
Other (income) expense, net
(635
)
291
(1,065
)
(665
)
Income before taxes
95,848
89,698
165,235
152,910
Income tax expense
(24,206
)
(23,327
)
(41,842
)
(40,205
)
Net and comprehensive income
71,642
66,371
123,393
112,705
Net and comprehensive income attributable
to noncontrolling interests
(2,878
)
(3,747
)
(5,540
)
(6,365
)
Net and comprehensive income attributable
to Dream Finders Homes, Inc.
$
68,764
$
62,624
$
117,853
$
106,340
Earnings per share
Basic
$
0.70
$
0.64
$
1.19
$
1.07
Diluted
$
0.65
$
0.60
$
1.09
$
1.02
Weighted-average number of
shares
Basic
93,108,277
92,758,939
93,025,626
92,758,939
Diluted
105,439,519
104,566,243
107,704,859
103,531,560
Other Financial and Operating
Data
Home closings
1,846
1,649
3,363
3,020
Average sales price of homes closed(1)
$
504,683
$
463,447
$
498,309
$
463,318
Net New Orders
1,655
1,426
3,103
3,828
Cancellation rate
15.6
%
21.0
%
18.1
%
16.4
%
Gross margin (in thousands)(2)
$
180,025
$
155,808
$
310,157
$
279,413
Gross margin %(3)
19.1
%
19.7
%
18.1
%
19.2
%
Adjusted gross margin (in
thousands)(4)
$
255,912
$
203,731
$
442,105
$
365,287
Adjusted gross margin %(4)
27.1
%
25.7
%
25.8
%
25.1
%
Net profit margin %
7.3
%
7.9
%
6.9
%
7.3
%
Active communities at end of period(5)
220
203
Ending Backlog - Homes
5,288
7,190
Backlog (at period end, in thousands) -
value
$
2,486,375
$
3,334,945
(1)
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.
(2)
Gross margin is homebuilding revenues less
homebuilding cost of sales.
(3)
Calculated as a percentage of homebuilding
revenues.
(4)
Adjusted gross margin is a non-GAAP
financial measure. For definitions of non-GAAP financial measures
and a reconciliation to our most directly comparable financial
measure calculated and presented in accordance with GAAP, see
“Reconciliation of Non-GAAP Financial Measures.”
(5)
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.
Three Months Ended
June 30,
Six Months Ended
June 30,
2023
(unaudited)
2022
(unaudited)
2023
(unaudited)
2022
(unaudited)
Home Closings:
Units
Average
Sales
Price
Units
Average
Sales
Price
Units
Average
Sales
Price
Units
Average
Sales
Price
Jacksonville
394
$
405,617
377
$
472,065
681
$
413,146
646
$
464,182
Colorado
78
598,808
69
584,356
152
595,763
139
570,443
Orlando
261
549,355
100
481,968
495
522,682
206
458,593
The Carolinas
347
348,468
351
330,195
667
341,650
603
330,709
Texas
566
638,062
527
559,770
987
642,506
1,010
555,270
Other (1)
200
498,411
225
385,961
381
480,692
416
397,490
Total
1,846
$
504,683
1,649
$
463,447
3,363
$
498,309
3,020
$
463,318
(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)
June 30, 2023
December 31,
2022
Assets
Cash and cash equivalents
$
292,510
$
364,531
Restricted cash (VIE amounts of $9,312 and
$4,372)
33,081
30,599
Accounts receivable (VIE amounts of $590
and $580)
31,433
43,490
Inventories:
Construction in process and finished
homes
1,212,289
1,175,107
Company owned land and lots
203,932
196,563
VIE owned land and lots
1,037
6,515
Total inventories
1,417,258
1,378,185
Lot deposits
247,903
277,258
Other assets (VIE amounts of $2,238 and
$1,877)
50,315
59,438
Investments in unconsolidated entities
13,948
14,008
Property and equipment, net
7,948
7,337
Operating lease right-of-use assets
21,624
24,084
Goodwill
172,207
172,207
Total assets
$
2,288,227
$
2,371,137
Liabilities
Accounts payable (VIE amounts of $15 and
$353)
$
124,185
$
134,702
Accrued expenses (VIE amounts of $2,575
and $4,434)
89,854
184,051
Customer deposits
163,237
145,654
Construction lines of credit
875,672
966,248
Operating lease liabilities
22,300
24,661
Contingent consideration
93,500
115,128
Total liabilities
$
1,368,748
$
1,570,444
Mezzanine Equity
Preferred mezzanine equity
156,479
156,045
Stockholders’ Equity
Class A common stock, $0.01 per share,
289,000,000 authorized, 32,882,124 and 32,533,883 outstanding as of
June 30, 2023 and December 31, 2022, respectively.
329
325
Class B common stock, $0.01 per share,
61,000,000 authorized, 60,226,153 outstanding
602
602
Additional paid-in capital
270,905
264,757
Retained earnings
476,663
365,994
Noncontrolling interests
14,501
12,970
Total mezzanine and stockholders’
equity
919,479
800,693
Total liabilities, mezzanine equity and
stockholders’ equity
$
2,288,227
$
2,371,137
Reconciliation of Non-GAAP Financial Measures
The following table presents a reconciliation of adjusted gross
margin to the GAAP financial measure of gross margin for each of
the periods indicated (unaudited and in thousands, except
percentages):
For the Three Months Ended
June 30,
For the Six Months Ended
June 30,
2023
2022
2023
2022
Gross margin(1)
$
180,025
$
155,808
$
310,157
$
279,413
Interest expense in homebuilding cost of
sales
32,798
12,790
55,217
21,637
Amortization in homebuilding cost of
sales(2)
—
1,991
—
5,821
Commission expense
43,089
33,142
76,731
58,416
Adjusted gross margin
$
255,912
$
203,731
$
442,105
$
365,287
Gross margin %(3)
19.1
%
19.7
%
18.1
%
19.2
%
Adjusted gross margin %(3)
27.1
%
25.7
%
25.8
%
25.1
%
(1)
Gross margin is homebuilding revenues less
homebuilding cost of sales.
(2)
Represents amortization of purchase
accounting adjustments from the Company’s prior acquisitions.
(3)
Calculated as a percentage of homebuilding
revenues.
Adjusted gross margin is a non-GAAP financial measure used by
management as a supplemental measure in evaluating operating
performance. The Company defines adjusted gross margin as gross
margin excluding the effects of capitalized interest, amortization
included in homebuilding cost of sales (adjustments resulting from
the application of purchase accounting in connection with
acquisitions) and commission expense. Management believes this
information is meaningful because it isolates the impact that
capitalized interest, purchase accounting amortization and
commission expense have on gross margin. The Company includes
internal and external commission expense in homebuilding cost of
sales, not selling, general and administrative expense, and
therefore commission expense is taken into account in gross margin.
As a result, in order to provide a meaningful comparison to the
public company homebuilders that include commission expense below
the gross margin line in selling, general and administrative
expense, commission expense has been excluded from adjusted gross
margin. However, because adjusted gross margin information excludes
capitalized interest, purchase accounting amortization and
commission expense, which have real economic effects and could
impact our results of operations, the utility of adjusted gross
margin information as a measure of operating performance may be
limited. In addition, other companies may not calculate adjusted
gross margin information in the same manner. Accordingly, adjusted
gross margin information should be considered only as a supplement
to gross margin information as a measure of performance.
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Investor Contact: investors@dreamfindershomes.com
Media Contact: mediainquiries@dreamfindershomes.com
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