DREAM FINDERS HOMES, INC. Unless otherwise indicated or the context requires, "DFH," "Dream Finders," the "Company," "we," "our" and "us" refer collectively toDream Finders Homes, Inc. and its subsidiaries. OnJanuary 25, 2021 , we completed an initial public offering (the "IPO") of 11,040,000 shares of our Class A common stock. As a result of the reorganization transactions in connection with the IPO, for accounting purposes, our historical results included herein present the combined assets, liabilities and results of operations ofDream Finders Homes, Inc. since the date of its formation andDream Finders Holdings LLC , aFlorida limited liability company ("DFH LLC ") and its direct and indirect subsidiaries prior to the IPO. Business Overview We design, build and sell homes in high growth markets, includingCharlotte ,Raleigh ,Jacksonville ,Orlando ,Denver , theWashington D.C. metropolitan area andAustin . We employ an asset-light lot 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. To fully serve our homebuyer customers and capture ancillary business opportunities, we also offer title insurance and mortgage banking solutions (our Jet Home Loans segment) through our mortgage banking joint venture,Jet Home Loans, LLC ("Jet LLC "). Our asset-light lot acquisition strategy enables us to generally purchase land in a "just-in-time" manner with reduced up-front capital commitments, which in turn has increased our inventory turnover rate, enhanced our strong returns on equity and contributed to our impressive growth.
We are engaged in the design, construction and sale of new homes in the following markets:
•
and
•Jacksonville, FL •Orlando, FL •Denver, CO
•
•
Since breaking ground on our first home onJanuary 1, 2009 during an unprecedented downturn in theU.S. homebuilding industry, we have closed over 11,000 home sales throughMarch 31, 2021 and have been profitable every year since inception. During the three months endedMarch 31, 2021 , we received 2,010 net new orders, an increase of 1,162, or 137.0%, as compared to the 848 net new orders received for the three months endedMarch 31, 2020 . For the three months endedMarch 31, 2021 , we closed 1,002 homes, an increase of 487, or 94.6%, as compared to the 515 homes closed for the three months endedMarch 31, 2020 . As ofMarch 31, 2021 , our backlog of sold homes was 3,612. In addition, as ofMarch 31, 2021 , we owned and controlled over 26,000 lots. Our owned and controlled lot supply is a critical input to the future revenue of our business. We sell homes under theDream Finders Homes , DF Luxury,H&H Homes ,Village Park Homes and Century Homes brands. 24 -------------------------------------------------------------------------------- Table of Contents COVID-19 Impact The ongoing coronavirus (COVID-19) outbreak may significantly worsen inthe United States , which may cause federal, state and local governments to reconsider restrictions on business and social activities. In the event governments increase restrictions, the re-opening of the economy may be further curtailed. We have experienced some resulting disruptions to our business operations, as these restrictions have significantly impacted, and may continue to impact, many sectors of the economy, with various businesses curtailing or ceasing normal operations and subsequently attempting to resume operations. Our primary focus remains on doing everything we can to ensure the safety and well-being of our employees, customers and trade partners. While COVID-19 infection rates, hospitalizations and deaths declined in certain parts of the country since the initial surge in April andMay 2020 , infection rates increased significantly in other parts of the country, including inFlorida andTexas during June andJuly 2020 , two states that account for a significant portion of our homebuilding business. Residential construction has been deemed an essential business in each of our markets throughout the COVID-19 pandemic. In addition, state and/or local governments in each of our markets have instituted social distancing measures and other restrictions, which have resulted in significant changes to the way we conduct business. In all markets where we are permitted to operate, we are operating in accordance with the guidelines issued by theCenters for Disease Control and Prevention , as well as state and local guidelines. Despite the encouraging rebound in our net new orders sinceApril 2020 and the continued trend of elevated sales per community through the end ofApril 2021 , we cannot be certain that these positive trends will continue if COVID-19 infections and related hospitalizations and deaths continue to grow in our core markets or that we will be able to convert net new orders into home closings. There is uncertainty regarding the extent and timing of the disruption to our business that may result from the COVID-19 pandemic and any related governmental actions. There is also uncertainty as to the effects of the COVID-19 pandemic and related economic relief efforts on theU.S. economy, unemployment, consumer confidence, demand for our homes and the mortgage market, including lending standards, interest rates and secondary mortgage markets. We are unable to predict the extent to which this will impact our operational and financial performance, including the impact of future developments such as the duration and spread of the COVID-19 virus, corresponding governmental actions (including as a result of the change in theU.S. presidential administration) and the impact of such on our employees, customers and trade partners.
