Dream Finders Homes, Inc 10-Q for FY2021 Q3

Dream Finders Homes, Inc. (DFH)

10-Q 2021-11-10 For: 2021-09-30

Added on April 12, 2026

About this 10-Q

Dream Finders Homes, Inc filed this 10-Q on November 10, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).

Headline figures

Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $362.98M; up 27.7% from $284.17M a year earlier
Net income: $19.14M; down 15.2% from net income of $22.56M a year earlier
Diluted EPS: $0.20; compared with $0.00 a year earlier

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Delaware		85-2983036
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

14701 Philips Highway, Suite 300, Jacksonville, FL		32256
(Address of principal executive offices)		(Zip code)

Title of each class	Trading symbol(s)	Name of each exchange on which registered

Class A Common Stock, par value $0.01 per share	DFH	NASDAQ Global Select Market

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
		Emerging growth company	☐

PART I. FINANCIAL INFORMATION		3

ITEM 1. DREAM FINDERS HOMES CONDENSED CONSOLIDATED FINANCIAL STATEMENTS		3

	CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)	3

	CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)	4

	CONDENSED CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (unaudited)	5

	CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)	7

	NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)	8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		25

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		48

ITEM 4. CONTROLS AND PROCEDURES		49

PART II. OTHER INFORMATION		50

ITEM 1. LEGAL PROCEEDINGS		50

ITEM 1A. RISK FACTORS		50

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		51

ITEM 6. EXHIBITS		52

	SIGNATURES	53

	September 30, 2021 (Unaudited)		December 31, 2020

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

	Three Months Ended September 30,						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⁽¹⁾
Basic	$	0.20		$	-		$	0.69		$	-
Diluted	$	0.20		$	-		$	0.69		$	-
Weighted-average number of share
Basic		92,521,482			-			92,521,482			-
Diluted		92,695,197			-			92,658,878			-

	Redeemable Preferred Units Mezzanine						Redeemable Common Units Mezzanine				Common Units Members'					Total Non-Controlling Interests			Total Equity
	Units			Amount			Units		Amount		Units		Amount
Balance at June 30, 2020		48,549		$	54,034,479			7,010	$	17,519,137		76,655	$	68,854,097		$	31,409,923		$	171,817,636
Unit compensation		-			-			-		-		-		249,554			-			249,554
Contributions		-			-			-		-		-		-			134,297			134,297
Contributions from non-controlling interests		-			-			-		-		-		-			-			-
Conversion of units		-			-			-		-		-		-			-			-
Redemptions		(6	)		(6,000,000	)		-		-		-		-			-			(6,000,000	)
Distributions		-			(1,360,829	)		-		-		-		(10,889,706	)		(700,073	)		(12,950,608	)
Net income (loss)		-			3,684,448			-		1,583,709		-		17,292,904			1,516,755			24,077,816
Balance at September 30, 2020		48,543		$	50,358,098			7,010	$	19,102,846		76,655	$	75,506,849		$	32,360,902		$	177,328,695

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
Unaudited Pro Forma	2021		2020			2021	2020
Total revenue	$	362,983,638	$	369,580,015	$	1,078,402,698	$	892,504,467
Net and comprehensive income attributable to Dream Finders Homes, Inc.	$	19,135,499	$	27,486,299	$	64,151,994	$	49,799,142

			As of September 30,					As of December 31,
Maturity Date		Payment Terms	2021		2021 Effective Rate			2020			2020 Effective Rate
May 1, 2021		Interest is payable monthly at 14.00%	$	-		-		$	20,000,000			14.00	%
February 28, 2022	⁽¹⁾	Non-interest bearing		1,216,000		0.00	%		832,000			0.00	%
April 1, 2022	⁽¹⁾	Interest is payable monthly at 12.50%		717,642		12.50	%		1,735,161			12.50	%
July 31, 2022	⁽¹⁾	Interest is payable monthly at 9.25%		1,979,389		9.25	%		3,984,174			9.25	%
March 25, 2023	⁽¹⁾	Interest is payable monthly at 5.00%		-		-			3,101,947			5.00	%
Total notes payable			$	3,913,031				$	29,653,282
Less: Debt issuance costs from notes payable				-					(15,444	)
Notes payable, net of discount			$	3,913,031				$	29,637,838

