Dream Finders Homes, Inc. (the “Company”, “Dream Finders Homes”, “Dream Finders” or “DFH”) (NYSE: DFH) announced its financial results for the second quarter ended June 30, 2024.
Second Quarter 2024 Highlights (As Compared to Second Quarter 2023, unless otherwise noted)
- Homebuilding revenues increased 12% to $1.1 billion from $943 million
- Home closings increased 10% to 2,031 from 1,846
- Net new orders increased 3% to 1,712 from 1,655
- Average sales price of homes closed increased to $514,833 from $504,683
- Homebuilding gross margin of 19.0% compared to 19.1%
- Adjusted gross margin (non-GAAP) of 27.0% compared to 27.1%
- Pre-tax income increased 11% to $106 million from $96 million
- Net income attributable to DFH increased 18% to $81 million, or $0.83 per basic share, from $69 million, or $0.70 per basic share
- Active community count of 222
- Backlog of 4,205 sold homes as of June 30, 2024, valued at $2.1 billion
- Net debt to net capitalization of 42.7% as of June 30, 2024, compared to 38.8% as of June 30, 2023
- Total liquidity, comprised of cash and cash equivalents and availability under the revolving credit facility, of $475 million as of June 30, 2024
- Return on participating equity of 33.5% for the trailing twelve months ended June 30, 2024, compared to 42.2% for the trailing twelve months ended June 30, 2023
- Controlled lot pipeline of 40,678 as of June 30, 2024
Management Commentary
Patrick Zalupski, Dream Finders Homes Chairman and CEO, said, “Despite the continued home affordability and interest rate challenges, Dream Finders achieved another strong quarter driven by our continued focus on strategic growth and operational efficiencies. I am proud of the efforts of the entire DFH team as we have continued to grind forward despite the aforementioned hurdles. Our homebuilding revenues for the quarter of $1.1 billion, represented a 12% increase over the prior year quarter, and a second quarter Company record. Our focus on profitability was evident in our record second quarter net income attributable to DFH shareholders of $81 million and basic EPS of $0.83, increases of 18% and 19%, respectively, compared to the year ago quarter.
During the second quarter, we repurchased 72,000 shares of our class A common stock under our approved buyback program. We believe buying back our shares is a valuable way to generate shareholder value, and we may continue to do so in the future as part of our long-term capital allocation strategy.
We are also pleased to announce that subsequent to quarter end, we completed the acquisition of Jet HomeLoans (‘Jet HL’) for $9.3 million, our sixth acquisition in five years. We previously owned 60% of the joint venture and executed on an opportunity to purchase the remaining 40%, which we closed on July 1, 2024. We are confident this transaction will enhance overall profitability for DFH and drive significant shareholder value. Jet HL generated $20 million of pre-tax earnings in 2023 and $13 million year to date through June 30, 2024; 100% of earnings starting July 1, 2024 will flow to DFH. Acquiring the remaining 40% was an easy decision based on what we believe the earnings will be going forward.
While there are plenty of challenges facing the homebuilding industry, we believe DFH is well positioned to continue to capitalize on opportunities going forward. We reiterate our guidance of 8,250 closings for the full year 2024 and are hard at work building the foundation for continued growth in 2025 and beyond.”
Second Quarter 2024 Results
Homebuilding revenues in the second quarter of 2024 increased 12% to $1.1 billion, compared to $943 million in the second quarter of 2023. Average sales price (“ASP”) of homes closed for the second quarter of 2024 was $514,833, a modest increase compared to the prior year quarter ASP of $504,683. Home closings increased 10% to 2,031 compared to 1,846 in the second quarter of 2023. The increase in homebuilding revenues was primarily due to the increase in home closings, the majority of which resulted from the February 2024 Crescent Homes acquisition, as well as higher ASP attributable to overall product mix during the second quarter of 2024 when compared to the second quarter of 2023.
