Dream Finders Homes, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless noted. Dream Finders designs, builds and sells homes and also provides mortgage and title services. Results include Crescent Homes from its February 1, 2024 acquisition.
Financial and operating results
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Total revenue | $827.8 million | $769.4 million; up 8% |
| Homebuilding gross margin | $146.6 million; 17.8% | $130.1 million; 17.0% |
| Adjusted gross margin (non-GAAP) | $217.2 million; 26.3% | $186.2 million; 24.3% |
| Income before taxes | $70.8 million | $69.4 million |
| Net income attributable to DFH | $54.5 million | $49.1 million |
| EPS | Basic and diluted: $0.55 | Basic: $0.49; diluted: $0.45 |
| Operating cash flow | $(247.5) million | $(35.6) million |
| Cash and cash equivalents | $239.4 million | $494.1 million at December 31, 2023 |
| Debt | $710.3 million construction lines; $294.2 million senior notes, net | Total debt: $1.005 billion |
| Liquidity | $500 million total, including $239 million cash and $261 million credit-facility availability | Compared with $828 million at December 31, 2023 |
Home closings rose 9% to 1,655, and net new orders increased 19% to 1,724. Average selling price rose 1% to $494,995. Active communities increased 5% to 232. The total cancellation rate was 21.0%, essentially unchanged year over year; excluding built-for-rent activity, Q1 2024 cancellation rates were 11.1% overall and 11.7% in the Southeast.
Changes, acquisition and cash flows
- Revenue growth reflected more closings, including 111 Crescent homes. Crescent contributed $48.3 million of revenue and $2.3 million of net income in the quarter.
- Gross margin improved with direct cost reductions and faster cycle times, partly offset by higher land and financing costs. Crescent purchase-accounting amortization reduced Q1 gross margin by about 50 basis points.
- SG&A increased 35% to $81.8 million; management cited higher compensation and headcount, stock awards, and $7 million of forward mortgage commitment program costs.
- Operating cash use increased mainly because inventory rose and lot deposits increased. Investing cash use was $186.0 million, primarily for the Crescent acquisition; financing provided $152.9 million, including net construction-line borrowings.
- The Crescent transaction had estimated cash consideration of $207.1 million, plus $28.5 million of redeemable noncontrolling interest. The preliminary allocation recorded $132.9 million of goodwill; inventory and noncontrolling-interest valuations remain open and the allocation is not final.
Outlook, risks and contingencies
Management said Q1 results met expectations and remained optimistic for the rest of 2024, citing favorable demand and constrained new- and resale-home supply. It provided no specific full-year numerical guidance in the supplied filing text. Management expects fewer interest-rate cuts than previously anticipated and said a significant mortgage-rate decline in 2024 is less likely. Its stated approach includes affordable quick-move-in homes, sales incentives, cost control, inventory turnover and an asset-light lot strategy.
- Interest-rate increases could weaken buyer financing and housing demand, adversely affecting revenue, margins and earnings. Elevated inflation, material and labor costs, supply disruptions, land costs and financing costs also pose risks.
- Backlog fell 17% to 4,524 homes, with reported value of about $2.32 billion, partly reflecting faster spec-home sales and fewer built-for-rent orders. Approximately 727 backlog homes were expected to deliver in 2025 or later.
- Lot-option deposits were $268 million; related maximum exposure to loss was reported at $326.3 million. Outstanding surety bonds and letters of credit were $202 million and $16 million, respectively. The company said it expects no material losses under those arrangements.
- Construction credit-facility borrowings were $710 million under a $1.2 billion commitment, subject to a borrowing base. The facility matures July 17, 2026; the 8.25% senior notes mature in 2028. The company reported covenant compliance and expected continued compliance over the next 12 months.
- Management said pending legal matters are not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported. Disclosure controls were considered effective; acquired Crescent controls remain under integration.
Facts for investors to verify
- Final Crescent purchase-price allocation, integration progress and acquired-market performance.
- Whether orders, cancellations and backlog convert into closings and cash generation, particularly after the Southeast built-for-rent cancellation.
- Liquidity and borrowing-base availability as debt, inventory and lot deposits change; continued covenant compliance.
- Gross-margin trends after Crescent purchase-accounting amortization and in light of land, financing and construction costs.
- A director’s March 15, 2024 Rule 10b5-1 plan covering sales of up to 600,000 shares through March 20, 2025; verify subsequent plan activity and filings.
Adjusted gross margin and EBITDA are non-GAAP measures; the filing cautions that they may not be comparable across companies and should be considered alongside GAAP results.