	As of September 30,		As of December 31,
Consolidated	2021		2020
Assets	$	27,895,849	$	50,982,111
Liabilities	$	10,636,828	$	20,114,132

	As of September 30,		As of December 31,
Unconsolidated	2021		2020
Jet Home Loans		6,106,173		3,872,089
Total investment in unconsolidated VIEs	$	6,106,173	$	3,872,089

Other equity method investments		1,237,624		673,260
Total equity method investments	$	7,343,797	$	4,545,349

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
Revenues:	2021			2020			2021			2020
Jacksonville		114,266,233			119,727,582			304,784,533			273,663,603
Colorado		30,777,384			39,041,645			70,784,907			82,927,544
Orlando		51,187,866			36,220,117			175,805,150			71,787,288
DC Metro		22,288,381			32,342,467			60,134,866			80,192,685
Jet Home Loans		7,105,321			7,015,000			19,950,615			22,377,000
The Carolinas (H&H)		77,022,277			-			270,355,045			-
Other		67,441,497			56,835,016			189,955,603			164,135,268
Total segment revenues	$	370,088,959		$	291,181,827		$	1,091,770,719		$	695,083,388

Reconciling items from equity method investments		(7,105,321	)		(7,015,000	)		(19,950,615	)		(22,377,000	)

Consolidated revenues	$	362,983,638		$	284,166,827		$	1,071,820,104		$	672,706,388

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
Net and comprehensive income:	2021			2020			2021			2020
Jacksonville		15,893,270			10,631,703			35,379,244			20,084,482
Colorado		2,883,421			5,431,919			5,723,432			9,627,350
Orlando		3,173,384			3,303,306			13,612,888			4,682,466
DC Metro		804,973			1,423,273			2,803,812			2,059,612
Jet Home Loans		2,585,411			2,790,850			7,633,428			9,497,000
Carolinas (H&H)		2,185,613			-			7,409,557			-
Other		(2,342,069	)		1,730,056			5,250,817			3,041,753
Total segment net and comprehensive income	$	25,184,003		$	25,311,107		$	77,813,178		$	48,992,663

Reconciling items from equity method investments		(1,615,988	)		(1,233,291	)		(4,589,532	)		(4,653,351	)

Consolidated net and comprehensive income	$	23,568,015		$	24,077,816		$	73,223,646		$	44,339,312

	As of September 30,			As of December 31,
Segments	2021			2020
Jacksonville		211,346,145			162,668,740
Colorado		107,427,943			51,605,969
Orlando		133,934,318			77,299,028
DC Metro		66,594,450			41,327,694
Jet Home Loans		70,442,668			38,696,793
The Carolinas (H&H)		221,583,127			161,242,384
Other ⁽¹⁾		485,469,030			235,664,336
Total segment assets	$	1,296,797,681		$	768,504,944

Reconciling items from equity method investments		(64,215,898	)		(34,824,703	)

Consolidated assets	$	1,232,581,783		$	733,680,241

	Nine Months Ended September 30,
	2021			2020
Cash Flows from Operating Activities
Net income	$	73,223,646		$	44,339,312
Adjustments to Reconcile Net Income to Net Cash Used in Operating Activities
Depreciation and Amortization		3,024,576			2,433,385
Loss on sale of property and equipment		(72,830	)		(53,006	)
Amortization of debt issuance costs		1,266,784			1,560,795
Extinguishment of unamortized debt issuance costs		506,466			-
Amortization of right-of-use operating lease		2,494,013			2,416,233
Amortization of right-of-use financing lease		102,874			118,769
Stock compensation expense		4,032,108			697,054
Forgiveness of Paycheck Protection Program		7,219,794			-
Deferred Tax Expense (Benefit)		(1,072,457)			-
Income from equity method investments, net of distributions received		(2,234,084	)		468,221
Remeasurement of contingent consideration		5,761,815			451,573
Changes in Operating Assets and Liabilities
Inventories		(153,372,432	)		(44,404,006	)
Lot deposits		(89,889,494	)		(8,240,408	)
Other assets		(31,546,732	)		(7,696,268	)
Accounts payable and accrued expenses		14,333,342			3,472,247
Customer deposits		45,447,126			9,860,987
Operating Lease ROU Assets		(939,932	)		-
Operating lease liabilities		(1,428,945	)		(2,253,703	)
Net cash used in operating activities		(123,144,362	)		3,171,185

