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What changed in Dream Finders Homes, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Dream Finders Homes, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+449 added−446 removedSource: 10-K (2024-02-29) vs 10-K (2023-03-02)

Top changes in Dream Finders Homes, Inc.'s 2023 10-K

449 paragraphs added · 446 removed · 264 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

58 edited+49 added−59 removed18 unchanged
Biggest changeThe following is a summary of our history: 2009 – Began operations building homes in the Jacksonville, Florida market 2013 – Entered the Savannah, Georgia market 2014 – Entered the Denver, Colorado market 2015 – Entered the Austin, Texas and Orlando, Florida markets 2017 – Entered the Washington D.C. metropolitan area, with a particular focus on the Northern Virginia and Maryland markets (“DC Metro”) 2019 – Entered the Hilton Head and Bluffton, South Carolina markets with our acquisition of Village Park Homes, LLC (“Village Park Homes” or “VPH”) 2020 – Entered the Charlotte, Fayetteville, Raleigh, Piedmont Triad (consisting of Greensboro, High Point and Winston-Salem, North Carolina) and Wilmington, North Carolina and Myrtle Beach, South Carolina markets with our acquisition of the homebuilding business of H&H Constructors of Fayetteville, LLC, a North Carolina limited liability company (“H&H”) January 2021 – Completed our initial public offering (“IPO”) and expanded our presence in the Orlando, Florida market with our acquisition (the “Century Acquisition”) of Century Homes Florida, LLC (“Century Homes”) October 2021 – Significantly increased our operations in the Austin, Texas metro area and expanded into the Texas markets of Houston, Dallas and San Antonio with our acquisition of privately held Texas homebuilder McGuyer Homebuilders, Inc. and related affiliates (“MHI”) Operating Segments We select the geographic markets in which we operate our homebuilding business through a rigorous selection process based on our evaluation of positive population and employment growth trends, favorable migration patterns, attractive housing affordability, low state and local income taxes and desirable lifestyle and weather characteristics. 1 Table of Contents Our operations are currently organized into seven segments: Jacksonville, Orlando, Colorado, Texas, The Carolinas, Jet Home Loans and Other.
Biggest changeThe following is a summary of our history: 2009 – Began homebuilding operations in the Jacksonville, Florida market 2013 – Entered the Savannah, Georgia market 2014 – Entered the Denver, Colorado market 2015 – Entered the Austin, Texas and Orlando, Florida markets 2017 – Entered the Washington D.C. metropolitan area, with a particular focus on the Northern Virginia and Maryland markets (“DC Metro”) 2019 – Entered the Hilton Head and Bluffton, South Carolina markets with our acquisition of Village Park Homes, LLC 2020 – Entered the Charlotte, Fayetteville, Raleigh, Piedmont Triad (consisting of Greensboro, High Point and Winston-Salem, North Carolina), Wilmington, North Carolina and Myrtle Beach, South Carolina markets with our acquisition of the homebuilding business of H&H Constructors of Fayetteville, LLC, a North Carolina limited liability company (“H&H”) January 2021 – Expanded our presence in the Orlando, Florida market with our acquisition of Century Homes Florida, LLC October 2021 – Significantly increased our operations in the Austin, Texas metro area and expanded into the Houston, Dallas and San Antonio, Texas markets with our acquisition of McGuyer Homebuilders, Inc.
Our multilevel cooperation allows us to remain flexible and react quickly to changing markets or project-specific con ditions, and maximize the potential of each new land opportunity.
Our multilevel cooperation allows us to remain flexible to react quickly to changing markets or project-specific con ditions and maximize the potential of each new land opportunity.
We primarily employ two variations of our asset-light land financing strategy—finished lot option contracts and land bank option contracts—pursuant to which we secure the right to purchase finished lots at predetermined fixed contractual pricing from various land developers, land sellers and land bank partners.
We primarily employ two variations of our asset-light strategy—finished lot option contracts and land bank option contracts—pursuant to which we secure the right to purchase finished lots at predetermined fixed contractual pricing from various land developers, land sellers and land bank partners.
The 401(k) plan includes matching safe harbor contributions equal to 100% of the first one percent of eligible compensation and 50% of the next five percent of eligible compensation. The Company may also make additional discretionary profit-sharing contributions. Health and Safety The health and safety of our employees and subcontractors is our top priority.
The 401(k) plan includes matching safe harbor contributions equal to 100% of the first one percent of eligible compensation and 50% of the next five percent of eligible compensation. The Company may also make additional discretionary contributions. The health and safety of our employees and subcontractors is our top priority.
Because they are or may be significantly larger, have a longer operating history and/or have greater resources or lower cost of capital than us, they may be able to compete more effectively in one or more of the markets in which we operate or may operate in the future.
Because our competitors are or may be significantly larger, have a longer operating history and/or have greater resources or lower cost of capital than us, they may be able to compete more effectively in one or more of the markets in which we operate or may operate in the future.
While our land selection process is driven mainly by the local division leadership, the land sourcing process, including final approval to move forward with a project, is a collaboration involving both the local division and corporate leadership, including our President and Chief Executive Officer.
While our land selection process is driven mainly by the local division and regional leadership, the land sourcing process, including final approval to move forward with a project, is a collaboration involving corporate leadership, including our President and Chief Executive Officer.
We believe our experience, top-down emphasis on relationship building with land market participants and collaborative involvement of local and corporate management in the land sourcing and acquisition process enables us to identify the ideal developers and efficiently source and secure options to control and close acquisitions of lots to meet our growth needs while mitigating risk.
We believe our experience, top-down emphasis on relationship-building with land market participants and collaborative involvement of local, regional and corporate management in the land sourcing and acquisition process enable us to identify the ideal developers and efficiently source and secure options to control and close acquisitions of lots to meet our growth needs while mitigating risk.
Our interest in Jet LLC is accounted for under the equity method and is not consolidated in our consolidated financial statements, as we do not control and are not deemed the primary beneficiary of the variable interest entity (“VIE”).
Our interest in Jet HomeLoans is accounted for under the equity method and is not consolidated in our consolidated financial statements, as we do not control and are not deemed the primary beneficiary of the variable interest entity (“VIE”).
We typically provide lot deposits in the range of 5% to 10% of the land purchase price. Lot option fees are based on the outstanding capital balance held by the land banker and often are reflective of interest provisions under which delays in land development and/or longer land takedown periods result in additional costs.
We provide lot deposits typically averaging 10% of the land purchase price. Lot option fees are based on the outstanding capital balance held by the land banker and often are reflective of provisions under which delays in land development and/or longer land takedown periods result in additional costs.
Code of Conduct/Diversity and Inclusion Employees of the Company are required to comply with the Standards of Conduct set forth by the Company, including policies related to anti-harassment and anti-discrimination.
Employees of the Company are required to comply with the Standards of Conduct set forth by the Company, including policies related to anti-harassment and anti-discrimination.
We own a 49.9% interest in Jet LLC, and our joint venture partner, FBC Mortgage, LLC, an Orlando-based mortgage lender, owns the remaining 50.1% interest and performs a number of back office functions, such as accounting, compliance and secondary marketing activities.
We own a 60% interest in Jet HomeLoans, and our joint venture partner, FBC Mortgage, LLC, an Orlando-based mortgage lender, owns the remaining 40% interest and performs a number of back-office functions, such as accounting, compliance and secondary marketing activities.
DF Title primarily closes residential real estate transactions, including new home construction and resale and refinancing transactions, and handles no commercial real estate closings. DF Title operates in Colorado, Florida, Georgia, North Carolina and South Carolina. DF Title’s staff includes attorneys, state licensed title agents, escrow officers and experienced support staff with over 200 years of collective closing experience.
DF Title primarily closes residential real estate transactions, including new home construction, resale and refinance, and commercial real estate transactions. DF Title operates in Colorado, Florida, Georgia, North Carolina, South Carolina and Texas. DF Title’s staff includes attorneys, state licensed title agents, escrow officers and experienced support staff with hundreds of years of collective closing experience.
Closing, escrow and title insurance is primarily regulated at a state level, requiring that operations be conducted by skilled attorneys and/or licensed title insurance agents. 5 Table of Contents Expansion of title operations into other markets is ongoing and consideration of new markets is driven by unit volume, average sales price for homes sold and state-level legal considerations.
Closing, escrow and title insurance is primarily regulated at a state level, requiring that transactions be conducted by skilled attorneys and/or licensed title insurance agents. Expansion of title operations into our markets is ongoing and consideration of further expansion in our markets is driven by unit volume, average sales price for homes sold and state-level legal considerations.
Since breaking ground on our first home on January 1, 2009, we have closed over 22,200 homes through December 31, 2022 and have been profitable every year since inception.
Since breaking ground on our first home on January 1, 2009, we have closed over 29,500 homes through December 31, 2023 and have been profitable every year since inception.
Refer to Note 7, Variable Interest Entities to our Consolidated Financial Statements for the disclosed amounts of our remaining equity interests in these joint ventures.
Refer to Note 6, Variable Interest Entities to our consolidated financial statements for the disclosure of our remaining equity interests in these joint ventures.
Our active community count and average monthly sales per active community excludes communities under the Company's built-for-rent contracts, as all sales to investors occur at one point in time and these communities would have no home sites remaining to sell.
Our active community count excludes communities under the Company's built-for-rent contracts, as all sales to third-party investors occur at one point in time and these communities would have no homesites remaining to sell.
We generally sell more homes in the first and second quarters and close more homes in our third and fourth quarters. As a result, our revenue may fluctuate on a quarterly basis. Additionally, we generally have higher capital requirements in our second and third quarters in order to maintain our inventory levels.
As a result, our revenue may fluctuate on a quarterly basis. Additionally, we generally have higher capital requirements in our second and third quarters in order to maintain our inventory levels.
Such price fluctuations may be caused by several factors, including seasonal variation in availability of materials, labor and supply chain disruptions, international trade disputes and resulting tariffs, and changes in demand for materials as a result of the housing market conditions where we operate.
Price fluctuations may be caused by several factors, including seasonal variation in availability of materials, labor and supply chain disruptions, international trade disputes and resulting tariffs, and changes in demand for materials as a result of the housing market conditions where we operate. The price changes that most significantly influence our operations are price increases in commodities.
We value our network of subcontractors and tradespeople and believe our relationships with them are excellent. Compensation and Benefits We offer our employees compensation and an array of company-paid benefits, which we believe are competitive relative to others in our industry. Additionally, we offer retirement savings in the form of a 401(k) plan.
We offer our employees compensation and an array of company-paid benefits, which we believe are competitive relative to others in our industry. Additionally, we offer retirement savings in the form of a 401(k) plan.
As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular quarter are not necessarily representative of the results we expect at year-end. We expect this seasonal pattern to continue in the long-term.
As a result of seasonal activity, our quarterly financial positions and results of operations are not necessarily representative of the financial position or results of operations we expect as of and for the respective full year-end. We expect this seasonal pattern to continue in the long-term.
Management will restructure or reorganize, as needed, to achieve optimal growth and oversight for the business. Asset-Light Business Strategy We operate an asset-light and capital-efficient lot acquisition strategy to meet our growth objectives. We generally seek to avoid engaging in land development, which requires significant capital expenditures, and can take several years to realize returns on the investment.
Asset-Light Business Strategy We operate an asset-light and capital-efficient lot acquisition strategy to meet our growth objectives. We generally seek to avoid engaging in land development, which requires significant capital expenditures, and can take several years to realize returns on the investment.
Our title agency’s practices regarding closing, escrow and issuance of title insurance are subject to rules established, in part, by states’ insurance regulators and underwriters’ guidelines.
Our title services’ practices regarding closing, escrow and issuance of title insurance are subject to rules established, in part, by state insurance regulators and underwriter guidelines.
As of December 31, 2022, we had 1,170 full-time employees. Of our full-time employees, 88 worked in our corporate office, 24 in divisional management and 263 in sales. None of our employees are represented by a labor union or covered under a collective bargaining agreement, and we have not experienced any strikes or work stoppages.
Human Capital Resources As of December 31, 2023, we had 1,236 full-time employees. Of our full-time employees, 115 worked in our corporate office, 29 in divisional management and 283 in sales. None of our employees are represented by a labor union or covered under a collective bargaining agreement, and we have not experienced any strikes or work stoppages.
We remain focused on controlling as many quality land positions as possible while minimizing up-front capital outlay. Our land selection process begins with key economic drivers, such as demographic trends and employment growth.
Land Acquisition and Development Process Locating and analyzing attractive land positions is a critical challenge for any homebuilder. We remain focused on controlling as many quality land positions as possible while minimizing up-front capital outlay. Our land selection process begins with key economic drivers, such as demographic trends and employment growth.
See “Risk Factors” for additional information regarding these risks. We are dependent upon building material suppliers for a continuous flow of raw materials. Whenever possible, we attempt to utilize standard products available from multiple sources. In the past, such raw materials have been generally available to us in adequate supply.
Refer to “Risk Factors—Industry, Economic and Regulatory Risks” for additional information. We are dependent upon building material suppliers for a continuous flow of raw materials. Whenever possible, we attempt to utilize standard products available from multiple sources. Such raw materials have been generally available to us in adequate supply.
The digital marketing methods that we employ include strategic e-marketing efforts to our current database of potential customers, internet advertising enhanced by search engine marketing and search engine optimization, and campaigns and promotions across an array of social media platforms.
The digital marketing methods that we employ include strategic e-marketing efforts to our current database of potential customers, internet advertising enhanced by search engine marketing and search engine optimization, and campaigns and promotions across an array of social media platforms. We also strategically open communities in high-visibility areas that allow us to take advantage of local traffic patterns.
The Company has made an ethics hotline available to all associates of the Company where they are able to report any violations of the Standards of Conduct, including violations related to the harassment or discrimination of any associate. Furthermore, we intend to implement a company-wide anti-harassment training program beginning in 2023.
The Company has made an ethics hotline available to all associates of the Company where they are able to report any violations of the Standards of Conduct, including violations related to the harassment or discrimination of any associate.
Our cancellation rate for a given period is calculated as the total number of new sales contracts cancelled during the period, divided by the total number of new gross sales contracts entered into during the period.
Our cancellation rate for a given period is calculated as the total number of new sales contracts cancelled during the period, divided by the total number of new sales contracts entered into during the period. When a cancellation occurs, we generally retain the customer deposit and resell the home to a new customer.
We provide attentive one-on-one customer service throughout the home buying process, empowering our customers with flexibility to personalize their homes, and actively soliciting feedback from all of our customers.
Marketing and Sales We seek to ensure that each customer’s experience exceeds their expectations by focusing on customer satisfaction and providing a unique buying experience. We provide attentive one-on-one customer service throughout the home buying process, empowering our customers with flexibility to personalize their homes, and actively soliciting feedback from all of our customers.
As of December 31, 2022, our lot deposits and investments in finished lot option and land bank contracts were $277 million. As of December 31, 2022, we controlled 37,615 lots under lot option and land bank option contracts.
As of December 31, 2023, our lot deposits for finished lot option and land bank option contracts were $247 million. As of December 31, 2023, we controlled 29,748 lots under finished lot option and land bank option contracts.
These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled within an option contract for any reason, and our sole legal obligation and economic loss as a result of such forfeitures is limited to the amount of the deposits paid pursuant to such option contracts, and, in the case of land bank option contracts, any related lot option fees paid to the land bank partner, any potential performance obligations, management of the land development to completion and any cost overruns relative to the project.
When a land seller desires to sell finished lots in bulk or does not wish to develop finished lots, we often enter into land bank option contracts with land bank partners who fund any required land acquisition and land development costs and sell the finished lots to us over a period of time. 2 Table of Contents These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled for any reason, and our sole legal obligation and economic loss as a result of such forfeitures is limited to the amount of the deposits paid pursuant to such option contracts and, in the case of land bank option contracts, our loss is limited to the related lot option fees paid to the land bank partner, and for certain land bank option contracts, any potential performance obligations, management of the land development to completion and any cost overruns relative to the project.
To fully serve our homebuyer customers and capture ancillary business opportunities, we also offer title insurance through DF Title, LLC, doing business as Golden Dog Title & Trust (“DF Title”) and mortgage banking solutions primarily through our mortgage banking joint venture, Jet Home Loans, LLC (“Jet LLC”), which comprises our Jet Home Loans segment.
To fully serve our homebuyers and capture ancillary business opportunities, we have financial services operations that offer title insurance primarily through DF Title, LLC, doing business as Golden Dog Title & Trust or Golden Dog Title (“DF Title”) and mortgage banking solutions primarily through our mortgage banking joint venture, Jet HomeLoans, LP (“Jet HomeLoans”).
We sell our homes through our own sales representatives and through independent real estate brokers. We continuously work to maintain good relationships with independent real estate brokers in our markets and offer competitive programs to reward these brokers for selling our homes.
We continuously work to maintain good relationships with independent real estate brokers in our markets and offer competitive programs to reward these brokers for selling our homes. Our in-house sales force typically works from sales offices located in model homes close to or in each community.
Active community count is an important metric to forecast future net new orders for our business. As of December 31, 2022, we had 206 active communities, a year over year increase of 1 community when compared to our 205 active communities as of December 31, 2021.
A community becomes inactive when it has fewer than five units remaining to sell. Active community count is an important metric to forecast future net new orders for our business. As of December 31, 2023, we had 221 active communities, an increase of 15 communities, or 7%, when compared to 206 active communities as of December 31, 2022.
