Dream Finders Homes, Inc. 10-K

ITEM 1. BUSINESS Company Overview We design, build and sell homes in high-growth markets, including Charlotte, Raleigh, Jacksonville, Orlando, Denver, the Washington D.C. metropolitan area, Austin, Dallas and Houston. We sell homes under the Dream Finders Homes, DF Luxury, Craft Homes and Coventry Homes brands. We employ an asset-light land 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 through DF Title, LLC, doing business as Golden Dog Title & Trust (“DF Title”) and mortgage banking solutions primarily through our mortgage banking joint venture, Jet Home Loans, LLC (“Jet LLC”), which comprises our Jet Home Loans segment. Since breaking ground on our first home on January 1, 2009, we have closed over 22,200 homes through December 31, 2022 and have been profitable every year since inception. The following is a summary of our history: 2009 – Began operations building homes in the Jacksonville, Florida market 2013 – Entered the Savannah, Georgia market 2014 – Entered the Denver, Colorado market 2015 – Entered the Austin, Texas and Orlando, Florida markets 2017 – Entered the Washington D.C. metropolitan area, with a particular focus on the Northern Virginia and Maryland markets (“DC Metro”) 2019 – Entered the Hilton Head and Bluffton, South Carolina markets with our acquisition of Village Park Homes, LLC (“Village Park Homes” or “VPH”) 2020 – Entered the Charlotte, Fayetteville, Raleigh, Piedmont Triad (consisting of Greensboro, High Point and Winston-Salem, North Carolina) and Wilmington, North Carolina and Myrtle Beach, South Carolina markets with our acquisition of the homebuilding business of H&H Constructors of Fayetteville, LLC, a North Carolina limited liability company (“H&H”) January 2021 – Completed our initial public offering (“IPO”) and expanded our presence in the Orlando, Florida market with our acquisition (the “Century Acquisition”) of Century Homes Florida, LLC (“Century Homes”) October 2021 – Significantly increased our operations in the Austin, Texas metro area and expanded into the Texas markets of Houston, Dallas and San Antonio with our acquisition of privately held Texas homebuilder McGuyer Homebuilders, Inc. and related affiliates (“MHI”) Operating Segments We select the geographic markets in which we operate our homebuilding business through a rigorous selection process based on our evaluation of positive population and employment growth trends, favorable migration patterns, attractive housing affordability, low state and local income taxes and desirable lifestyle and weather characteristics. 1 Table of Contents Our operations are currently organized into seven segments: Jacksonville, Orlando, Colorado, Texas, The Carolinas, Jet Home Loans and Other. See Note 9, Segment Reporting, to our consolidated financial statements. Our Jacksonville segment primarily consists of our Jacksonville, Florida homebuilding operations. Our Orlando segment primarily consists of our Orlando, Florida homebuilding operations. Our Colorado segment primarily consists of our greater Denver homebuilding operations. Our Texas segment consists of our homebuilding operations in Austin, Dallas, Houston and San Antonio, Texas. The Carolinas segment consists of our homebuilding operations in Charlotte, Fayetteville, Raleigh, the Triad (consisting of Greensboro, High Point and Winston-Salem, North Carolina) and Wilmington, North Carolina, and Myrtle Beach, South Carolina. Our Jet Home Loans segment consists of our mortgage operations conducted primarily through our mortgage banking joint venture, Jet LLC. Our Other segment primarily consists of our homebuilding operations in Austin, Texas, Hilton Head and Bluffton, South Carolina, Savannah, Georgia and DC Metro, as well as our Active Adult and Custom Luxury Homes divisions in Jacksonville, and our title insurance brokerage business, DF Title, LLC. The Other operations in Austin, Texas include legacy homebuilding operations outside of those acquired from MHI. As a result of our recent business acquisitions and organic growth in the last few years, our footprint in the contiguous United States continues to evolve. Likewise, management’s evaluation of our operating structure is on-going. Management will restructure or reorganize, as needed, to achieve optimal growth and oversight for the business. Asset-Light Business Strategy We operate an asset-light and capital-efficient lot acquisition strategy to meet our growth objectives. We 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 asset-light lot acquisition strategy generally enables us to purchase land in a “just-in-time” manner in both new and existing markets with reduced up-front capital commitments, and, in turn, allows us to increase our inventory turnover rate, enhance our return on equity and contributes to our growth. Our strategy is intended to avoid the financial commitments and risks associated with direct land ownership and land development by allowing us to increase optionality and control a significant number of lots for a relatively low capital cost. We believe our asset-light business model reduces our balance sheet risk relative to other homebuilders that own a higher percentage of their land supply. Refer