Dream Finders Announces Third Quarter 2022 Results

Homebuilding Revenues Up 117%, Net Income Up 264%

Return on Participating Equity of 50.3%

JACKSONVILLE, Fla–(BUSINESS WIRE)–Dream Finders Homes, Inc. (the “Company”, “Dream Finders Homes”, “Dream Finders” or “DFH”) (NYSE: DFH) announced its financial results for the third quarter ended September 30, 2022.

Third Quarter 2022 Highlights (As Compared to Third Quarter 2021, unless otherwise noted)

  • Homebuilding revenues increased 117% to $784 million from $361 million
  • Gross margin as a percentage of homebuilding revenues increased 260 basis points (bps) to 18.6% from 16.0%
  • Pre-tax income increased 196% to $82 million, compared to $28 million
  • Net income attributable to DFH increased 264% to $70 million, or $0.71 per basic share, compared to $19 million, or $0.20 per basic share
  • Home closings increased 68% to 1,542 from 916
  • Average sales price of homes closed increased 30% to $487,852 from $375,693
  • Active community count increased 84% to 197 from 107
  • Backlog of sold homes increased 50% to 6,758 homes valued at $3.1 billion, compared to 4,520 homes valued at $1.8 billion
  • Return on participating equity was 50.3% for the trailing twelve months ended September 30, 2022, compared to 42.4% for the trailing twelve months ended September 30, 2021
  • Total liquidity, comprised of cash and cash equivalents, and availability under the revolving credit facility, remained consistent at $274 million as of September 30, 2022, when compared to $277 million as of December 31, 2021

Management Commentary

“During our third quarter of 2022, we achieved the highest trailing twelve-month return on participating equity since becoming a public company – 50.3%. Participating equity (Basic shares outstanding), in our opinion, is the best metric to use when calculating DFH’s ROE and EPS as we do not intend for the preferred equity shares we issued in October 2021 to convert to common equity.

Overall, we accomplished several positives in the third quarter of 2022, as compared to the prior year quarter. We delivered homebuilding revenues of $784 million, an increase of 117%. Net earnings were $70 million, a 264% increase. Basic EPS was $0.71 per share, the highest achieved by the Company in any quarter, and the Company’s net profit margin increased 110 bps to 8.9%. While these are all nice accomplishments for the Company, there remain significant opportunities to improve cycle times, increase margins and generate higher ROE for shareholders. We also anticipate delivering a record fourth quarter in terms of closing volume, revenue and net income.

We believe it is apparent that the economy will continue to slow and housing will not be spared. We have no better insight as to the extent of the slowdown than anyone else, but running a disciplined land-light operating model allows us to navigate and – more importantly – embrace the unavoidable housing market challenges. The rapid increase in mortgage rates has resulted in elevated cancellation levels, which caused net new orders to decline 15% when compared to last year’s third quarter. We had several build-for-rent deals that were anticipated to contract in Q3 push to Q4; otherwise we would have been slightly up quarter over quarter. We have been working hard to generate sales by adjusting incentives, implementing aggressive rate buy down programs and revising product offerings, all to deliver more affordability to our customers.

For the better part of six months, we have been working with land developers and land bankers to restructure lot option contracts to enable us to be successful through this market slowdown. Our partners know we are committed to these meaningful relationships that will be mutually beneficial long-term. As we have proclaimed, running a land-light strategy is in our DNA and it is not something that can be mastered overnight. We have lived it every day at DFH since the company’s 2008 inception and our team is prepared to navigate the challenges and is even excited about showing why we are different. We believe that opportunities presented from a market correction will set our Company apart because we truly run a disciplined 100% land-light strategy. We expect this to become apparent over the next several quarters and years.

Despite the shifting macroeconomic narrative and factors outside of our control, such as the most recent hurricane, we note that the national shortage of homes continues. We are confident our current positioning in the housing universe remains attractive as a destination for entry-level and first-time move-up buyers, strategically complemented by our build-for-rent platform, which is less susceptible to fluctuations in homebuyer demand. We believe Dream Finders is uniquely positioned to weather headwinds and deliver sustainable long-term value creation,” said Patrick Zalupski, Dream Finders Homes Chairman and CEO.

