Dream Finders Homes(DFH) - 2025 Q2 - Quarterly Report

PART I ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS This section presents Dream Finders Homes' unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, cash flows, and comprehensive notes for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets - Total Assets increased to $3,650,054 thousand as of June 30, 2025, from $3,328,651 thousand as of December 31, 2024[9] - Inventories increased to $1,990,807 thousand as of June 30, 2025, from $1,715,357 thousand as of December 31, 2024[9] - Revolving credit facility and other borrowings increased to $1,140,353 thousand as of June 30, 2025, from $701,386 thousand as of December 31, 2024[9] Key Balance Sheet Items (in thousands): | Item | June 30, 2025 | December 31, 2024 | Change | | :--------------------------------- | :-------------- | :---------------- | :----- | | Cash and cash equivalents | $210,320 | $274,384 | $(64,064) | | Inventories | $1,990,807 | $1,715,357 | $275,450 | | Lot deposits | $531,193 | $458,303 | $72,890 | | Mortgage loans held for sale | $152,261 | $303,393 | $(151,132) | | Goodwill | $377,772 | $300,313 | $77,459 | | Total assets | $3,650,054 | $3,328,651 | $321,403 | | Revolving credit facility and other borrowings | $1,140,353 | $701,386 | $438,967 | | Mortgage warehouse facilities | $144,287 | $289,617 | $(145,330) | | Total liabilities | $2,136,329 | $1,908,291 | $228,038 | | Total equity | $1,335,686 | $1,250,409 | $85,277 | Condensed Consolidated Statements of Operations - Total Revenues increased to $1,150,505 thousand for Q2 2025 (from $1,055,747 thousand in Q2 2024) and $2,140,376 thousand for H1 2025 (from $1,883,547 thousand in H1 2024)[12] - Net Income Attributable to Dream Finders Homes, Inc. decreased to $56,580 thousand for Q2 2025 (from $80,943 thousand in Q2 2024) and $111,483 thousand for H1 2025 (from $135,437 thousand in H1 2024)[12] - Diluted EPS decreased to $0.56 for Q2 2025 (from $0.81 in Q2 2024) and $1.10 for H1 2025 (from $1.35 in H1 2024)[12] Key Operating Results (in thousands, except per share amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Homebuilding Revenues | $1,099,580 | $1,052,236 | $2,069,688 | $1,877,457 | | Financial Services Revenues | $50,925 | $3,511 | $70,688 | $6,090 | | Total Revenues | $1,150,505 | $1,055,747 | $2,140,376 | $1,883,547 | | Homebuilding Cost of Sales | $917,871 | $852,837 | $1,701,407 | $1,531,477 | | Financial Services Expense | $40,058 | $2,072 | $52,924 | $3,756 | | Selling, General and Administrative Expense | $134,699 | $96,854 | $251,393 | $176,963 | | Income before taxes | $74,064 | $106,008 | $145,229 | $176,832 | | Net income attributable to Dream Finders Homes, Inc. | $56,580 | $80,943 | $111,483 | $135,437 | | Basic EPS | $0.57 | $0.83 | $1.12 | $1.38 | | Diluted EPS | $0.56 | $0.81 | $1.10 | $1.35 | Condensed Consolidated Statements of Equity - Total Equity increased to $1,335,686 thousand as of June 30, 2025, from $1,250,409 thousand as of December 31, 2024[15][18] - Retained Earnings increased to $1,074,986 thousand as of June 30, 2025, from $970,253 thousand as of December 31, 2024[15][18] - Treasury Stock increased to $(30,847) thousand as of June 30, 2025, from $(7,827) thousand as of December 31, 2024, reflecting share repurchases[15][18] - Stock-based compensation was $14,760 thousand for the six months ended June 30, 2025, up from $8,525 thousand for the same period in 2024[18][24] - Repurchases of common stock totaled $23,020 thousand for the six months ended June 30, 2025, up from $1,846 thousand for the same period in 2024[18][24] Condensed Consolidated Statements of Cash Flows - Net cash used in operating activities decreased to $(113,199) thousand for H1 2025, from $(358,128) thousand for H1 2024, primarily due to a decrease in mortgage loans held for sale and lower inventory increases[27][202] - Net cash used in investing activities increased slightly to $(197,255) thousand for H1 2025, from $(189,710) thousand for H1 2024, mainly due to higher property and equipment purchases[27][203] - Net cash provided by financing activities decreased to $229,032 thousand for H1 2025, from $296,013 thousand for H1 2024, primarily due to net repayments of mortgage warehouse facilities[27][204] Cash Flow Summary (in thousands): | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------- | :------------------------------- | :------------------------------- | | Net