to “— Land Acquisition and Development Process” for a detailed discussion of how we employ our strategy. Land Acquisition and Development Process Locating and analyzing attractive land positions is a critical challenge for any homebuilder. We remain focused on controlling as many quality land positions as possible while minimizing up-front capital outlay. Our land selection process begins with key economic drivers, such as demographic trends and employment growth. We typically pursue opportunities more aggressively in our markets that generate the greatest returns, while proceeding more cautiously in our markets where we have plans in process to improve our operational efficiencies. While our land selection process is driven mainly by the local division leadership, the land sourcing process, including final approval to move forward with a project, is a collaboration involving both the local division and corporate leadership, including our President and Chief Executive Officer. This team effort ensures that we leverage experience and resources throughout the organization for a thoughtful and strategic execution of every new land acquisition. Our company-wide emphasis on continually developing new and existing relationships with land sellers, developers and land bank partners acts to further enhance this strategy. Our management team leads by example in fostering our culture of external relationship building by taking an active, personal role in communications with land sellers and developers—an approach that we believe differentiates us from similarly situated homebuilders. Our multilevel cooperation allows us to remain flexible and react quickly to changing markets or project-specific con ditions, and maximize the potential of each new land opportunity. We believe our experience, top-down emphasis on relationship building with land market participants and collaborative involvement of local and corporate management in the land sourcing and acquisition process enables us to identify the ideal developers and efficiently source and secure options to control and close acquisitions of lots to meet our growth needs while mitigating risk. 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 predetermined fixed contractual pricing from various land developers, land sellers and land bank partners. Finished lot option contracts are generally entered into with the land seller between six months and one year in advance of completion of the land development. Pursuant to our finished lot option contracts, the lots are offered to us for purchase on a rolling basis, on a timeline that is designed to mirror our expected home sales pace. 2 Table of Contents When a land seller desires to sell finished lots in bulk or does not wish to develop finished lots, we often enter into land bank option contracts with land bank partners who fund any required land acquisition and land development costs and sell the finished lots to us over a period of time. These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled within an option contract 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 lot option fees paid to the land bank partner, any potential performance obligations, management of the land development to completion and any cost overruns relative to the project. We typically provide lot deposits in the range of 5% to 10% of the land purchase price. Lot option fees are based on the outstanding capital balance held by the land banker and often are reflective of interest provisions under which delays in land development and/or longer land takedown periods result in additional costs. As of December 31, 2022, our lot deposits and investments in finished lot option and land bank contracts were $277 million. As of December 31, 2022, we controlled 37,615 lots under lot option and land bank option contracts. In the past, we have supplemented our lot option acquisition strategies by entering into joint venture agreements with external investors to acquire, develop and control lots. Due to the profit sharing requirements of the joint venture agreements, we have transitioned from these joint venture arrangements in favor of the more profitable option contract strategies described above. Refer to Note 7, Variable Interest Entities to our Consolidated Financial Statements for the disclosed amounts of our remaining equity interests in these joint ventures. Owned and Controlled Lots The following table presents our owned finished lots purchased just-in-time for production and controlled lots through option contracts by homebuilding segment as of December 31, 2022 and 2021: As of December 31, 2022 2021 Segment Owned (2) Controlled Total Owned Controlled Total % Change Jacksonville 1,083 8,893 9,976 774 10,311 11,085 -10 % Colorado 366 7,555 7,921 152 4,883 5,035 57 % Orlando 976 4,878 5,854 537 5,487 6,024 -3 % The Carolinas 1,003 4,849 5,852 1,452 5,196 6,648 -12 % Texas 1,282 6,835 8,117 1,569 6,304 7,873 3 % Other (1) 1,233 4,605 5,838 861 6,314 7,175 -19 % Grand Total 5,943 37,615 43,558 5,345 38,495 43,840 -1 % (1) Austin, DC Metro, Savannah, GA, Hilton Head and Bluffton, S.C., Active Adult and Custom Homes. Austin refers to legacy DFH operations exclusive of MHI. See Note 9, Segment