Homebuilding gross margin percentage in the second quarter of 2024 of 19.0% remained consistent compared to 19.1% in the second quarter of 2023. The steady gross margin percentage for the second quarter of 2024 included amortization of purchase accounting adjustments associated with home closings contributed from the recent Crescent Homes acquisition. These adjustments negatively impacted the second quarter 2024 gross margin percentage by approximately 20 basis points (“bps”). Purchase accounting amortization is a temporary cost that will conclude in conjunction with closing the remaining homes in inventory acquired from Crescent.
Adjusted gross margin as a percentage of homebuilding revenues in the second quarter of 2024 was 27.0%, remaining consistent with the second quarter of 2023 adjusted gross margin of 27.1%. Adjusted gross margin is a non-GAAP financial measure. See “Reconciliation of Non-GAAP Financial Measures.”
Selling, general and administrative expense (“SG&A”) in the second quarter of 2024 increased 34% to $99 million, compared to $74 million in the second quarter of 2023. SG&A as a percentage of homebuilding revenues in the second quarter of 2024 was 9.4%, an increase of 160 bps compared to 7.8% in the second quarter of 2023. The increase was primarily attributable to higher compensation and marketing costs inherent in our efforts to expand operations. The second quarter SG&A percentage reflected a 50 bps improvement from the first quarter of 2024 as we further integrated Crescent and this metric began to normalize as anticipated for the year based on expected quarterly closing volumes.
Net income attributable to DFH in the second quarter of 2024 increased 18% to $81 million, or $0.83 per basic share, from $69 million, or $0.70 per basic share in the second quarter of 2023. This improvement primarily resulted from increased home closings and a reduction in contingent consideration expense in the second quarter of 2024 compared to the prior year quarter, partially offset by higher SG&A explained above.
Net new orders in the second quarter of 2024 were 1,712, an increase of 3% compared to 1,655 net new orders for the second quarter of 2023. The cancellation rate in the second quarter of 2024 was 13.2%, an improvement of 240 bps compared with the second quarter of 2023 cancellation rate of 15.6%. The consistency of our net new orders and low cancellation rate are indicative of our continued focus on sales incentives and availability of quick, move-in homes in our communities.
Our total available liquidity as of June 30, 2024 was $475 million, including $275 million of unrestricted operating cash. In addition, net debt to net capitalization as of June 30, 2024 was 42.7%, an increase of 390 bps from the end of the second quarter of 2023. During the second quarter of 2024, we released a significant number of housing starts and purchased additional lots for production, increasing our investment in inventory by $457 million compared to the second quarter of 2023. This directly impacted our net debt to net capitalization metric and liquidity as we prepared to deliver our homes in the second half of the year and maintain an active pipeline of quick, move-in homes.
Second Quarter 2024 Backlog
As of June 30, 2024, DFH had a backlog of 4,205 homes, valued at $2.1 billion, compared to the backlog of 4,524 homes, valued at $2.3 billion as of March 31, 2024. As of June 30, 2024, the ASP in backlog was $505,022 compared to $513,238 as of March 31, 2024. As of June 30, 2024, approximately 1,088 of the homes in backlog are expected to be delivered in 2025 and beyond.
The following table shows the backlog units and ASP as of June 30, 2024 by homebuilding segment:
As of June 30, 2024
| |||||
Backlog: | Units | Average Sales Price | |||
Southeast | 1,723 | $ | 411,727 | ||
Mid-Atlantic | 1,202 | 467,772 | |||
Midwest | 1,280 | 665,587 | |||
Total | 4,205 | $ | 505,022 | ||
Jet HomeLoans Acquisition
On July 1, 2024, the Company acquired the remaining interest in Jet HomeLoans, upon which Jet HomeLoans became a wholly owned subsidiary of the Company and will be consolidated in the Company’s financial statements as of that date. This acquisition enables us to direct and manage the business operations and strategies of our established preferred mortgage lender for the benefit of our homebuyers across all of our markets.
Full Year 2024 Outlook
Dream Finders Homes maintains its guidance of approximately 8,250 home closings for the full year 2024, inclusive of the Crescent Homes acquisition.
