2 unchanged sentences
These risks and uncertainties, together with other factors described elsewhere in this Annual Report on Form 10-K, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.
−Removed: Industry and Economic Risks
+Added: The risk factors described below are those that we think may be material with regard to an investment in us, as well as certain risk factors that may be generally applicable to all business enterprises, but not all general risk factors.
+Added: We are subject to the many risks that affect all or most business enterprises in the United States and our business or financial condition could be materially affected by those risks.
+Added: Industry, Economic and Regulatory Risks
+Added: Inflation could adversely affect our business and financial results.
+Added: The United States continues to experience inflationary conditions, which, at times, has resulted in increasing costs of land, raw materials and labor needed to operate our business.
+Added: If our markets have an oversupply of homes relative to demand, we may be unable to offset any such increases in costs with corresponding higher sales prices for our homes.
+Added: Inflation may also continue to accompany higher interest rates, which could adversely impact potential customers’ ability to obtain financing on favorable terms, thereby further decreasing demand.
+Added: If we are unable to raise the prices of our homes to offset the increasing costs of our operations, our margins could decrease.
+Added: Furthermore, if we need to lower the price of our homes to create demand, the value of our land inventory may decrease.
+Added: Inflation can also raise our costs of capital and decrease our purchasing power, making it more difficult and/or more expensive to maintain sufficient funds to operate our business.
+Added: Our operations may be negatively impacted by inflation due to increasing construction costs, labor and materials, as well as land acquisition financing costs.
+Added: The Federal Reserve materially raised interest rates in 2022 and into the summer of 2023 (and may continue to increase interest rates in the future to further combat inflation).
+Added: The elevated interest rate environment that persisted into late 2023 negatively impacted our financing costs, and in turn our gross margin.
+Added: The tightening of mortgage lending standards and mortgage financing requirements, untimely or incomplete mortgage loan originations for our homebuyers and rising mortgage interest rates could adversely affect the availability of mortgage loans for potential purchasers of our homes and thereby materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.
+Added: Almost all of our customers finance their home purchases through lenders that provide mortgage financing.
+Added: Mortgage interest rates have generally trended downward for the last several decades and reached historic lows in 2021, which —during that period— made the homes we sell more affordable.
+Added: Mortgage interest rates increased substantially during 2022 and 2023 in response to the Federal Reserve’s actions to combat inflationary pressures, which negatively impacted consumer affordability.
+Added: We cannot predict future mortgage interest rates, and, if mortgage interest rates continue to increase or remain at elevated levels for an extended period of time, whether as a result of additional action by the Federal Reserve or otherwise, the ability of prospective homebuyers to finance home purchases may be adversely affected, and, as a result, our operating results may be significantly impacted.
+Added: Our homebuilding activities are dependent upon the availability of mortgage financing to homebuyers, which is expected to be impacted by continued regulatory changes and fluctuations in the risk appetites of lenders.
+Added: The financial documentation, down payment amounts and income to debt ratio requirements are subject to change and could become more restrictive.
+Added: The federal government has a significant role in supporting mortgage lending through its conservatorship of Fannie Mae and Freddie Mac, both of which purchase or insure mortgage loans and mortgage loan-backed securities, and its insurance of mortgage loans through or in connection with the FHA, the VA and the USDA.
+Added: FHA and VA backing of mortgage loans has been particularly important to the mortgage finance industry and to our business.
+Added: Increased lending volume and losses insured by the FHA have resulted in a reduction of the FHA insurance fund.
+Added: If either the FHA or VA raised their down payment requirements or lowered maximum loan amounts, our business could be materially affected.
+Added: In addition, changes in governmental regulation with respect to mortgage lenders could adversely affect demand for housing.
+Added: The availability and affordability of mortgage loans, including mortgage interest rates for such loans, could also be adversely affected by a scaling back or termination of the federal government’s mortgage loan-related programs or policies.
+Added: Fannie Mae, Freddie Mac, FHA, USDA and VA backed mortgage loans have been an important factor in marketing and selling many of our homes.
+Added: Given that a majority of our customers’ mortgages conform with terms established by Freddie Mac, Fannie Mae and FHA, any limitations or restrictions in the availability of, or higher consumer costs for, such government-backed financing could adversely affect our business, prospects, liquidity, financial condition and results of operations.