For more information, see Item 1A. Risk Factors in Part I of our Annual Report
on Form 10-K for the fiscal year ended
Recent Developments
Initial Public Offering
OnJanuary 25, 2021 , we completed the IPO of 11,040,000 shares of our Class A common stock at a price to the public of$13.00 per share, which was conducted pursuant to our Registration Statement on Form S-1 (File No. 333-251612), as amended, that was declared effective onJanuary 20, 2021 . The IPO provided us with net proceeds of$133.5 million . OnJanuary 25, 2021 , we used the net proceeds from the IPO, cash on hand and borrowings under our Credit Agreement to repay (i) all borrowings under our then-existing 34 separate secured vertical construction lines of credit facilities totaling$320.0 million and upon such repayment terminated such facilities and (ii) the bridge loan fromBoston Omaha Investments LLC (the "BOMN Bridge Loan") that was used to finance the acquisition ofH&H Homes , totaling$20.0 million , plus contractual interest of$0.6 million . 25 -------------------------------------------------------------------------------- Table of Contents Corporate Reorganization In connection with the IPO and pursuant to the terms of the Agreement and Plan of Merger by and among theCompany, DFH LLC andDFH Merger Sub LLC , aDelaware limited liability company and direct, wholly owned subsidiary of the Company,DFH Merger Sub LLC merged with and intoDFH LLC withDFH LLC as the surviving entity (the "Merger"). As a result of the Merger, all of the outstanding non-voting common units and Series A preferred units ofDFH LLC converted into 21,255,329 shares of Class A common stock of the Company, all of the outstanding common units ofDFH LLC converted into 60,226,153 shares of Class B common stock of the Company and all of the outstanding Series B preferred units and Series C preferred units ofDFH LLC remained outstanding as Series B preferred units and Series C preferred units ofDFH LLC , as the surviving entity in the Merger. We refer to this and certain other related events and transactions, as the "Corporate Reorganization". In connection with the Corporate Reorganization, we made distributions to the members ofDFH LLC for estimated federal income taxes of approximately$28.0 million on earnings of our predecessor,DFH LLC (which was a pass-through entity for tax purposes), for the period fromJanuary 1, 2020 throughJanuary 21, 2021 (the date of the Corporate Reorganization). Immediately following the Corporate Reorganization, (1) the Company became a holding company and the sole manager ofDFH LLC , with no material assets other than 100% of the voting membership interests inDFH LLC , (2) the holders of common units, non-voting common units and Series A preferred units ofDFH LLC became stockholders of the Company, (3) the holders of the Series B preferred units ofDFH LLC outstanding immediately prior to the Corporate Reorganization continued to hold all 7,143 of the outstanding Series B Preferred Units ofDFH LLC , and (4) the holders of the Series C preferred units ofDFH LLC outstanding immediately prior to the Corporate Reorganization continued to hold all 26,000 of the outstanding Series C preferred units ofDFH LLC . OnJanuary 27, 2021 , we redeemed all 26,000 outstanding Series C preferred units ofDFH LLC at a redemption price of$26.0 million , plus accrued distributions and fees of$0.2 million . Century Acquisition During the three months endedMarch 31, 2021 , we increased our market presence in theOrlando, Florida market with our acquisition (the "Century Acquisition") ofCentury Homes Florida, LLC ("Century Homes "). Effective as ofJanuary 31, 2021 , we consummated the first phase of the Century Acquisition ofOrlando -based homebuilderCentury Homes fromTavistock Development Company ("Tavistock"). We paid$35.5 million to acquire 134 units under construction and 229 finished lots on which we expect to begin construction during 2021 and 2022. The Company funded the entire purchase price of the Century Acquisition with cash on hand and borrowings under our Credit Agreement.
Key Results
Key financial results as of and for the three months ended
• Revenues increased 82.0% to
• Net new orders increased 137.0% to 2,010 net new orders from 848 net new
orders.
• Homes closed increased 94.6% to 1,002 homes from 515 homes.
26--------------------------------------------------------------------------------
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• Backlog of sold homes increased 212.7% to 3,612 homes from 1,155 homes.
• Average sales price of homes closed decreased 7.3% to
• Gross margin as a percentage of home sales revenues increased to 14.9% from
12.8%.
• Adjusted gross margin (non-GAAP) as a percentage of home sales revenues
increased to 22.2% from 20.8%.
• Net and comprehensive income increased 126.4% to
million.
• Net and comprehensive income attributable to
increased 145.0% to
• EBITDA (non-GAAP) as a percentage of home sales revenues increased to 9.4% from
7.5%.
• Active communities at
2020.
• Total owned and controlled lots increased 18.0% to 26,438 lots at
2021 from 22,407 lots at
• Return on equity was 37.4% for the trailing twelve months ended
compared to 36.7% for the same period in the prior year.
For reconciliations of the non-GAAP financial measures, adjusted gross margin, EBITDA and adjusted EBITDA to the most directly comparable GAAP financial measures, please see "-Non-GAAP Financial Measures."