About Dream Finders Homes, Inc.
Dream Finders Homes (NYSE: DFH) is a homebuilder based in Jacksonville, Florida. Dream Finders Homes builds single-family homes throughout the Southeast, Mid-Atlantic and Midwest, including Florida, Texas, Tennessee, North Carolina, South Carolina, Georgia, Colorado, and the Washington, D.C. metropolitan area, which comprises Northern Virginia and Maryland. Through its financial services joint ventures, DFH also provides mortgage financing and title services to homebuyers. Dream Finders Homes achieves its industry-leading growth and returns by maintaining an asset-light homebuilding model. For more information, please visit www.dreamfindershomes.com.
Forward-Looking Statements
This press release includes forward-looking statements regarding future events, including projected 2024 home closings and market conditions, possible or assumed future results of operations, benefits of the Crescent Homes acquisition, and statements regarding the Company’s strategies and expectations as they relate to market opportunities and growth. All forward-looking statements are based on Dream Finders Homes’ beliefs as well as assumptions made by and information currently available to Dream Finders Homes. These statements reflect Dream Finders Homes’ current views with respect to future events and are subject to various risks, uncertainties and assumptions. These risks, uncertainties and assumptions are discussed in Dream Finders Homes’ Annual Report on Form 10-K for the year ended December 31, 2023, subsequently filed Form 10-Qs and other filings with the U.S. Securities and Exchange Commission. Dream Finders Homes undertakes no obligation to update or revise any forward-looking statement except as may be required by applicable law.
Dream Finders Homes, Inc. | |||||||
Condensed Consolidated Balance Sheets | |||||||
(In thousands, except share and per share amounts) | |||||||
(Unaudited) | |||||||
June 30,
| December 31,
| ||||||
Assets | |||||||
Cash and cash equivalents | $ | 274,797 | $ | 494,145 | |||
Restricted cash | 21,834 | 54,311 | |||||
Accounts receivable | 33,003 | 30,874 | |||||
Inventories | 1,897,518 | 1,440,249 | |||||
Lot deposits | 301,167 | 247,207 | |||||
Other assets | 108,993 | 80,759 | |||||
Investments in unconsolidated entities | 20,556 | 15,364 | |||||
Property and equipment, net | 8,775 | 7,043 | |||||
Right-of-use assets | 18,248 | 20,280 | |||||
Goodwill | 300,313 | 172,207 | |||||
Total assets | $ | 2,985,204 | $ | 2,562,439 | |||
Liabilities | |||||||
Accounts payable | $ | 180,856 | $ | 134,115 | |||
Accrued expenses | 181,668 | 207,389 | |||||
Customer deposits | 129,043 | 172,574 | |||||
Construction lines of credit | 890,876 | 530,384 | |||||
Senior unsecured notes, net | 294,564 | 293,918 | |||||
Lease liabilities | 19,116 | 21,114 | |||||
Contingent consideration | 67,549 | 116,795 | |||||
Total liabilities | $ | 1,763,672 | $ | 1,476,289 | |||
Mezzanine Equity | |||||||
Redeemable preferred stock | 148,500 | 148,500 | |||||
Redeemable noncontrolling interest | 21,451 | — | |||||
Equity | |||||||
Class A common stock, $0.01 per share, 289,000,000 authorized, 34,502,077 and 32,882,124 issued as of June 30, 2024 and December 31, 2023, respectively | 345 | 329 | |||||
Class B common stock, $0.01 per share, 61,000,000 authorized, 59,226,153 and 60,226,153 issued as of June 30, 2024 and December 31, 2023, respectively | 592 | 602 | |||||
Additional paid-in capital | 271,296 | 275,241 | |||||
Retained earnings | 777,099 | 648,412 | |||||
Treasury stock, at cost, 71,833 shares of Class A common stock as of June 30, 2024 | (1,846 | ) | — | ||||