Third Quarter 2022 Results

Homebuilding revenues for the third quarter 2022 increased 117% to $784 million, compared to $361 million in the year-ago quarter. Home closings increased 68% to 1,542, compared to 916 in the year-ago quarter. Average sales price (“ASP”) of homes closed for the third quarter 2022 increased to $487,852, compared to $375,693 in the year-ago quarter. The increase in homebuilding revenues and home closings was primarily due to the MHI acquisition completed in October of 2021. The ASP increase was primarily due to the MHI acquisition as well as home price appreciation.

Homebuilding gross margin percentage in the third quarter 2022 improved 260 basis points to 18.6%, compared to 16.0% in the year-ago quarter. The gross margin improvement was attributable to our ability to increase prices while managing cost inflation. Selling, general and administrative expenses as a percentage of homebuilding revenues was 9% in the third quarter 2022, consistent when compared to the year-ago quarter. Net income attributable to DFH in the third quarter 2022 was $70 million, or $0.71 per basic share, compared to $19 million, or $0.20 per basic share in the third quarter 2021, representing increases of 264% and 255%, respectively, when compared to the prior year quarter.

Net new orders in the third quarter 2022 were 1,110, compared to 1,301 in the year-ago quarter. During the third quarter, demand further tightened in response to additional increases in mortgage rates. The market’s reaction to the deteriorating economic conditions negatively affected net new orders and continues to have a negative impact on the cancellation rate for the Company. Our cancellation rate was 25.5% for the quarter ended September 30, 2022, compared to 13.9% for the year-ago period, which is largely attributable to the challenging economic environment discussed above. This cancellation rate remains within the Company’s pre-pandemic range of historical cancellation rates.

At the end of the third quarter 2022, DFH had a backlog of 6,758 homes, valued at $3.1 billion, representing increases of 50% and 72%, respectively, compared to the year-ago quarter. As of September 30, 2022, the ASP in backlog was $464,227.

Impact from Hurricane Ian

Hurricane Ian was a large Category 4 Atlantic hurricane, which caused widespread damage across western Cuba and the southeast United States, especially in the states of Florida and South Carolina. While no material losses or damages occurred to Dream Finders Homes’ communities, the Company experienced a delay in scheduled closings during the third quarter of 2022, as there were mandatory evacuations and the closures of municipalities affecting our Florida communities in Jacksonville and Orlando, as well as our coastal regions of Georgia, North Carolina, and South Carolina. The Management team attributed approximately 178 missed closings with total estimated homebuilding revenues of $74 million to Hurricane Ian’s impact.

Full Year 2022 Outlook

Dream Finders Homes is reaffirming its guidance of a minimum of 7,000 home closings for the full year 2022. This outlook considers the rapid increase in interest rates and the overall moderation of the housing market that began at the end of the second quarter of 2022. 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 2022. As of September 30, 2022, the Company backlog was 6,758 homes, with approximately 57% of the homes in backlog expected to be delivered in 2023 and beyond. The Company continues to believe the backlog of homes sold is the best indicator for future growth.

The following table shows the backlog units and ASP as of September 30, 2022 by segment:

 

As of September 30, 2022
(unaudited)

Backlog:

Units

 

Average Sales Price

Jacksonville

1,883

 

$

342,470

Colorado

91

 

 

610,921

Orlando

1,102

 

 

551,598

DC Metro

118

 

 

493,162

The Carolinas

916

 

 

331,121

Texas

1,548

 

 

681,621

Other (1)

1,100

 

 

374,789

Total

6,758

 

$

464,227

(1)

Austin, Savannah, Village Park Homes, 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, Virginia, Maryland, and the DC Metro area. 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 2022 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, 2021 and Quarterly Report on Form 10-Q for the quarter ended March 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.

Consolidated Statements of Comprehensive Income and Operating Activity

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

 

 

For the Three Months Ended

September 30,

(unaudited)

 

For the Nine Months Ended

September 30,

(unaudited)

 

 

2022

 

2021

 

2022

 

2021

Revenues:

 

 

 

 

 

 

 

 

Homebuilding

 

$

783,945

 

 

$

361,322

 

 

$

2,237,648

 

 

$

1,067,232

 

Other

 

 

1,724

 

 

 

1,662

 

 

 

5,221

 

 

 

4,588

 

Total revenues

 

 

785,669

 

 

 

362,984

 

 

 

2,242,869

 

 

 

1,071,820

 

Homebuilding cost of sales

 

