Dream Finders Homes Reports Third Quarter 2021 Financial Results

Rhea-AI Summary

Dream Finders Homes (DFH) announced a record backlog of 4,520 homes valued at over $1.8 billion for Q3 2021, a 146.2% increase from Q3 2020. Home building revenues were up 27.9% to $361 million, with net income at $19.1 million, or $0.20 per diluted share. The company completed the acquisition of McGuyer Homebuilders, boosting its backlog to 6,364 homes worth over $2.8 billion. Despite challenges in supply chains affecting cycle times and margins, management expresses confidence in future growth and revenue expectations for Q4 and fiscal 2022.

Positive

• Backlog of sold homes increased 146.2% to 4,520 homes valued at $1.8 billion.
• Home building revenues increased 27.9% to $361 million.
• Gross margin as a percentage of home sales revenues improved to 16.0%.
• Net new orders rose 12.3% to 1,301 due to increased community count.

Negative

• Net income decreased to $19.1 million from $22.5 million year-over-year.
• SG&A as a percent of home sales revenues increased to 8.9%.
• The full-year outlook for home closings revised down to 4,900 to 5,300 due to supply chain issues.

Backlog of Sold Homes Increased 146.2% to 4,520 Homes Valued at Over $1.8 Billion During Quarter

JACKSONVILLE, Fla., Nov. 10, 2021 (GLOBE NEWSWIRE) -- Dream Finders Homes, Inc. (the “Company” or “DFH”) (NASDAQ: DFH), one of the nation’s fastest growing homebuilders, today announced financial results for the third quarter ended September 30, 2021.

Third Quarter 2021 Highlights (As Compared to Third Quarter 2020)

• Backlog of sold homes increased 146.2% to 4,520 homes valued at $1.8 billion, both company records, compared to 1,836 homes valued at $684 million. On October 1, 2021, DFH completed the acquisition of McGuyer Homebuilders, Inc. (MHI), which increased its backlog of sold homes to 6,364 homes valued at over $2.8 billion. The remaining highlights below do not include financial results for the MHI acquisition
• Home building revenues increased 27.9% to $361 million from $283 million
• Gross margin as a percentage of home sales revenues increased 120 basis points to 16.0% from 14.8%
• Pre-tax income increased 15.0% to $28 million, compared to $24 million
• Average sales price of homes closed increased 3.9% to $375,693 from $361,442
• Home closings increased 17.4% to 916 from 780 homes
• Net new orders increased 12.3% to 1,301 from 1,159
• Controlled lot pipeline increased 59.7% to 30,766 as of September 30, 2021, from 19,276 at December 31, 2020. As of September 30, 2021, the Company owned 4,118 lots, of which 3,619 were homes under construction
• Active community count increased 35.4% to 107 from 79
• Return on equity was 42.4% for the trailing twelve months ended September 30, 2021, compared to 43.9% for the trailing twelve months ended September 30, 2020

Management Commentary
“We have successfully delivered our third sequential quarter of year-over-year revenue, gross margin and pre-tax income growth, despite supply chain constraints,” said Patrick Zalupski, Chairman and CEO of DFH. “We’ve continued to see elevated consumer housing demand and price appreciation; however, industry-wide labor, material and supply chain challenges have impacted sequential gross margins and temporarily drawn out cycle times by a month longer than our historical averages. Despite the challenges in the industry, inclusive of MHI, we have a record backlog of 6,364 sold homes with a value of over $2.8 billion, and collectively, our owned and controlled land position is over 40,000 lots. Our high-performing culture has been tested daily over the past year and remains committed to delivering long-term value to our customers and shareholders, alike. As we look ahead, I am confident in our team’s ability to deliver record fourth quarter revenues and substantial revenue growth in fiscal 2022, when we convert the largest backlog in the Company’s history.”

Third Quarter 2021 Results for the Quarter Ended September 30, 2021
Home building revenues for the third quarter 2021 increased 27.9% to $361 million, compared to $283 million in the same year-ago quarter. Home closings increased 17% to 916, compared to 780 in the same year-ago quarter. Average sales price (ASP) of homes closed for the third quarter 2021 was $375,693, compared to $361,442 in the same year-ago quarter, primarily due to home price appreciation.