Sales to investors that intend to lease the homes are recognized when the Company has received a nonrefundable deposit. Net new orders are sales of homes during the period less cancellations of existing sales contracts during the period.
These deposits are typically nonrefundable, but each customer situation is evaluated individually. Sales to third-party investors that intend to lease the homes (“built-for-rent contracts”) are reported when the Company has received a nonrefundable deposit. Net new orders are sales of homes during the period less cancellations of existing sales contracts during the period.
We believe that investing in finding and retaining exceptional people is the most important part of our business. We believe that our connection with our employees is positive and well-regarded. We value our employees and believe that employee loyalty and enthusiasm are key elements of our operating performance. We utilize subcontractors and tradespeople to perform the construction of our homes.
We value our employees and believe that employee loyalty and enthusiasm are key elements of our operating performance. We utilize subcontractors and tradespeople to perform the construction of our homes. We value our network of subcontractors and tradespeople and believe our relationships with them are excellent.
Our materials are subject to price fluctuations until construction on a home begins, the point in time in which prices for that particular home are locked via purchase orders.
Our materials are subject to price fluctuations. Once construction of a home begins, prices for the materials utilized in the construction of that particular home are generally locked via purchase orders, but fluctuations may occur as a result of market conditions.
Our in-house sales force typically works from sales offices located in model homes close to or in each community. Sales representatives assist potential homebuyers by providing them with floor plans, price information, development and construction timetables, tours of model homes and the home customization options that we offer.
Sales representatives assist potential homebuyers by providing them with floor plans, price information, development and construction timetables, tours of model homes and the home customization options that we offer. Sales representatives are trained by us and generally have prior experience selling new homes in the local market.
Our SEC filings are also available to the public on the SEC’s website at www.sec.gov. We are a Delaware corporation that incorporated on September 11, 2020. Our principal executive offices are located at 14701 Philips Highway, Suite 300, Jacksonville, Florida 32256, and our telephone number is (904)-644-7670.
Our SEC filings are also available to the public on the SEC’s website at www.sec.gov. We are a Delaware corporation that was incorporated on September 11, 2020.
Materials, Procurement and Construction When constructing our homes, we use various materials and components and are dependent upon building material suppliers for a continuous flow of raw materials. It typically takes us between 150 and 240 days to construct a single-family home. The construction period for our custom homes are typically longer.
As of December 31, 2023 , the Company had 15 communities delivering closings under built-for-rent contracts. 4 Table of Contents Construction and Materials When constructing our homes, we are dependent upon building material suppliers to provide a continuous flow of raw materials. It typically tak es us between 150 and 240 days to construct a single-family home.
We provide each homeowner with product warranties covering workmanship and materials for one year from the time of home closing, and warranties covering structural systems for eight to ten years from the time of closing. We believe our warranty program meets or exceeds terms customarily offered in the homebuilding industry.
We provide each homeowner with product warranties covering workmanship and materials for one year from the time of home closing, and warranties covering structural systems for eight to ten years from the time of closing. Where possible, we utilize our subcontractors to repair the homes in accordance with our subcontractor agreements and as required by law.
We believe our asset-light business model reduces our balance sheet risk relative to other homebuilders that own a higher percentage of their land supply. Refer to “— Land Acquisition and Development Process” for a detailed discussion of how we employ our strategy. Land Acquisition and Development Process Locating and analyzing attractive land positions is a critical challenge for any homebuilder.
We believe our asset-light business model reduces our balance sheet risk relative to homebuilders that own a higher percentage of their land supply. Refer to “—Land Acquisition and Development Process” and Note 6, Variable Interest Entities to our consolidated financial statements for further information.
Dream Finders Homes LLC owns 49% of the membership interests in DF Capital and a non-affiliated third party owns the remaining 51% of the membership interests in DF Capital.
Our primary operating subsidiary, Dream Finders Homes LLC, periodically enters into land bank arrangements with DF Capital Management, LLC, a Florida limited liability company (“DF Capital”). The Company owns a 49% membership interest in DF Capital, and a non-affiliated third party owns the remaining 51% of the membership interests in DF Capital.
Ending backlog represents the number of homes in backlog from the previous period, plus the number of net new orders generated during the current period, minus the number of homes closed during the current period.
Ending backlog represents the number of homes in backlog from the previous period, plus sales of homes during the current period less cancellations of existing sales contracts during the period (“net sales”) , minus the number of home closings during the current period.
Sales and Backlog A new order (“new sale”) is reported when a customer has received preliminary mortgage approval and the sales contract has been signed by the customer, approved by us and secured by a deposit of approximatel y 6% of the purchase price of the home. These deposits are typically nonrefundable, but each customer situation is evaluated individually.
Refer to Note 11, Related Party Transactions to the consolidated financial statements for more information. 3 Table of Contents Sales and Backlog A new order (“new sale”) is reported when a customer has received preliminary mortgage approval and the sales contract has been signed by the customer, approved by us and secured by a deposit, which generally averages approximatel y 9% of the purchase price of the home.
Refer to Note 2, Business Combinations of the Consolidated Financial Statements reported herein for further discussion of our acquisitions. 8 Table of Contents Seasonality In all of our markets, we have historically experienced similar variability in our results of operations and capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry.
Seasonality In all of our markets, we have historically experienced similar variability in our results of operations and capital requirements from quarter to quarter due to the seasonal nature of the homebuilding industry. We generally sell more homes in the first and second quarters and close more homes in our third and fourth quarters.
Our Other segment primarily consists of our homebuilding operations in Austin, Texas, Hilton Head and Bluffton, South Carolina, Savannah, Georgia and DC Metro, as well as our Active Adult and Custom Luxury Homes divisions in Jacksonville, and our title insurance brokerage business, DF Title, LLC.
Our Southeast segment consists of the homebuilding operations in Jacksonville, Orlando, and Tampa, Florida; Savannah, Georgia; Hilton Head and Bluffton, South Carolina; and our Active Adult and Custom Homes homebuilding operations in northeast Florida.
We believe that every home is as important as the next, regardless of price point, and that everyone deserves the ability to build a home that suits their needs.
We believe that every home is as important as the next, regardless of price point, and that everyone deserves the ability to purchase a home that suits their needs. Accordingly, we are able to offer a range of optionality within the homebuilding process, from move-in-ready inventory homes to homes that can be tailored with additional features, including structural modifications.
Our backlog at any given time will be affected by cancellations and the number of our active communities. 4 Table of Contents Homes in backlog are generally closed within one to nine months, although we may experience cancellations of purchase contracts at any time prior to such home closings.
Our backlog at any given time will be affected by cancellations and the number of our active communities. Homes in backlog are generally closed within one to nine months. Sustained supply chain challenges during 2022 and early 2023 have contributed to temporarily elongated cycle times impacting the Company’s backlog turnover rate.
Products and Customers Homes, Homebuyers and Active Communities We offer a range of single-family homes in each of our markets, with a core focus on entry-level and first-time move-up homebuyers, but we also provide offerings for second-time move-up homebuyers.
Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Net Sales, Backlog and Closings ” for additional information. Products, Communities and Construction Homes, Homebuyers and Active Communities We offer a range of single-family homes in each of our markets, placing a primary emphasis on entry-level and first-time move-up homes.
Our homebuilding business is driven by our commitment to building high quality homes at affordable prices in attractive locations while delivering excellent customer service. Our customers enjoy the flexibility of personalizing our desirable open floor plans with a wide array of finishes and upgrades to best fit their distinctive tastes and unique needs.
Our customers enjoy the flexibility of personalizing our desirable open floor plans with a wide array of finishes and upgrades to best fit their distinctive tastes and unique needs. A community becomes active once the model is completed or the community has its fifth net new order.
As the official homebuilder of the Jacksonville Jaguars, we maintain a fully decorated model home at the team’s stadium, which attract s thousands of fans ea ch game day. During 2022, we entered into an agreement with the PGA TOUR to become their Official Homebuilder through 2027.
Model homes play a significant role in our marketing efforts by not only creating an attractive atmosphere, but by also displaying options and upgrades. As the Official Homebuilder of the Jacksonville Jaguars, we maintain a fully decorated model home at the team’s stadium, which attract s thousands of fans ea ch game day.
The Carolinas segment consists of our homebuilding operations in Charlotte, Fayetteville, Raleigh, the Triad (consisting of Greensboro, High Point and Winston-Salem, North Carolina) and Wilmington, North Carolina, and Myrtle Beach, South Carolina. Our Jet Home Loans segment consists of our mortgage operations conducted primarily through our mortgage banking joint venture, Jet LLC.
Our Mid-Atlantic segment consists of our North Carolina homebuilding operations in Charlotte, Fayetteville, Raleigh, Wilmington and the Triad (consisting of Greensboro, High Point and Winston-Salem) (together, “The Carolinas”) and DC Metro. Our Midwest segment consists of our Texas homebuilding operations in Austin, Dallas, Houston and San Antonio, and our Colorado homebuilding operations in Denver.
Environmental requirements that apply to any given homebuilding site vary according to the site’s location, its environmental conditions, the presence or absence of endangered plants or species or sensitive habitats and the present and former uses of the site, as well as nearby or adjoining properties. Refer to “Item 1A.
Environmental requirements that apply to any given homebuilding site vary according to the location, environmental conditions, the presence or absence of endangered plants or species or sensitive habitats and the present and former uses of the site, as well as nearby or adjoining properties. 7 Table of Contents Our operations that provide mortgage and title services within our Financial Services segment are subject to various local, state and federal laws, statutes, ordinances, administrative rules and other regulations, including requirements for participants in programs offered by FHA, VA, USDA, Government National Mortgage Association, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”).
Title Insurance Business Our wholly owned subsidiary, DF Title, is a title insurance agency licensed in multiple states that provides closing, escrow and title insurance services. Our philosophy is to have a systematic approach to workflow management with a high level of care and communication during the closing process, thereby delivering an exceptional experience to each customer.
Refer to N ote 1, Nature of Business and Significant Accounting Policies, to our consolidated financial statements for a discussion of accounting treatment of VIEs. Our wholly owned subsidiary, DF Title, is a title insurance agency licensed in multiple states that provides closing, escrow and title insurance services.
This strategic alliance provides a national marketing footprint in regions where Dream Finders divisions operate and where high profile, annual PGA TOUR golf tournaments are played. 6 Table of Contents With the rebranding of our recent homebuilder acquisitions, this partnership allows us to more swiftly and efficiently penetrate these markets and elevate the trust and authenticity of our brand to prospective home buyers.
We are also the Official Homebuilder of the PGA TOUR. This strategic alliance provides a national marketing footprint in regions where we operate and where high-profile, annual PGA TOUR golf tournaments are held. We sell our homes through our own sales representatives and through independent real estate brokers.
Once our land acquisition committee approves a transaction meeting our internal model that requires financing, we will seek a land bank partner. Our primary operating subsidiary, Dream Finders Homes LLC, periodically enters into land bank arrangements with DF Capital Management, LLC, a Florida limited liability company (“DF Capital”).
Our land team routinely underwrites potential lot acquisitions that meet our capital allocation criteria. Once our land acquisition committee approves a transaction that requires financing and meets our internal model, we will seek a land bank partner.
ITEM 1. BUSINESS Company Overview We design, build and sell homes in high-growth markets, including Charlotte, Raleigh, Jacksonville, Orlando, Denver, the Washington D.C. metropolitan area, Austin, Dallas and Houston. We sell homes under the Dream Finders Homes, DF Luxury, Craft Homes and Coventry Homes brands.
ITEM 1. BUSINESS Company Overview We design, build and sell homes in high-growth markets using our asset-light lot acquisition strategy. Our primary focus is on constructing and selling single-family homes across entry-level, first-time move-up, second-time move-up homes, and active adult homes. Our home offerings are marketed under various brands, including Dream Finders Homes, DF Luxury, Craft Homes, and Coventry Homes.
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We employ an asset-light land acquisition strategy with a focus on the design, construction and sale of single-family entry-level, first-time move-up and second-time move-up homes.
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(“MHI”) October 2023 – Entered the Tampa, Florida market February 2024 – Entered the Charleston and Greenville, South Carolina and Nashville, Tennessee markets with our acquisition of the majority of the homebuilding assets of Crescent Ventures, LLC (“Crescent Homes”) 1 Table of Contents Markets We select the geographic markets in which we operate our homebuilding business through a rigorous selection process based on our evaluation of positive population and employment growth trends, favorable migration patterns, attractive housing affordability, low state and local income taxes and desirable lifestyle and weather characteristics.
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See Note 9, Segment Reporting, to our consolidated financial statements. Our Jacksonville segment primarily consists of our Jacksonville, Florida homebuilding operations. Our Orlando segment primarily consists of our Orlando, Florida homebuilding operations. Our Colorado segment primarily consists of our greater Denver homebuilding operations. Our Texas segment consists of our homebuilding operations in Austin, Dallas, Houston and San Antonio, Texas.
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As a result of our acquisitive and organic growth, and our overall strategy to maintain agility, the management of our homebuilding operations changed from a divisional level to a regional level during the third quarter of 2023. Our operations are now organized into four reportable segments: Southeast, Mid-Atlantic, Midwest and Financial Services.
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The Other operations in Austin, Texas include legacy homebuilding operations outside of those acquired from MHI. As a result of our recent business acquisitions and organic growth in the last few years, our footprint in the contiguous United States continues to evolve. Likewise, management’s evaluation of our operating structure is on-going.
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Our Financial Services segment consists of our mortgage banking and title services operations, which primarily consist of Jet Home Loans and Golden Dog Title and Trust. The homebuilding operations of Crescent Homes will be included in our Mid-Atlantic segment in 2024. Refer to Note 9, Segment Reporting to our consolidated financial statements for more information.
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This team effort ensures that we leverage experience and resources throughout the organization for a thoughtful and strategic execution of every new land acquisition. Our company-wide emphasis on continually developing new and existing relationships with land sellers, developers and land bank partners acts to further enhance this strategy.
Added
Owned and Controlled Lots The following table presents our owned finished lots purchased just-in-time for production and controlled lots through option contracts by homebuilding segment as of December 31, 2023 and 2022: As of December 31, 2023 2022 Segment (1) Owned (2)(3) Controlled Total (4) Owned (3) Controlled Total % Change Southeast 3,057 13,063 16,120 2,939 16,255 19,194 -16 % Mid-Atlantic 1,802 4,795 6,597 1,766 14,891 16,657 -60 % Midwest 2,070 11,890 13,960 1,238 6,469 7,707 81 % Grand Total 6,929 29,748 36,677 5,943 37,615 43,558 -16 % (1) Refer to Note 9, Segment Reporting to the consolidated financial statements for further explanation of our reportable segments.
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Our management team leads by example in fostering our culture of external relationship building by taking an active, personal role in communications with land sellers and developers—an approach that we believe differentiates us from similarly situated homebuilders.
Added
(2) As of December 31, 2023 , the Company had 6,929 owned lots, of which 4,133 were included in construction in process (“CIP”) and finished homes within the Consolidated Balance Sheet. Of the 4,133 owned lots included in CIP and finished homes, 3,632 were under construction, 391 were completed spec homes and 110 were model homes.
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Finished lot option contracts are generally entered into with the land seller between six months and one year in advance of completion of the land development.
Added
The remaining owned lots were purchased just-in-time to start construction through existing lot option contracts. (3) As of December 31, 2023 and 2022, o wned land and lots, inclusive of lot option fees, property taxes, and due diligence costs, represented 13% and 17%, respectively, of total inventories.
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Pursuant to our finished lot option contracts, the lots are offered to us for purchase on a rolling basis, on a timeline that is designed to mirror our expected home sales pace. 2 Table of Contents When a land seller desires to sell finished lots in bulk or does not wish to develop finished lots, we often enter into land bank option contracts with land bank partners who fund any required land acquisition and land development costs and sell the finished lots to us over a period of time.
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(4) As of December 31, 2023, the Company had 1,782 owned lots and 1,413 controlled lots under built-for-rent contracts (see “—Sales and Backlog” for a definition of built-for-rent contracts). DF Capital Management, LLC Controlling a sufficient supply of finished lots is an important component of our asset-light strategy.
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Owned and Controlled Lots The following table presents our owned finished lots purchased just-in-time for production and controlled lots through option contracts by homebuilding segment as of December 31, 2022 and 2021: As of December 31, 2022 2021 Segment Owned (2) Controlled Total Owned Controlled Total % Change Jacksonville 1,083 8,893 9,976 774 10,311 11,085 -10 % Colorado 366 7,555 7,921 152 4,883 5,035 57 % Orlando 976 4,878 5,854 537 5,487 6,024 -3 % The Carolinas 1,003 4,849 5,852 1,452 5,196 6,648 -12 % Texas 1,282 6,835 8,117 1,569 6,304 7,873 3 % Other (1) 1,233 4,605 5,838 861 6,314 7,175 -19 % Grand Total 5,943 37,615 43,558 5,345 38,495 43,840 -1 % (1) Austin, DC Metro, Savannah, GA, Hilton Head and Bluffton, S.C., Active Adult and Custom Homes.
Added
Cancellations can occur for various reasons outside of our control, including customer credit issues or changes in other personal circumstances. Our backlog consists of homes under contract that have not yet been delivered to a homebuyer or third-party investor.