27
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Results of Operations
Three Months Ended
The following table sets forth our results of operations for the periods
indicated:
For the Three Months Ended
March 31,
(unaudited)
2021 2020 Amount Change % Change
Revenues $ 343,560,365 $ 188,738,433 $ 154,821,932 82.0 %
Cost of sales 291,036,761 163,745,683 127,291,078 77.7 % Selling, general and administrative expense
28,148,956 17,518,785 10,630,171 60.7 % Income from equity in earnings of unconsolidated entities
(1,732,393 ) (1,359,388 ) (373,005 ) 27.4 % Gain on sale of assets
(65,517 ) (34,095 ) (31,422 ) 92.2 % Loss on extinguishment of debt
697,423 - 697,423 100.0 % Other Income (482,219 ) (134,061 ) (348,159 ) 259.7 % Other expense 2,903,048 1,195,311 1,707,738 142.9 % Interest expense 641,861 35,705 606,156 1697.7 % Income before taxes $
22,412,445
4,816,482 - 4,816,482 100.0 %
Net and comprehensive income $
17,595,963
Net and comprehensive income attributable to non-controlling interests (1,475,318 ) (1,190,459 ) (284,859 ) 23.9 % Net and comprehensive income attributable to Dream Finders Homes, Inc. 16,120,645 6,580,034 9,540,611 145.0 % Earnings per share(6) Basic$ 0.18 $ - $ 0.18 100.0 % Diluted$ 0.18 $ - $ 0.18 100.0 % Weighted-average number of shares Basic 92,521,482 - 92,521,482 100.0 % Diluted 92,596,960 - 92,596,960 100.0 % Consolidated Balance Sheets Data (at period end): Cash and cash equivalents $
42,303,231
$
866,722,489
$
323,880,300
$
305,987
$
6,515,415
$
-
$
-
$ 322,953 $ -$ 322,953 100.0 % Common stock - Class B$ 602,262 $ -$ 602,262 100.0 % Additional paid-in capital$ 253,837,981 $ -$ 253,837,981 100.0 % Retained earnings$ 17,224,902 $ -$ 17,224,902 100.0 % Non-controlling interests $
21,696,487
Other Financial and Operating Data Active communities at end of period(1) 120 83 37 44.6 % Home closings 1,002 515 487 94.6 % Average sales price of homes closed(7) $
335,986
2,010 848 1,162 137.0 %
Cancellation rate 8.1 % 11.8 % -3.7 % -31.4 %
Backlog (at period end) - homes 3,612 1,155 2,457 212.7 %
Backlog (at period end, in thousands) - value $
1,356,436
$
51,130,202
14.9 % 12.8 % 2.1 % 16.6 %
Net profit margin 4.7 % 3.5 % 1.2 % 34.6 %
Adjusted gross margin(2) $
75,854,588
22.2 % 20.8 % 1.4 % 6.6 %
EBITDA(3) $ 32,333,020 $ 19,054,453 $ 13,278,566 69.7 %
EBITDA margin %(3) 9.4 % 7.5 % 1.9 % 25.5 %
(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.
(3) Calculated as a percentage of home sales revenue.
(4) Adjusted gross margin and EBITDA are non-GAAP financial measures. For
definitions of adjusted gross margin and EBITDA and a reconciliation to our
most directly comparable financial measures calculated and presented in
accordance with GAAP, see "-Non-GAAP Financial Measures."
(5) Calculated as a percentage of revenues.
(6) For the first quarter of 2021, the Company calculated earnings per share
("EPS") based on net income attributable to common stockholders for the
period
diluted shares outstanding for the same period. EPS was calculated
prospectively for the period subsequent to the IPO 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 IPO. 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. As
of
92,596,960.
(7) Average selling price of homes closed is calculated based on home sales
revenue, excluding the impact of deposit forfeitures and percentage of
completion revenues, over homes closed.