Home building gross margin in the third quarter 2021 improved 120 basis points to 16.0%, compared to 14.8% in the same year-ago quarter, primarily due to lower cost of capital. SG&A as a percent of home sales revenues was 8.9% in the third quarter 2021, compared to 7.0% in the same year-ago quarter, primarily as a result of extended cycle times due to supply challenges and as Management has built the Company’s headcount to support the record backlog.

Net new orders in the third quarter 2021 increased 12.3% to 1,301, compared to 1,159 in the same year-ago quarter, primarily due to increased community count. As expected, sales pace slowed in the third quarter when compared to the robust first half of 2021, as the Company manages sales pace to maximize margins. The cancellation rate remains within industry averages at 11.8% for the nine months ended September 30, 2021, compared to 12.9% in the same year-ago nine-month period. At the end of the third quarter 2021, the Company had a record backlog 4,520 homes, valued at $1.8 billion, which represents record increases of 146% and 166%, respectively, when compared to the same year-ago quarter. The average sales price in backlog as of September 30, 2021, was $402,500. The Company believes the backlog of homes sold is the best indicator for future growth and expects a moderate increase in the average sales price of homes closed in future quarters.

Net income attributable to DFH in the third quarter of 2021 was $19.1 million, or $0.20 per diluted share, compared to net income of $22.5 million in the third quarter of 2020*. Excluding the $4.0 million income tax expense in the third quarter of 2021, which was not applicable to DFH in the third quarter of 2020 prior to its corporate reorganization, net income attributable to DFH would have increased 3% in the third quarter of 2021.

The Company recorded an increase in contingent consideration of $0.6 million in the third quarter primarily in relation to the H&H Homes acquisition. At the time of the H&H Homes acquisition, the Company recorded a contingent consideration liability based on the expected value of future earn out payments of the acquiree. This liability is remeasured to fair value quarterly and the adjustment is recorded in other expense.

*DFH completed their initial public offering on January 21, 2021 and does not have a comparable earnings per diluted share for the third quarter ended September 30, 2020.

Subsequent Events
On October 1, 2021, DFH completed the acquisition of the homebuilding, mortgage banking and title insurance assets of privately held Texas homebuilder McGuyer Homebuilders, Inc. and related affiliates (collectively “MHI”), for $471 million in cash at closing, subject to post-closing adjustments. As of October 1, 2021, MHI had approximately 104 active communities, a backlog of 1,844 homes with a value in excess of $1 billion and 5,500 lots under control.

Full Year 2021 Outlook
The Company is updating its outlook and now expects 4,900 to 5,300 home closings for DFH, inclusive of MHI, compared to a previous outlook for 5,000 to 6,000 home closings due to longer cycle times as a result of industry wide supply chain challenges. Any further COVID-19 governmental restrictions on land development, home construction or home sales or additional supply chain challenges could negatively impact the Company’s ability to achieve this number of home closings in 2021.

About Dream Finders Homes, Inc.
Dream Finders Homes (NASDAQ: DFH) is based in Jacksonville, FL, and is one of the nation’s fastest growing homebuilding companies, with industry leading returns on shareholder’s equity. Dream Finders Homes builds homes in Florida, Texas, North Carolina, South Carolina, Georgia, Colorado, Virginia and Maryland. 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 2021 home closings; market conditions and possible or assumed future results of operations, including statements regarding the Company’s strategies and expectations as they relate to market opportunities and growth. All forward-looking statements are based on Dream Finders Homes’ beliefs as well as assumptions made by and information currently available to Dream Finders Homes. These statements reflect Dream Finders Homes’ current views with respect to future events and are subject to various risks, uncertainties and assumptions. These risks, uncertainties and assumptions are discussed in Dream Finders Homes’ Annual Report on Form 10-K for the year ended December 31, 2020, and other filings with the U.S. Securities and Exchange Commission. Dream Finders Homes undertakes no obligation to update or revise any forward-looking statement except as may be required by applicable law.