+Added: The elimination or curtailment of state bonds to assist homebuyers could materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.
+Added: In addition, certain current regulations impose, and future regulations may strengthen or impose new standards and requirements relating to the origination, securitization and servicing of residential consumer mortgage loans, which could further restrict the availability and affordability of mortgage loans and the demand for such loans by financial intermediaries and, as a result, adversely affect our home sales, financial condition and results of operations.
+Added: Further, if, due to credit or consumer lending market conditions, reduced liquidity, increased risk retention or minimum capital level obligations and/or regulatory restrictions related to certain regulations, laws or other factors or business decisions, these lenders refuse or are unable to provide mortgage loans to our homebuyers, or increase the costs to borrowers to obtain such loans, the number of homes we close and our business, prospects, liquidity, financial condition and results of operations may be materially adversely affected.
+Added: Entry-level and first-time move-up homebuyers are the primary sources of demand for our new homes.
+Added: Entry-level homebuyers are generally more affected by the availability of mortgage financing than other potential homebuyers and many of our potential move-up homebuyers must sell their existing homes in order to buy a home from us.
+Added: A limited availability of suitable mortgage financing could prevent customers from buying our homes and could prevent buyers of our customers’ homes from obtaining mortgages they need to complete such purchases, either of which could result in potential customers’ inability to buy a home from us, which could have a material adverse effect on our sales, profitability, cash flows and ability to service our debt obligations.
Our industry is cyclical and adverse changes in general and local economic conditions could reduce the demand for homes and, as a result, could have a material adverse effect on us.
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Inclement weather, natural disasters (such as earthquakes, hurricanes, tornadoes, floods, prolonged periods of precipitation, droughts and fires), other calamities and other environmental conditions can delay the delivery of our homes and/or increase our costs.
−Removed: For example, in the third quarter of 2022, Hurricane Ian caused a delay in some home closings in Florida.
Civil unrest or acts of terrorism can also have a negative effect on our business.
−Removed: If the homebuilding industry experiences another significant or sustained downturn, it would materially adversely affect our business and results of operations in future years.
+Added: If the homebuilding industry experiences a significant or sustained downturn, it would materially adversely affect our business and results of operations in future years.
The potential difficulties described above can cause demand and prices for our homes to fall or cause us to take longer and incur more costs to develop the land and build our homes.
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The potential difficulties described above could also lead some homebuyers to cancel or refuse to honor their home purchase contracts altogether.
−Removed: The tightening of mortgage lending standards and mortgage financing requirements, untimely or incomplete mortgage loan originations for our homebuyers and rising mortgage interest rates could adversely affect the availability of mortgage loans for potential purchasers of our homes and thereby materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.
−Removed: Almost all of our customers finance their home purchases through lenders that provide mortgage financing.
−Removed: Mortgage interest rates have generally trended downward for the last several decades and reached historic lows in 2021, which— during that period— made the homes we sell more affordable.
−Removed: Mortgage interest rates increased substantially during 2022 in response to the Federal Reserve’s actions and future signaling to combat inflationary pressures, which negatively impacted consumer affordability.
−Removed: We cannot predict future mortgage interest rates, and, if mortgage interest rates continue to increase, the ability of prospective homebuyers to finance home purchases may be adversely affected, and, as a result, our operating results may be significantly impacted.
−Removed: Our homebuilding activities are dependent upon the availability of mortgage financing to homebuyers, which is expected to be impacted by continued regulatory changes and fluctuations in the risk appetites of lenders.
−Removed: The financial documentation, down payment amounts and income to debt ratio requirements are subject to change and could become more restrictive.
−Removed: The federal government has a significant role in supporting mortgage lending through its conservatorship of Fannie Mae and Freddie Mac, both of which purchase or insure mortgage loans and mortgage loan-backed securities, and its insurance of mortgage loans through or in connection with the FHA, the VA and the USDA.
−Removed: FHA and VA backing of mortgage loans has been particularly important to the mortgage finance industry and to our business.
−Removed: Increased lending volume and losses insured by the FHA have resulted in a reduction of the FHA insurance fund.
−Removed: If either the FHA or VA raised their down payment requirements or lowered maximum loan amounts, our business could be materially affected.
−Removed: In addition, changes in governmental regulation with respect to mortgage lenders could adversely affect demand for housing.