28-------------------------------------------------------------------------------- Table of Contents Revenues. Revenues for the three months endedMarch 31, 2021 were$343.6 million , an increase of$154.8 million , or 82.0%, from$188.7 million for the three months endedMarch 31, 2020 . The increase in revenues was primarily attributable to an increase in home closings of 487 homes, or 94.6%, during the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . The increase in home closings was attributable to a 44.6% increase in active communities to 120 atMarch 31, 2021 from 83 atMarch 31, 2020 and an increase in the average monthly sales per community. The average monthly sales per community for the three months endedMarch 31, 2021 were 5.3, an increase of 1.8, or 52.9%, from 3.4 average monthly sales per community during the three months endedMarch 31, 2020 . In addition, ourOctober 2020 acquisition of the homebuilding business ofH&H Constructors ofFayetteville, LLC ("H&H Homes "), aNorth Carolina limited liability company, contributed 343 home closings and$98.5 million in homebuilding revenues for the three months endedMarch 31, 2021 . The average sales price of homes closed for the three months endedMarch 31, 2021 was$335,986 , a decreased of$26,604 or 7.3%, over an average sales price of homes closed$362,591 for the three months endedMarch 31, 2020 , due to the lower average selling price within theH&H Homes segment. Cost of Sales and Gross Margin. Cost of sales for the three months endedMarch 31, 2021 was$291.0 million , an increase of$127.3 million , or 77.7%, from$163.7 million for the three months endedMarch 31, 2020 . The increase in the cost of sales is primarily due to the increase in home closings for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . Gross margin for the three months endedMarch 31, 2021 was$51.1 million , an increase of$27.1 million , or 112.8%, from$24.0 million for the three months endedMarch 31, 2020 . Gross margin as a percentage of home sales revenue was 14.9% for the three months endedMarch 31, 2021 , an increase of 210 basis points, or 16.6%, from 12.8% for the three months endedMarch 31, 2020 . The increase in gross margin percentage is attributable to price increases on comparable homes closed during the current period and lower cost of funds on our construction financing. Adjusted Gross Margin. Adjusted gross margin for the three months endedMarch 31, 2021 was$75.9 million , an increase of$36.9 million , or 94.5%, from$39.0 million for the three months endedMarch 31, 2020 . Adjusted gross margin as a percentage of home sales revenue for the three months endedMarch 31, 2021 was 22.2%, an increase of 140 basis points, or 6.6%, as compared to 20.8% for the three months endedMarch 31, 2020 . The increases in adjusted gross margin and adjusted gross margin percentage were driven by average sales price increases in excess of cost of sales increases. 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. Selling, general and administrative expense for the three months endedMarch 31, 2021 was$28.1 million , an increase of$10.6 million , or 60.7%, from$17.5 million for the three months endedMarch 31, 2020 . The increase in selling, general and administrative expense was primarily due to the inclusion of$7.4 million in expenses for the operations ofH&H Homes for the first quarter of 2021, and$1.2 million in expenses related to the operations ofCentury Homes . Also contributing to the increase in selling, general and administrative expenses was$1.2 million in expense related to the remeasurement of the contingent consideration liability. 29 -------------------------------------------------------------------------------- Table of Contents Income from Equity in Earnings of Unconsolidated Entities. Income from equity in earnings of unconsolidated entities for the three months endedMarch 31, 2021 was$1.7 million , an increase of$0.3 million , or 27.4%, as compared to$1.4 million for the three months endedMarch 31, 2020 . The increase in income from equity in earnings of unconsolidated entities was largely attributable to an increase in the average loan balance funded by Jet Home Loans for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . Other Expense. Other expense for the three months endedMarch 31, 2021 was$2.9 million , an increase of$1.7 million , or 142.9%, as compared to$1.2 million for the three months endedMarch 31, 2020 . The increase in other expenses is primarily attributable to the acceleration of stock compensation expense as a result of the Corporate Reorganization. Net and Comprehensive Income. Net and comprehensive income for the three months endedMarch 31, 2021 was$17.6 million , an increase of$9.8 million , or 126.4%, from$7.8 million for the three months endedMarch 31, 2020 . The increase in net and comprehensive income was primarily attributable to an increase in gross margin on homes closed of$27.1 million , or 112.8%, for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . Net and Comprehensive Income Attributable toDream Finders Homes, Inc. Net and comprehensive income attributable to Dream Finders for the three months endedMarch 31, 2021 was$16.1 million , an increase of$9.5 million , or 145.0%, from$6.6 million for the three months endedMarch 31, 2020 . The increase was primarily attributable to a significant increase in home closings and gross margin. The change in net and comprehensive income attributable toDream Finders Homes, Inc. is reduced by$4.8 million in income tax expense (utilizing an effective tax rate of 23%) for the three months endedMarch 31, 2021 , which was not applicable toDFH LLC . Backlog. Backlog atMarch 31, 2021 was 3,612 homes valued at approximately$1,356.4 million , an increase of 2,457 homes and$914.5 million , respectively, or 212.7% and 207.0%, respectively, as compared to 1,155 homes valued at approximately$441.9 million atMarch 31, 2020 . The increase in backlog was primarily attributable to an increase in active communities to 120 for the three months endedMarch 31, 2021 , an increase of 37 communities or 44.6%, as compared to 83 for the three months endedMarch 31, 2020 .
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. We define adjusted
gross margin as gross margin excluding the effects of capitalized interest,
amortization included in the cost of sales (including 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 capitalized interest, amortization
(including purchase accounting adjustments) and commission expense have on gross
margin. However, because adjusted gross margin information excludes capitalized
interest, amortization (including 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. We include commission
expense in 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, we have excluded commission expense from adjusted
gross margin. 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.
30
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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).
For the Three Months Ended
March 31,
As a % of Home As a % of Home
2021 Sales Revenue 2020 Sales Revenue .
Revenues $ 343,560 $ 188,738
Other revenue 1,393 965
Home sales revenue 342,167 187,773
Cost of sales 291,037 85.1 % 163,746 87.2 %
Gross Margin(1) 51,130 14.9 % 24,027 12.8 %
Interest expense in cost of sales 8,276 2.4 % 5,992 3.2 %
Amortization in cost of sales(3) 1,175 0.3 % 593 0.3 %
Commission expense 15,274 4.5 % 8,392 4.5 %
Adjusted gross margin 75,855 22.2 % 39,004 20.8 %
Gross margin %(2) 14.9 % 12.8 %
Adjusted gross margin %(2) 22.2 % 20.8 %
(1) Gross margin is home sales revenue less cost of sales.