Reporting, to our consolidated financial statements for further explanation of our reportable segments. (2) As of December 31, 2022, of the 5,943 owned lots, 4,077 were under construction, 206 were completed spec homes and 139 were model homes. The remaining lots were ready for construction. Owned Real Estate Inventory Status The following table presents our owned real estate inventory status as of December 31, 2022 and 2021: As of December 31, 2022 As of December 31, 2021 % of Owned Real Estate Inventory % of Owned Real Estate Inventory Construction in process and finished homes (1) 86 % 92 % Company owned land and lots (2) 14 % 8 % Total 100 % 100 % (1) Represents our owned homes that are completed or under construction, including sold, spec and model homes. Land and lots from consolidated VIEs are excluded from total owned real estate inventory. 3 Table of Contents (2) Represents finished lots purchased just-in-time for production and capitalized costs related to land under development held by third-party land bank partners, including lot option fees, property taxes and due diligence. Land and lots from consolidated VIEs are excluded from both company owned land and lots and total owned real estate inventory. DF Capital Management, LLC Controlling a sufficient supply of finished lots is an important component of our asset-light land financing strategy. Our land team routinely underwrites potential lot acquisitions that meet our capital allocation criteria. Once our land acquisition committee approves a transaction meeting our internal model that requires financing, we will seek a land bank partner. Our primary operating subsidiary, Dream Finders Homes LLC, periodically enters into land bank arrangements with DF Capital Management, LLC, a Florida limited liability company (“DF Capital”). Dream Finders Homes LLC owns 49% of the membership interests in DF Capital and a non-affiliated third party owns the remaining 51% of the membership interests in DF Capital. Sales and Backlog A new order (“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 of approximatel y 6% of the purchase price of the home. These deposits are typically nonrefundable, but each customer situation is evaluated individually. Sales to investors that intend to lease the homes are recognized when the Company has received a nonrefundable deposit. Net new orders are sales of homes during the period less cancellations of existing sales contracts during the period. Our cancellation rate for a given period is calculated as the total number of new sales contracts cancelled during the period, divided by the total number of new gross sales contracts entered into during the period. Our cancellation rate for the year ended December 31, 2022 was 21.5%, an increase of 930 basis points when compared to the 12.2% cancellation rate for the year ended December 31, 2021. During the third and fourth quarters of 2022, demand tightened in response to increases in mortgage rates. The market's reaction to the deteriorating economic conditions negatively affected net new orders and continues to have an impact on the cancellation rate for the Company. The cancellation rate for 2022 is within the Company’s pre-pandemic range of historical cancellation rates. The following table presents information concerning our net sales (“net new orders”), starts and closings in each of our homebuilding segments for the years ended December 31, 2022 and 2021: Year Ended December 31, Period Over Period Percent Change 2022 2021 Segment Sales Starts Closings Sales Starts Closings Sales Starts Closings Jacksonville 1,716 1,545 1,439 1,933 1,448 1,237 -11 % 7 % 16 % Colorado 191 355 285 296 313 230 -35 % 13 % 24 % Orlando 610 1,110 656 1,101 614 604 -45 % 81 % 9 % The Carolinas 951 999 1,433 1,859 1,751 1,233 -49 % -43 % 16 % Texas (1) 1,566 1,884 2,229 579 512 689 170 % 268 % 224 % Other (2) 1,011 708 836 1,040 1,133 881 -3 % -38 % -5 % Grand Total 6,045 6,601 6,878 6,808 5,771 4,874 -11 % 14 % 41 % (1) MHI was acquired on October 1, 2021. (2) Austin, DC Metro, Savannah, GA, Hilton Head and Bluffton, S.C., Active Adult and Custom Homes. Austin refers to legacy DFH operations exclusive of MHI. See Note 9, Segment Reporting, to our consolidated financial statements for further explanation of our reportable segments. 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, or that are signed by third-party investors who have placed a nonrefundable deposit. 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. 4 Table of Contents Homes in backlog are generally closed within one to nine months, although we may experience cancellations of purchase contracts at any time prior to such home closings. Sustained supply chain challenges during 2022 could have temporarily elongated cycle times impacting the Company's backlog turnover rate. In addition, certain circumstances may increase cycle times, including sales to investors that intend to lease the homes may be delivered over a longer duration, as well as pre-sales in new communities. 