Total Dream Finders Homes, Inc. stockholders’ equity | 1,047,486 | 924,584 | |||||
Noncontrolling interests | 4,095 | 13,066 | |||||
Total equity | 1,051,581 | 937,650 | |||||
Total liabilities, mezzanine equity and equity | $ | 2,985,204 | $ | 2,562,439 | |||
Dream Finders Homes, Inc. | ||||||||||||||||
Condensed Consolidated Statements of Comprehensive Income | ||||||||||||||||
(In thousands, except share and per share amounts) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended
| Six Months Ended
| |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Revenues: | ||||||||||||||||
Homebuilding | $ | 1,052,236 | $ | 942,880 | $ | 1,877,457 | $ | 1,710,356 | ||||||||
Other | 3,511 | 2,459 | 6,090 | 4,403 | ||||||||||||
Total revenues | 1,055,747 | 945,339 | 1,883,547 | 1,714,759 | ||||||||||||
Homebuilding cost of sales | 852,837 | 762,855 | 1,531,477 | 1,400,199 | ||||||||||||
Selling, general and administrative expense | 98,926 | 73,709 | 180,719 | 134,470 | ||||||||||||
Income from unconsolidated entities | (5,299 | ) | (4,704 | ) | (10,202 | ) | (7,662 | ) | ||||||||
Contingent consideration revaluation | 4,638 | 18,266 | 7,845 | 23,582 | ||||||||||||
Other income, net | (1,363 | ) | (635 | ) | (3,124 | ) | (1,065 | ) | ||||||||
Income before taxes | 106,008 | 95,848 | 176,832 | 165,235 | ||||||||||||
Income tax expense | (23,245 | ) | (24,206 | ) | (38,386 | ) | (41,842 | ) | ||||||||
Net and comprehensive income | 82,763 | 71,642 | 138,446 | 123,393 | ||||||||||||
Net and comprehensive income attributable to noncontrolling interests | (1,820 | ) | (2,878 | ) | (3,009 | ) | (5,540 | ) | ||||||||
Net and comprehensive income attributable to Dream Finders Homes, Inc. | $ | 80,943 | $ | 68,764 | $ | 135,437 | $ | 117,853 | ||||||||
Earnings per share | ||||||||||||||||
Basic | $ | 0.83 | $ | 0.70 | $ | 1.38 | $ | 1.19 | ||||||||
Diluted | $ | 0.81 | $ | 0.65 | $ | 1.35 | $ | 1.09 | ||||||||
Weighted-average number of shares | ||||||||||||||||
Basic | 93,722,953 | 93,108,277 | 93,524,396 | 93,025,626 | ||||||||||||
Diluted | 100,125,681 | 105,439,519 | 100,030,603 | 107,704,859 | ||||||||||||
Dream Finders Homes, Inc. | ||||||||||||||||
Other Financial and Operating Data | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Three Months Ended
| Six Months Ended
| |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Other Financial and Operating Data | ||||||||||||||||
Home closings | 2,031 | 1,846 | 3,686 | 3,363 | ||||||||||||
Average sales price of homes closed(1) | $ | 514,833 | $ | 504,683 | $ | 505,926 | $ | 498,309 | ||||||||
Net new orders | 1,712 | 1,655 | 3,436 | 3,103 | ||||||||||||
Cancellation rate | 13.2 | % | 15.6 | % | 16.8 | % | 18.1 | % | ||||||||
Gross margin (in thousands)(2) | $ | 199,399 | $ | 180,025 | $ | 345,980 | $ | 310,157 | ||||||||
Gross margin %(3) | 19.0 | % | 19.1 | % | 18.4 | % | 18.1 | % | ||||||||
Adjusted gross margin (in thousands)(4) | $ | 284,571 | $ | 255,912 | $ | 501,784 | $ | 442,105 | ||||||||
Adjusted gross margin %(3)(4) | 27.0 | % | 27.1 | % | 26.7 | % | 25.8 | % | ||||||||
Active communities(5) | 222 | 220 | ||||||||||||||
Backlog - units | 4,205 | 5,288 | ||||||||||||||
Backlog - value (in thousands) | $ | 2,123,618 | $ | 2,486,375 | ||||||||||||
Return on participating equity(6) | 33.5 | % | 42.2 | % | ||||||||||||
Net debt to net capitalization(7) | 42.7 | % | 38.8 | % | ||||||||||||
(1) | 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. | |
(2) | Gross margin is homebuilding revenues less homebuilding cost of sales. | |
(3) | Calculated as a percentage of homebuilding revenues. | |
