Dream Finders Homes, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed March 2, 2023. This is an annual report, not a standalone fourth-quarter report. Dream Finders designs, builds and sells single-family homes across markets in Florida, Texas, Colorado, the Carolinas and the Washington, D.C. area, using an asset-light lot strategy. It also provides title services and has a mortgage-banking joint venture.
Financial and operating results
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Total revenue | $3.342 billion | $1.924 billion |
| Net income | $274.3 million | $134.6 million |
| Net income attributable to Dream Finders Homes, Inc. | $262.3 million | $121.1 million |
| Basic / diluted EPS | $2.67 / $2.45 | $1.27 / $1.27 |
| Homebuilding gross margin | 18.4% | 16.0% |
| Net profit margin | 7.9% | 6.3% |
| Adjusted gross margin (non-GAAP) | 24.6% | 21.7% |
| EBITDA margin (non-GAAP) | 12.6% | 10.1% |
- Revenue rose 74%; home closings increased 41% to 6,878, while average closing price increased 22% to $474,292. The 2021 acquisition of McGuyer Homebuilders (MHI) contributed 2,229 closings and $1.3 billion of 2022 homebuilding revenue.
- Net new orders fell 11% to 6,045. Year-end backlog declined 13% to 5,548 homes, valued at approximately $2.503 billion. Cancellations increased to 21.5% from 12.2%; average monthly sales per active community fell 60% to 1.6. Active communities were 206 versus 205.
- Management attributed higher gross margins to home-price appreciation outpacing cost inflation. Adjusted gross margin and EBITDA are non-GAAP measures; the company cautions that such measures may not be comparable across companies.
- Operating cash flow was negative $27.6 million, versus positive $65.1 million in 2021, primarily reflecting increased inventory investment. Investing cash outflow was $5.5 million, compared with $523.0 million in 2021, when acquisitions were completed. Financing provided $147.0 million.
- At year-end, cash and cash equivalents were $364.5 million, plus $30.6 million of restricted cash. Total assets were $2.371 billion. Revolver borrowings were $965.0 million, compared with $760.0 million a year earlier; available credit was $122 million and reported total liquidity was approximately $486.5 million. The $1.125 billion senior unsecured revolving facility matures June 2, 2025, is subject to borrowing-base limits and financial covenants, and the company reported compliance with covenants.
- The company owned 5,943 lots and controlled 37,615 through option and land-bank contracts. Lot deposits were $277.3 million. Outstanding surety bonds were $85 million and letters of credit were $1 million.
Changes, outlook and material matters
- Demand weakened in the second half of 2022 as mortgage rates rose and affordability tightened. The company introduced incentives, including mortgage-rate buy-down programs, monitored sales and traffic by community, and renegotiated lot options to better match the slower sales pace.
- Management said it expected conditions in most markets to remain relatively healthy in 2023, citing limited resale-home supply and population growth. This is a qualitative expectation, not quantified financial guidance; the filing provides no specific earnings or revenue forecast.
- Inflation increased construction, labor, materials and financing costs. Management reported these costs were outpaced by home-price increases in 2022, but warned that continued cost inflation, higher mortgage rates, weaker demand, cancellations and supply or labor constraints could pressure sales and margins.
- Contingent consideration liability was $115.1 million, including approximately $43 million expected within 12 months. Its fair value depends on forecasts and discount-rate assumptions; valuation was identified as a critical audit matter.
- Inventory impairment charges were $1.8 million and lot-deposit impairment charges were $3.0 million in 2022. The company also estimated $14 million of federal energy-efficient home tax credits in its 2022 tax provision. The effective tax rate rose to 23.0% from 18.5%.
- A 2022 settlement of the Silver Meadows construction-defect matter totaled $12 million; insurance paid $4 million, and the company pursued contributions from subcontractors and vendors. A separate Weyerhaeuser case ended after denial of review by the Colorado Supreme Court; the company recorded a $0.9 million accrual for defense costs.
- The company has $150 million of convertible preferred stock carrying a 9% cumulative dividend, senior to common stock. Conversion may dilute common shareholders, subject to the instrument’s terms and limits.
- PwC issued unqualified opinions on the financial statements and internal control over financial reporting. Management reported that previously identified material weaknesses had been remediated and controls were effective at year-end.
Key facts investors should verify
- Whether order trends, cancellation rates, backlog and incentives stabilize or deteriorate as mortgage rates and affordability change.
- How much of 2022 growth and profitability reflects MHI and other acquisitions versus organic performance, and whether acquired operations meet expectations.
- Cash conversion and inventory levels, including the cash demands and potential losses associated with deposits, option contracts and land-bank arrangements.
- Revolver availability under borrowing-base limits, covenant headroom, refinancing needs and the timing of contingent-consideration payments.
- The assumptions underlying contingent consideration, inventory and lot-deposit valuations, as well as the outcome of remaining subcontractor contribution claims.
- The effects of preferred dividends and potential conversion on common-shareholder earnings and dilution; the filing reports diluted EPS of $2.45 versus basic EPS of $2.67.