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. The following tables present information concerning our net new orders, cancellation rate and ending backlog for the periods and as of dates set forth below: Year Ended December 31, 2022 2021 Net New Orders 6,045 6,808 Cancellation Rate 21.5 % 12.2 % As of December 31, 2022 2021 Ending Backlog - Homes (1) 5,548 6,381 Ending Backlog - Value (in thousands) $ 2,502,564 $ 2,913,170 (1) Approximately 1,070 of the homes in our backlog are expected to be delivered in 2024 and beyond. Products and Customers Homes, Homebuyers and Active Communities We offer a range of single-family homes in each of our markets, with a core focus on entry-level and first-time move-up homebuyers, but we also provide offerings for second-time move-up homebuyers. Our homebuilding business is driven by our commitment to building high quality homes at affordable prices in attractive locations while delivering excellent customer service. Our customers enjoy the flexibility of personalizing our desirable open floor plans with a wide array of finishes and upgrades to best fit their distinctive tastes and unique needs. Price points in our markets vary for entry-level, first-time move-up and second-time move-up homebuyers. 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 of December 31, 2022, we had 206 active communities, a year over year increase of 1 community when compared to our 205 active communities as of December 31, 2021. Average monthly sales per active community for the year ended December 31, 2022 were 1.6, a decrease of 2.4, or 60%, from 4.0 average monthly sales per active community during the year ended December 31, 2021. Our active community count and average monthly sales per active community excludes communities under the Company's built-for-rent contracts, as all sales to investors occur at one point in time and these communities would have no home sites remaining to sell. Title Insurance Business Our wholly owned subsidiary, DF Title, is a title insurance agency licensed in multiple states that provides closing, escrow and title insurance services. Our philosophy is to have a systematic approach to workflow management with a high level of care and communication during the closing process, thereby delivering an exceptional experience to each customer. DF Title primarily closes residential real estate transactions, including new home construction and resale and refinancing transactions, and handles no commercial real estate closings. DF Title operates in Colorado, Florida, Georgia, North Carolina and South Carolina. DF Title’s staff includes attorneys, state licensed title agents, escrow officers and experienced support staff with over 200 years of collective closing experience. Closing, escrow and title insurance is primarily regulated at a state level, requiring that operations be conducted by skilled attorneys and/or licensed title insurance agents. 5 Table of Contents Expansion of title operations into other markets is ongoing and consideration of new markets is driven by unit volume, average sales price for homes sold and state-level legal considerations. Mortgage Banking Business Our mortgage banking joint venture, Jet LLC, offers conforming and non-conforming mortgage financing to our homebuyers and helps us more effectively convert backlog into home closings. Jet LLC also provides mortgage financing to customers purchasing homes from third-party sellers. The loan officers of Jet LLC assist customers in identifying various loan options that meet the customers’ home financing goals. Jet LLC has historically captured 60-70% of loan originations. We own a 49.9% interest in Jet LLC, and our joint venture partner, FBC Mortgage, LLC, an Orlando-based mortgage lender, owns the remaining 50.1% interest and performs a number of back office functions, such as accounting, compliance and secondary marketing activities. We believe Jet LLC provides a distinct competitive advantage relative to homebuilders without holistic mortgage solutions for clients, as many of our homebuyers seek an integrated home buying experience. Jet LLC allows us to use mortgage finance as an additional sales tool, enhancing our customer experience. Jet LLC prequalifies buyers early in the home buying process, which supports our ability to ensure timely closings. Additionally, the integrated sales approach we are able to employ with Jet LLC provides increased transparency into the buyer’s ability to close, allowing us to efficiently convert our sales backlog into closings. We believe that Jet LLC will continue to be a meaningful source of incremental revenues and profitability for us. For the year ended December 31, 2022, Jet LLC originated and funded 2,370 home loans with an aggregate principal amount of approximately $879 million as compared to 2,256 home loans with an aggregate principal amount of approximately $729 million for the year ended December 31, 2021. For the years ended December 31, 2022 and 2021, respectively, Jet LLC had net income of approximately $12 million and $13 million. Our interest in Jet LLC is accounted for under the equity method and is not consolidated in our consolidated financial statements, as we do not control and are not deemed the primary beneficiary of the variable interest entity (“VIE”). See N ote 1, Nature of Business and Significant Accounting Policies, to our consolidated financial statements for a