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Austin refers to legacy DFH operations exclusive of MHI. See Note 9, Segment Reporting, to our consolidated financial statements for further explanation of our reportable segments. (2) As of December 31, 2022, of the 5,943 owned lots, 4,077 were under construction, 206 were completed spec homes and 139 were model homes. The remaining lots were ready for construction.
Added
In addition, certain circumstances may impact our backlog conversion, such as built-for-rent contracts, which are customarily delivered over a longer period of time, as well as pre-sales in new communities.
Removed
Owned Real Estate Inventory Status The following table presents our owned real estate inventory status as of December 31, 2022 and 2021: As of December 31, 2022 As of December 31, 2021 % of Owned Real Estate Inventory % of Owned Real Estate Inventory Construction in process and finished homes (1) 86 % 92 % Company owned land and lots (2) 14 % 8 % Total 100 % 100 % (1) Represents our owned homes that are completed or under construction, including sold, spec and model homes.
Added
The Company’s backlog may be impacted by customer cancellations for various reasons that are beyond our control, and, in light of our minimal required deposit, there is little negative impact to the potential homebuyer from the cancellation of the purchase contract.
Removed
Land and lots from consolidated VIEs are excluded from total owned real estate inventory. 3 Table of Contents (2) Represents finished lots purchased just-in-time for production and capitalized costs related to land under development held by third-party land bank partners, including lot option fees, property taxes and due diligence.
Added
As of December 31, 2023 and 2022, ending backlog was 3,978 homes and 5,548 homes, valued at approximately $2 billion and $3 billion, respectively, based on average sales price. Homes in ending backlog are typically converted to closings in the subsequent year.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeTo the extent the oil and gas industry, which can be very volatile, is negatively impacted by declining commodity prices, climate change, legislation or other factors, it could result in a reduction in employment or other negative economic consequences, which could adversely impact our homebuilding revenues and activities in our Texas markets.
Biggest changeA prolonged economic downturn in the future in one or more of these areas, or a particular industry that is fundamental to one or more of these areas, particularly within Florida and Texas, our largest markets, could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations. 12 Table of Contents To the extent the oil and gas industry, which can be very volatile, is negatively impacted by declining commodity prices, climate change, legislation or other factors, it could result in a reduction in employment or other negative economic consequences, which could adversely impact our homebuilding revenues and activities in our Texas markets.
Any future government shutdowns or slowdowns may materially adversely affect our business or financial results. Any future government shutdowns or slowdowns may materially adversely affect our business or financial results. We can make no assurances that potential home closings affected by any such shutdown or slowdown will occur after the shutdown or slowdown has ended.
Any future government shutdowns or slowdowns may materially adversely affect our business or financial results. We can make no assurances that potential home closings affected by any such shutdown or slowdown will occur after the shutdown or slowdown has ended.
Our success depends to a significant degree upon the contributions of certain key management personnel, including, but not limited to, Patrick Zalupski, our founder, President, Chief Executive Officer and Chairman of our Board of Directors, our Senior Vice President and Chief Operating Officer, Doug Moran, and our Senior Vice President and Chief Financial Officer, Anabel Fernandez.
Our success depends to a significant degree upon the contributions of certain key management personnel, including, but not limited to, Patrick Zalupski, our founder, President, Chief Executive Officer and Chairman of the Board of Directors, our Senior Vice President and Chief Operating Officer, Doug Moran, and our Senior Vice President and Chief Financial Officer, Anabel Fernandez.
Upon our liquidation, dissolution or winding up, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the initial liquidation preference of $1,000 per share, subject to adjustment, plus all accrued and unpaid dividends thereon, which dividends accrue at a rate equal to 9% per annum.
Upon our liquidation, dissolution or winding up, each share of convertible preferred stock will be entitled to receive an amount per share equal to the initial liquidation preference of $1,000 per share, subject to adjustment, plus all accrued and unpaid dividends thereon, which dividends accrue at a rate of 9% per annum.
In addition, our land bank option contracts often include interest provisions under which delays in land development and/or longer land takedown periods cause us to incur additional cost. It can take several years from the time we acquire control of an undeveloped property to the time we make our first home sale on the site.
In addition, our land bank option contracts often include provisions under which delays in land development and/or longer land takedown periods cause us to incur additional cost. It can take several years from the time we acquire control of an undeveloped property to the time we make our first home sale on the site.
The following summary risk factors, may cause actual results to differ materially from those expressed or implied in our forward-looking statements: • the negative impact of an increase in cancellation rates affecting our closing, backlog and sales revenues as a result of rising interest rates and inflationary pressures; • a continued shortage of building materials or labor, or continued increases in costs that delay or increase the cost of home construction; • the impact from global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business, financial condition or results of operations; • a slowdown in the homebuilding industry or changes in population growth rates in our markets; • volatility and uncertainty in the credit markets and broader financial markets; • our future operating results and financial condition; • adverse effects of major epidemics or pandemics, such as COVID-19, on the economy, our business, financial condition and results of operations; • the success of our operations in new markets and our ability to expand into additional new markets; • our ability to continue to leverage our asset-light and capital-efficient lot acquisition strategy; • our ability to develop our projects successfully or within expected timeframes; • our ability to identify potential acquisition targets and close such acquisitions; • our ability to successfully integrate acquired businesses with our existing operations; • availability of land to acquire and our ability to acquire such land on favorable terms, or at all; • availability, terms and deployment of capital and ability to meet our ongoing liquidity needs; • restrictions in our debt agreements that limit our flexibility in operating our business; • disruption in the terms or availability of mortgage financing or an increase in the number of foreclosures in our markets; • decline in the market value of our inventory or controlled lot positions; • shortages of, or increased prices for, labor, land or raw materials used in land development and housing construction, including due to changes in trade policies; • delays in land development or home construction resulting from natural disasters, adverse weather conditions or other events outside our control; 31 Table of Contents • uninsured losses in excess of insurance limits; • the cost and availability of insurance and surety bonds; • changes in liabilities under, or the failure or inability to comply with, governmental laws and regulations, including environmental laws and regulations; • the timing of receipt of regulatory approvals and the opening of projects; • the degree and nature of our competition; • decline in the financial performance of our interests, our lack of sole decision-making authority thereof and maintenance of relationships with our partners; • negative publicity or poor relations with the residents of our projects; • existing and future warranty and liability claims; • existing and future litigation, arbitration or other claims; • availability of qualified personnel and third-party contractors and subcontractors; • information system failures, cyber incidents or breaches in security; • our ability to retain our key personnel; • our ability to maintain an effective system of internal control and produce timely and accurate financial statements or comply with applicable regulations; • our leverage and future debt service obligations; • the impact on our business of any future government shutdown; • the impact on our business of acts of war or terrorism; • other risks and uncertainties inherent in our business; and • other factors we discuss under the section entitled “Risk Factors.” We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the operation of our business.
The following summary risk factors, may cause actual results to differ materially from those expressed or implied in our forward-looking statements: • the negative impact of an increase in cancellation rates affecting our closing, backlog and sales revenues as a result of rising interest rates and inflationary pressures; • a continued shortage of building materials or labor, or continued increases in costs that delay or increase the cost of home construction; • the impact from global economic and political instability and conflicts could adversely affect our business, financial condition or results of operations; • a slowdown in the homebuilding industry or changes in population growth rates in our markets; • volatility and uncertainty in the credit markets and broader financial markets; • our future operating results and financial condition; • adverse effects of major epidemics or pandemics, such as COVID-19, on the economy, our business, financial condition and results of operations; • the success of our operations in new markets and our ability to expand into additional new markets; • our ability to continue to leverage our asset-light and capital-efficient lot acquisition strategy; • our ability to develop our projects successfully or within expected timeframes; • our ability to identify potential acquisition targets and close such acquisitions; • our ability to successfully integrate acquired businesses with our existing operations; • availability of land to acquire and our ability to acquire such land on favorable terms, or at all; • availability, terms and deployment of capital and ability to meet our ongoing liquidity needs; • restrictions in our debt agreements that limit our flexibility in operating our business; • disruption in the terms or availability of mortgage financing or an increase in the number of foreclosures in our markets; • decline in the market value of our inventory or controlled lot positions; • shortages of, or increased prices for, labor, land or raw materials used in land development and housing construction, including due to changes in trade policies; • delays in land development or home construction resulting from natural disasters, adverse weather conditions or other events outside our control; • uninsured losses in excess of insurance limits; • the cost and availability of insurance and surety bonds; 34 Table of Contents • changes in liabilities under, or the failure or inability to comply with, governmental laws and regulations, including environmental laws and regulations; • the timing of receipt of regulatory approvals and the opening of projects; • the degree and nature of our competition; • decline in the financial performance of our interests, our lack of sole decision-making authority thereof and maintenance of relationships with our partners; • negative publicity or poor relations with the residents of our projects; • existing and future warranty and liability claims; • existing and future litigation, arbitration or other claims; • availability of qualified personnel and third-party contractors and subcontractors; • information system failures, cyber incidents or breaches in security; • our ability to retain our key personnel; • our ability to maintain an effective system of internal control and produce timely and accurate financial statements or comply with applicable regulations; • our leverage and future debt service obligations; • the impact on our business of any future government shutdown; • the impact on our business of acts of war or terrorism; • other risks and uncertainties inherent in our business; and • other factors we discuss under the section entitled “Risk Factors.” We caution you that these forward-looking statements are subject to all of the risks and uncertainties, most of which are difficult to predict and many of which are beyond our control, incident to the operation of our business.
Failure to attract and retain such personnel or to ensure that their experience and knowledge is not lost when they leave the business through retirement, redundancy or otherwise may adversely affect the standards of our service and may have an adverse impact on our business, prospects, liquidity, financial condition and results of operations.
Failure to attract and retain such personnel or to ensure that their experience and knowledge is not lost when they leave the business through retirement, redundancy or otherwise may adversely affect the standards of our service and may have an adverse impact on our business, prospects, liquidity, financial condition and results of operations. Mr.
Further, to the extent that the purchase price of an acquisition is paid in the form of an earn out on future financial results, the success of such an acquisition will not be fully realized by us for a period of time as it is shared with the sellers.
Further, to the extent that a portion of the purchase price of an acquisition is paid in the form of an earn out on future financial results, the success of such an acquisition will not be fully realized by us for a period of time as it is shared with the sellers.
This choice of forum provision may limit a stockholders’ ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. 25 Table of Contents Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.
This choice of forum provision may limit a stockholders’ ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, employees or agents, which may discourage such lawsuits against us and such persons. 27 Table of Contents Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.
Each of our divisions retain various independent contractors, either directly or indirectly through third-party entities formed by these independent contractors for their business purposes, including, without limitation, some of our sales agents. With respect to these independent contractors, we are subject to the Internal Revenue Service (the “IRS”) regulations and applicable state law guidelines regarding independent contractor classification.
Each of our divisions retains various independent contractors, either directly or indirectly through third-party entities formed by these independent contractors for their business purposes, including, without limitation, some of our sales agents. With respect to these independent contractors, we are subject to the Internal Revenue Service (the “IRS”) regulations and applicable state law guidelines regarding independent contractor classification.
Our current financing arrangements contain, and our future financing arrangements likely will contain, restrictive covenants. Our current financing agreements contain, and the financing arrangements we enter into in the future likely will contain, covenants that limit our ability to do certain things.
Our current financing agreements contain, and the financing arrangements we enter into in the future likely will contain, covenants that limit our ability to do certain things.
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Annual Report on Form 10-K. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 32 Table of Contents
Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this Annual Report on Form 10-K. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 35 Table of Contents
Additionally, if we acquire a company that has violated or is not in compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result. 28 Table of Contents Increasing attention to environmental, social and governance matters may impact our business, financial results or stock price.
Additionally, if we acquire a company that has violated or is not in compliance with applicable data protection laws, we may incur significant liabilities and penalties as a result. 31 Table of Contents Increasing attention to environmental, social and governance matters may impact our business, financial results or stock price.
These trading conflicts and related escalating governmental actions that result in additional tariffs, duties and/or trade restrictions could increase our construction costs further, cause disruptions or shortages in our supply chains and/or negatively impact the U.S., regional or local economies, and, individually or in the aggregate, materially and adversely affect our business and our operating results.
Such trading conflicts and related escalating governmental actions that result in additional tariffs, duties and/or trade restrictions could increase our construction costs further, cause disruptions or shortages in our supply chains and/or negatively impact the U.S., regional or local economies, and, individually or in the aggregate, materially and adversely affect our business and our operating results.
Climate change may have the effect of making the risks described above occur more frequently and more severely, which could amplify the adverse impact in our business, prospects, liquidity, financial condition and results of operations. There are some risks of loss for which we may be unable to purchase insurance coverage.
Climate change may have the effect of making the risks described above occur more frequently and more severely, which could amplify the adverse impact on our business, prospects, liquidity, financial condition and results of operations. There are some risks of loss for which we may be unable to purchase insurance coverage.
Mr. Zalupski, through his beneficial ownership of all of our outstanding Class B common stock as of December 31, 2022, controls approxima tely 85% o f the total combined voting power of our outstanding Class A and Class B common stock, which gives him the ability to prevent a potential takeover of our company.
Mr. Zalupski, through his beneficial ownership of all of our outstanding Class B common stock as of December 31, 2023, controls approxima tely 85% o f the total combined voting power of our outstanding Class A and Class B common stock, which gives him the ability to prevent a potential takeover of our company.
The availability and affordability of mortgage loans, including mortgage interest rates for such loans, could also be adversely affected by a scaling back or termination of the federal government’s mortgage loan-related programs or policies. 11 Table of Contents Fannie Mae, Freddie Mac, FHA, USDA and VA backed mortgage loans have been an important factor in marketing and selling many of our homes.
The availability and affordability of mortgage loans, including mortgage interest rates for such loans, could also be adversely affected by a scaling back or termination of the federal government’s mortgage loan-related programs or policies. Fannie Mae, Freddie Mac, FHA, USDA and VA backed mortgage loans have been an important factor in marketing and selling many of our homes.
Warranty and construction defect matters can also result in negative publicity, including on social media platforms, which could damage our reputation and negatively affect our ability to sell homes. Further, the coverage offered by, and the availability of, general liability insurance for completed operations and construction defects are currently limited and costly.
Warranty and construction defect matters can also result in negative publicity, including on social media platforms, which could damage our reputation and negatively affect our ability to sell homes. 15 Table of Contents Further, the coverage offered by, and the availability of, general liability insurance for completed operations and construction defects are currently limited and costly.
As a result, we may be held liable for environmental conditions we did not create on properties we currently or formerly owned or operated, including properties we have developed, or where we sent wastes.
As a result, we may be held liable for environmental conditions we did not create on properties we currently or formerly owned or operated, including properties we have developed, or where we sent waste.
Additionally, we could incur substantial costs, penalties and damages, including back pay, unpaid benefits, taxes, expense reimbursement and attorneys’ fees in defending future challenges to our employment classification or compensation practices. 21 Table of Contents We could be adversely affected by efforts to impose joint employer liability on us for labor law violations committed by our subcontractors.
Additionally, we could incur substantial costs, penalties and damages, including back pay, unpaid benefits, taxes, expense reimbursement and attorneys’ fees in defending future challenges to our employment classification or compensation practices. We could be adversely affected by efforts to impose joint employer liability on us for labor law violations committed by our subcontractors.
Our business could be materially and adversely disrupted by an epidemic or pandemic (such as the COVID-19 pandemic), or similar public threat, or fear of such an event, and the measures that federal, state and local governments and other authorities implement to address it.
Our business could be materially and adversely disrupted by an epidemic or pandemic, or similar public threat, or fear of such an event, and the measures that federal, state and local governments and other authorities implement to address it.
This could disrupt our ongoing operations and divert management resources that would otherwise focus on developing our existing business. We may develop more communities in which we build townhomes in addition to single-family homes or sell homes to investors or portfolio management companies under built-for-rent or other purposes.
This could disrupt our ongoing operations and divert management resources that would otherwise focus on developing our existing business. 22 Table of Contents We may develop more communities in which we build townhomes in addition to single-family homes or sell homes to investors or portfolio management companies under built-for-rent or other purposes.
We have in the past and may in the future co-invest with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in, or sharing responsibility for managing the affairs of, a land acquisition and/or a development.
We have in the past, and may in the future, co-invest with third parties through partnerships, joint ventures or other entities, acquiring noncontrolling interests in, or sharing responsibility for managing the affairs of, a land acquisition and/or a development.
Accordingly, the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements are not afforded to our Class A common stockholders. The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
Accordingly, the same protections afforded to stockholders of companies that are subject to all of the NYSE corporate governance requirements are not afforded to our Class A common stockholders. 28 Table of Contents The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
Conflicts of interest may exist or could arise in the future with DF Capital and certain of its managed funds, including with certain of our executive officers and director nominees who are also investors in certain funds managed by DF Capital.
Conflicts of interest may exist or could arise in the future with DF Capital and certain of its managed funds, including with certain of our executive officers and directors who are also investors in certain funds managed by DF Capital.
Volatility in the credit and capital markets may impact our cost of capital and our ability to access necessary financing and the difficulty in obtaining sufficient capital could prevent us from acquiring lots for construction or increase costs and delays in the completion of our homebuilding expenditures.
Volatility in the credit and capital markets may impact our cost of capital and our ability to access necessary financing and the difficulty in obtaining sufficient capital could prevent us from acquiring lots for construction or increase costs and delays in the completion of our homes under construction.