income | $111,549 | $138,446 | | Net cash used in operating activities | $(113,199) | $(358,128) | | Net cash used in investing activities | $(197,255) | $(189,710) | | Net cash provided by financing activities | $229,032 | $296,013 | | Net decrease in cash, cash equivalents and restricted cash | $(81,422) | $(251,825) | | Cash, cash equivalents and restricted cash at end of period | $258,403 | $296,631 | Notes to the Condensed Consolidated Financial Statements 1. Nature of Business and Significant Accounting Policies - Dream Finders Homes, Inc. designs, builds, and sells homes across three regional segments (Southeast, Mid-Atlantic, Midwest) and operates a Financial Services segment offering mortgage banking, title insurance, and homeowners insurance[34] - On April 18, 2025, the Company acquired Alliant Title, a title insurance underwriter, expanding its Financial Services segment[37] - The Company is evaluating ASU 2024-03 (Expense Disaggregation Disclosures, effective FY2027/Q1 2028) and does not expect ASU 2023-09 (Income Tax Disclosures, effective FY2025) to have a material effect[47][48] 2. Acquisitions - Alliant Title Acquisition (April 18, 2025): Acquired for $40.2 million to expand financial services, resulting in $24.3 million goodwill assigned to the Financial Services segment[49][50] - Green River Builders Acquisition (May 2, 2025): Acquired an Atlanta-based homebuilder for $32.8 million, resulting in $7.6 million goodwill assigned to the Southeast segment[51] - Liberty Communities Acquisition (January 23, 2025): Acquired for $112.7 million cash, plus a redeemable noncontrolling interest, to enter the Atlanta market and expand in Greenville, SC, resulting in $45.6 million goodwill[52][54][56] - Jet HomeLoans Acquisition (July 1, 2024): Acquired the remaining 40% equity interest for $9.3 million, consolidating it into financial statements[61] - Crescent Homes Acquisition (February 1, 2024): Acquired for $210.4 million cash, plus a redeemable noncontrolling interest, expanding into Charleston, Greenville (SC), and Nashville (TN), resulting in $128.1 million goodwill[62][64][67] - Pro Forma Revenues (H1 2025): Total revenues would have been $2,188,471 thousand if acquisitions occurred on Jan 1, 2024, compared to reported $2,140,376 thousand[57] 3. Debt - Senior Unsecured Notes (2028 Notes): $300.0 million aggregate principal at 8.25% due August 15, 2028. Unamortized debt issuance costs were $4.3 million as of June 30, 2025[69][70] - Revolving Credit Facility (Credit Agreement): Aggregate commitments increased to $1.4 billion (extendable to $2.0 billion) with maturity extended to June 4, 2027. Outstanding balance was $1.1 billion as of June 30, 2025, up from $700.0 million as of December 31, 2024[73][75] - Mortgage Warehouse Facilities: Total outstanding balance decreased to $144,287 thousand as of June 30, 2025, from $289,617 thousand as of December 31, 2024[78] - Debt Covenants: The Company was in compliance with all debt covenants for the 2028 Notes, Credit Agreement, and mortgage warehouse facilities as of June 30, 2025 and December 31, 2024, and expects to remain compliant[78] 4. Inventories - Total Inventories increased to $1,990,807 thousand as of June 30, 2025, from $1,715,357 thousand as of December 31, 2024[80] - Construction in process and finished homes increased to $1,684,263 thousand as of June 30, 2025, from $1,487,478 thousand as of December 31, 2024[80] - Capitalized Interest: Ending balance was $43,634 thousand as of June 30, 2025, up from $36,598 thousand as of June 30, 2024. Interest incurred for H1 2025 was $55,478 thousand, up from $47,176 thousand for H1 2024[80] - Impairment Charges: Recorded $1.6 million of impairments for lot deposits for the six months ended June 30, 2025, compared to $0.2 million for the same period in 2024. No inventory impairment charges were recorded[80] 5. Commitments and Contingencies - Legal Proceedings: The Company is involved in legal matters, including a breach of contract claim related to the Crescent Homes acquisition, with a mediation date set for October 2025. The Company does not anticipate a material adverse effect on financial statements[81][82] - Surety Bonds: Outstanding surety bonds increased to $338.9 million as of June 30, 2025, from $297.8 million as of December 31, 