Dream Finders Homes, Inc.
Consolidated Statements of Comprehensive Income and Operating Activity
(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
		2021			2020			2021			2020
Revenues	$	362,983,638		$	284,166,827		$	1,071,820,104		$	672,706,388
Cost of sales		303,386,434			240,701,064			898,012,615			575,683,384
Selling, general and administrative expense		32,434,505			19,856,843			88,086,880			55,071,469
Income from equity in earnings of unconsolidated entities		(1,372,690	)		(1,557,559	)		(4,230,084	)		(4,843,649	)
Loss/(Gain) on sale of assets		(55,347	)		(18,711	)		(72,830	)		(53,006	)
Loss on extinguishment of debt		-			-			697,423			-
Other Income
Other		(4,849,766	)		(252,461	)		(7,000,248	)		(1,171,675	)
Paycheck Protection Program forgiveness		-			-			(7,219,794	)		-
Other Expense
Other		5,145,106			1,113,211			10,482,934			3,669,048
Contingent consideration revaluation		602,090			204,251			5,761,815			(112,521	)
Interest expense		14,496			42,373			672,153			124,026
Income before taxes	$	27,678,810		$	24,077,816		$	86,629,240		$	44,339,312
Income tax expense		(4,110,795	)		-			(13,405,594	)		-
Net and comprehensive income	$	23,568,015		$	24,077,816		$	73,223,646		$	44,339,312
Net and comprehensive income attributable to non-controlling interests		(4,432,516	)		(1,516,755	)		(9,393,623	)		(3,474,116	)
Net and comprehensive income attributable to Dream Finders Homes, Inc.	$	19,135,499		$	22,561,061		$	63,830,023		$	40,865,196
Earnings per share(4)
Basic	$	0.20		$	-		$	0.69		$	-
Diluted	$	0.20		$	-		$	0.69		$	-
Weighted-average number of shares
Basic		92,521,482			-			92,521,482			-
Diluted		92,695,197			-			92,658,878			-
Other Financial and Operating Data
Active communities at end of period(1)		107			79			107			79
Home closings		916			780			2,914			1,817
Average sales price of homes closed	$	375,693		$	361,442		$	354,222		$	363,279
Net new orders		1,301			1,159			4,830			2,799
Cancellation rate		13.9	%		9.9	%		11.8	%		12.9	%
Backlog (at period end) - homes		4,520			1,836			4,520			1,836
Backlog (at period end, in thousands) - value	$	1,819,300		$	683,743		$	1,819,300		$	683,743
Gross margin (in thousands)(2)	$	57,936		$	41,881		$	169,219		$	93,293
Gross margin %(3)		16.0	%		14.8	%		15.9	%		13.9	%
Net profit margin		5.3	%		7.9	%		6.0	%		6.1	%

1)   A community becomes active once the model is completed or the community has its fifth sale. A community becomes inactive when it has fewer than five units remaining to sell.
2)   Gross margin is home sales revenue less cost of sales. Gross margin includes commission expense.
3)   Calculated as a percentage of home sales revenues.
4)   The Company calculated earnings per share (“EPS”) based on net income attributable to common stockholders for the period January 21, 2021 through September 30, 2021 over the weighted average diluted shares outstanding for the same period. EPS was calculated prospectively for the period subsequent to the Company’s initial public offering and corporate reorganization as described in Note 1 – Nature of Business and Significant Accounting Policies, resulting in 92,521,482 shares of common stock outstanding as of the closing of the initial public offering. The total outstanding shares of common stock are made up of Class A common stock and Class B common stock, which participate equally in their ratable ownership share of the Company. For the three and the nine months ended September 30, 2021, the diluted shares of common stock outstanding were 92,695,197 and 92,658,878 respectively. Diluted shares were calculated by using the treasury stock method for stock grants and the if-converted method for the conversion option to common stock related to preferred stock that is available in the event the company has redeemed the stock in October of 2026.

	Three Months Ended September 30,										Nine Months Ended September 30,
	2021 (unaudited)					2020 (unaudited)					2021 (unaudited)					2020 (unaudited)
	Units		Average Sales Price			Units		Average Sales Price			Units		Average Sales Price			Units		Average Sales Price
Home Closings:
Jacksonville	305		$	369,461		371		$	323,691		865		$	349,143		895		$	306,017
Colorado	60		$	478,536		86		$	453,955		141		$	475,863		183		$	452,918
Orlando	123		$	415,645		108		$	334,953		431		$	407,677		206		$	347,897
DC Metro	32		$	696,356		60		$	539,041		91		$	659,942		148		$	541,686
The Carolinas (H&H Homes)	249		$	309,276		N/A		N/A			907		$	298,054		N/A		N/A
Other (1)	147		$	355,914		155		$	360,410		479		$	327,762		385		$	403,124
Total	916		$	375,693		780		$	361,442		2,914		$	354,222		1,817		$	363,279

(1)  Austin, Savannah, Village Park Homes, Active Adult and Custom Homes.