In addition, as a holding company, we are dependent on cash distributions from DFH LLC and, thus, our ability to cover our expenses, all applicable taxes payable and dividends, if any, declared by us depends on DFH LLC’s ability first to satisfy its obligations to its creditors and make distributions to holders of the Series B preferred units of DFH LLC and then to us.
In addition, as a holding company, we are dependent on cash distributions from Dream Finders Homes Holdings, LLC (“DFH LLC”) and, thus, our ability to cover our expenses, all applicable taxes payable and dividends, if any, declared by us depends on DFH LLC’s ability first to satisfy its obligations to its creditors and make distributions to holders of the Series B preferred units of DFH LLC and then to us.
Mortgage interest rates increased substantially during 2022 in response to the Federal Reserve’s actions and future signaling to combat inflationary pressures, which negatively impacted consumer affordability.
Mortgage interest rates increased substantially during 2022 and 2023 in response to the Federal Reserve’s actions to combat inflationary pressures, which negatively impacted consumer affordability.
Our access to additional third-party sources of financing will depend, in part, on: • general market conditions; • the current interest rates; • the market’s perception of our growth potential; 29 Table of Contents • the duration and effects of the COVID-19 pandemic; • with respect to acquisition and/or development financing, the market’s perception of the value of the land parcels to be acquired and/or developed; • our current debt levels; • our current and expected future earnings; • our cash flow; and • the market price per share of our common stock.
Our access to additional third-party sources of financing will depend, in part, on: • general market conditions; • the current interest rates; • the market’s perception of our growth potential; • with respect to land acquisition and/or development financing, the market’s perception of the value of the land parcels to be acquired and/or developed; • our current debt levels; 25 Table of Contents • our current and expected future earnings; • our cash flow; and • the market price per share of our common stock.
The market's reaction to the deteriorating economic conditions negatively affected net new orders and continues to have a negative impact in the cancellation rate for the Company. Any continued increase in the level of our cancellations would have a negative impact on our business, prospects, liquidity, financial condition and results of operations.
The market's reaction to the interest rate environment negatively affected net new orders and continues to have a negative impact on the cancellation rate for the Company. Any continued increase in the level of our cancellations would have a negative impact on our business, prospects, liquidity, financial condition and results of operations.
Our backlog reflects sales contracts with homebuyers for homes that have not yet been delivered.
Our backlog reflects sales contracts with customers for homes that have not yet been delivered.
Zalupski, our founder, President, Chief Executive Officer and Chairman of our Board of Directors, owns, through personal holdings and an entity that he controls, 100% of our Class B common stock (representin g 85% of the total combined voting power of our Class A and Class B common stock as of December 31, 2022). As a result, Mr.
Zalupski, our founder, President, Chief Executive Officer and Chairman of the Board of Directors, owns, through personal holdings and an entity that he controls, 100% of our Class B common stock (representin g approximately 85% of the total combined voting power of our Class A and Class B common stock as of December 31, 2023). 26 Table of Contents As a result, Mr.
Additionally, the act also expanded the credit, resulting in an increase from $2,000 to either $2,500 or $5,000, depending on which specified energy efficiency standards are achieved, per qualifying home to eligible homebuilders, effective January 1, 2023. For the year ended December 31, 2021, we claimed $10 million of Federal Energy Credits.
Additionally, the Inflation Reduction Act of 2022 also expanded the credit to eligible homebuilders, resulting in an increase from $2,000 to either $2,500 or $5,000 per qualifying home, depending on which specified energy efficiency standards are achieved, effective January 1, 2023 through December 31, 2032. For the year ended December 31, 2022, we claimed $11 million of Federal Energy Credits.
We are a “controlled company” within the meaning of the NYSE rules, which allows us to rely on exemptions from certain corporate governance requirements. Mr. Zalupski beneficially owns a majority of our outstanding voting interests. As a result, we are a “controlled company” within the meaning of the NYSE corporate governance standards.
We are a “controlled company” within the meaning of the New York Stock Exchange rules, which allows us to rely on exemptions from certain corporate governance requirements. Mr. Zalupski beneficially owns a majority of our outstanding voting interests. As a result, we are a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) corporate governance standards.
Our homes are constructed by employees of subcontractors and other third parties. We do not have the ability to control what these parties pay their employees or the rules they impose on their employees. However, various governmental agencies have taken actions to hold parties like us responsible for violations of wage and hour laws and other labor laws by subcontractors.
We do not have the ability to control what these parties pay their employees or the rules they impose on their employees. 21 Table of Contents However, various governmental agencies have taken actions to hold parties like us responsible for violations of wage and hour laws and other labor laws by subcontractors.
Under the NYSE rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a “controlled company” and may elect not to comply with certain NYSE corporate governance requirements, including the requirements that: • a majority of such company’s board of directors consist of independent directors; • such company have a nominating and governance committee that is composed entirely of independent directors; • such company have a compensation committee that is composed entirely of independent directors; and • such company conduct an annual performance evaluation of the nominating and governance and compensation committees. 26 Table of Contents These requirements will not apply to us as long as we remain a controlled company.
Under the NYSE rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a “controlled company” and may elect not to comply with certain NYSE corporate governance requirements, including the requirements that: • a majority of such company’s board of directors consist of independent directors; • such company have a nominating and governance committee that is composed entirely of independent directors; • such company have a compensation committee that is composed entirely of independent directors; and • such company conduct an annual performance evaluation of the nominating and governance and compensation committees.
In addition to the contingencies noted above, cancellations can result from declines or slow appreciation in the market value of homes, increases in the supply of homes available to be purchased, increased competition, higher mortgage interest rates, and adverse changes in economic conditions. During the fourth quarter of 2022, demand further tightened in response to additional increases in mortgage rates.
In addition to the contingencies noted above, cancellations can result from declines or slow appreciation in the market value of homes, increases in the supply of homes available to be purchased, increased competition, higher mortgage interest rates, and adverse changes in economic conditions.
For these reasons, we may not be able to compete effectively in the mortgage banking business. Our mortgage banking and title services businesses may be adversely affected by changes in governmental regulation. Changes in governmental regulation with respect to mortgage lenders and title service providers could adversely affect the financial results of this portion of our business.
Our mortgage banking and title services businesses may be adversely affected by changes in governmental regulation. Changes in governmental regulation with respect to mortgage lenders and title service providers could adversely affect the financial results of this portion of our business.
In recent years, increasing attention has been given to corporate activities related to environmental, social and governance (“ESG”) matters in public discourse and the investment community.
In recent years, increasing attention has been given to corporate activities related to ESG matters in public discourse and in the investment community.
In addition, certain current regulations impose, and future regulations may strengthen or impose new standards and requirements relating to the origination, securitization and servicing of residential consumer mortgage loans, which could further restrict the availability and affordability of mortgage loans and the demand for such loans by financial intermediaries and, as a result, adversely affect our home sales, financial condition and results of operations.
The elimination or curtailment of state bonds to assist homebuyers could materially and adversely affect our business, prospects, liquidity, financial condition and results of operations. 11 Table of Contents In addition, certain current regulations impose, and future regulations may strengthen or impose new standards and requirements relating to the origination, securitization and servicing of residential consumer mortgage loans, which could further restrict the availability and affordability of mortgage loans and the demand for such loans by financial intermediaries and, as a result, adversely affect our home sales, financial condition and results of operations.
The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations, subject us to investigations from regulatory authorities or cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect us.
The existence of any material weakness in our internal control over financial reporting could also result in errors in our financial statements that could require us to restate our financial statements, cause us to fail to meet our reporting obligations, subject us to investigations from regulatory authorities or cause stockholders to lose confidence in our reported financial information, all of which could materially and adversely affect us. 30 Table of Contents General Risk Factors Information system failures, cyber incidents or breaches in security could adversely affect us.
Our information systems are subject to damage or interruption from power outages, computer and telecommunication failures, computer viruses, security breaches, including malware and phishing, cyberattacks, natural disasters, usage errors by our employees and other related risks.
We rely on accounting, financial, operational, management and other information systems to conduct our operations. Our information systems are subject to damage or interruption from power outages, computer and telecommunication failures, computer viruses, security breaches, including malware and phishing, cyberattacks, natural disasters, usage errors by our employees and other related risks.
While the Company records an estimate of warranty expense based on historical warranty costs, we cannot provide assurance that coverage will not become costlier and/or be further restricted, increasing our risks and financial exposure to claims.
While the Company records an estimate of warranty expense based on historical warranty costs, we cannot provide assurance that coverage will not become costlier and/or be further restricted, increasing our risks and financial exposure to claims. Competing effectively within the mortgage banking and title service sectors may be difficult.
Interest expense on debt we incur may limit our cash available to fund our growth strategies. If our operations do not generate sufficient cash from operations at levels currently anticipated, we may seek additional capital in the form of debt financing.
Interest expense on debt we incur may limit our cash available to fund our growth strategies. If our operations do not generate sufficient cash from operations at levels currently anticipated, we may seek additional capital in the form of debt financing. Our current indebtedness includes, and any additional indebtedness we subsequently incur may have, a floating rate of interest.
Our current indebtedness includes, and any additional indebtedness we subsequently incur may have, a floating rate of interest. 27 Table of Contents Higher interest rates could increase debt service requirements on our current floating rate indebtedness, and on any floating rate indebtedness we subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes.
Higher interest rates could increase debt service requirements on our current floating rate indebtedness, and on any floating rate indebtedness we subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes.
These forward-looking statements include, but are not limited to, statements about: • our market opportunity and the potential growth of that market; • trends with respect to interest rates and cancellation rates; • our strategy, expected outcomes and growth prospects; 30 Table of Contents • trends in our operations, industry and markets; • our future profitability, indebtedness, liquidity, access to capital and financial condition; and • our integration of companies that we have acquired into our operations.
These forward-looking statements include, but are not limited to, statements about: • our market opportunity and the potential growth of that market; • trends with respect to interest rates and cancellation rates; • our strategy, expected outcomes and growth prospects; • trends in our operations, industry and markets; • our future profitability, indebtedness, liquidity, access to capital and financial condition; and • our integration of companies that we have acquired into our operations. 33 Table of Contents We have based these forward-looking statements on our current expectations and assumptions about future events based on information available to our management at the time the statements were made.
These letters of credit and surety bonds relate to certain performance-related obligations and serve as security for certain land option contracts. The majority of these letters of credit and surety bonds are in support of our land development and construction obligations to various municipalities, other government agencies and utility companies related to the construction of roads, sewers and other infrastructure.
The majority of these letters of credit and surety bonds are in support of our land development and construction obligations to various municipalities, other government agencies and utility companies related to the construction of roads, sewers and other infrastructure.
We are subject to warranty and liability claims arising in the ordinary course of business that can be significant. As a homebuilder, we are subject to construction defect, product liability and home and other warranty claims, including moisture intrusion and related claims, arising in the ordinary course of business.
As a homebuilder, we are subject to construction defects, product liability and home and other warranty claims, including moisture intrusion and related claims, arising in the ordinary course of business. These claims are common to the homebuilding industry and can be costly.
As the fair market value of controlled lots deviates from that of which the option contracts were originally executed, we attempt to renegotiate the terms of the option contracts to ensure that the yields are aligned with current market conditions. Increases in our can cellation rate could have a negative impact on our homebuilding revenues and gross margins.
Although when the fair market value of controlled lots deviates from that of which the option contracts were originally executed, we attempt to renegotiate the terms of the option contracts to ensure that the yields are aligned with current market conditions, there is no guarantee our renegotiating efforts will be successful. 19 Table of Contents Increases in our can cellation rate could have a negative impact on our homebuilding revenues and gross margins.
In addition, as we expand into new markets, we typically must develop new relationships with subcontractors in such markets, and there can be no assurance that we will be able to do so in a cost-effective and timely manner, or at al l.
In addition, as we expand into new markets, we typically must develop new relationships with subcontractors in such markets, and there can be no assurance that we will be able to do so in a cost-effective and timely manner, or at al l. The sustained labor shortage in the United States has continued to make the engagement of subcontractors difficult.
We maintain and require our subcontractors to maintain general liability insurance (including construction defect and bodily injury coverage) naming the Company as an additional insured and workers’ compensation insurance and generally seek to require our subcontractors to provide a warranty to us and to defend and indemnify us for liabilities arising from their work. 19 Table of Contents Therefore, any claims relating to workmanship and materials are generally the subcontractors’ responsibility.
We maintain and require our subcontractors to maintain general liability insurance (including construction defect and bodily injury coverage) naming the Company as an additional insured and workers’ compensation insurance and generally seek to require our subcontractors to provide a warranty to us and to defend and indemnify us for liabilities arising from their work.
In addition, changes to the fair value of estimated earn out payments could significantly impact our results of operations. All of the above risks could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations. Risks Related to Our Organization and Structure We depend on key management personnel and other experienced employees.
In addition, changes to the fair value of estimated earn out payments could significantly impact our results of operations. All of the above risks could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
Zalupski’s beneficial ownership of all of our outstanding Class B common stock, could discourage acquisition bids or merger proposals, which may adversely affect the market price of our Class A common stock.
Provisions in our charter documents or Delaware law, as well as Mr. Zalupski’s beneficial ownership of all of our outstanding Class B common stock, could discourage acquisition bids or merger proposals, which may adversely affect the market price of our Class A common stock.
Disputes between us and our joint venture partners may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business. In addition, we may be liable for the actions of our joint venture partners in certain circumstances.
Disputes between us and our joint venture partners may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business.
Any delay could result in cost increases and could have a material adverse effect on our sales, profitability, stock performance, cash flows and ability to service our debt obligations. We have access to our Credit Agreement, which is a senior unsecured revolving credit facility. Another source of liquidity includes our ability to use letters of credit and surety bonds.
Any delay could result in cost increases and could have a material adverse effect on our sales, profitability, stock performance, cash flows and ability to service our debt obligations. We have access to the committed funds under our Credit Agreement, which is a senior unsecured revolving credit facility.
These letters of credit and surety bonds are generally subject to certain financial covenants and other limitations. 12 Table of Contents If we are unable to obtain letters of credit or surety bonds when required, or the conditions imposed by issuers increase significantly, our liquidity and results of operations could be adversely affected.
If we are unable to obtain letters of credit or surety bonds when required, or the conditions imposed by issuers increase significantly, our liquidity and results of operations could be adversely affected.
Conflicts with DF Capital and certain of its managed funds may include, without limitation: conflicts arising from the enforcement of agreements between us and DF Capital and/or certain of its managed funds; conflicts in determining whether to offer DF Capital the opportunity to participate in a potential lot acquisition financing; if DF Capital does participate, conflicts in determining the terms of the financing; and conflicts in future transactions that we may pursue with DF Capital and/or one of its managed funds. 22 Table of Contents Our future success depends upon our ability to successfully adapt our business strategy to changing home buying patterns and trends.
Conflicts with DF Capital and certain of its managed funds may include, without limitation: conflicts arising from the enforcement of agreements between us and DF Capital and/or certain of its managed funds; conflicts in determining whether to offer DF Capital the opportunity to participate in a potential lot acquisition financing; if DF Capital does participate, conflicts in determining the terms of the financing; and conflicts in future transactions that we may pursue with DF Capital and/or one of its managed funds.
For example, in the third quarter of 2022, Hurricane Ian caused a delay in some home closings in Florida. Civil unrest or acts of terrorism can also have a negative effect on our business. If the homebuilding industry experiences another significant or sustained downturn, it would materially adversely affect our business and results of operations in future years.
Civil unrest or acts of terrorism can also have a negative effect on our business. If the homebuilding industry experiences a significant or sustained downturn, it would materially adversely affect our business and results of operations in future years.
There are various potential conflicts of interest in our relationship with DF Capital and certain of its managed funds, including with certain of our executive officers and directors who are investors in certain funds managed by DF Capital, which could result in decisions that are not in the best interest of our stockholders.
In addition, we may be liable for the actions of our joint venture partners in certain circumstances. 23 Table of Contents There are various potential conflicts of interest in our relationship with DF Capital and certain of its managed funds, including with certain of our executive officers and directors who are investors in certain funds managed by DF Capital, which could result in decisions that are not in the best interest of our stockholders.
If we are unable to compete effectively in our markets, our business could decline disproportionately to our competitors, and our results of operations and financial condition could be adversely affected.
If we are unable to compete effectively in our markets, our business could decline disproportionately to our competitors, and our results of operations and financial condition could be adversely affected. We can provide no assurance that we will be able to continue to compete successfully in any of our markets.
When we discover these issues, we utilize our subcontractors to repair the homes in accordance with our subcontractor agreements, our new home warranty and as required by law.
Defective products used in the construction of our homes can result in the need to perform extensive repairs. When we discover these issues, we utilize our subcontractors to repair the homes in accordance with our subcontractor agreements, our new home warranty and as required by law.
The sustained labor shortage in the United States has made the engagement of subcontractors more difficult during 2022. The inability to contract with skilled subcontractors at reasonable rates on a timely basis could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
The inability to contract with skilled subcontractors at reasonable rates on a timely basis could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
As a result, our stockholders could lose confidence in our financial results, which could materially and adversely affect us. Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud.
If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud. As a result, our stockholders could lose confidence in our financial results, which could materially and adversely affect us. Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud.