2024[83] - Letters of Credit: Outstanding letters of credit increased to $25.6 million as of June 30, 2025, from $20.9 million as of December 31, 2024[83] 6. Variable Interest Entities - Investments in unconsolidated VIEs: Carrying amounts were $12.1 million as of June 30, 2025, up from $11.5 million as of December 31, 2024[85] - Lot Option Contracts: Risk of loss related to finished lot option and land bank option deposits was $650.4 million as of June 30, 2025, up from $551.9 million as of December 31, 2024[86] - Jet HomeLoans: Previously an unconsolidated VIE, it was consolidated starting July 1, 2024, after the remaining 40% interest was acquired[61][85] 7. Income Taxes - Effective Tax Rate: Increased to 23.2% for H1 2025, from 21.7% for H1 2024, primarily due to decreased tax benefits from stock-based compensation[87] - One Big Beautiful Bill Act (OBBBA): Enacted July 4, 2025, it will eliminate Section 45L tax credits for new energy-efficient homes delivered after June 30, 2026, potentially increasing future income tax expense[88] 8. Segment Reporting - Reportable Segments: The Company operates in three homebuilding segments (Southeast, Mid-Atlantic, Midwest) and a Financial Services segment[89][92] Q2 2025 Total Revenues by Segment (in thousands): | Segment | Total Revenues | | :-------------- | :------------- | | Southeast | $367,572 | | Mid-Atlantic | $274,811 | | Midwest | $457,197 | | Financial Services | $50,925 | | Total | $1,150,505 | H1 2025 Total Revenues by Segment (in thousands): | Segment | Total Revenues | | :-------------- | :------------- | | Southeast | $675,205 | | Mid-Atlantic | $512,886 | | Midwest | $881,597 | | Financial Services | $70,688 | | Total | $2,140,376 | Goodwill by Segment (June 30, 2025, in thousands): | Segment | Goodwill | | :-------------- | :------- | | Southeast | $67,169 | | Mid-Atlantic | $144,959 | | Midwest | $141,071 | | Financial Services | $24,573 | | Total | $377,772 | 9. Title Insurance - Alliant Title Regulation: Subject to state regulation, requiring statutory financial statements and compliance with capital and surplus requirements[98][99] - Statutory Capital and Surplus: Alliant Title's statutory capital and surplus was $17.7 million as of June 30, 2025, exceeding the regulatory requirement of $7.0 million[99] - Reserve for Title Claim Losses: Total reserve was $31.6 million as of June 30, 2025, with 86.8% representing incurred but not reported (IBNR) claims[100] 10. Fair Value Disclosures - Fair Value Hierarchy: The Company uses Level 1, 2, and 3 inputs for fair value measurements, including mortgage loans held for sale (Level 2), derivative assets/liabilities (Level 3), AFS debt securities (Level 2), senior unsecured notes (Level 2), and contingent consideration (Level 3)[101][107] - Mortgage Loans Held for Sale: Fair value of $152,261 thousand as of June 30, 2025. Total notional amount of IRLCs was approximately $104.0 million with a weighted average interest rate of 5.6%[102][107] - Contingent Consideration: Ending balance was $13,891 thousand as of June 30, 2025, significantly down from $68,030 thousand as of December 31, 2024. Fair value adjustments related to the MHI acquisition resulted in income of $11.6 million for H1 2025[107] - AFS Debt Securities: Total fair value of $30,613 thousand as of June 30, 2025, with amortized cost of $30,067 thousand[107] 11. Related Party Transactions - DF Capital Funds: The Company holds a 49.0% interest in DF Capital Management, LLC, which organizes real estate investment funds for land acquisition and development[110] - Lot Deposits with Fund II: Outstanding lot deposits related to DF Residential II, LP were $20.9 million as of June 30, 2025, controlling 2,371 lots[111] - Lot Deposits with Fund III: Outstanding lot deposits related to DF Residential III, LP were $47.1 million as of June 30, 2025, controlling 3,540 lots[112] 12. Equity - Share Buyback Program: Board approved an increase in the buyback limit to $50.0 million during Q2 2025. Approximately $19.2 million remained available as of June 30, 2025[113][115] - Shares Repurchased (H1 2025): Repurchased 989,968 shares of Class A common stock for $23.0 million[115] 13. Earnings Per Share - Diluted EPS (H1 2025): $1.10, based on 101,635,185 weighted-average diluted shares[116] - Net Income Available to Common Stockholders (H1 2025): $104,733 thousand, after deducting $6,750 thousand in preferred dividends[116] - Antidilutive Shares: 0.9 million common stock equivalent shares were excluded from diluted EPS calculation for H1 2025[116] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS Management discusses Dream Finders Homes' financial condition and operational results for H1 2025, highlighting revenue growth, margin pressures, and strategic acquisitions Business Overview and Outlook - Core Business: Designs, builds, and sells single-family homes across various markets (entry-level, move-up, active adult, built-for-rent) using an asset-light lot acquisition strategy[118] - Financial Services: Offers mortgage banking, title insurance (agency and underwriting), and homeowners insurance[118] - Macroeconomic Outlook: Persistent macroeconomic uncertainty due to home affordability challenges and high mortgage interest rates, leading to subdued market conditions expected to continue through year-end 2025, despite sustained housing demand[119] Recent Developments - Phoenix, Arizona Expansion: Sold 7 homes and closed 4 homes in the Phoenix, Arizona division during Q2 2025, expanding presence within the Midwest segment[120] Results of Consolidated Operations - Income Before Taxes (Q2 2025): $74,064 thousand, down from $106,008 thousand in Q2 2024[121] - Net Income Attributable to Dream Finders Homes, Inc. (Q2 2025): $56,580 thousand, down from $80,943 thousand in Q2 2024[121] - Diluted EPS (Q2 2025): $0.56, down from $0.81 in Q2 2024[121] - EBITDA (H1 2025): $250,290 thousand, down from $255,178 thousand in H1 2024. EBITDA margin decreased to 11.7% from 13.5%[121] - Return on Participating Equity (H1 2025): 25.0%, down from 33.5% in H1 2024[121] Consolidated Financial Highlights (in thousands, except per share amounts): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income before taxes | $74,064 | $106,008 | $145,229 | $176,832 | | Net income attributable to DFH | $56,580 | $80,943 | $111,483 | $135,437 | | Basic EPS | $0.57 | $0.83 | $1.12 | $1.38 | | Diluted EPS | $0.56 | $0.81 | $1.10 | $1.35 | | EBITDA | $133,745 | $149,584 | $250,290 | $255,178 | | EBITDA margin % | 11.6% | 14.2% | 11.7% | 13.5% | Results of Homebuilding Operations Q2 2025 Homebuilding Performance - Homebuilding Revenues: Increased 4% to $1,099,580 thousand, driven by a 10% increase in home closings (2,232 homes), partially offset by a 7% decrease in Average Sales Price (ASP) to $481,027[125][129] - Homebuilding Gross Margin %: Decreased to 16.5% from 19.0%, primarily due to lower ASP from increased sales incentives and product mix changes, along with higher land and financing costs[125][130] - Selling, General and Administrative Expense (SG&A): Increased 39% to $133,853 thousand, or 12.2% of revenues (up from 9.2%), mainly due to a $25 million increase in forward mortgage commitment programs and higher compensation/marketing costs from growth and acquisitions[125][135] - Contingent Consideration Revaluation: Shifted to income of $12,962 thousand from an expense of $4,046 thousand, due to lower actual results and revised forecasts for the MHI acquisition[125][136] Q2 Homebuilding Key Metrics (in thousands, except units and percentages): | Metric | June 30, 2025 | June 30, 2024 | Change | % Change | | :--------------------------------- | :------------ | :------------ | :----- | :------- | | Homebuilding revenues | $1,099,580 | $1,052,236 | $47,344 | 4% | | Home closings | 2,232 | 2,031 | 201 | 10% | | Average sales price of homes closed | $481,027 | $514,833 | $(33,806) | (7)% | | Net sales | 1,938 | 1,712 | 226 | 13% | | Cancellation rate | 14.0% | 13.2% | 0.8% | 6% | | Homebuilding gross margin % | 16.5% | 19.0% | (2.4)% | (13)% | | SG&A expense | $133,853 | $96,557 | $37,296 | 39% | | Income before taxes | $61,352 | $98,881 | $(37,529) | (38)% | H1 2025 Homebuilding Performance - Homebuilding Revenues: Increased 10% to $2,069,688 thousand, driven by a 13% increase in home closings (4,157 homes), partially offset by a 3% decrease in ASP to $489,018[138][140] - Homebuilding Gross Margin %: Decreased to 17.8% from 18.4%, primarily due to higher land and financing costs and increased sales incentives, partially offset by direct cost reductions[138][141] - Selling, General and Administrative Expense (SG&A): Increased 42% to $250,149 thousand, or 12.1% of revenues (up from 9.4%), mainly due to $52 million