 

638,456

 

 

 

303,387

 

 

 

1,812,746

 

 

 

898,013

 

Selling, general and administrative expense

 

 

68,839

 

 

 

33,907

 

 

 

196,564

 

 

 

93,359

 

Income from equity in earnings of unconsolidated entities

 

 

(5,137

)

 

 

(1,373

)

 

 

(11,431

)

 

 

(4,230

)

Contingent consideration revaluation

 

 

2,641

 

 

 

602

 

 

 

11,875

 

 

 

5,762

 

Other (income) expense, net

 

 

(1,124

)

 

 

(1,232

)

 

 

(1,815

)

 

 

(8,385

)

Interest expense

 

 

5

 

 

 

14

 

 

 

31

 

 

 

672

 

Income before taxes

 

 

81,989

 

 

 

27,679

 

 

 

234,899

 

 

 

86,629

 

Income tax expense

 

 

(10,371

)

 

 

(4,111

)

 

 

(50,576

)

 

 

(13,405

)

Net and comprehensive income

 

 

71,618

 

 

 

23,568

 

 

 

184,323

 

 

 

73,224

 

Net and comprehensive income attributable to non-controlling interests

 

 

(1,977

)

 

 

(4,433

)

 

 

(8,342

)

 

 

(9,394

)

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

 

$

69,641

 

 

$

19,135

 

 

$

175,981

 

 

$

63,830

 

 

 

 

 

 

 

 

 

 

Earnings per share(1)

 

 

 

 

 

 

 

 

Basic

 

$

0.71

 

 

$

0.20

 

 

$

1.78

 

 

$

0.69

 

Diluted

 

$

0.64

 

 

$

0.20

 

 

$

1.67

 

 

$

0.69

 

Weighted-average number of shares

 

 

 

 

 

 

 

 

Basic

 

 

92,760,013

 

 

 

92,521,482

 

 

 

92,760,013

 

 

 

92,521,482

 

Diluted

 

 

108,286,433

 

 

 

92,695,197

 

 

 

105,117,234

 

 

 

92,658,878

 

Other Financial and Operating Data

 

 

 

 

 

 

 

 

Active communities at end of period(2)

 

 

197

 

 

 

107

 

 

 

197

 

 

 

107

 

Home closings

 

 

1,542

 

 

 

916

 

 

 

4,562

 

 

 

2,914

 

Average sales price of homes closed(3)

 

$

487,852

 

 

$

375,693

 

 

$

471,621

 

 

$

354,222

 

Net new orders

 

 

1,110

 

 

 

1,301

 

 

 

4,938

 

 

 

4,830

 

Cancellation rate

 

 

25.5

%

 

 

13.9

%

 

 

18.6

%

 

 

11.8

%

Backlog (at period end) – homes

 

 

6,758

 

 

 

4,520

 

 

 

6,758

 

 

 

4,520

 

Backlog (at period end, in thousands) – value

 

$

3,137,243

 

 

$

1,819,300

 

 

$

3,137,243

 

 

$

1,819,300

 

Gross margin (in thousands)(4)

 

$

145,489

 

 

$

57,936

 

 

$

424,902

 

 

$

169,219

 

Gross margin %(5)

 

 

18.6

%

 

 

16.0

%

 

 

19.0

%

 

 

15.9

%

Net profit margin %

 

 

8.9

%

 

 

7.8

%

 

 

7.9

%

 

 

6.0

%

(1)

The Company calculated earnings per share (“EPS”) based on net income attributable to common stockholders for the period January 21, 2021 through September 30, 2021 over the weighted average diluted shares outstanding for the same period. EPS was calculated prospectively for the period subsequent to the Company’s initial public offering and corporate reorganization, resulting in 92,521,482 shares of common stock outstanding as of the closing of the initial public offering. The total outstanding shares of common stock are made up of Class A common stock and Class B common stock, which participate equally in their ratable ownership share of the Company. Diluted shares were calculated by using the treasury stock method for stock grants and the if-converted method for the convertible preferred stock and the associated preferred dividends.

(2)

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

(3)

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.

(4)

Gross margin is homebuilding revenues less homebuilding cost of sales.

(5)

Calculated as a percentage of homebuilding revenues.