Cash Flows from Investing Activities
Purchase of property and equipment		(1,695,476	)		(2,264,476	)
Proceeds from disposal of property and equipment		441,055			91,279
Investments in equity method investments		(1,200,000	)		(246,036	)
Return of investments from equity method investments		635,636			6,545,833
Business combinations, net of cash acquired		(22,694,250	)		-
Net cash provided used in investing activities		(24,513,035	)		4,126,600

Cash Flows from Financing Activities
Proceeds from issuance of common stock		142,982,406			-
Proceeds from issuance of convertible preferred stock		148,500,000			-
Proceeds from construction lines of credit		1,536,317,365			481,584,545
Principal payments on construction lines of credit		(1,386,702,546	)		(448,127,304	)
Proceeds from notes payable		2,836,323			6,516,185

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2021			2020			2021			2020
Capitalized interest at the beginning of the period	$	18,790,661		$	27,094,143		$	21,091,297		$	25,335,924
Interest incurred		9,671,286			6,126,791			23,668,584			19,765,176
Interest expensed		(14,496	)		(42,373	)		(672,153	)		(124,026	)
Interest charged to cost of contract revenues earned		(5,600,052	)		(7,763,661	)		(21,240,329	)		(19,562,174	)
Capitalized interest at the end of the period	$	22,847,399		$	25,414,900		$	22,847,399		$	25,414,900

	For the Three Months Ended September 30,
Column1	2021			As a % of Home Sales Revenue			2020			As a % of Home Sales Revenue
Revenues	$	362,984					$	284,167
Other revenue		1,662						1,585
Home sales revenue		361,322						282,582
Cost of sales		303,386			84.0	%		240,701			85.2	%
Gross Margin⁽¹⁾		57,936			16.0	%		41,881			14.8	%
Interest expense in cost of sales		5,600			1.5	%		7,764			2.7	%
Amortization in cost of sales⁽³⁾		-			0.0	%		1,396			0.5	%
Commission expense		15,158			4.2	%		11,246			4.0	%
Adjusted gross margin		78,694			21.8	%		62,287			22.0	%
Gross margin %⁽²⁾		16.0	%					14.8	%
Adjusted gross margin %⁽²⁾		21.8	%					22.0	%

			For the Three Months Ended September 30,
	2021⁽¹⁾						2020						Period Over Period Percent Change
Market	Sales		Starts		Closings¹		Sales²		Starts ²		Closings²		Sales ³			Starts ³			Closings ³
The Carolinas (H&H Homes)		362		483		249		N/A		N/A		N/A		N/A			N/A			N/A
Jacksonville		545		327		305		513		441		371		6	%		-26	%		-18	%
Orlando⁽¹⁾		222		124		123		160		195		108		39	%		-36	%		14	%
Colorado		44		71		60		79		70		86		-44	%		1	%		-30	%
DC Metro		14		24		32		77		53		60		-82	%		-55	%		-47	%
Other⁽²⁾		114		275		147		330		253		155		-65	%		9	%		-5	%
Grand Total		1,301		1,304		916		1,159		1,012		780		12	%		29	%		17	%

	September 30,
		2021		2020
Ending Backlog - Homes		4,520		1,836
Ending Backlog - Value (in thousands)	$	1,819,300	$	683,743