(2) Calculated as a percentage of home sales revenues.
(3) Includes purchase accounting adjustment, as applicable.
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 condensed 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 cost of sales, (iii) interest expense, (iv) income tax
expense and (v) depreciation and amortization. We define adjusted EBITDA as
EBITDA before stock-based compensation expense.
Management believes EBITDA and adjusted EBITDA are useful because they allow
management to more effectively evaluate our operating performance and compare
our results of operations from period to period without regard to our financing
methods or capital structure or other items that impact comparability of
financial results from period to period. EBITDA and adjusted EBITDA should not
be considered as alternatives to, or more meaningful than, net income or any
other measure as determined in accordance with GAAP. Our computations of EBITDA
and adjusted EBITDA may not be comparable to EBITDA or adjusted EBITDA of other
companies. We present EBITDA and adjusted EBITDA because we believe they provide
useful information regarding the factors and trends affecting our business.
31
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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).
For the Three Months Ended
March 31,
2021 2020
Net income $ 16,121 $ 6,580
Interest income (4 ) (32 )
Interest expensed in cost of sales 8,276 5,992
Interest expense 642 36
Income tax expense 4,816 -
Depreciation and amortization 2,478 1,547
EBITDA $ 32,329 $ 14,123
Stock-based compensation expense 2,349 224
Adjusted EBITDA $ 34,678 $ 14,347
EBITDA margin %(1) 9.4 % 7.5 %
Adjusted EBITDA margin %(1) 10.1 % 7.6 %
(1) Calculated as a percentage of revenues.
Backlog, Sales and Closings
A new order (or 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, typically approximately 1-3% of the purchase price of the home. These deposits are typically not refundable, but each customer situation is evaluated individually. Net new orders are new orders or sales (gross) for the purchase of homes during the period, less cancellations of existing purchase contracts during the period. Our cancellation rate for a given period is calculated as the total number of new (gross) sales purchase contracts canceled during the period divided by the total number of new (gross) sales contracts entered into during the period. Our cancellation rate for the three months endedMarch 31, 2021 was 8.1% a decrease of 370 basis points when compared to the 11.8% cancellation rate for the three months endedMarch 31, 2020 . The following table presents information concerning our new home sales, starts and closings in each of our markets for the three months endedMarch 31, 2021 and 2020. For the Three Months Ended March 31, Period Over Period 2021(1) 2020 Percent Change Market Sales Starts Closings
Sales Starts Closings Sales Starts Closings
The Carolinas (
413 343 - - - - - -
Jacksonville 560 407 295 401 257 257 40 % 58 % 15 %
Orlando 281 173 161 127 97 26 121 % 78 % 519 %
Colorado 139 74 34 94 73 47 48 % 1 % -28 %
DC Metro 52 32 24 67 48 51 -22 % -33 % -53 %
Other(2) 331 289 145 159 166 134 108 % 74 % 8 %
Grand Total 2,010 1,388 1,002 848 641 515 137 % 117 % 95 %
(1) Includes sales, starts and closings for
date of
(2)
32
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Our "backlog" consists of homes under a purchase contract that are signed by
homebuyers who have met the preliminary criteria to obtain mortgage financing
but such home sales to end buyers have not yet closed. 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. 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 six months, although we may experience
cancellations of purchase contracts at any time prior to such home closings. It
is important to note that net new orders, backlog and cancellation metrics are
operational, rather than accounting, data and should be used only as a general
gauge to evaluate performance. 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.
The following table presents information concerning our new orders, cancellation
rate and ending backlog for the periods (and at the end of the period) set forth
below.