Our geographic concentration could materially and adversely affect us if the homebuilding industry in our current markets should decline. Our business strategy is focused on the design, construction and sale of single-family detached and attached homes in 9 states across the United States including the District of Columbia metropolitan area.
Our geographic concentration could materially and adversely affect us if the homebuilding industry in our current markets should decline. Our business strategy is focused on the design, construction and sale of single-family detached and attached homes. We do have some geographic concentration present in our operations.
While our operations are geographically diverse, a prolonged economic downturn in one or more of the areas in which we operate could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations, and a disproportionately greater impact on us than other homebuilders with larger scale and more diversified operations and geographic footprint.
A prolonged economic downturn in one or more of the areas in which we operate could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations, and a disproportionately greater impact on us than other homebuilders with larger scale and more diversified operations and geographic footprint. 14 Table of Contents Difficulties with appraisal valuations in relation to the proposed sales price of our homes could force us to reduce the price of our homes for sale.
As a result, our operations in certain areas of Florida, Georgia and South Carolina could experience temporary disruptions and delays. Additionally, our corporate headquarters are located in Jacksonville, Florida, an area that is often impacted by severe weather events, and our operations may be substantially disrupted if our corporate headquarters are forced to close.
Additionally, our corporate headquarters are located in Jacksonville, Florida, an area that is often impacted by severe weather events, and our operations may be substantially disrupted if our corporate headquarters are forced to close.
We and our subcontractors are subject to a variety of local, state, federal and other environmental, health and safety laws, statutes, ordinances, rules and regulations, including those governing storm water and surface water management, discharge and releases of pollutants and hazardous materials into the environment, including air, groundwater, subsurface and soil, remediation activities, handling of hazardous materials such as asbestos, lead paint and mold, protection of wetlands, endangered plants and species and sensitive habitats and human health and safety. 15 Table of Contents The particular environmental requirements that apply to any given site vary according to multiple factors, including the site’s location and present and former uses, its environmental conditions, the presence or absence of endangered plants or species or sensitive habitats and environmental conditions at nearby or adjoining properties.
We and our subcontractors are subject to a variety of local, state, federal and other environmental, health and safety laws, statutes, ordinances, rules and regulations, including those governing storm water and surface water management, discharge and releases of pollutants and hazardous materials into the environment, including air, groundwater, subsurface and soil, remediation activities, handling of hazardous materials such as asbestos, lead paint and mold, protection of wetlands, endangered plants and species and sensitive habitats and human health and safety.
Additionally, if we are unable to originate mortgages for any reason going forward, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding business and our consolidated financial statements.
Additionally, if we are unable to originate mortgages for any reason going forward, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding business and our consolidated financial statements. Operational Risks Our inability to successfully identify, secure and control an adequate inventory of lots at reasonable prices could adversely impact our operations.
Regional factors affecting the homebuilding industry in our current markets could materially and adversely affect us. Our business strategy is focused on the acquisition of suitable land and the design, construction and sale of primarily single-family homes in residential subdivisions, including planned communities, in Florida, Texas, Colorado, Georgia, the Washington D.C. metropolitan area, South Carolina and North Carolina.
Our business strategy is focused on the acquisition of suitable land and the design, construction and sale of primarily single-family homes in residential subdivisions, including planned communities, in Florida, Texas, Tennessee, North Carolina, South Carolina, Georgia, Colorado, and the Washington, D.C. metropolitan area, which comprises Northern Virginia and Maryland.
These labor and raw material shortages can be more severe during periods of strong demand for housing, during periods following natural disasters that have a significant impact on existing residential and commercial structures or a result of broader economic disruptions, such as the COVID-19 pandemic. Currently, we are experiencing labor shortages.
These labor and raw material shortages can be more severe during periods of strong demand for housing, during periods following natural disasters that have a significant impact on existing residential and commercial structures or a result of broader economic disruptions. We continue to experience labor shortages. It is uncertain whether these shortages will continue as is, improve or worsen.
These risks and uncertainties, together with other factors described elsewhere in this Annual Report on Form 10-K, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner. 10 Table of Contents Industry and Economic Risks Our industry is cyclical and adverse changes in general and local economic conditions could reduce the demand for homes and, as a result, could have a material adverse effect on us.
These risks and uncertainties, together with other factors described elsewhere in this Annual Report on Form 10-K, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.
In addition, because we employ an asset-light business model, we may have access to fewer and less attractive homebuilding lots than if we owned lots outright, like some of our competitors who do not operate under an asset-light model. 18 Table of Contents An insufficient supply of homebuilding lots in one or more of our markets, an inability of our developers to deliver finished lots in a timely fashion due to their inability to finance development activities, delays in recording deeds, conveying controlled lots as a result of government shut downs, or for other reasons, or our inability to purchase or finance homebuilding lots on reasonable terms could have a material adverse effect on our sales, profitability, ability to service our debt obligations and future cash flows.
An insufficient supply of homebuilding lots in one or more of our markets, an inability of our developers to deliver finished lots in a timely fashion due to their inability to finance development activities, delays in recording deeds, conveying controlled lots as a result of government shut downs, or for other reasons, or our inability to purchase or finance homebuilding lots on reasonable terms could have a material adverse effect on our sales, profitability, ability to service our debt obligations and future cash flows.
The federal government has imposed new or increased tariffs or duties on an array of imported materials and goods that are used in connection with the construction and delivery of our homes, including steel, aluminum, lumber, solar panels and washing machines, raising our costs for these items (or products made with them).
For example, the federal government has in the past imposed new or increased tariffs or duties on an array of imported materials and goods that are used in connection with the construction and delivery of our homes, including steel, aluminum, lumber, solar panels and washing machines, raising our costs for these items (or products made with them), which resulted in foreign governments, including China and Canada, and the European Union responding by imposing or increasing tariffs, duties and/or trade restrictions on U.S. goods, and may consider other measures.
We have not declared or paid cash dividends on our Class A common stock and we cannot assure that cash dividends will be paid.
As a result, the trading price and volume of our Class A common stock could be adversely affected. We have not declared or paid cash dividends on our Class A common stock and we cannot assure that cash dividends will be paid.
There is no guarantee that the price of the Class A common stock that will prevail in the market will ever exceed the price that was paid. Provisions in our charter documents or Delaware law, as well as Mr.
There is no guarantee that the price of the Class A common stock that will prevail in the market will ever exceed the price that was paid.
Strategic Risks Related to Our Business We cannot make any assurances that our growth or expansion strategies will be successful, and we may incur a variety of costs to engage in such strategies, including through targeted acquisitions, and the anticipated benefits may never be realized.
We believe that, due to anticipated generational shifts, changing demographics and other factors, the demand for more affordable homes will increase. We cannot make any assurances that our growth or expansion strategies will be successful, and we may incur a variety of costs to engage in such strategies, including through targeted acquisitions, and the anticipated benefits may never be realized.
We may spend time and money on projects that do not increase our revenue. Additionally, when making acquisitions, it may not be possible for us to conduct a detailed investigation of the nature of the business or assets being acquired, for instance, due to time constraints in making the decision and other factors.
Additionally, when making acquisitions, it may not be possible for us to conduct a detailed investigation of the nature of the business or assets being acquired, for instance, due to time constraints in making the decision and other factors. We may become responsible for additional liabilities or obligations not foreseen at the time of an acquisition.
We cannot predict future mortgage interest rates, and, if mortgage interest rates continue to increase, the ability of prospective homebuyers to finance home purchases may be adversely affected, and, as a result, our operating results may be significantly impacted.
We cannot predict future mortgage interest rates, and, if mortgage interest rates continue to increase or remain at elevated levels for an extended period of time, whether as a result of additional action by the Federal Reserve or otherwise, the ability of prospective homebuyers to finance home purchases may be adversely affected, and, as a result, our operating results may be significantly impacted.
Our business and results of operations are dependent on the availability, skill and performance of subcontractors. We engage subcontractors to perform the construction of our homes and, in many cases, to obtain the raw materials used in constructing our homes. Accordingly, the timing and quality of our construction depend on the availability and skill of our subcontractors.
Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Business Overview and Outlook” for more information. Our business and results of operations are dependent on the availability, skill and performance of subcontractors. We engage subcontractors to perform the construction of our homes and, in many cases, to obtain the raw materials used in constructing our homes.
Operational Risks Related to Our Business Our inability to successfully identify, secure and control an adequate inventory of lots at reasonable prices could adversely impact our operations. The results of our homebuilding operations depend in part upon our continuing ability to successfully identify, control and acquire an adequate number of homebuilding lots in desirable locations.
The results of our homebuilding operations depend in part upon our continuing ability to successfully identify, control and acquire an adequate number of homebuilding lots in desirable locations.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeSee “Business—Land Acquisition Strategy and Development Process—Owned and Controlled Lots” for a summary of the other properties that we owned or controlled as of December 31, 2022.
Biggest changeAll facilities are in good condition, adequately utilized, and sufficient to meet our present operating needs. Refer to “Business—Land Acquisition and Development Process” for a summary of the other properties that we owned or controlled as of December 31, 2023. 36 Table of Contents
ITEM 2. PROPERTIES We lease approximately 45,000 square feet of office space in Jacksonville, Florida for our corporate headquarters; this lease expires in 2033, with potential renewal options.
ITEM 2. PROPERTIES We lease approximately 45,000 square feet of office space in Jacksonville, Florida for our corporate headquarters; this lease expires in 2033, with potential renewal options. We also lease offices in other markets where we conduct business, although none of these properties are material to the operation of our business.
Removed
In addition, to adequately meet the needs of our operations, we also lease local offices in Austin, Texas; Bluffton, South Carolina; Chantilly, Virginia; Charlotte, North Carolina; Dallas, Texas; Denver, Colorado; Fayetteville, North Carolina; Houston, Texas; Leland, North Carolina; Myrtle Beach, South Carolina; Orlando, Florida; Pooler, Georgia; and Raleigh, North Carolina. We also own a local office in San Antonio, Texas.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS Legal Proceedings From time to time, we are a party to ongoing legal proceedings in the ordinary course of business. See Note 6. Commitments and Contingencies – Legal Proceedings to our consolidated financial statements for information about certain pending legal proceedings. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 33 Table of Contents PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS Legal Proceedings From time to time, we are a party to ongoing legal proceedings in the ordinary course of business. Refer to Note 5, Commitments and Contingencies — Legal Proceedings to our consolidated financial statements for additional information. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 37 Table of Contents PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe stock performance graph should not be deemed filed or incorporated by reference into any other filing made by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate the stock performance graph by reference in another filing. ITEM 6. RESERVED 34 Table of Contents
Biggest changeThe stock performance graph should not be deemed filed or incorporated by reference into any other filing made by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate the stock performance graph by reference in another filing. 38 Table of Contents Share Buyback Program In June 2023, the Company’s Board of Directors approved a share buyback program (the “Share Buyback Program”) under which the Company can repurchase up to $25.0 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.
Any future determination to pay dividends will be at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any of our financing arrangements and such other factors as our Board of Directors may deem relevant.
Any future determination to pay dividends will be at the discretion of our Board of Directors (the “Board of Directors” or the “Company’s Board of Directors”) and will depend on our financial condition, results of operations, capital requirements, restrictions contained in any of our financing arrangements and such other factors as our Board of Directors may deem relevant.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our Class A common stock is listed on the NYSE under the symbol “DFH.” As of February 28, 2023 the closing price of our Class A common stock on the NYSE was $12.03 , and we had 26 stockholders of record, including Cede & Co. as nominee of The Depository Trust Company.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our Class A common stock is listed on the NYSE under the symbol “DFH.” As o f February 22, 2024 the closing price of our Class A common stock on the NYSE w as $34.41 , and we had 14 stockholders of record, including Cede & Co. as nominee of The Depository Trust Company.
Stock Performance Graph The performance graph furnished below shows a comparison of the cumulative total returns to stockholders of the Company, as compared to the S&P 500 Composite Index and the S&P Homebuilders Select Industry Index since our initial public offering in January 2021.
Stock Performance Graph The performance graph below compares the cumulative total return of our Class A common stock since our initial public offering on January 21, 2021, with the Standard and Poor’s 500 Companies Stock Index (“S&P 500 Index”) and the Standard & Poor’s Homebuilders Select Industry Index (“S&P Homebuilders Index”) for the same period.
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Equity Incentive Plan On January 20, 2021, the Board of Directors of the Company approved the Company’s 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan is administered by the Compensation Committee of the Board of Directors, and authorizes the Company to grant up to an aggregate of 9.1 million incentive stock-based awards.
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The comparison assumes that $100 was invested in DFH, the S&P 500 Index, and the S&P Homebuilders Index on January 21, 2021.
Added
We expect to execute any transactions under the Share Buyback Program through a combination of Rule 10b5-1 trading plans and transactions made in compliance with Rule 10b-18.
Added
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 price, general business and market conditions, and alternative investment opportunities.
Added
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. As of February 29, 2024, we have not executed any repurchases under the Share Buyback Program. ITEM 6. RESERVED

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe Company's Class A common stock continues to trade under the stock symbol "DFH." 36 Table of Contents Results of Operations Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 The following table sets forth our results of operations for the periods indicated: For the Year Ended December 31, 2022 2021 Amount Change % Change Revenues: Homebuilding $ 3,334,559 $ 1,917,301 $ 1,417,258 74 % Other 7,776 6,609 1,167 18 % Total revenues 3,342,335 1,923,910 1,418,425 74 % Homebuilding cost of sales 2,722,139 1,610,332 1,111,807 69 % Selling, general and administrative expense 271,040 154,405 116,635 76 % Income from unconsolidated entities (16,122) (9,428) (6,694) 71 % Contingent consideration revaluation 11,053 7,533 3,520 47 % Other (income) expense, net (1,963) (1,653) (310) 19 % Interest expense 32 672 (640) (95) % Income before income taxes 356,156 162,049 194,107 120 % Income tax expense (81,859) (27,455) (54,404) 198 % Net and comprehensive income 274,297 134,594 139,703 104 % Net and comprehensive income attributable to noncontrolling interests (11,984) (13,461) 1,477 (11) % Net and comprehensive income attributable to Dream Finders Homes, Inc. $ 262,313 $ 121,133 $ 141,180 117 % Earnings per share (1) Basic $ 2.67 $ 1.27 $ 1.40 110 % Diluted $ 2.45 $ 1.27 $ 1.18 93 % Weighted-average number of shares Basic 92,745,781 92,521,482 224,299 — % Diluted 106,691,248 95,313,593 11,377,655 12 % Consolidated Balance Sheet Data (at period end): Cash and cash equivalents $ 364,531 $ 227,227 $ 137,304 60 % Total assets $ 2,371,137 $ 1,894,248 $ 476,889 25 % Construction lines of credit $ 966,248 $ 763,292 $ 202,956 27 % Preferred mezzanine equity $ 156,045 $ 155,220 $ 825 1 % Common stock - Class A $ 325 $ 323 $ 2 1 % Common stock - Class B $ 602 $ 602 $ — — % Additional paid-in capital $ 264,757 $ 257,963 $ 6,794 3 % Retained earnings $ 365,994 $ 118,194 $ 247,800 210 % Non-controlling interests $ 12,970 $ 24,081 $ (11,111) (46) % Other Financial and Operating Data (unaudited) Active communities at end of period (2) 206 205 1 — % Home closings 6,878 4,874 2,004 41 % Average sales price of homes closed (3) $ 474,292 $ 389,094 $ 85,198 22 % Net new orders 6,045 6,808 (763) (11) % Cancellation rate 21.5 % 12.2 % 9.3 % 76 % Backlog (at period end) - homes 5,548 6,381 (833) (13) % Backlog (at period end, in thousands) - value $ 2,502,564 $ 2,913,170 $ (410,606) (14) % Gross margin (in thousands) (4) $ 612,420 $ 306,969 $ 305,451 100 % Gross margin % (5) 18.4 % 16.0 % 2.4 % 15 % Net profit margin % 7.9 % 6.3 % 1.5 % 25 % Adjusted gross margin (in thousands) (6) $ 820,158 $ 416,382 $ 403,776 97 % Adjusted gross margin % (5) 24.6 % 21.7 % 2.9 % 13 % EBITDA (in thousands) (6) $ 422,582 $ 194,967 $ 227,615 117 % EBITDA margin % (7) 12.6 % 10.1 % $ — 25 % Adjusted EBITDA (in thousands) (6) $ 429,378 $ 200,200 $ 229,178 114 % Adjusted EBITDA margin % (7) 12.8 % 10.7 % 2.1 % 20 % 37 Table of Contents (1) Refer to Note 14, Earnings per Share to the consolidated financial statements for disclosure related to the calculation of earnings per share (“EPS”) as of December 31, 2021.