spent on forward mortgage commitment programs and higher compensation costs from growth and acquisitions[138][146] - Contingent Consideration Revaluation: Shifted to income of $11,940 thousand from an expense of $6,951 thousand, due to lower actual results and revised forecasts for the MHI acquisition[138][147] H1 Homebuilding Key Metrics (in thousands, except units and percentages): | Metric | June 30, 2025 | June 30, 2024 | Change | % Change | | :--------------------------------- | :------------ | :------------ | :----- | :------- | | Homebuilding revenues | $2,069,688 | $1,877,457 | $192,231 | 10% | | Home closings | 4,157 | 3,686 | 471 | 13% | | Average sales price of homes closed | $489,018 | $505,926 | $(16,908) | (3)% | | Net sales | 3,970 | 3,436 | 534 | 16% | | Cancellation rate | 12.8% | 16.8% | (4.0%) | (24)% | | Homebuilding gross margin % | 17.8% | 18.4% | (0.6)% | (3)% | | SG&A expense | $250,149 | $176,423 | $73,726 | 42% | | Income before taxes | $124,134 | $162,992 | $(38,858) | (24)% | Land Acquisition and Development Process - Asset-Light Strategy: Employs finished lot option contracts and land bank option contracts, limiting risk to deposits paid[151] - Lot Deposits: Total lot deposits were $531 million as of June 30, 2025, up from $458 million as of December 31, 2024[152] - Controlled Lots: Controlled 63,180 lots as of June 30, 2025, an increase of 16% from 54,698 lots as of December 31, 2024[152][154] Controlled Lots Pipeline - Total Controlled Lots: 63,180 as of June 30, 2025, a 16% increase from 54,698 as of December 31, 2024[154] Controlled Lots by Segment (June 30, 2025): | Segment | Controlled Lots | % Change (vs Dec 31, 2024) | | :-------------- | :-------------- | :------------------------- | | Southeast | 23,869 | 12% | | Mid-Atlantic | 22,744 | 33% | | Midwest | 16,567 | 2% | - Built-for-Rent Contracts: 734 controlled lots under built-for-rent contracts as of June 30, 2025, up from 603 as of December 31, 2024[155] Our Active Communities - Active Community Count: 271 active communities as of June 30, 2025, a 22% increase from 222 as of June 30, 2024[156] - Built-for-Rent Communities: 7 communities delivering closings under built-for-rent contracts as of June 30, 2025, down from 16 as of June 30, 2024[157] Costs of Building Materials and Labor - Cost Breakdown: Homesite costs (30-35%), building materials (30-35%), labor (20-25%), and interest/commissions/closing costs (5-10%) of average home cost[158] - Price Fluctuations: Materials are subject to price fluctuations due to seasonal variation, supply chain disruptions, trade disputes, and demand changes, which can impact homebuilding cost of sales[159] Net Sales, Backlog and Closings - Net Sales (Q2 2025): 1,938 units, up 13% from 1,712 units in Q2 2024[162] - Net Sales (H1 2025): 3,970 units, up 16% from 3,436 units in H1 2024[163] - Backlog (June 30, 2025): 2,513 homes valued at $1.2 billion, a decrease of 40% in units and 43% in value from 4,205 homes valued at $2.1 billion as of June 30, 2024[165][166] - Backlog Trend: Decrease reflects a shift towards move-in ready spec homes (quicker closings) and a reduction in built-for-rent contracts[166] - Cancellation Rate (Q2 2025): 14.0%, an increase of 80 bps from 13.2% in Q2 2024[170][171] - Cancellation Rate (H1 2025): 12.8%, an improvement from 16.8% in H1 2024, partly due to a large built-for-rent contract termination in Q1 2024[170][171] Financial Services Q2 2025 Financial Services Performance - Total Financial Services Revenues: Increased to $50,925 thousand from $3,511 thousand, primarily due to the consolidation of Jet HomeLoans and the acquisition of Alliant Title[173][175][176] - Mortgage Revenues: $17,635 thousand (Q2 2025), up from $0 (Q2 2024), due to Jet HomeLoans consolidation[173][175] - Title and Other Services Revenues: $33,290 thousand (Q2 2025), up from $3,511 thousand (Q2 2024), due to Alliant Title acquisition and DF Title's expansion into Texas[173][176] - Financial Services Income Before Taxes: Increased to $12,241 thousand from $6,586 thousand[173] - Mortgage Originations (Q2 2025): 1,538 loans totaling $641 million in principal, with a capture rate of 79.7%[174] H1 2025 Financial Services Performance - Total Financial Services Revenues: Increased to $70,688 thousand from $6,090 thousand, primarily due to the consolidation of Jet HomeLoans and the acquisition