Dream Finders Homes, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the provided filing text does not give standalone fourth-quarter results. Comparisons below are with fiscal 2022.
Business context
Dream Finders designs, builds and sells primarily single-family homes in high-growth U.S. markets, using an asset-light strategy that relies mainly on finished-lot and land-bank option contracts rather than direct land development. Its homebuilding operations are reported in Southeast, Mid-Atlantic and Midwest segments; Financial Services includes title services and its mortgage-banking joint venture. The company had 221 active communities at year-end, up 7% from 206.
Financial and operating results
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Total revenue | $3.749 billion | $3.342 billion | Up 12% |
| Home closings | 7,314 | 6,878 | Up 6% |
| Average sales price of homes closed | $505,764 | $474,292 | Up 7% |
| Gross margin on homebuilding revenue | 19.4% | 18.4% | Up 1.0 percentage point |
| Adjusted gross margin (non-GAAP) | 27.2% | 24.6% | Up 2.6 percentage points |
| Income before taxes | $404.4 million | $356.2 million | Up 14% |
| Net income attributable to DFH | $295.9 million | $262.3 million | Up 13% |
| Basic / diluted EPS | $3.03 / $2.79 | $2.67 / $2.45 | Both increased |
| Operating cash flow | $374.2 million | $(27.6) million | Improved |
SG&A was $308.8 million, up 14%; it included $28 million of mortgage forward-commitment program costs that were not incurred in 2022. Net income was partly offset by a $46.6 million contingent-consideration revaluation expense, compared with $11.1 million in 2022. Non-GAAP adjusted EBITDA was $535.6 million, or 14.3% of revenue, versus $429.4 million, or 12.8%.
Debt, liquidity and balance sheet
- Year-end cash and cash equivalents were $494.1 million, with a further $54.3 million of restricted cash.
- Total debt was $824.3 million: $530.4 million outstanding under the revolving credit facility and $293.9 million, net, of 8.25% senior unsecured notes due 2028.
- Reported total liquidity was $828 million, including cash and $334 million of revolver availability. Net debt to net capitalization was 23.3%, down from 42.9% at year-end 2022.
- The company issued $300 million of 8.25% notes in August 2023 and used the net proceeds to repay revolver borrowings. It reported compliance with debt covenants at year-end and expects to remain compliant over the next 12 months.
- Lot deposits were $247.2 million; the company controlled 29,748 lots under option contracts. Outstanding surety bonds were $195 million and letters of credit were $1 million.
Material changes, outlook and risks
- Net new orders declined 5% to 5,744, while year-end backlog fell 28% to 3,978 homes, valued at $1.887 billion versus $2.503 billion a year earlier. Management attributed the smaller backlog partly to increased sales of move-in-ready spec homes, which generally close faster. Cancellation rate improved to 18.3% from 21.5%.
- Management said mortgage-rate easing late in 2023 supported demand entering the 2024 spring selling season, and that a further moderate decline in rates could benefit demand. It provided no quantified financial guidance. The company emphasized affordability, competitive quick-move-in inventory and incentives to help buyers with mortgage payments and closing costs.
- Management cited ongoing inflation, elevated mortgage rates, financing and closing costs, and labor and material availability as pressures. Risks also include homebuyer financing and cancellations, regional concentration—particularly Florida and Texas—weather and natural disasters, insurance availability and cost, land-option exposure, regulation, and access to capital.
- On February 1, 2024, after the reporting period, DFH acquired most of Crescent Homes’ homebuilding assets for $185 million in cash, subject to customary adjustments, and expanded into Charleston and Greenville, South Carolina, and Nashville, Tennessee. The former owner received a 10% noncontrolling interest in the newly formed acquisition entity.
- The $116.8 million year-end contingent-consideration liability was primarily related to acquired businesses, including MHI; approximately $50 million was expected to be payable within 12 months. Its valuation depends on forecasts and other estimates and was identified by the auditor as a critical audit matter.
- The company has $150 million of convertible preferred stock with a 9% cumulative dividend and senior priority to common stock. The auditor gave an unmodified opinion on the financial statements and internal controls; management also concluded controls were effective. The filing says outstanding legal matters are not expected to have a material adverse effect.
Important facts for investors to verify
- Whether 2024 orders, cancellation rates and backlog conversion support management’s demand outlook, particularly if mortgage rates stay elevated.
- The assumptions and timing behind the $116.8 million contingent-consideration liability and its potential cash payments.
- Post-acquisition funding, integration and performance for Crescent Homes, including the final purchase-price allocation and impact of the 10% noncontrolling interest.
- Liquidity and covenant headroom under the revolving facility, including interest-rate exposure and the cost of the 8.25% notes.
- Exposure from $247.2 million of lot deposits, controlled lots and $195 million of surety bonds, including potential forfeitures, development delays or cost overruns.
- The terms and potential dilution or cash cost of the 9% convertible preferred stock, as well as the company’s controlled-company structure and related-party land-bank relationships.