For the Three Months
Ended
March 31,
2021 2020
Net New Orders 2,010 848
Cancellation Rate 8.1 % 11.8 %
For the Three Months
Ended
March 31,
2021 2020
Ending Backlog - Homes 3,612 1,155
Ending Backlog - Value (in thousands)
Land Acquisition Strategy and Development Process
We operate an asset-light and capital efficient lot acquisition strategy and, in contrast to many other homebuilders, 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 strategy is intended to avoid the financial commitments and risks associated with direct land ownership and land development by allowing us to control a significant number of lots for a relatively low capital cost. 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 market prices, by paying deposits based on the aggregate purchase price of the finished lots (typically 10% or less in the case of finished lot option contracts and 15% or less in the case of land bank option contracts) and, in the case of land bank option contracts, any related fees paid to the land bank partner. As ofMarch 31, 2021 , our lot deposits and investments in finished lot option and land bank contracts were$92.1 million , of which$3.6 million was refundable at our option. As ofMarch 31, 2021 , we controlled 22,591 lots under lot option and land bank option contracts. 33 -------------------------------------------------------------------------------- Table of Contents Owned and Controlled Lots
The following table presents our owned or controlled lots by market and active
adult and custom home divisions as of
As of As of
March 31, December 31,
2021 2020 % Change of
Division Owned Controlled Total Owned Controlled Total Total
The Carolinas (H&H Homes) 1,281 4,395 5,676 1,348 4,107 5,455 4.1 %
Jacksonville 971 5,810 6,781 715 4,445 5,160 31.4 %
Orlando 585 2,735 3,320 256 2,504 2,760 20.3 %
Colorado 174 4,856 5,030 106 4,145 4,251 18.3 %
DC Metro 65 815 880 77 566 643 36.9 %
Other(1) 771 3,980 4,751 629 3,509 4,138 14.8 %
Grand Total 3,847 22,591 26,438 3,131 19,276 22,407 18.0 %
(1) Includes owned and controlled lots for
date of
(2)
Owned Real Estate Inventory Status
The following table presents our owned real estate inventory status as ofMarch 31, 2021 and 2020. As of As ofMarch 31, 2021 December 31, 2020
Owned Real Estate Inventory Status (1) % of Owned Real Estate Inventory % of
89.8 % 88.8 %
Finished lots and land under development 10.2 % 11.2 %
Total 100 % 100 %
(1) Represents our owned homes under construction, finished lots and capitalized
costs related to land under development. Land and lots from consolidated
joint ventures are excluded.
Our Active Communities
We define an active community as a community where we have recorded five net new orders or a model home is currently open to customers. A community is no longer active when we have less than five home sites to sell to customers. Active community count is an important metric to forecast future net new orders for our business. As ofMarch 31, 2021 , we had 120 active communities, an increase of 37 communities, or 44.6%, when compared to our 83 active communities atMarch 31, 2020 . Our Mortgage Banking Business For the three months endedMarch 31, 2021 , our mortgage banking joint venture,Jet LLC , originated and funded 417 home loans with an aggregate principal amount of approximately$146.3 million as compared to 430 home loans with an aggregate principal amount of approximately$122.7 million for the three months endedMarch 31, 2020 . For the three months endedMarch 31, 2021 and 2020, respectively,Jet LLC had net income of approximately$3.5 million and$2.8 million . Our interest inJet LLC is accounted for under the equity investment method and is not consolidated in our condensed consolidated financial statements, as we do not control, and are not deemed the primary beneficiary of, the variable interest entities ("VIE"). See "Note 9. Variable Interest Entities and Investments in Other Entities" to our condensed consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 for a description of our joint ventures, including those that were determined to be VIEs, and the related accounting treatment. 34 -------------------------------------------------------------------------------- Table of Contents Costs ofBuilding Materials and Labor Our cost of sales includes the acquisition and finance costs of home sites or lots, municipality fees, the costs associated with obtaining building permits, materials and labor to construct the home, interest rates for construction loans, internal and external realtor commissions and other miscellaneous closing costs. Home site costs range from 20-25% of the average cost of a home. Building materials range from 40-50% of the average cost to build the home, labor ranges from 30-40% of the average cost to build the home and interest, commissions and closing costs range from 4-10% of the average cost to build the home. In general, the cost of building materials fluctuates with overall trends in the underlying prices of raw materials. The cost of certain of our building materials, such as lumber and oil-based products, fluctuates with market-based pricing curves. We often obtain volume discounts and/or rebates with certain suppliers of our building materials, which in turn reduces our cost of sales. However, increases in the cost of building materials may reduce gross margin to the extent that market conditions prevent the recovery of increased costs through higher home sales prices. The price changes that most significantly influence our operations are price increases in commodities, including lumber. Significant price increases of these materials may negatively impact our cost of sales and, in turn, our net income. For example, in the last 18 months, the cost of lumber has steadily increased due to supply-chain disruptions caused by the closing of lumber mills in response to the COVID-19 pandemic. The recent increases in lumber commodity prices may result in the renewal of our lumber contracts at more expensive rates, which may significantly impact the cost to construct our homes and our business. If the current lumber shortage, and related pricing impacts, continue, our cost of sales and, in turn, our net income could be negatively impacted.
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. As a result, our revenue may fluctuate on a quarterly basis and we may have higher capital requirements in our second, third and fourth quarters in order to maintain our inventory levels. As a result of seasonal activity, our quarterly results of operations and financial position at the end of a particular quarter, especially our first quarter, are not necessarily representative of the results we expect at year end. We expect this seasonal pattern to continue in the long term.