 

Three Months Ended

September 30,

 

Nine Months Ended

September 30,

 

2022

(unaudited)

 

2021

(unaudited)

 

2022

(unaudited)

 

2021

(unaudited)

 

Units

 

Average Sales Price

 

Units

 

Average Sales Price

 

Units

 

Average Sales Price

 

Units

 

Average Sales Price

Home Closings:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jacksonville

265

 

$

453,435

 

305

 

$

369,461

 

911

 

$

461,056

 

865

 

$

349,143

Colorado

65

 

 

638,132

 

60

 

 

478,536

 

204

 

 

592,135

 

141

 

 

475,863

Orlando

129

 

 

479,165

 

123

 

 

415,645

 

335

 

 

466,515

 

431

 

 

407,677

DC Metro

33

 

 

668,194

 

32

 

 

696,356

 

69

 

 

669,746

 

91

 

 

659,942

The Carolinas

333

 

 

342,155

 

249

 

 

309,276

 

936

 

 

334,782

 

907

 

 

298,054

Texas (1)

550

 

 

588,468

 

 

 

 

1,560

 

 

566,975

 

 

 

Other (2)

167

 

 

414,197

 

147

 

 

355,914

 

547

 

 

384,619

 

479

 

 

327,762

Total

1,542

 

$

487,852

 

916

 

$

375,693

 

4,562

 

$

471,621

 

2,914

 

$

354,222

(1)

Texas consists of the operations of MHI, which was acquired on October 1, 2021.

(2)

Austin, Savannah, Village Park Homes, Active Adult and Custom Homes. Austin refers to legacy DFH operations, exclusive of MHI.

Dream Finders Homes, Inc.

Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

September 30, 2022

 

December 31, 2021

Assets

 

 

 

 

Cash and cash equivalents

 

$

123,692

 

$

227,227

Restricted cash (VIE amounts of $9,260 and $4,275)

 

 

38,040

 

 

54,095

Accounts receivable (VIE amounts of $1,323 and $2,684)

 

 

37,929

 

 

33,482

Inventories:

 

 

 

 

Construction in process and finished homes

 

 

1,370,340

 

 

961,779

Company owned land and lots

 

 

135,988

 

 

83,197

VIE owned land and lots

 

 

6,502

 

 

21,686

Total inventories

 

 

1,512,830

 

 

1,066,662

Lot deposits

 

 

291,307

 

 

241,406

Other assets (VIE amounts of $1,797 and $2,185)

 

 

56,008

 

 

43,962

Equity method investments

 

 

11,440

 

 

15,967

Property and equipment, net

 

 

7,582

 

 

6,789

Operating lease right-of-use assets

 

 

24,069

 

 

19,359

Deferred tax asset

 

 

6,099

 

 

4,232

Intangible assets, net of amortization

 

 

6,059

 

 

9,140

Goodwill

 

 

172,207

 

 

171,927

Total assets

 

$

2,287,262

 

$

1,894,248

Liabilities

 

 

 

 

Accounts payable (VIE amounts of $0 and $1,309)

 

$

147,510

 

$

113,498

Accrued expenses (VIE amounts of $4,854 and $6,915)

 

 

133,319

 

 

139,508

Customer deposits

 

 

170,792

 

 

177,685

Construction lines of credit

 

 

975,000

 

 

760,000

Notes payable (VIE amounts of $0 and $1,979)

 

 

1,440

 

 

3,292

Operating lease liabilities

 

 

24,633

 

 

19,826

Contingent consideration

 

 

118,196

 

 

124,056

Total liabilities

 

$

1,570,890

 

$

1,337,865

Commitments and contingencies

 

 

 

 

Mezzanine Equity

 

 

 

 

Preferred mezzanine equity

 

 

155,830

 

 

155,220

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

Class A common stock, $0.01 per share, 289,000,000 authorized, 32,295,329 outstanding

 

 

323

 

 

323

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

 

 

602

 

 

602

Additional paid-in capital

 

 

262,783

 

 

257,963

Retained earnings

 

 

283,326

 

 

118,194

Non-controlling interests

 

 

13,508

 

 

24,081

Total mezzanine and stockholders’ equity

 

 

716,372

 

 

556,383

Total liabilities, mezzanine equity, and stockholders’ equity

 

$

2,287,262

 

$

1,894,248

 

Contacts

Investor Contact: investors@dreamfindershomes.com
Media Contact: mediainquiries@dreamfindershomes.com