of Alliant Title[173][178][179] - Mortgage Revenues: $32,543 thousand (H1 2025), up from $0 (H1 2024), due to Jet HomeLoans consolidation[173][178] - Title and Other Services Revenues: $38,145 thousand (H1 2025), up from $6,090 thousand (H1 2024), due to Alliant Title acquisition and DF Title's expansion into Texas[173][179] - Financial Services Income Before Taxes: Increased to $19,066 thousand from $11,885 thousand[173] - Mortgage Originations (H1 2025): 2,725 loans totaling $1,154 million in principal, with a capture rate of 79.3%[174] Non-GAAP Financial Measures Adjusted Homebuilding Gross Margin - Definition: Homebuilding gross margin excluding capitalized interest, lot option fees, purchase accounting amortization, and commission expense[182] - Adjusted Homebuilding Gross Margin % (Q2 2025): 25.9%, down from 27.0% in Q2 2024[184] - Adjusted Homebuilding Gross Margin % (H1 2025): 26.8%, up slightly from 26.7% in H1 2024[184] Adjusted Homebuilding Gross Margin Reconciliation (in thousands, except percentages): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Homebuilding gross margin | $181,709 | $199,399 | $368,281 | $345,980 | | Interest expense in homebuilding cost of sales | $56,197 | $41,662 | $98,002 | $72,404 | | Amortization in homebuilding cost of sales | $396 | $2,518 | $1,725 | $7,100 | | Commission expense | $46,860 | $40,992 | $87,254 | $76,300 | | Adjusted homebuilding gross margin | $285,162 | $284,571 | $555,262 | $501,784 | | Homebuilding gross margin % | 16.5% | 19.0% | 17.8% | 18.4% | | Adjusted homebuilding gross margin % | 25.9% | 27.0% | 26.8% | 26.7% | EBITDA - Definition: Net income before interest income, capitalized interest charged in homebuilding cost of sales, interest expense, income tax expense, and depreciation and amortization[186] - EBITDA (Q2 2025): $133,745 thousand, down from $149,584 thousand in Q2 2024[187] - EBITDA (H1 2025): $250,290 thousand, down from $255,178 thousand in H1 2024[187] - EBITDA Margin % (Q2 2025): 11.6%, down from 14.2% in Q2 2024[187] - EBITDA Margin % (H1 2025): 11.7%, down from 13.5% in H1 2024[187] Net Homebuilding Debt to Net Capitalization - Definition: Homebuilding debt less cash and cash equivalents, divided by the sum of net homebuilding debt, total mezzanine equity, and total equity[189] - Net Homebuilding Debt to Net Capitalization: Increased to 44.5% as of June 30, 2025, from 42.7% as of December 31, 2024[190] Net Homebuilding Debt to Net Capitalization Reconciliation (in thousands, except percentages): | Metric | June 30, 2025 | December 31, 2024 | | :--------------------------------------- | :------------ | :---------------- | | Total debt | $1,580,352 | $1,185,440 | | Total mezzanine equity | $178,039 | $169,951 | | Total equity | $1,335,686 | $1,051,581 | | Total capitalization | $3,094,077 | $2,406,972 | | Total debt to total capitalization | 51.1% | 49.3% | | Net homebuilding debt | $1,211,991 | $910,643 | | Net capitalization | $2,725,716 | $2,132,175 | | Net homebuilding debt to net capitalization | 44.5% | 42.7% | Liquidity and Capital Resources Overview - Funding Sources: Cash, revolving credit facility, senior unsecured notes, and mortgage warehouse facilities[191] - Capital Uses: Lot deposits, lot purchases, home construction, operating expenses, business acquisitions, and mortgage loan origination[192] - Business Acquisitions: Total cash consideration for acquisitions was $190 million for H1 2025, compared to $210 million for H1 2024[192] - Lot Deposits: $531 million as of June 30, 2025, up from $458 million as of December 31, 2024, reflecting commitment to land bank deposits for adequate lot supply[197] - Total Liquidity: $432,871 thousand as of June 30, 2025, down from $816,029 thousand as of December 31, 2024[198] - Availability under Credit Agreement: $222,551 thousand as of June 30, 2025, down from $541,645 thousand as of December 31, 2024[198] Cash Flows - Net Cash Used in Operating Activities: Decreased to $(113) million for H1 2025 from $(358) million for H1 2024, driven by a $151 million decrease in mortgage loans held for sale and lower inventory increases[202] - Net Cash Used in Investing Activities: Increased to $(197) million for H1 2025 from $(190) million for H1 2024, mainly due to $13 million in furniture and fixture purchases for model homes[203] - Net Cash Provided by Financing Activities: Decreased