Biggest changeWe opened for sales in Tampa in January 2024. 40 Table of Contents Results of Operations Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 The following table sets forth our res ults of operations and balance sheet data (in thousands, except per share and share amounts) for the periods indicated: Year Ended December 31, 2023 2022 Amount Change % Change Revenues: Homebuilding $ 3,738,888 $ 3,334,559 $ 404,329 12 % Other 9,698 7,776 1,922 25 % Total revenues 3,748,586 3,342,335 406,251 12 % Homebuilding cost of sales 3,011,813 2,722,139 289,674 11 % Selling, general and administrative expense 308,795 271,040 37,755 14 % Income from unconsolidated entities (18,075) (16,122) (1,953) 12 % Contingent consideration revaluation 46,590 11,053 35,537 322 % Other income, net (4,962) (1,931) (3,031) 157 % Income before taxes 404,425 356,156 48,269 14 % Income tax expense (96,483) (81,859) (14,624) 18 % Net and comprehensive income 307,942 274,297 33,645 12 % Net and comprehensive income attributable to noncontrolling interests (12,042) (11,984) (58) — % Net and comprehensive income attributable to Dream Finders Homes, Inc. $ 295,900 $ 262,313 $ 33,587 13 % Earnings per share (1) Basic $ 3.03 $ 2.67 $ 0.36 13 % Diluted $ 2.79 $ 2.45 $ 0.34 14 % Weighted-average number of shares Basic 93,066,564 92,745,781 320,783 — % Diluted 106,027,548 106,691,248 (663,700) (1) % Consolidated Balance Sheets Data (as of period end): Cash and cash equivalents $ 494,145 $ 364,531 $ 129,614 36 % Total assets $ 2,562,439 $ 2,371,137 $ 191,302 8 % Total debt $ 824,302 $ 966,248 $ (141,946) (15) % Total mezzanine and stockholders’ equity $ 1,086,150 $ 800,693 $ 285,457 36 % Other Financial and Operating Data Active communities as of period-end (2) 221 206 15 7 % Home closings 7,314 6,878 436 6 % Average sales price of homes closed (3) $ 505,764 $ 474,292 $ 31,472 7 % Net new orders 5,744 6,045 (301) (5) % Cancellation rate 18.3 % 21.5 % (3.2) % (15) % Ending backlog - homes 3,978 5,548 (1,570) (28) % Ending backlog - value (in thousands) $ 1,887,368 $ 2,502,564 $ (615,196) (25) % Return on participating equity (4) 36.3 % 49.1 % (12.8) % (26) % Net debt to net capitalization (5) 23.3 % 42.9 % (19.6) % (46) % Gross margin (in thousands) (6) $ 727,075 $ 612,420 $ 114,655 19 % Gross margin % (7) 19.4 % 18.4 % 1.0 % 5 % Adjusted gross margin (in thousands) (8) $ 1,015,624 $ 820,158 $ 195,466 24 % Adjusted gross margin % (7)(8) 27.2 % 24.6 % 2.6 % 11 % EBITDA (in thousands) (8) $ 521,495 $ 422,582 $ 98,913 23 % EBITDA margin % (8)(9) 13.9 % 12.6 % 1.3 % 10 % Adjusted EBITDA (in thousands) (8) $ 535,593 $ 429,378 $ 106,215 25 % Adjusted EBITDA margin % (8)(9) 14.3 % 12.8 % 1.5 % 12 % 41 Table of Contents (1) Refer to Note 14, Earnings Per Share to the consolidated financial statements for disclosures related to the calculation of EPS.
Although currently there is economic uncertainty that is impacting the homebuilding industry, we continue to operate in geographic regions with consistent increases in the demand for new homes and constrained lot supply compared to population and job growth trends. We intend to continue to reinvest our earnings into our business and focus on expanding our operations.
Although currently there is economic uncertainty that is impacting the homebuilding industry, we continue to operate in geographic regions with consistent increases in demand for new homes and constrained lot and inventory supply compared to population and job growth trends. We intend to continue to reinvest our earnings into our business and focus on expanding our operations.
The majority of our projects begin at the land acquisition stage when we enter into finished lot option contracts by placing a deposit with a land seller or developer. Our lot deposits are an asset on our balance sheets and these cash outflows are not recognized in our results of operations.
The majority of our projects begin at the land acquisition stage when we enter into finished lot option contracts by placing a deposit with a land seller, banker or developer. Our lot deposits are an asset on our balance sheets and these cash outflows are not recognized in our results of operations.
Early stages in our communities require material cash outflows relating to finished lot option purchases, entitlements and permitting, construction and furnishing of model homes, roads, utilities, general landscaping and other amenities, as well as ongoing association fees and property taxes.
Early stages in our communities require material cash outflows relating to finished rolling option lot purchases, entitlements and permitting, construction and furnishing of model homes, roads, utilities, general landscaping and other amenities, as well as ongoing association fees and property taxes.
Contingent consideration liabilities are impacted by various inputs and estimates in addition to the fair value accretion, including: (i) updates to the discount rate used quarterly, (ii) changes to current year assumptions based on year to date actual results, (iii) changes to future year’s forecast assumptions, which are affected by macro-economic conditions and local market conditions, as well as management actions including capital allocation, growth plans, and restructuring, and (iv) contractual modifications that may merit additional adjustments to final pre-tax income prior to the calculation of the annual earn out payments.
Contingent consideration liabilities are impacted by various inputs and estimates in addition to the fair value accretion, including: (i) updates to the applied discount rate, (ii) changes to current year inputs based on year to date actual results, (iii) changes to future year’s forecast assumptions, which are affected by macro-economic conditions and local market conditions, as well as management actions including capital allocation, growth plans, and restructuring, and (iv) contractual modifications that may merit additional adjustments to final pre-tax income prior to the calculation of the annual earn out payments.
Non-compliance beyond any applicable cure period with the Protective Covenants (in the case of the Protective Covenants related to the Credit Agreement) will accelerate the Conversion Right, and in the event of such acceleration that occurs before the fifth anniversary following the issuance of the Convertible Preferred Stock, the “Conversion Discount” shall be increased from 20% to 25%. • Voting Rights: Except as may be expressly required by Delaware law, the shares of Convertible Preferred Stock have no voting rights. 46 Table of Contents • Redemption in a Change of Control: The Convertible Preferred Stock will be redeemed, contingent upon and concurrently with the consummation of a change of control of the Company.
Non-compliance beyond any applicable cure period with the Protective Covenants (in the case of the Protective Covenants related to the Credit Agreement) will accelerate the Conversion Right, and in the event of such acceleration that occurs before the fifth anniversary following the issuance of the convertible preferred stock, the Conversion Discount shall be increased from 20% to 25%. • Voting Rights: Except as may be expressly required by Delaware law, the shares of convertible preferred stock have no voting rights. 51 Table of Contents • Redemption in a Change of Control: The convertible preferred stock will be redeemed, contingent upon and concurrently with the consummation of a change of control of the Company.
Our principal uses of capital are lot deposits and purchases, vertical home construction, operating expenses and the payment of routine liabilities. Cash flows generated by our projects can differ materially from our results of operations, as these depend upon the stage in the life cycle of each project.
Our principal uses of capital are for lot deposits, lot purchases just-in-time for construction, vertical home construction, operating expenses and the payment of routine liabilities. Cash flows generated by our projects can differ materially from our results of operations, as these depend upon the stage in the life cycle of each project.
(6) Adjusted gross margin, EBITDA and adjusted EBITDA are non-GAAP financial measures. For definitions of these non-GAAP financial measures and a reconciliation to our most directly comparable financial measures calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.” (7) Calculated as a percentage of total revenues. Revenues .
(7) Calculated as a percentage of homebuilding revenues. (8) Adjusted gross margin, EBITDA and adjusted EBITDA are non-GAAP financial measures. For definitions of these non-GAAP financial measures and a reconciliation to our most directly comparable financial measures calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.” (9) Calculated as a percentage of total revenues.
As of December 31, 2022, we had outstanding surety bonds and letters of credit totaling $85 million and $1 million, respectively. We believe we will fulfill our obligations under the related arrangements and do not anticipate any material losses under these surety bonds and letters of credit.
As of December 31, 2023 , we had outstanding surety bonds and letters of credit totaling $195 million and $1 million, respectively. We believe we will fulfill our obligations under the related arrangements and do not anticipate any material losses under these surety bonds and letters of credit.
However, because adjusted gross margin information excludes capitalized interest, amortization (primarily purchase accounting adjustments) 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 our operating performance may be limited.
However, because adjusted gross margin information excludes capitalized interest, lot option fees, 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 our operating performance may be limited.
The change in estimates used to calculate the contingent consideration adjustment could be material at times and could potentially fluctuate from expense or income. Our policy is to separately disclose the impact of contingent consideration liability adjustments within the Consolidated Statements of Comprehensive Income. Other (Income) Expense, Net .
The change in estimates used to calculate the contingent consideration revaluation adjustment could be material at times and could potentially fluctuate between expense and income. Our policy is to separately disclose the impact of contingent consideration revaluation adjustments within the Consolidated Statements of Comprehensive Income. Other Income, Net .
This includes revenues from home sales with respect to homes that we construct on homesites to which we own title that are recorded at the time each home sale is closed and title and possession are transferred to the buyer, as well as revenues from home sales in which the buyer retains title to the homesite while we build the home that are recognized based on the percentage of completion of the home construction, which is measured on a quarterly basis.
This includes revenues from home sales with respect to homes that we construct on homesites to which we own title that are recorded at the time each home sale is closed and title and possession are transferred to the buyer, or upon delivery of homes sold to third-party investors intending to lease the homes, as well as revenues from home sales in which the buyer retains title to the homesite while we build the home that are recognized based on the percentage of completion of the home construction, which is measured on a quarterly basis.
The borrowing base includes, among other things, (a) 90% of the net book value of presold housing units, (b) 85% of the net book value of model housing units, (c) 85% of the net book value of speculative housing units and (d) 70% of the net book value of finished lots, in each case subject to certain exceptions and limitations set forth in the Amended and Restated Credit Agreement.
The borrowing base includes, among other things, (a) 90% of the net book value of presold housing units, (b) 85% of the net book value of model housing units, (c) 85% of the net book value of speculative housing units, (d) 70% of the net book value of finished lots, (e) 85% of the net book value of certain built-for-rent units, and (f) 75% of the net book value of other built-for-rent units, in each case subject to certain exceptions and limitations set forth in the Credit Agreement.
The increase in net and comprehensive income was primarily attributable to an increase in gross margin on homes closed of $305 million, or 100%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021.
The increase in net and comprehensive income was primarily attributable to an increase in gross margin on homes closed of $115 million, or 19%, during the year ended December 31, 2023 as compared to the year ended December 31, 2022.
Liquidity and Capital Resources Overview We generate cash from the sale of our inventory and we intend to re-deploy a portion of the net cash generated from the sale of inventory to acquire and control land and further grow our operations year over year.
(3) Calculated as a percentage of total revenues. Liquidity and Capital Resources Overview We generate cash from the sale of our inventory and we intend to re-deploy the net cash generated from the sale of inventory to acquire and control land and further grow our operations year over year.
The Company amortized $4 million and $2 million of debt issuance costs for the years ended December 31, 2022 and 2021, respectively. 44 Table of Contents The Amended and Restated Credit Agreement contains covenants that, among other things, require that we (i) maintain a maximum debt to capitalization ratio, as of the last day of each fiscal quarter, of 62.5% through December 2022 and 60.0% thereafter; (ii) maintain an interest coverage ratio, as of the last day of each fiscal quarter, of not less than 2.0 to 1.0; (iii) maintain a liquidity ratio, as of the last day of each fiscal quarter, of not less than 1.0 to 1.0; (iv) maintain tangible net worth of not less than the sum of (A) $385 million, (B) 50.0% of net income earned in each fiscal quarter after December 31, 2021 and (C) 50.0% of the aggregate increases in shareholders’ equity of the consolidated group after December 31, 2021 by reason of the issuance and sale of equity interests of the members of the consolidated group; (v) maintain a risk assets ratio (defined as (A) the sum of the GAAP net book value for all finished lots, lots under development and land held for future development or disposition to (B) tangible net worth), as of the last day of each fiscal quarter, of no less than 1.0 to 1.0; (vi) not allow aggregate investments in unconsolidated affiliates to exceed 15.0% of tangible net worth, as of the last day of any fiscal quarter; and (vii) not incur indebtedness other than, among other things, (A) the obligations under the Amended and Restated Credit Agreement, (B) non-recourse indebtedness in an amount not to exceed 15.0% of tangible net worth, as of the last day of each fiscal quarter, (C) operating lease liabilities, finance lease liabilities and purchase money obligations for fixed or capital assets not to exceed $5.0 million in the aggregate, (D) indebtedness of financial services subsidiaries and variable interest entities and (E) indebtedness under hedge contracts entered into for purposes other than for speculative purposes.
The Credit Agreement contains covenants that, among other things, require that we (i) maintain a maximum debt to capitalization ratio, as of the last day of each fiscal quarter, of 60.0%; (ii) maintain an interest coverage ratio, as of the last day of each fiscal quarter, of not less than 2.0 to 1.0; (iii) maintain a liquidity ratio, as of the last day of each fiscal quarter, of not less than 1.0 to 1.0; (iv) maintain tangible net worth of not less than the sum of (A) $607 million , (B) 50.0% of net income earned in each fiscal quarter after March 31, 3023 and (C) 50.0% of the aggregate increases in shareholders’ equity of the consolidated group after March 31, 2023 by reason of the issuance and sale of equity interests of the members of the consolidated group; (v) maintain a risk assets ratio (defined as (A) the sum of the GAAP net book value for all finished lots, lots under development and land held for future development or disposition to (B) tangible net worth), as of the last day of each fiscal quarter, of no more than 1.0 to 1.0; (vi) not allow aggregate investments in unconsolidated affiliates to exceed 15.0% of tangible net worth, as of the last day of any fiscal quarter; and (vii) not incur indebtedness other than, among other things, (A) the obligations under the Credit Agreement, (B) non-recourse indebtedness in an amount not to exceed 15.0% of tangible net worth, as of the last day of each fiscal quarter, (C) operating lease liabilities, finance lease liabilities and purchase money obligations for fixed or capital assets not to exceed $5 million in the aggregate, (D) indebtedness of financial services subsidiaries and variable interest entities, (E) indebtedness under hedge contracts entered into for purposes other than for speculative purposes, and (F) permitted unsecured indebtedness (including the 2028 Notes).
The conversion price will be based on the average of the trailing 90 days’ closing price of Class A common stock, less 20% of the average and subject to a floor conversion price of $4.00 (the “Conversion Discount”). • Protective Covenants: The protective covenants of the Convertible Preferred Stock require us to maintain compliance with all covenants related to (i) the Credit Agreement, as may be further amended from time to time; provided that any amendment, restatement, modification or waiver of the Credit Agreement that would adversely and materially affect the rights of the Purchasers will require the written consent of holders of a majority of the then-outstanding shares of Convertible Preferred Stock; and (ii) any agreement between the Company and any Purchaser (the covenants referred to in clauses (i) and (ii), collectively, the “Protective Covenants”).
The conversion price will be based on the average of the ninety trading days for the Class A common stock immediately preceding but not including the date of the optional conversion notice (as defined in the certificate of designations for the convertible preferred stock) , less 20% of the average and subject to a floor conversion price of $4.00 (the “Conversion Discount”). • Protective Covenants: The protective covenants of the convertible preferred stock require us to maintain compliance with all covenants related to (i) the Credit Agreement, as may be further amended from time to time; provided that any amendment, restatement, modification or waiver of the Credit Agreement that would adversely and materially affect the rights of the Purchasers will require the written consent of holders of a majority of the then-outstanding shares of convertible preferred stock; and (ii) any agreement between the Company and any Purchaser (the covenants referred to in clauses (i) and (ii), collectively, the “Protective Covenants”).
We typically provide lot deposits in the range of 5% to 10% of the land purchase price. When entering into these contracts, we also agree to purchase finished lots at predetermined time frames and quantities that match our expected selling pace in the community. We also enter into land development arrangements with land sellers, land developers and land bankers.
When entering into these contracts, we also agree to purchase finished lots at predetermined prices, time frames, and quantities that match our expected selling pace in the community. We also enter into land development arrangements with land sellers, land developers and land bankers.
Net cash provided by financing activities was $147 million for the year ended December 31, 2022, as comp ared to $646 million of cash provided by financing activities for the year ended December 31, 2021 .
Net cash used in financing activities was $216 million for the year ended December 31, 2023, as comp ared to $147 million of cash provided by financing activities for the year ended December 31, 2022.
These contracts generally allow us to forfeit our right to purchase the lots controlled by these option contracts for any reason, and our sole legal obligation and economic loss as a result of such forfeitures is limited to the amount of the deposits paid pursuant to such option contracts and, in the case of land bank option contracts, any related lot option fees paid to the land bank partner, any potential performance obligations, management of the development to completion and any cost overruns relative to the project .
Our sole legal obligation and economic loss as a result of such forfeitures is limited to the amount of the deposits paid pursuant to such option contracts and, in the case of land bank option contracts, our loss is limited to the related lot option fees paid to the land bank partner, any potential performance obligations, management of the land development to completion and any cost overruns relative to the project.
If they meet this criteria, the Company accounts for the transaction as a stock purchase. If they do not meet this criteria the transaction is accounted for as an asset purchase. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment.
If they do not meet this criteria the transaction is accounted for as an asset purchase. The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on a bargain purchase is recognized in profit or loss immediately.
Adjusted gross margin is a non-GAAP financial measure. For the definition of adjusted gross margin and a reconciliation to our most directly comparable financial measure calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.” Selling, General and Administrative Expense .
For the defin ition of adjusted gross margin and a reconciliation to our most directly comparable financial measure calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.” Southeast.
This liability is remeasured to fair value quarterly and the adjustment is recorded in contingent consideration revaluation. As of December 31, 2022, the contingent consideration liability totaled $115 million, with approximately $43 million payable within 12 months.