discussion of accounting treatment of VIEs. Marketing and Sales We seek to ensure that each customer’s experience exceeds their expectations by focusing on customer satisfaction and providing a unique buying experience. We provide attentive one-on-one customer service throughout the home buying process, empowering our customers with flexibility to personalize their homes, and actively soliciting feedback from all of our customers. T he willingness of our customers t o refer friends and family to us as homebuyers is a direct result of customer satisfaction, and we strive to ensure that each of our customers will make such referrals. While we occasionally utilize traditional printed media to advertise directly to potential homebuyers, digital marketing is the primary component of our marketing strategy, and we have refined our digital sales efforts in recent years through the work of our dedicated digital sales coordinators. We believe our online marketing efforts have become a key strength of our business, allowing us to reach a broad range of potential homebuyers at a relatively low expense compared to traditional advertising platforms. The digital marketing methods that we employ include strategic e-marketing efforts to our current database of potential customers, internet advertising enhanced by search engine marketing and search engine optimization, and campaigns and promotions across an array of social media platforms. Our proficiency with digital marketing an d our commitment to meeting customer service needs led to increased use of our virtual home tours during the COVID-19 pandemic, along with our “Stay Home & Buy a Home” program as another means for customers to safely and efficiently purchase a new home without leaving their current home. These programs continue to be popular and effective aspects of our marketing strategy. We also strategically open communities in high visibility areas that allow us to take advantage of local traffic patterns. Model homes play a significant role in our marketing efforts by not only creating an attractive atmosphere, but by also displaying options and upgrades. As the official homebuilder of the Jacksonville Jaguars, we maintain a fully decorated model home at the team’s stadium, which attract s thousands of fans ea ch game day. During 2022, we entered into an agreement with the PGA TOUR to become their Official Homebuilder through 2027. This strategic alliance provides a national marketing footprint in regions where Dream Finders divisions operate and where high profile, annual PGA TOUR golf tournaments are played. 6 Table of Contents With the rebranding of our recent homebuilder acquisitions, this partnership allows us to more swiftly and efficiently penetrate these markets and elevate the trust and authenticity of our brand to prospective home buyers. We sell our homes through our own sales representatives and through independent real estate brokers. We continuously work to maintain good relationships with independent real estate brokers in our markets and offer competitive programs to reward these brokers for selling our homes. Our in-house sales force typically works from sales offices located in model homes close to or in each community. Sales representatives assist potential homebuyers by providing them with floor plans, price information, development and construction timetables, tours of model homes and the home customization options that we offer. Sales representatives are trained by us and generally have prior experience selling new homes in the local market. Our customer-tailored homebuilding process begins with a broad range of floor plans from which our customers can select. Our architectural design team modifies these floor plans over time based on customer buying trends in each of our markets. The architectural design team also works with our land team to secure lots that allow the building of these floor plans. We also offer a wide range of materials and upgrades to meet the varying preferences of our customers. We believe that every home is as important as the next, regardless of price point, and that everyone deserves the ability to build a home that suits their needs. Accordingly, we offer an array of options to our homebuyers in any of our product offerings, including cabinetry, countertops, fixtures, home automation, energy efficiency, appliances and flooring, as well as certain structural modifications. We empower our customers with the flexibility to select these customizations for their homes in collaboration with our design consultants at our design studios located in each of our markets. Customer Relations, Quality Control and Warranty Program We pay particular attention to the product design process and carefully consider quality and choice of materials in order to attempt to eliminate building deficiencies and reduce warranty expenses. We require all of our vendors and subcontractors, in connection with our on-boarding process, to execute our standard terms agreement, which includes, among other provisions, work quality standards. Our on-boarding process also requires all vendors and subcontractors to provide proof of insurance, including liability insurance and workers’ compensation