to $229 million for H1 2025 from $296 million for H1 2024, primarily due to $145 million in net repayments of mortgage warehouse facilities, partially offset by higher net proceeds from homebuilding debt[204] Redeemable Noncontrolling Interests - Balance: Totaled $30 million as of June 30, 2025[205] - Redeemability: No amount was redeemable within 12 months as of June 30, 2025[205] - Reporting: Reported within mezzanine equity on the Condensed Consolidated Balance Sheets at the greater of initial carrying amount (fair value at acquisition) adjusted for net income/loss less distributions, or redemption value[205] Redeemable Preferred Stock - Issuance: 150,000 shares sold on September 29, 2021, for $150 million, with an initial liquidation preference of $1,000 per share[207] - Ranking: Ranks senior to Class A and B common stock with respect to dividends and liquidation distributions[207] Contractual Obligations - No Material Changes: No material changes to contractual obligations for the three and six months ended June 30, 2025, except for amendments to the revolving credit facility[210] Critical Accounting Policies - No Significant Changes: No significant changes to critical accounting policies during H1 2025 compared to the Annual Report on Form 10-K for FY2024[211] Recent Accounting Pronouncements - Refer to Note 1: For details on recent accounting pronouncements[212] Off-Balance Sheet Arrangements - Asset-Light Strategy: Utilizes finished lot option contracts and land bank option contracts[213] - Surety Bonds and Letters of Credit: Outstanding surety bonds of $338.9 million and letters of credit of $25.6 million as of June 30, 2025, used for land development performance obligations[214][215] Cautionary Statement about Forward-Looking Statements - Nature of Statements: The report contains forward-looking statements subject to risks and uncertainties, which may cause actual results to differ materially from expectations[216][217] - Key Areas: Include market opportunity, interest rate trends, demand for housing, strategy, profitability, liquidity, and integration of acquisitions[221] - Risk Factors: Refer to Item 1A in the Annual Report on Form 10-K for FY2024 and this 10-Q for detailed risks[218] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section details the Company's market risk exposure, primarily interest rate risk, impacting housing demand, mortgage financing, and financial instruments, with hedging strategies in place Quantitative and Qualitative Disclosures About Interest Rate Risk - Interest Rate Sensitivity: Operations are sensitive to interest rates, which impact housing demand and mortgage financing[222][223] - Credit Agreement: Borrowings bear interest based on Term SOFR or Daily Simple SOFR rates plus an applicable rate margin (2.00% to 2.95%) tied to the Company's net debt to capitalization ratio[224] - Mortgage Banking Risk: Jet HomeLoans is exposed to interest rate risk from lending activities, using investor commitments and forward sales of MBS contracts to hedge interest rate lock commitments (IRLCs)[227] ITEM 4. CONTROLS AND PROCEDURES Management affirmed the effectiveness of disclosure controls as of June 30, 2025, excluding recently acquired businesses from the internal controls over financial reporting assessment due to ongoing integration Disclosure Controls and Procedures - Effectiveness: CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance for timely and accurate SEC reporting[229] Changes in Internal Controls - Acquisition Exclusions: Internal controls over financial reporting for Alliant Title (acquired April 2025), Liberty Communities (acquired January 2025), and Jet HomeLoans (acquired July 2024) were excluded from the assessment, per SEC guidance[230][232][234] - Integration Status: Implementation of internal controls for Alliant Title and Liberty Communities is ongoing, with continuous evaluation and integration planned within one year of acquisition[231][233] - Jet HomeLoans Integration: Implementation of internal controls commenced as of July 1, 2025, with design and operating effectiveness not yet assessed as of July 31, 2025[234] - No Material Changes: Other than ongoing integrations, no material changes to internal control over financial reporting occurred during the most recent fiscal quarter[235] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company is