Dream Finders Homes, Inc.
Consolidated Balance Sheets

						September 30,					December 31,
							2021					2020
						(Unaudited)
Assets
	Cash and cash equivalents					$	85,539,220				$	35,495,595
	Restricted cash (VIE amounts of $2,854,685 and $8,793,201)						181,851,145					49,715,553
	Accounts receivable (VIE amounts of $1,872,199 and $1,288,359)						31,845,905					24,927,903
	Inventories:
	Construction in process and finished homes						595,643,030					396,630,945
	VIE owned land and lots						20,708,390					40,900,552
	Company owned land and lots						50,140,666					46,839,616
	Lot deposits						156,605,165					66,272,347
	Equity method investments						7,343,797					4,545,349
	Property and equipment, net						3,825,299					4,309,071
	Operating lease right-of-use assets						12,665,167					14,219,248
	Finance lease right-of-use assets						232,917					335,791
	Intangible assets, net of amortization						1,995,000					2,660,003
	Goodwill						30,360,997					28,566,232
	Deferred tax asset						3,941,011					-
	Other assets (VIE amounts of $2,460,576 and $0)						49,884,074					18,262,036
				Total assets		$	1,232,581,783				$	733,680,241
Liabilities
	Accounts payable (VIE amounts of $655,511 and $1,315,582)					$	72,306,819				$	37,418,693
	Accrued expenses (VIE amounts of $7,284,286 and $9,977,268)						65,740,570					67,401,055
	Customer deposits						109,780,976					59,392,135
	Construction lines of credit						440,000,000					289,878,716
	Notes payable (VIE amounts of $2,697,031 and $8,821,282)						3,913,031					29,653,282
	Operating lease liabilities						12,981,615					14,410,560
	Finance lease liabilities						242,623					345,062
	Contingent consideration						27,712,570					23,157,524
				Total liabilities		$	732,678,204				$	521,657,027
				Commitments and contingencies (Note 6)
Mezzanine Equity
	Preferred mezzanine equity						154,892,565					55,638,450
	Common mezzanine equity						-					20,593,001
				Total mezzanine equity		$	154,892,565				$	76,231,451
Members' Equity
	Common members' equity						-					103,852,646
				Total members' equity		$	-				$	103,852,646
Stockholders' Equity - Dream Finders Homes, Inc.
	Class A common stock, $0.01 per share, 289,000,000
	authorized, 32,295,329 outstanding						322,953					-
	Class B common stock, $0.01 per share, 61,000,000
	authorized, 60,226,153 outstanding						602,262					-
	Additional paid-in capital						256,761,849					-
	Retained earnings						64,552,332					-
	Non-controlling interests						22,771,618					31,939,117
	Total stockholders' and members' equity						499,903,579					212,023,214
				Total liabilities, mezzanine equity, members' equity and stockholders' equity		$	1,232,581,783				$	733,680,241

SOURCE: Dream Finders Homes, Inc.

Investor and Analyst Contact – investors@dreamfindershomes.com
Anabel Fernandez – Interim CFO & Treasurer
Jake Williamson – Director of Treasury

Media Contact – mediainquiries@dreamfindershomes.com
Anabel Fernandez – Interim CFO & Treasurer
Robert Riva – General Counsel

FAQ

What were the financial results for Dream Finders Homes in Q3 2021?

Dream Finders Homes reported revenues of $361 million and net income of $19.1 million for Q3 2021.

What is the backlog of sold homes for DFH as of September 30, 2021?

As of September 30, 2021, DFH had a backlog of 4,520 homes valued at over $1.8 billion.

How did the acquisition of McGuyer Homebuilders impact DFH's backlog?

The acquisition of McGuyer Homebuilders increased DFH's backlog to 6,364 homes valued at over $2.8 billion.

What is the revised outlook for home closings for DFH in 2021?

DFH expects home closings to be between 4,900 and 5,300 in 2021, reduced from a previous outlook of 5,000 to 6,000.

What challenges is DFH facing in the current market?

DFH is experiencing supply chain challenges that are affecting cycle times and gross margins.