This liability is remeasured to fair value quarterly and the adjustment is recorded in contingent consideration revaluation in the Consolidated Statements of Comprehensive Income. As of December 31, 2023, the contingent consideration liability totaled $117 million, with approximately $50 million payable within 12 months.
Contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in other income or other expense in the Consolidated Statements of Comprehensive Income.
The Company generally utilizes outside valuation experts to determine the amount of contingent consideration. Contingent consideration is remeasured at fair value at each reporting date and subsequent changes in the fair value of the contingent consideration are recognized in other income or other expense in the Consolidated Statements of Comprehensive Income.
The net and comprehensive income for the year ended December 31, 2022 includes income tax expense of $82 million, an increase of $54 million, or 198%, from $27 million of income tax expense for the year ended December 31, 2021.
The net and comprehensive income for the year ended December 31, 2023 includes income tax expense of $96 million, an increase of $14 million, or 18%, from $82 million of income tax expense for the year ended December 31, 2022.
Net and comprehensive income for the year ended December 31, 2022 was $274 million, an increase of $139 million, or 104%, from $135 million for the year ended December 31, 2021 .
Net and comprehensive income for the year ended December 31, 2023 was $308 million, an increase of $34 million, or 12%, from $274 million for the year ended December 31, 2022.
(2) Includes the impact of fair value of inventory adjustments from prior acquisitions of $7 million for the year ended December 31, 2022, which is included in homebuilding cost of sales reported on the Consolidated Statements of Comprehensive Income.
(2) Includes amortization of purchase accounting adjustments from prior acquisitions of $7 million and $10 million for the years ended December 31, 2022 and 2021, respectively, which is included in homebuilding cost of sales reported on the Consolidated Statements of Comprehensive Income. For the year ended December 31, 2023, there was no such amortization of fair value adjustments of inventory.
As of December 31, 2022, the future minimum lease payments required under these leases totaled $30 million, with $8 million payable within 12 months. Further information regarding our leases is provided in Note 6, Commitments and Contingencies to our consolidated financial statements.
The Company also has finance leases for corporate office furniture. As of December 31, 2023, the future minimum lease payments required under these leases totaled $25 million, with $7 million payable within 12 months. Further information regarding our leases is provided in Note 5, Commitments and Contingencies to our consolidated financial statements.
Revenues for the year ended December 31, 2022 were $3.3 billion, an increase of $1.4 billion, or 74%, from $1.9 billion for the year ended December 31, 2021.
Revenues for the year ended December 31, 2023 were $3.7 billion, an increase of $0.4 billion, or 12%, from $3.3 billion for the year ended December 31, 2022 .
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): Year Ended December 31, 2022 2021 2020 Gross margin (1) $ 612,420 $ 306,969 $ 165,048 Interest expense in homebuilding cost of sales 60,595 32,508 32,044 Amortization in homebuilding cost of sales (3) 6,701 9,873 5,070 Commission expense 140,442 67,032 50,533 Adjusted gross margin $ 820,158 $ 416,382 $ 252,695 Gross margin % (2) 18.4 % 16.0 % 14.6 % Adjusted gross margin % (2) 24.6 % 21.7 % 22.5 % (1) Gross margin is homebuilding revenues less homebuilding cost of sales.
Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance. 46 Table of Contents 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): Year Ended December 31, 2023 2022 2021 Gross margin (1) $ 727,075 $ 612,420 $ 306,969 Interest charged to homebuilding cost of sales (2) 122,759 60,595 32,508 Amortization in homebuilding cost of sales (3) — 6,701 9,873 Commission expense 165,790 140,442 67,032 Adjusted gross margin $ 1,015,624 $ 820,158 $ 416,382 Gross margin % (4) 19.4 % 18.4 % 16.0 % Adjusted gross margin % (4) 27.2 % 24.6 % 21.7 % (1) Gross margin is homebuilding revenues less homebuilding cost of sales.
Homebuilding cost of sales for homes closed includes the specific construction costs of each home and all applicable land acquisition, land development and related costs allocated to each residential lot. Inventories are carried at the lower of accumulated cost or net realizable value. We periodically review the performance and outlook of our inventories for indicators of potential impairment.
Sold units are expensed on a specific identification basis as homebuilding cost of sales. Homebuilding cost of sales for homes closed includes the specific construction costs of each home and all applicable land acquisition, land development and related costs allocated to each residential lot. Inventories are carried at the lower of accumulated cost or net realizable value.
In many cases, the accounting treatment of a transaction is specifically dictated by GAAP without the need for the application of judgment. 49 Table of Contents In certain circumstances, however, the preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
In certain circumstances, however, the preparation of consolidated financial statements in conformity with GAAP requires us to make certain estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period.
Selling, general and administrative expense for the year ended December 31, 2022 was $271 million, an increase of $117 million, or 76%, from $154 million for the year ended December 31, 2021.
Selling, general and administrative expense (“SG&A”) for the year ended December 31, 2023 was $309 million, an increase of $38 million, or 14%, from $271 million for the year ended December 31, 2022.
Land and development costs are typically allocated to individual residential lots on a pro-rata basis based on the number of lots in the development, and the costs of residential lots are transferred to construction work in progress when home construction begins. Sold units are expensed on a specific identification basis as homebuilding cost of sales.
Indirect overhead costs are charged to selling, general and administrative expense as incurred. Land and development costs are typically allocated to individual residential lots on a pro rata basis based on the number of lots in the development, and the costs of residential lots are transferred to construction work in progress when home construction begins.
Adjusted Gross Margin . Adjusted gross margin for the year ended December 31, 2022 was $820 million, an increase of $404 million, or 97%, from $416 million for the year ended December 31, 2021.
Adjusted gross margin for the year ended December 31, 2023 was $1.0 billion, an increase of $196 million, or 24%, from $820 million for the year ended December 31, 2022.
In addition, we have capitalized costs of $184 million relating to our off-balance sheet arrangements and land development due diligence. Surety Bonds and Letters of Credit We enter into surety bonds and letters of credit arrangements with local municipalities, government agencies and land developers. These arrangements relate to certain performance-related obligations and serve as security for certain land option agreements.
Surety Bonds, Letters of Credit and Financial Guarantees We enter into surety bonds and letters of credit arrangements with local municipalities, government agencies and land developers. These arrangements relate to certain performance-related obligations and serve as security for certain land option agreements.
Business Combinations and Valuation of Contingent Consideration The Company accounts for business combinations using the acquisition method. Under ASC 805 a business combination occurs when an entity obtains control of a “business.” The Company determines whether or not the gross assets acquired meet the definition of a business.
Under ASC 805 a business combination occurs when an entity obtains control of a “business.” The Company determines whether or not the gross assets acquired meet the definition of a business. If they meet this criteria, the Company accounts for the transaction as a stock purchase.
Homebuilding Cost of Sales and Gross Margin . Homebuilding cost of sales for the year ended December 31, 2022 was $2.7 billion, an increase of $1.1 billion, or 69%, from $1.6 billion for the year ended December 31, 2021.
Homebuilding cost of sales for the year ended December 31, 2023 was $3.0 billion, an increase of $0.3 billion, or 11%, from $2.7 billion for the year ended December 31, 2022.
(3) Average sales price of homes closed is calculated based on homebuilding revenues, excluding the impact of deposit forfeitures, percentage of completion revenues and finished lot sales, over homes closed. (4) Gross margin is homebuilding revenues less homebuilding cost of sales. (5) Calculated as a percentage of homebuilding revenues.
(3) Average sales price of homes closed is calculated based on homebuilding revenues, adjusted for the impact of percentage of completion revenues, and excluding deposit forfeitures and land sales, over homes closed.
Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2022 2021 2020 Net cash (used in) provided by operating activities $ (27,623) $ 65,108 $ 96,911 Net cash used in investing activities (5,524) (523,043) (13,027) Net cash provided by (used in) financing activities 146,955 645,884 (65,830) Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 Net cash used in operating activities was $28 million for the year ended December 31, 2022, as compared to $65 million of net cash provided by operating activities for the year ended December 31, 2021 .
Cash Flows The following table summarizes our cash flows for the periods indicated (in thousands): Year Ended December 31, 2023 2022 2021 Net cash provided by/(used in) operating activities $ 374,234 $ (27,623) $ 64,972 Net cash used in investing activities (4,484) (5,524) (523,043) Net cash (used in)/provided by financing activities (216,424) 146,955 646,020 Year Ended December 31, 2023 Compared to Year Ended December 31, 2022 Net cash provided by operating activitie s was $374 million for the year ended December 31, 2023, compared to $28 million of net cash used in operating activities for the year ended December 31, 2022.
The Company had capitalized debt issuance costs related to the line of credit and notes payable , net of amortization, of $7 million and $6 million as of December 31, 2022 and 2021, respectively, which are included in other assets on the Consolidated Balance Sheets.
The Company had capitalized debt issuance costs, net of amortization, related to construction lines of credit totaling $7 million as of both December 31, 2023 and 2022, which were included in other assets on the Consolidated Balance Sheets. Debt issuance costs that are recorded to capitalized interest are expensed in cost of sales as the homes close.
We define adjusted gross margin as gross margin excluding the effects of capitalized interest, amortization included in homebuilding cost of sales (primarily adjustments resulting from the application of purchase accounting in connection with acquisitions) and commission expense.
We define adjusted gross margin as gross margin excluding the effects of capitalized interest, lot option fees, amortization included in homebuilding cost of sales (adjustments resulting from the application of purchase accounting in connection with acquisitions) and commission expense. Our management believes this information is meaningful because it isolates the impact that these excluded items have on gross margin.
EBITDA and adjusted EBITDA are supplemental non-GAAP financial measures used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define EBITDA as net income before (i) interest income, (ii) capitalized interest expensed in homebuilding cost of sales, (iii) interest expense, (iv) income tax expense and (v) depreciation and amortization.
EBITDA and Adjusted EBITDA EBITDA and adjusted EBITDA are not measures of net income as determined by GAAP. EBITDA and adjusted EBITDA are supplemental non-GAAP financial measures used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies.
Any contingent consideration is measured at fair value at the date of acquisition and is based on expected cash flow of the acquisition target discounted over time using an observable market discount rate. The Company generally utilizes outside valuation experts to determine the amount of contingent consideration.
Transaction costs are expensed as incurred, except if related to the issuance of debt or equity securities. Any contingent consideration is measured at fair value at the date of acquisition and is based on expected cash flow of the acquisition target discounted over time using an observable market discount rate.
In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance.
In addition, other companies may not calculate adjusted gross margin information in the same manner that we do.
Income from equity in earnings of unconsolidated entities for the year ended December 31, 2022 was $16 million, an increase of $7 million, or 71%, as compared to $9 million for the year ended December 31, 2021.
Income from unconsolidated entities for the year ended December 31, 2023 was $18 million, an increase of $2 million, or 12%, from $16 million for the year ended December 31, 2022 .
We present EBITDA and adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business. 40 Table of Contents The following table presents a reconciliation of EBITDA and adjusted EBITDA to the GAAP financial measure of net income for each of the periods indicated (unaudited and in thousands, except percentages): Year Ended December 31, 2022 2021 2020 Net and comprehensive income attributable to Dream Finders Homes, Inc. $ 262,313 $ 121,133 $ 79,093 Interest income (169) (6) (45) Interest expensed in cost of sales 60,595 32,508 32,044 Interest expense 32 672 871 Income tax expense 81,859 27,455 — Depreciation and amortization (2) 17,952 13,205 8,922 EBITDA $ 422,582 $ 194,967 $ 120,885 Stock-based compensation expense 6,796 5,233 947 Adjusted EBITDA $ 429,378 $ 200,200 $ 121,832 EBITDA margin % (1) 12.6% 10.1% 10.7% Adjusted EBITDA margin % (1) 12.8% 10.4% 10.7% (1) Calculated as a percentage of total revenues.
EBITDA and adjusted EBITDA information should be considered only as a supplement to net income information as a measure of our performance. 47 Table of Contents The following table presents a reconciliation of EBITDA and adjusted EBITDA to the GAAP financial measure of net income for each of the periods indicated (unaudited and in thousands, except percentages): Year Ended December 31, 2023 2022 2021 Net and comprehensive income attributable to Dream Finders Homes, Inc. $ 295,900 $ 262,313 $ 121,133 Interest income (4,299) (169) (6) Interest charged to homebuilding cost of sales (1) 122,759 60,595 32,508 Interest expense 1 32 672 Income tax expense 96,483 81,859 27,455 Depreciation and amortization (2) 10,651 17,952 13,205 EBITDA $ 521,495 $ 422,582 $ 194,967 Stock-based compensation 14,098 6,796 5,233 Adjusted EBITDA $ 535,593 $ 429,378 $ 200,200 EBITDA margin % (3) 13.9% 12.6% 10.1% Adjusted EBITDA margin % (3) 14.3% 12.8% 10.4% (1) Includes interest charged to homebuilding cost of sales related to our construction lines of credit and senior unsecured notes, net, as well as lot option fees.
Net cash used in investing activities was $6 million for the year ended December 31, 2022, as compared to $523 million of cash used in investing activities for the year ended December 31, 2021.
Net cash used in investing activities was $4 million for the year e nded December 31, 2023, compared to $6 million of cash used in investing activities for the year ended December 31, 2022, primarily attributable to higher purchases of property and equipment during the year ended December 31, 2022 .
As such, we incur significant cash outflows prior to the recognition of earnings. 43 Table of Contents In later stages of the life cycle of a community, cash inflows could significantly exceed our results of operations, as the cash outflows associated with land purchase and home construction and other expenses were previously incurred.
In later stages of the life cycle of a community, cash inflows could significantly exceed our results of operations, as the cash outflows associated with land purchase and home construction and other expenses were previously incurred. We actively enter into finished lot option contracts by placing deposits with land sellers based on the aggregate purchase price of the finished lots.
Our 49.9% minority interest in Jet LLC is accounted for under the equity investment method and is not consolidated in our consolidated financial statements, as we do not control, and are not deemed the primary beneficiary of, Jet LLC.
For the years ended December 31, 2023 and 2022, respectively, Jet HomeLoans had net income of approximately $20 million and $12 million. Our interest in Jet HomeLoans is accounted for under the equity method and is not consolidated in our consolidated financial statements, as we do not control and are not deemed the primary beneficiary of the VIE.
The Company was in compliance with all debt covenants as of December 31, 2022 and December 31, 2021. The Company expects to remain in compliance with all debt covenants over the next twelve months. We enter into surety bonds and letter of credit arrangements with local municipalities, government agencies, and land developers.
The Company was in compliance with all debt covenants as of December 31, 2023 and 2022. The Company expects to remain in compliance with all debt covenants over the next 12 months.
The increase in revenues was primarily attributable to an increase in home closings of 2,004 homes, or 41%, during the year ended December 31, 2022 as compared to the year ended December 31, 2021.
The increase in revenues was attributable to home closings of 7,314 for the year ended December 31, 2023, an increase of 436 homes, or 6%, from 6,878 for the year ended December 31, 2022.
These costs are capitalized within our real estate inventory and are not recognized in our operating income until a home sale closes.
Except for furnishings of model homes, these costs are capitalized within our real estate inventory and are not recognized in our operating income until a home sale closes. As such, we incur significant cash outflows prior to the recognition of revenues.
Leases The Company has operating leases primarily associated with office space that is used by divisions outside of the Jacksonville area, model home sale-leasebacks and a corporate office building sale-leaseback. The Company also has finance leases for corporate office furniture.
Further information regarding our contingent consideration liability is provided in Note 1, Nature of Business and Significant Accounting Policies to our consolidated financial statements. 50 Table of Contents Leases The Company has operating leases primarily associated with office space that is used by divisions outside of the Jacksonville area, model home sale-leasebacks and a corporate office building sale-leaseback.
Further information regarding our contingent consideration liability is provided in Note 1, Nature of Business and Significant Accounting Policies and Note 2, Business Combinations to our consolidated financial statements.
Recent Accounting Pronouncements Refer to Note 1, Nature of Business and Significant Accounting Policies to our consolidated financial statements.
No such transaction occurred for the year ended December 31, 2022, except for $203 million of net proceeds from construction lines of credit. Refer to the Form 10-K for the year ended December 31, 2021 filed on March 16, 2022 for the cash flows and related discussion for December 31, 2021 compared to year ended December 31, 2020.
Refer to the Form 10-K for the year ended December 31, 2022 filed on March 2, 2023 for the results of operations and related discussion for December 31, 2022 compared to the year ended December 31, 2021.
We believe that our sources of liquidity are sufficient to satisfy our current commitments. We continue to evaluate our capital structure and explore options to strengthen our Consolidated Balance Sheet. We will remain opportunistic while assessing available capital in the debt and equity markets.
See below and refer to Note 2, Debt to our consolidated financial statements for more information on the Credit Agreement and the 2028 Notes. 48 Table of Contents We continue to evaluate our capital structure and explore options to strengthen our balance sheet. We will remain opportunistic while assessing available capital in the debt and equity markets.
Real Estate Inventory and Homebuilding Cost of Sales Inventories include the cost of direct land acquisition, land development, construction, capitalized interest, real estate taxes and direct overhead costs incurred related to land acquisition and development and home construction. Indirect overhead costs are charged to selling, general and administrative expense as incurred.