	As of September 30, 2021			As of December 31, 2020
Owned Real Estate Inventory Status ⁽¹⁾	% of Owned Real Estate Inventory			% of Owned Real Estate Inventory
Construction in progress and finished homes ¹		92.2	%		88.8	%
Finished lots and land under development¹		7.8	%		11.2	%
Total		100	%		100	%

	For the Nine Months Ended September 30,
	2021¹			2020
Net cash provided by (used in) operating activities	$	(123,144	)	$	3,171
Net cash provided by (used in) investing activities		(24,513	)		4,127
Net cash provided by (used in) financing activities		329,837			(700	)

Exhibit No.	Description
2.1+	Purchase and Sale Agreement, dated as of June 17, 2021, among Dream Finders Holdings LLC, MHI Partnership, Ltd., MHI Models, Ltd., McGuyer Homebuilders, Inc., FMR IP, LLC, HomeCo Purchasing Company, Ltd., 2019 Sonoma, LLC, Frank B. McGuyer and McGuyer Interests, Ltd. (incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on September 13, 2021).
2.2+	First Amendment to Purchase and Sale Agreement, dated as of August 31, 2021, among Dream Finders Holdings LLC, MHI Partnership, Ltd., MHI Models, Ltd., McGuyer Homebuilders, Inc., FMR IP, LLC, HomeCo Purchasing Company, Ltd., 2019 Sonoma, LLC, Frank B. McGuyer and McGuyer Interests, Ltd. (incorporated herein by reference to Exhibit 2.2 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on September 13, 2021).
2.3+	Second Amendment to Purchase and Sale Agreement, dated as of September 7, 2021, among Dream Finders Holdings LLC, DFH Coventry, LLC, MHI Partnership, Ltd., MHI Models, Ltd., McGuyer Homebuilders, Inc., FMR IP, LLC, HomeCo Purchasing Company, Ltd., 2019 Sonoma, LLC, Frank B. McGuyer and McGuyer Interests, Ltd. (incorporated herein by reference to Exhibit 2.3 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on September 13, 2021).
3.1	Certificate of Designations of Dream Finders Homes, Inc., dated September 29, 2021 (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on October 5, 2021).
10.1+	First Amendment and Commitment Increase Agreement, dated as of September 8, 2021, among Dream Finders Homes, Inc., Bank of America, N.A., as administrative agent, collateral agent and issuing bank, and the lenders named therein as parties thereto (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on October 5, 2021).
10.2+	Joinder, Commitment Increase, and Reallocation Agreement, dated as of September 29, 2021, among Dream Finders Homes, Inc., Bank of America, N.A., as administrative agent, collateral agent and issuing bank, and the lenders named therein as parties thereto (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on October 5, 2021).
10.3	Registration Rights Agreement, dated September 29, 2021, by and among Dream Finders Homes, Inc. and the Purchasers listed thereto (incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on October 5, 2021).
10.4	Subscription Agreement, dated September 8, 2021, by and between Dream Finders Homes, Inc. and the Purchasers listed thereto (incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on September 13, 2021).
10.5†	Employment Agreement between Dream Finders Homes, Inc. and Lorena Anabel Fernandez (incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K/A (File No. 001-39916) of Dream Finders Homes, Inc. filed with the SEC on October 12, 2021).
31.1*	CEO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Interim CFO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS∞	XBRL Instance Document.
101.SCH∞	XBRL Taxonomy Extension Schema Document.
101.CAL∞	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF∞	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB∞	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE∞	XBRL Taxonomy Extension Presentation Linkbase Document.
101.PRE∞	XBRL Taxonomy Extension Presentation Linkbase Document.

		Dream Finders Homes, Inc.

Date:	November 10, 2021	/s/ Patrick O. Zalupski
		Patrick O. Zalupski President, Chief Executive Officer and Chairman of the Board of Directors (Principal Executive Officer)

	November 10, 2021	/s/ Lorena A. Fernandez
		Lorena A. Fernandez Senior Vice President and Interim Chief Financial Officer (Principal Financial Officer)