Liquidity and Capital Resources
Overview
As ofMarch 31, 2021 , we had$42.3 million in cash and cash equivalents (excluding$49.4 million of restricted cash), an increase of$6.8 million , or 19.2%, from$35.5 million as ofDecember 31, 2020 . 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. We believe that our sources of liquidity are sufficient to satisfy our current commitments. 35 -------------------------------------------------------------------------------- Table of Contents Immediately following the closing of our IPO, we replaced all of our secured vertical construction lines of credit facilities with our credit agreement (the "Credit Agreement") with a syndicate of lenders andBank of America, N.A , as administrative agent, providing for a senior unsecured revolving credit facility which has an initial aggregate commitment of up to$450.0 million and an accordion feature that allows the facility to expand to a borrowing base of up to$750.0 million (our "Credit Facility"). We believe that the consolidation of our indebtedness into a single credit facility will reduce our financing costs, create operating efficiencies and enhance returns.
Our principal uses of capital are lot deposits and purchases, vertical home
construction, operating expenses and the payment of routine liabilities. During
the three months ended
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. 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. 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. 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 earnings. 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 of typically 10% or less of the aggregate purchase price of the finished lots. When entering into these contracts, we also agree to purchase finished lots at pre-determined time frames and quantities that match our expected selling pace in the community. For the three months endedMarch 31, 2021 , the majority of these future lot purchases were financed by the Credit Agreement. From time to time, we also enter into land development arrangements with land sellers, land developers and land bankers. We typically provide a lot deposit of 10% or less, or 15% or less in the case of land bank option contracts, of the total investment required to develop lots that we will have the option to acquire in the future. In these transactions, we also incur lot option fees that have historically been 15% or less of the outstanding capital balance held by the land banker. The initial investment and lot option fees require our ability to allocate liquidity resources to projects that will be not materialize into cash inflows or operating income in the near term. The above cash strategies are designed to allow us to maintain adequate lot supply in our existing markets and support ongoing growth and profitability. As we continue to operate in a low interest rate environment, with consistent increase in the demand for new homes and constrained lot supply compared to population and job growth trends, we intend to continue to re-invest our earnings into our business and focus on expanding our operations. In addition, as the opportunity to purchase finished lots in desired locations becomes increasingly more limited and competitive, we are committed to allocating additional liquidity to land-bank deposits on land development projects, as this strategy mitigates the risks associated with holding undeveloped land on our balance sheet, while allowing us to control adequate lot supply in our key markets to support forecasted growth. As ofMarch 31, 2021 , our lot deposits and investments related to finished lot option contracts and land bank option contracts were$92.1 million , including$3.6 million of refundable lot deposits. For the three months endedMarch 31, 2021 , we closed 1,002 homes, acquired 1,444 lots and started construction on 1,388 homes. 36 -------------------------------------------------------------------------------- Table of Contents Cash Flows
The following table summarizes our cash flows for the periods indicated:
For the Three Months Ended
March 31,
2021 2020
Net cash provided by (used in) operating activities $ (47,481,723 ) $ (21,305,692 )
Net cash provided by (used in) investing activities (22,915,714 ) (1,123,974 )
Net cash provided by (used in) financing activities 76,922,404 (15,318,649 )
Net cash used in operating activities was $47.5 million for the three months
ended March 31, 2021 , an increase of $26.2 million , as compared to $21.3 million
of net cash used in operating activities for the three months ended March 31,
2020 . The increase in net cash used in operating activities was driven by an
increase of $36.7 million in inventories and an increase in lot deposits of
$25.0 million as the Company deploys its available cash from the Credit
Agreement into future growth, partially offset by higher deposits of $13.1
million received from customers and the increase in net income generated on home
closings.
Net cash used in investing activities was $22.9 million for the three months
ended March 31, 2021 , an increase of $21.8 million , as compared to $1.1 million
of cash used in investing activities for the three months ended March 31, 2020 .
The increase in net cash used in investing activities was primarily attributable
to the acquisition of Century Homes during the first quarter of 2021.
Net cash provided by financing activities was $76.9 million for the three months
ended March 31, 2021 , an increase of $92.2 million , as compared to $15.3 million
of cash used in financing activities for the three months ended March 31, 2020 .
The increase in net cash used in financing activities was primarily attributable
to the Corporate Reorganization, which was partially offset by the redemption of
the Series C preferred units of DFH LLC of $26.2 million , and payments to
terminate the Company's historical vertical construction lines of credit and
notes payable, including the $20.0 million bridge loan utilized in funding the
H&H Acquisition, in connection with the new unsecured Credit Agreement.
Credit Facilities and Financial Guarantees
As ofMarch 31, 2021 , under our Credit Facility we had a maximum availability of$442.5 million and an outstanding balance of$320.0 million . As ofDecember 31, 2020 , we had 34 vertical construction lines of credit facilities with a cumulative maximum availability of$763.0 million and an aggregate outstanding balance of$289.9 million . Historically, our vertical construction lines of credit facilities were fully collateralized by finished lots and homes under construction and were personally guaranteed byPatrick Zalupski , our founder, President, Chief Executive Officer and Chairman of our Board of Directors.