We determine the percentage of completion based on the number of days of construction completed to the total estimated number of days to construct the home. 53 Table of Contents Real Estate Inventory and Homebuilding Cost of Sales Inventories include the cost of direct land acquisition, land development, construction, capitalized interest, lot option fees, real estate taxes and direct overhead costs incurred related to land acquisition and development and home construction.
Unless the context otherwise requires, the terms “Dream Finders,” “DFH,” “the Company,” “we,” “us” and “our” refer to Dream Finders Homes, Inc. and its subsidiaries. Business Overview We design, build and sell homes in high-growth markets, including Charlotte, Raleigh, Jacksonville, Orlando, Denver, the Washington D.C. metropolitan area, Austin, Dallas and Houston.
Unless the context otherwise requires, the terms “Dream Finders,” “DFH,” “the Company,” “we,” “us” and “our” refer to Dream Finders Homes, Inc. and its subsidiaries.
Our management believes this information is meaningful because it isolates the impact that capitalized interest, amortization (primarily purchase accounting adjustments) and commission expense have on gross margin. We include commission expense in homebuilding cost of sales, not selling, general and administrative expense, and therefore commission expense is taken into account in gross margin.
We include 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.
Backlog at December 31, 2022 was 5,548 homes valued at approximately $2,503 million based on average sales price, a decrease of 833 homes and $411 million in value, or 13% and 14%, respectively, as compared to 6,381 homes valued at approximately $2,913 million at December 31, 2021.
Backlog of sold homes as of December 31, 2023 was 3,978 homes valued at approximately $1.9 billion based on ASP, a decrease of 1,570 homes and $0.6 billion in value, or 28% and 25%, respectively, from 5,548 homes valued at approximately $2.5 billion as of December 31, 2022.
The increase in homebuilding cost of sales is primarily due to the increase in home closings in 2022 as compared to 2021. Homebuilding gross margin for the year ended December 31, 2022 was $612 million, an increase of $305 million, or 100%, from $307 million for the year ended December 31, 2021.
Homebuilding gross margin for the year ended December 31, 2023 was $727 million, an increase of $115 million, or 19%, from $612 million for the year ended December 31, 2022. Homebuilding gross margin percentage was 19.4% for the year ended December 31, 2023, an increase of 100 bps, or 5%, from 18.4% for the year ended December 31, 2022.
Adjusted gross margin as a percentage of homebuilding revenues for the year ended December 31, 2022 was 24.6%, an increase of 290 bps, or 13%, as compared to 21.7%, for the year ended December 31, 2021. The increase in adjusted gross margin is attributable to overall price appreciation, which increased at a higher pace than cost inflation.
Adjusted gross margin as a percentage of homebuilding revenues for the year ended December 31, 2023 was 27.2%, an increase of 260 bps, or 11%, from 24.6% for the year ended December 31, 2022. The adjusted gross margin percentage increased due to effective cost management strategies, partially offset by higher closing costs. Adjusted gross margin is a non-GAAP financial measure.
(2) A community becomes active once a model is open to customers or the community has had five net new orders. A community becomes inactive when it has fewer than five units remaining to sell.
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 net sale. A community becomes inactive when it has fewer than five homesites remaining to sell.
Key Results Key financial results for the year ended December 31, 2022, as compared to the year ended December 31, 2021, were as follows: • Revenues increased 74% to $3.3 billion from $1.9 billion. • Net new orders decreased 11% to 6,045 from 6,808. • Homes closed increased 41% to 6,878 from 4,874. • Average sales price of homes closed increased 22% to $474,292 from $389,094. • Gross margin as a percentage of homebuilding revenues increased to 18.4% from 16.0%. • Adjusted gross margin (non-GAAP) as a percentage of homebuilding revenues increased to 24.6% from 21.7%. • Net and comprehensive income increased 104% to $274 million from $135 million. • Net and comprehensive income attributable to Dream Finders Homes, Inc. increased 117% to $262 million from $121 million. • EBITDA (non-GAAP) as a percentage of total revenues increased to 12.6% from 10.1%. • Backlog of sold homes decreased 13% to 5,548 from 6,381. • Active communities at December 31, 2022 increased to 206 from 205 at December 31, 2021. • Return on participating equity was 49.1% compared to 44.3%. • Basic earnings per share was $2.67 and diluted earnings per share was $2.45, compared to $1.27 and $1.27, respectively. 35 Table of Contents For reconciliations of the non-GAAP financial measures, including adjusted gross margin and EBITDA, to the most directly comparable GAAP financial measures, see “—Non-GAAP Financial Measures.” Recent Developments On October 10, 2022, the Company transferred the listing of its Class A common stock from the Nasdaq Global Select Market to the New York Stock Exchange.
Key Results Key financial results for the year ended December 31, 2023, as compared to the year ended December 31, 2022 (unless otherwise noted) were as follows: • Revenues increased 12% to $3.7 billion from $3.3 billion • Home closings increased 6% to 7,314 from 6,878 • Average sales price of homes (“ASP”) closed increased 7% to $505,764 from $474,292 • Net new orders decreased 5% to 5,744 from 6,045 • Gross margin as a percentage of homebuilding revenues increased 100 basis points (“bps”) to 19.4% from 18.4% • Adjusted gross margin (non-GAAP) as a percentage of homebuilding revenues increased 260 bps to 27.2% from 24.6% • Income before taxes increased 14% to $404 million from $356 million • Net and comprehensive income attributable to DFH increased 13% to $296 million from $262 million • Basic earnings per share (“EPS”) was $3.03 and diluted EPS was $2.79, compared to $2.67 and $2.45, respectively • EBITDA (non-GAAP) as a percentage of total revenues increased 130 bps to 13.9% from 12.6% • Active community count increased to 221 from 206 • Backlog of sold homes decreased 28% to 3,978 from 5,548, and the value of backlog decreased 25% to $1.9 billion from $2.5 billion • Return on participating equity was 36.3%, compared to 49.1% • Issuance of $300 million in aggregate principal amount of 8.25% senior unsecured notes used to repay a portion of the outstanding balance under the revolving credit facility • Net debt to net capitalization of 23.3% as of December 31, 2023, compared to 42.9% as of December 31, 2022 • Total liquidity, comprised of cash and cash equivalents, and availability under the revolving credit facility, increased to $828 million as of December 31, 2023, compared to $487 million as of December 31, 2022 For reconciliations of the non-GAAP financial measures, including adjusted gross margin and EBITDA, to the most directly comparable GAAP financial measures, see “— Non-GAAP Financial Measures .” Recent Developments Crescent Homes Acquisition On February 1, 2024, we acquired the majority of the homebuilding assets of Crescent Ventures, LLC (“Crescent Homes”), expanding our operations into the Charleston and Greenville, South Carolina and Nashville, Tennessee markets.
Contingent consideration expense for the year ended December 31, 2022 was $11 million, an increase of $3 million or 47%, as compared to $8 million for the year ended December 31, 2021 . The increase in contingent consideration expense is primarily due to fair value adjustments of future expected earn-out payments from the acquisitions of MHI and H&H.
Contingent consideration revaluation expense (“contingent consideration expense”) for the year ended December 31, 2023 was $47 million, an increase of $36 million, or 322%, from $11 million for the year ended December 31, 2022 .
Refer to the Form 10-K for the year ended December 31, 2021 filed on March 16, 2022 for the results of operations and related discussion for December 31, 2021 compared to the year ended December 31, 2020. 39 Table of Contents Non-GAAP Financial Measures Adjusted Gross Margin Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance.
Non-GAAP Financial Measures Adjusted Gross Margin Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance.
The change in net cash used in operating activities was primarily driven by an increase in inventories, partially offset by the increase in net income generated on home closings and less cash used for lot deposits for the year ended December 31, 2022.
The change in net cash provided by operating activities was primarily driven by a lower increase in inventories when compared to the prior year of $250 million, as well as higher net income in 2023, largely driven by an increase in home closings when compared to 2022.
Selling, general and administrative expenses as a percentage of homebuilding revenues for the year ended December 31, 2022 was 8%, remaining consistent when compared to 8% for the year ended December 31, 2021 . Income from Equity in Earnings of Unconsolidated Entities .
SG&A as a percentage of homebuilding revenues for the year ended December 31, 2023 increased 20 bps to 8.3% compared to 8.1% for the year ended December 31, 2022.
The increase in selling, general and administrative expense was primarily due to higher closing volume and the inclusion of $111 million in expenses from the Texas segment for the year ended December 31, 2022 .
The reduction in gross margin percentage was primarily attributed to higher financing and closing costs. Mid-Atlantic. Our Mid-Atlantic segment total revenues for the year ended December 31, 2023 were $633 million, an increase of $66 million, or 12%, from $567 million for the year ended December 31, 2022.
The average sales price of homes closed was $474,292 for 2022 compared to $389,094 in 2021, an increase of $85,198 or 22%. The increase was due to a higher average sales price of homes closed within the Texas segment, as well as overall price appreciation, which increased at a higher pace than cost inflation.
Also contributing to the increase was the average sales price of homes closed for the year ended December 31, 2023 was $505,764, an increase of $31,472, or 7%, from $474,292 for the year ended December 31, 2022. The increase was due to overall price appreciation, as well as product mix. Homebuilding Cost of Sales and Gross Margin .
The Amended and Restated Credit Agreement provides for aggregate commitments of $1.125 billion and has an accordion feature that allows the aggregate commitments to increase up to $1.625 billion. The Amended and Restated Credit Agreement matures on June 2, 2025. Outstanding borrowings under the Amended and Restated Credit Agreement are subject to, among other things, a borrowing base.
The Credit Agreement provides for aggregate commitments of $1,240 million, which includes a $25 million letter of credit sublimit, is subject to a borrowing base, and has an accordion feature which allows the facility to expand up to $1,625 million. The maturity date for lenders with $1,085 million worth of commitments is July 17, 2026.
As of December 31, 2022, we had $365 million in cash and cash equivalents (excluding $31 million of restricted cash), an increase of $137 million, or 60%, from $227 million as of December 31, 2021.
As of December 31, 2023, we had $494 million in cash and cash equivalents, excluding $54 million of restricted cash. The Credit Agreement had an aggregate commitment of up to $1.2 billion and $1.1 billion, and outstanding borrowings of $530 million and $965 million as of December 31, 2023 and 2022, respectively.
Following consummation of our initial public offering, we became subject to taxation as a corporation and consequently calculated return on equity as net income attributable to Dream Finders Homes, Inc. less preferred distributions divided by the average beginning and ending participating equity for the fiscal year.
(4) Return on participating equity is calculated as net income attributable to DFH, less redeemable preferred stock distributions, dividends and redemptions, divided by average beginning and ending participating equity. Participating equity is stockholders’ equity excluding noncontrolling interests.
In addition, approximately 1,070 of the homes in our backlog are expected to be delivered in 2024 and beyond.
The overall decrease in backlog is reflective of an increase in sales of move-in ready spec homes relative to pre-order sales. Spec homes typically result in quicker closings and turnover of the backlog. Approximately 704 of the homes in our backlog are expected to be delivered in 2025 and beyond. Southeast.
Other income for the year ended December 31, 2022 was $(2) million, when compared to $(2) million in other income for the year ended December 31, 2021.
Our cancellation rate for the year ended December 31, 2023 was 18.3%, an improvement of 320 basis points when compared to the 21.5% cancellation rate for the year ended December 31, 2022.
The change in net cash used in investing activities was primarily attributable to the Company’s acquisitions of Century Homes and MHI during the first quarter and fourth quarter of 2021, respectively, compared to no acquisitions for the year ended December 31, 2022.
The change in net cash used in financing activities was primarily attributable to higher net payments on the construction lines of credit of $436 million in 2023 compared to $203 million of net proceeds in 2022, and to a lesser extent, a one-time payment related to the redemption of the Series B preferred units during the year ended December 31, 2023.
Removed
We sell homes under the Dream Finders Homes, DF Luxury, Craft Homes and Coventry Homes brands. We employ an asset-light land acquisition strategy with a focus on the design, construction and sale of single-family entry-level, first-time move-up and second-time move-up homes.
Added
The following discussion and analysis of our financial condition and results of operations is intended to help the reader understand our business, operations and present business environment and is provided as a supplement to, and should be read together with the sections entitled “Risk Factors,” and the financial statements and the accompanying notes included elsewhere in this Form 10-K.
Removed
To fully serve our homebuyer customers and capture ancillary business opportunities, we also offer title insurance through DF Title and mortgage banking solutions primarily through our mortgage banking joint venture, Jet LLC. During the third and fourth quarters of 2022, housing demand was negatively impacted as rising mortgage rates created strains on affordability.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+3 added−1 removed3 unchanged
Biggest changeOur mortgage banking joint venture, Jet LLC, is exposed to interest rate risk as it relates to its lending activities. Jet LLC underwrites and originates mortgage loans, which are sold through either optional or mandatory forward delivery contracts into the secondary markets. All of the mortgage banking segment’s loan portfolio is held for sale and subject to forward sale commitments.
Biggest changeThe borrowing base availability is reduced dollar-for-dollar for any outstanding unsecured indebtedness permitted under the Credit Agreement. Our mortgage banking joint venture, Jet HomeLoans, is exposed to interest rate risk as it relates to its lending activities. Jet HomeLoans underwrites and originates mortgage loans, which are sold through either optional or mandatory forward delivery contracts into the secondary markets.
The Company pays the lenders a commitment fee on the amount of the unused commitments on a quarterly basis at a rate per annum that will vary from 0.2% to 0.3% depending on the Company’s net debt to net capitalization ratio. Outstanding borrowings under the Credit Agreement are subject to, among other things, a borrowing base.
The Company pays the lenders a commitment fee on the amount of the unused commitments on a quarterly basis at a rate per annum that will vary from 0.20% to 0.30% depending on the Company’s debt to capitalization ratio. Outstanding borrowings under the Credit Agreement are subject to, among other things, a borrowing base.
The borrowing base includes, among other things, (a) 90% of the net book value of presold housing units, (b) 85% of the net book value of model housing units, (c) 85% of the net book value of speculative housing units and (d) 70% of the net book value of finished lots, in each case subject to certain exceptions and limitations set forth in the Credit Agreement.
The borrowing base includes, among other things, (a) 90% of the net book value of presold housing units, (b) 85% of the net book value of model housing units, (c) 85% of the net book value of speculative housing units, (d) 70% of the net book value of finished lots, (e) 85% of the net book value of certain built-for-rent units, and (f) 75% of the net book value of other built-for-rent units, in each case subject to certain exceptions and limitations set forth in the Credit Agreement.
Interest on base rate advances borrowed under the Credit Agreement is payable in arrears on a monthly basis. Interest on each Eurodollar rate advance borrowed under the Credit Agreement is payable in arrears at the end of the interest period applicable to such advance, or, if less than such interest period, three months after the beginning of such interest period.
Interest on Term SOFR rate advances borrowed under the Credit Agreement are payable in arrears at the end of the interest period applicable to such advance, or, if less than such interest period, three months after the beginning of such interest period.
Lower interest rates tend to increase demand for mortgage loans for home purchasers, while higher interest rates make it more difficult for potential borrowers to purchase residential properties and to qualify for mortgage loans.
Lower interest rates tend to increase demand for mortgage loans for home purchasers, while higher interest rates make it more difficult for potential borrowers to purchase residential properties and to qualify for mortgage loans. We have no market rate-sensitive instruments held for speculative or trading purposes.
Jet LLC also sells all of its mortgages held for sale on a servicing released basis. 52 Table of Contents
The loan portfolio of Jet HomeLoans is held for sale and subject to forward sale commitments. Jet HomeLoans also sells all of its mortgages held for sale on a servicing released basis. 55 Table of Contents
Removed
We have no market rate sensitive instruments held for speculative or trading purposes. 51 Table of Contents The Amended and Restated Credit Agreement provides for loans to bear interest, at the Company’s option, at (1) a “Base Rate”, which means for any day a fluctuating rate per annum equal to credit spreads of 1.5% to 2.6%, which are determined based on the Company’s debt to capitalization ratio, plus the highest of (a) the Federal Funds Rate plus 0.5%, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” (c) Term SOFR plus 1.0% and (d) 1.0%, or (2) a “Term SOFR/Letter of Credit Rate”, which means for any day a fluctuating rate per annum equal to credit spreads of 2.5% to 3.6%, which are determined based on the Company’s debt to capitalization ratio, plus the adjusted term SOFR rate (based on one, three or six-month interest periods).
Added
Under the Credit Agreement, the Company has the option to draw “Term SOFR Rate Loans” or “Daily Simple SOFR Rate Loans”. Term SOFR Rate Loans bear interest based on Term SOFR rates for one, three or six-month interest periods, which include SOFR adjustments of 10, 15 and 25 basis points for each interest period, respectively.
Added
Daily Simple SOFR Rate Loans bear interest based on Daily Simple SOFR rates and include a SOFR adjustment of 10 basis points.
Added
Interest under Term SOFR Rate Loans and Daily Simple SOFR Rate Loans also include an “applicable rate margin” determined based on the Company’s net debt to capitalization ratio, equivalent to credit spreads of 2.5% to 3.3%. 54 Table of Contents Interest on Base Rate or Daily Simple SOFR Rate advances borrowed under the Credit Agreement are payable in arrears on a monthly basis.

Other DFH 10-K year-over-year comparisons