insurance, and include us as an additional insured under such policies. The quality and workmanship of our subcontractors are monitored in the ordinary course of business by our superintendents and project managers, and we do regular inspections and evaluations of our subcontractors to ensure that our standards are being met. Our customer service team also performs quality assurance inspections on homes prior to the homebuyer assuming ownership to ensure standards are met. In addition, local governing authorities in all of our markets require that the homes we build pass a variety of inspections at various stages of construction, including a final inspection in which a certificate of occupancy, or its jurisdictional equivalent, is issued. We maintain professional staff whose role includes providing a positive experience for each customer throughout the pre-sale contract-execution, construction, closing and post-closing periods. These employees are also responsible for providing after-sales customer service. Our quality and service initiatives include taking customers on a comprehensive tour of their home prior to closing and using customer survey results to improve our standards of quality and customer satisfaction. We believe the key metric in our customer surveys is our customers’ willingness to refer us to friends and family. We are constantly striving to earn a 100% willingness to refer rate in each of our markets and, as a result, our customers’ willingness to refer us is a critical component of the incentive compensation of our construction teams, and, in certain of our divisions, quality control or customer services teams. We provide each homeowner with product warranties covering workmanship and materials for one year from the time of home closing, and warranties covering structural systems for eight to ten years from the time of closing. We believe our warranty program meets or exceeds terms customarily offered in the homebuilding industry. Materials, Procurement and Construction When constructing our homes, we use various materials and components and are dependent upon building material suppliers for a continuous flow of raw materials. It typically takes us between 150 and 240 days to construct a single-family home. The construction period for our custom homes are typically longer. Our materials are subject to price fluctuations until construction on a home begins, the point in time in which prices for that particular home are locked via purchase orders. Such price fluctuations may be caused by several factors, including seasonal variation in availability of materials, labor and supply chain disruptions, international trade disputes and resulting tariffs, and changes in demand for materials as a result of the housing market conditions where we operate. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Results of Operations” for additional information. 7 Table of Contents Our objective in procurement is to maximize efficiencies on local, regional and national levels and to ensure consistent utilization of established contractual arrangements. We employ a comprehensive procurement program that leverages our size and national presence to achieve attractive cost savings and, whenever possible, to utilize standard products available from multiple suppliers. We currently determine national specifications for the majority of our installed products with our distributors. This helps us streamline our offerings, maintain service levels and delivery commitments and protect our pricing; it also allows us to receive free model home products and provides for pre-negotiated rebate amounts. We leverage our volume to negotiate better pricing at a national level from manufacturers as well. We have extensive experience managing all phases of the construction process. Although we do not employ our own skilled tradespeople, such as plumbers, electricians and carpenters, we utilize our relationships with local and regional builder associations to identify reputable tradespeople and actively participate in the management of the entire construction process to ensure that our homes meet our high standard of quality. Each of our divisions has a director, manager or vice president of construction who reports to the division president and oversees one or more area managers, depending on the size of the division. The area managers are generally responsible for ten or more communities, which typically each have a dedicated superintendent who oversees construction in the community by our subcontractors. As a result of not employing our own construction base, it is not necessary to purchase and maintain construction equipment, which requires long-term capital commitments. Our enterprise resource planning system and integrated construction scheduling software allows our superintendents to closely monitor the construction progress of each of our homes and promptly identify any homes that fall behind our predetermined construction schedules. Our software also enables our superintendents to monitor the completion of work, which, in turn, expedites payments to our subcontractors. Our superintendents are also responsible for making any adjustments to a home before delivery