Series C Preferred Units
OnJanuary 27, 2021 , we redeemed all 26,000 outstanding Series C preferred units ofDFH LLC at a redemption price of$26.0 million , plus accrued distributions and fees of$0.2 million . 37 -------------------------------------------------------------------------------- Table of Contents Off-Balance Sheet Arrangements
Asset-Light Lot Acquisition Strategy
We operate an asset-light and capital efficient lot acquisition strategy and generally seek to avoid engaging in land development. 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 market prices from various land sellers and land bank partners, by paying deposits based on the aggregate purchase price of the finished lots. The deposits required are typically 10% or less in the case of finished lot option contracts and 15% or less in the case of land bank option contracts. Our asset-light and capital efficient lot acquisition strategy is intended to avoid the financial commitments and risks associated with direct land ownership and land development by allowing us to control a significant number of lots for a relatively low capital cost. These option contracts generally allow us, at our option, 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 fees paid to the land bank partner. We do not have any financial guarantees or completion obligations, and we do not guarantee lot purchases on a specific performance basis under these agreements. As ofMarch 31, 2021 , we owned and controlled 26,438 lots through finished lot option contracts and land bank option contracts. Our entire risk of loss pertaining to the aggregate purchase price of contractual commitments resulting from our non-performance under our finished lot option contracts and land bank option contracts is limited to approximately$92.1 million in deposits and investments made as ofMarch 31 , 2021-$91.7 million of lot deposits, including$3.6 million of refundable lot deposits pertaining to deals that are still in the due diligence inspection period.
Surety Bonds and Letters of Credit
We enter into letter of credit and surety bond 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. AtMarch 31, 2021 , we had outstanding letters of credit and surety bonds totaling$2.1 million and$31.9 million , respectively. We believe we will fulfill our obligations under the related arrangements and do not anticipate any material losses under these letters of credit or surety bonds.
Contractual Obligations
As ofMarch 31, 2021 , there have been no material changes to our contractual obligations appearing in the "Contractual Obligations, Commitments and Contingencies" section of Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 .
Critical Accounting Policies
We prepare our condensed consolidated financial statements in accordance with
GAAP. Our critical accounting policies are those that we believe have the most
significant impact to the presentation of our financial position and results of
operations and that require the most difficult, subjective or complex judgments.
In many cases, the accounting treatment of a transaction is specifically
dictated by GAAP without the need for the application of judgment.
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In certain circumstances, however, the preparation of condensed 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 condensed consolidated financial statements, as well as the reported
amounts of revenues and expenses during the reporting period.
We believe that there have been no significant changes to our critical
accounting policies during the three months ended March 31, 2021 as compared to
those disclosed in Management's Discussion and Analysis of Financial Condition
and Results of Operations included in our Annual Report on Form 10-K for the
fiscal year ended December 31, 2020 .
Cautionary Statement about Forward-Looking Statements
The information in this Quarterly Report on Form 10-Q includes "forward-looking statements." Many statements included in this Quarterly Report on Form 10-Q are not statements of historical fact, including statements concerning our expectations, beliefs, plans, objectives, goals, strategies, future events or performance and underlying assumptions. These statements are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those expressed or implied by these statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Certain, but not necessarily all, of such forward-looking statements can be identified by the use of forward-looking terminology, such as "anticipate," "believe," "continue," "could," "estimate," "expect," "forecast," "goal," "intend," "may," "objective," "plan," "predict," "projection," "should" or "will" or the negative thereof or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:
• our market opportunity and the potential growth of that market;
• the expected impact of the COVID-19 pandemic;
• 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
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. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. Therefore, we cannot assure you that actual results will not differ materially from those expressed or implied by our forward-looking statements. The following factors, among others, may cause actual results to differ materially from those expressed or implied in our forward-looking statements:
• adverse effects of the COVID-19 pandemic on our business, financial conditions
and results of operations and our suppliers and trade partners;
• adverse effects of the COVID-19 pandemic and other economic changes either
nationally or in the markets in which we operate, including, among other
things, increases in unemployment, volatility of mortgage interest rates and
inflation and decreases in housing prices;
• a slowdown in the homebuilding industry or changes in population growth rates
in our markets;
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• volatility and uncertainty in the credit markets and broader financial markets;
• the cyclical and seasonal nature of our business;
• our future operating results and financial condition;
• our business operations;
• changes in our business and investment strategy;
• the success of our operations in recently opened 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;
• changes in (including as a result of the change in the
administration), 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 joint ventures, our lack of sole
decision-making authority thereof and maintenance of relationships with our
joint venture 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;
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• 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;
• our reliance on dividends, distributions and other payments from our
subsidiaries to meet our obligations;
• other risks and uncertainties inherent in our business;
• other factors we discuss under the section entitled "Management's Discussion
and Analysis of Financial Condition and Results of Operations;" and
• the risk factors set forth in our Annual Report on Form 10-K for the fiscal
year ended
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. These risks include, but are not limited to, the risks described under "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 . Should one or more of the risks or uncertainties described in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2020 occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements. All forward-looking statements, expressed or implied, included in this Quarterly Report on Form 10-Q are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. 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 Quarterly Report on Form 10-Q.
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