(4) | Adjusted gross margin is a non-GAAP financial measure. For a definition of this non-GAAP financial measures and a reconciliation to our most directly comparable financial measure calculated and presented in accordance with GAAP, see “Reconciliation of Non-GAAP Financial Measures.” | |
(5) | A community becomes active once the model is completed or the community has its fifth net new order. A community becomes inactive when it has fewer than five units remaining to sell. | |
(6) | Return on participating equity is calculated as net income attributable to DFH, less redeemable preferred stock distributions, divided by average beginning and ending total Dream Finders Homes, Inc. stockholders’ equity (“participating equity”) for the trailing twelve months. | |
(7) | Net debt to net capitalization is defined as the sum of the senior unsecured notes, net and construction lines of credit, less cash and cash equivalents (“net debt”), divided by the sum of net debt, total mezzanine equity and total equity. |
Three Months Ended
| Six Months Ended
| |||||||||||||||||||
2024
| 2023
| 2024
| 2023
| |||||||||||||||||
Home Closings: | Units | Average
| Units | Average
| Units | Average
| Units | Average
| ||||||||||||
Southeast | 668 | $ | 508,511 | 799 | $ | 461,085 | 1,246 | $ | 492,320 | 1,433 | $ | 456,264 | ||||||||
Mid-Atlantic | 610 | 433,941 | 386 | 384,865 | 1,101 | 430,155 | 756 | 374,985 | ||||||||||||
Midwest | 753 | 585,971 | 661 | 627,353 | 1,339 | 580,889 | 1,174 | 629,045 | ||||||||||||
Total | 2,031 | $ | 514,833 | 1,846 | $ | 504,683 | 3,686 | $ | 505,926 | 3,363 | $ | 498,309 | ||||||||
Reconciliation of Non-GAAP Financial Measures
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):
Three Months Ended
| Six Months Ended
| |||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||
Gross margin(1) | $ | 199,399 | $ | 180,025 | $ | 345,980 | $ | 310,157 | ||||||||
Interest expense in homebuilding cost of sales(2) | 41,662 | 32,798 | 72,404 | 55,217 | ||||||||||||
Amortization in homebuilding cost of sales(3) | 2,518 | — | 7,100 | — | ||||||||||||
Commission expense | 40,992 | 43,089 | 76,300 | 76,731 | ||||||||||||
Adjusted gross margin | $ | 284,571 | $ | 255,912 | $ | 501,784 | $ | 442,105 | ||||||||
Gross margin %(4) | 19.0 | % | 19.1 | % | 18.4 | % | 18.1 | % | ||||||||
Adjusted gross margin %(4) | 27.0 | % | 27.1 | % | 26.7 | % | 25.8 | % | ||||||||
(1) | Gross margin is homebuilding revenues less homebuilding cost of sales. | |
(2) | 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. | |
(3) | Represents amortization of purchase accounting adjustments from the Crescent Homes acquisition. | |
(4) | Calculated as a percentage of homebuilding revenues. |
Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. The Company defines 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. Management believes this information is meaningful because it isolates the impact that these excluded items have on gross margin. The Company includes 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. As a result, in order to provide a meaningful comparison to the public company homebuilders that include commission expense below the gross margin line in selling, general and administrative expense, commission expense has been excluded from adjusted gross margin. 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 operating performance may be limited. In addition, other companies may not calculate adjusted gross margin information in the same manner. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of performance.
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