involved in ordinary course legal proceedings, including a breach of contract claim related to the Crescent Homes acquisition, detailed in Note 5 - Ongoing Legal Matters: The Company is party to legal matters primarily related to home construction and sales[81][238] - Crescent Homes Lawsuit: A complaint was filed on April 28, 2025, by the former owner of Crescent Homes for alleged breach of contract, with mediation set for October 2025. The Company intends to defend the lawsuit and does not believe it will have a material adverse effect[82] ITEM 1A. RISK FACTORS This section outlines additional risks, including those related to financial services (title claims, hedging), mortgage banking, changes in homeownership tax benefits, and federal energy tax credit termination Additional Risks Related to Our Financial Services Businesses - Title Claim Reserve Risks: Reserves are based on actuarial estimates, and deviations from assumptions could require increased reserves, impacting profitability[240] - Reinsurance Credit Risk: The Company remains liable to policyholders even if reinsurers fail to meet obligations, exposing it to credit risk from counterparties[242] - Independent Agent Risks: Reliance on independent agents for title services may increase the frequency and severity of title claims due to potential errors or omissions[243] - Hedging Strategy Risks: Limited hedging strategies for interest rate risk may not fully offset losses from unexpected interest rate volatility[244] Mortgage Banking Risks - Secondary Market Dependence: Inability to sell originated mortgage loans into the secondary market could lead to holding loans long-term, increasing borrower credit risk, reducing liquidity, and raising capital requirements[245] - Warehouse Facility Default: Default by lenders under mortgage warehouse facilities could require the Company to fund loans, potentially exceeding its revolving credit facility and operating cash flow[245] Tax Benefit Risks for Homeownership - Impact of Tax Law Changes: Changes to federal or state income tax laws, such as limitations on mortgage interest and real estate tax deductions (e.g., Tax Cuts and Jobs Act, OBBBA), could increase the after-tax cost of homeownership and adversely affect demand and sales prices[246] Federal Energy Tax Credit Risks - Section 45L Credit Termination: The One Big Beautiful Bill Act (OBBBA) terminated the Code Section 45L credit for homes purchased after June 30, 2026, which could materially increase future effective income tax rates[249] - Estimated Credits: Estimated $12 million in Federal Energy Credits for FY2024, up from $3 million in FY2023, due to more qualifying homes[248] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS The Board increased the share buyback program limit in Q2 2025, with details on repurchased shares and remaining availability Share Buyback Program - Program Increase: Limit increased to $50.0 million during Q2 2025, from $25.0 million[250] - Shares Repurchased (Q2 2025): 705,404 shares of Class A common stock for an aggregate purchase price of $16.1 million[252] - Remaining Availability: Approximately $19.2 million remained available for purchase as of June 30, 2025[115] ITEM 5. OTHER INFORMATION This section details the Company's policy on Rule 10b5-1 Trading Plans for directors and executive officers, with no changes reported in Q2 2025 Rule 10b5-1 Trading Plans - Policy: Directors and executive officers may use Rule 10b5-1 Trading Plans to buy or sell common stock, established when not in possession of material non-public information[253] - Q2 2025 Activity: No Rule 10b5-1 Trading Plans were adopted, terminated, or modified by directors and executive officers during the three months ended June 30, 2025[253] ITEM 6. EXHIBITS This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL documents - Certifications: Includes CEO and CFO Certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[254] - XBRL Documents: Various Inline XBRL documents (Instance, Schema, Calculation, Definition, Label, Presentation Linkbase) are filed[254] SIGNATURES The report is duly signed by Dream Finders Homes, Inc.'s President, CEO, Chairman, and Senior Vice President and CFO on July 31, 2025 - Signatories: Patrick O. Zalupski (President, CEO, and Chairman) and L. Anabel Ramsay (Senior Vice President and CFO) signed the report on July 31, 2025[260]