and for after-sales service pursuant to our warranty. Competition and Market Factors We face competition in the homebuilding industry, which is characterized by relatively low barriers to entry. Homebuilders compete for, among other things, homebuyers, desirable lots, financing, raw materials and skilled labor. Increased competition may prevent us from acquiring attractive lots on which to build homes or make such acquisitions more expensive, hinder our market share expansion or lead to pricing pressures on our homes that may adversely impact our margins and revenues. Our competitors may independently develop land and construct housing units that are superior or substantially similar to our products. Because they are or may be significantly larger, have a longer operating history and/or have greater resources or lower cost of capital than us, they may be able to compete more effectively in one or more of the markets in which we operate or may operate in the future. We also compete with other homebuilders that have longstanding relationships with subcontractors and suppliers in the markets in which we operate or may operate in the future, and we compete for sales with individual resales of existing homes and with available rental housing. The housing industry is cyclical and is affected by consumer confidence levels, prevailing economic conditions and interest rates. Other factors that affect the housing industry and the demand for new homes include: the availability and the cost of land, labor and materials; changes in consumer preferences; demographic trends; inflation; and the availability and interest rates of mortgage finance programs. See “Risk Factors” for additional information regarding these risks. We are dependent upon building material suppliers for a continuous flow of raw materials. Whenever possible, we attempt to utilize standard products available from multiple sources. In the past, such raw materials have been generally available to us in adequate supply. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Factors Affecting Our Results of Operations” for additional information. Acquisitions Our growth strategy includes both organic expansion and targeted acquisitions. Since we began operations, we have organically expanded from Jacksonville, Florida to Savannah, Georgia; Denver, Colorado; Austin, Texas; Orlando, Florida; and the greater Washington D.C. metropolitan area. We have also demonstrated our ability to grow externally through (i) our expansion into Hilton Head, South Carolina with our 2019 acquisition of Village Park Homes, (ii) our expansion into Charlotte, Fayetteville, Raleigh, Piedmont Triad and Wilmington, North Carolina and Myrtle Beach, South Carolina markets in October 2020 with the H&H acquisition, (iii) our expansion within the Orlando, Florida market in January 2021 with the Century acquisition and (iv) our expansion within the Texas market in October 2021 with the MHI acquisition. Refer to Note 2, Business Combinations of the Consolidated Financial Statements reported herein for further discussion of our acquisitions. 8 Table of Contents 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. Additionally, we generally have higher capital requirements in our second and third 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 are not necessarily representative of the results we expect at year-end. We expect this seasonal pattern to continue in the long-term. Governmental Regulation and Environmental Matters We are subject to numerous local, state, federal and other statutes, ordinances, rules and regulations concerning zoning, development, building design, construction and similar matters, which impose restrictive zoning and density requirements in order to limit the number of homes that can eventually be built within the boundaries of a particular area. Projects that are not entitled (held by our land bank financing partners), may be subjected to periodic delays, changes in use, less intensive development or elimination of development in certain specific areas due to government regulations. Local and state governments also have broad discretion regarding the imposition of development fees for projects in their jurisdiction. Projects for which we have received land use and development entitlements or approvals may still require a variety of other governmental approvals and permits during the development process and can also be impacted adversely by unforeseen health, safety and welfare issues, which can further delay these projects or prevent their development. We are also subject to a variety of local, state, federal and other statutes, ordinances, rules and regulations concerning the environment, health and safety. Environmental requirements that apply to any given homebuilding site vary according to the site’s location, its environmental conditions, the presence or absence of endangered plants or species or sensitive habitats and the present and former uses of the site, as well as nearby or adjoining properties. Refer to “Item 1A. Risk Factors ” for further discussion on risks related to governmental regulation and environmental matters. Jet LLC, our mortgage banking joint venture, and DF Title, our title insurance agency and wholly owned subsidiary, are mutually and independently regulated by local, state and federal laws, statutes, ordinances, administrative rules and other regulations. The mortgage lending company and title agency are required to conform to their policies, procedures and practices to the applicable regulatory matters affecting their businesses. For example, our lending joint venture maintains certain requirements for loan origination, servicing and selling and its participation in federal lending programs, such as FHA, VA, USDA, Government National Mortgage Association, Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”). Our title agency’s practices regarding closing, escrow and issuance of title insurance are subject to rules established, in part, by states’ insurance regulators and underwriters’ guidelines. Both industries are affected by rules mandated by the Consumer Financial Protection Bureau, such as the Truth in Lending Act and the Real Estate Settlement Procedures Act Integrated Disclosure, governing matters like loan applications, disclosures and loan materials, closing, funding and issuance of title insurance policies. Environmental, Social, and Corporate Governance (“ESG”) During 2022, we made significant progress on our ESG initiatives, which included conducting an ESG assessment to identify and prioritize the risks and opportunities that are relevant to the Company and our stakeholders. We are in the process of developing a strategy for measurement, mitigation, monitoring and reporting. The key topics we plan to focus on include, but are not limited to: • Home energy efficiency, quality and safety • Home affordability • Employee well-being and talent retention • Diversity, equity and inclusion • Board oversight over ESG policies 9 Table of Contents Human Capital Resources Culture and Objectives Our human capital resource objectives include identifying, recruiting, retaining, incentivizing and integrating our existing and new employees. We believe that investing in finding and retaining exceptional people is the most important part of our business. We believe that our connection with our employees is positive and well-regarded. We value our employees and believe that employee loyalty and enthusiasm are key elements of our operating performance. We utilize subcontractors and tradespeople to perform the construction of our homes. We value our network of subcontractors and tradespeople and believe our relationships with them are excellent. Compensation and Benefits We offer our employees compensation and an array of company-paid benefits, which we believe are competitive relative to others in our industry. Additionally, we offer retirement savings in the form of a 401(k) plan. The 401(k) plan includes matching safe harbor contributions equal to 100% of the first one percent of eligible compensation and 50% of the next five percent of eligible compensation. The Company may also make additional discretionary profit-sharing contributions. Health and Safety The health and safety of our employees and subcontractors is our top priority. We are committed to continuously evaluating and implementing health and safety guidelines throughout the entirety of our operations to ensure the well-being of all. We provide an easily accessible safety manual to all employees, and promote an open environment for employees to report any concerns that may impact their health or safety. Code of Conduct/Diversity and Inclusion Employees of the Company are required to comply with the Standards of Conduct set forth by the Company, including policies related to anti-harassment and anti-discrimination. The Company has made an ethics hotline available to all associates of the Company where they are able to report any violations of the Standards of Conduct, including violations related to the harassment or discrimination of any associate. Furthermore, we intend to implement a company-wide anti-harassment training program beginning in 2023. As of December 31, 2022, we had 1,170 full-time employees. Of our full-time employees, 88 worked in our corporate office, 24 in divisional management and 263 in sales. None of our employees are represented by a labor union or covered under a collective bargaining agreement, and we have not experienced any strikes or work stoppages. Available Information We make available, as soon as reasonably practicable, on our website, www.dreamfindershomes.com, all of our reports required to be filed with the Securities and Exchange Commission (“SEC”). These reports can be found on the “Investor Relations” page of our website under “Financials & Filings—SEC Filings” free of charge and include our annual and quarterly reports on Form 10-K and 10-Q, respectively (including related filings in XBRL format), current reports on Form 8-K, beneficial ownership reports on Forms 3, 4, and 5, proxy statements and amendments to such reports. Our SEC filings are also available to the public on the SEC’s website at www.sec.gov. We are a Delaware corporation that incorporated on September 11, 2020. Our principal executive offices are located at 14701 Philips Highway, Suite 300, Jacksonville, Florida 32256, and our telephone number is (904)-644-7670.