−Removed: The availability and affordability of mortgage loans, including mortgage interest rates for such loans, could also be adversely affected by a scaling back or termination of the federal government’s mortgage loan-related programs or policies.
−Removed: Fannie Mae, Freddie Mac, FHA, USDA and VA backed mortgage loans have been an important factor in marketing and selling many of our homes.
−Removed: Given that a majority of our customers’ mortgages conform with terms established by Freddie Mac, Fannie Mae and FHA, any limitations or restrictions in the availability of, or higher consumer costs for, such government-backed financing could adversely affect our business, prospects, liquidity, financial condition and results of operations.
−Removed: The elimination or curtailment of state bonds to assist homebuyers could materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.
−Removed: In addition, certain current regulations impose, and future regulations may strengthen or impose new standards and requirements relating to the origination, securitization and servicing of residential consumer mortgage loans, which could further restrict the availability and affordability of mortgage loans and the demand for such loans by financial intermediaries and, as a result, adversely affect our home sales, financial condition and results of operations.
−Removed: Further, if, due to credit or consumer lending market conditions, reduced liquidity, increased risk retention or minimum capital level obligations and/or regulatory restrictions related to certain regulations, laws or other factors or business decisions, these lenders refuse or are unable to provide mortgage loans to our homebuyers, or increase the costs to borrowers to obtain such loans, the number of homes we close and our business, prospects, liquidity, financial condition and results of operations may be materially adversely affected.
−Removed: Entry-level and first-time move-up homebuyers are the primary sources of demand for our new homes.
−Removed: Entry-level homebuyers are generally more affected by the availability of mortgage financing than other potential homebuyers and many of our potential move-up homebuyers must sell their existing homes in order to buy a home from us.
−Removed: A limited availability of suitable mortgage financing could prevent customers from buying our homes and could prevent buyers of our customers’ homes from obtaining mortgages they need to complete such purchases, either of which could result in potential customers’ inability to buy a home from us, which could have a material adverse effect on our sales, profitability, cash flows and ability to service our debt obligations.
−Removed: Inflation could adversely affect our business and finan cial results.
−Removed: Currently, the United States is experiencing inflationary conditions.
−Removed: Inflation could adversely affect our business and financial results by increasing the costs of land, raw materials and labor needed to operate our business.
−Removed: If our markets have an oversupply of homes relative to demand, we may be unable to offset any such increases in costs with corresponding higher sales prices for our homes.
−Removed: Inflation may also accompany higher interest rates, which could adversely impact potential customers’ ability to obtain financing on favorable terms, thereby further decreasing demand.
−Removed: If we are unable to raise the prices of our homes to offset the increasing costs of our operations, our margins could decrease.
−Removed: Furthermore, if we need to lower the price of our homes to meet demand, the value of our land inventory may decrease.
−Removed: Inflation may also raise our costs of capital and decrease our purchasing power, making it more difficult to maintain sufficient funds to operate our business.
−Removed: Our operations may be negatively impacted by inflation due to increasing construction costs, labor and materials, as well as land acquisition financing costs.
−Removed: The Federal Reserve materially raised interest rates in the current year and signaled additional interest rate increases which increased our financing costs and has reduced demand for our homes.
−Removed: Volatility in the credit and capital markets may impact our cost of capital and our ability to access necessary financing and the difficulty in obtaining sufficient capital could prevent us from acquiring lots for construction or increase costs and delays in the completion of our homebuilding expenditures.
−Removed: If we require working capital greater than that provided by our operations and our credit facilities, we may be required to increase the amount available under the facilities or to seek alternative financing, which might not be available on terms that are favorable or acceptable or at all.
−Removed: If we are required to seek financing to fund our working capital requirements, volatility in credit or capital markets may restrict our flexibility to successfully obtain additional financing on terms acceptable to us, or at all.
−Removed: If we are at any time unsuccessful in obtaining sufficient capital to fund our planned homebuilding expenditures, we may experience a substantial delay in the completion of homes then under construction, or we may be unable to control or purchase finished lots.
−Removed: Any delay could result in cost increases and could have a material adverse effect on our sales, profitability, stock performance, cash flows and ability to service our debt obligations.
−Removed: We have access to our Credit Agreement, which is a senior unsecured revolving credit facility.
−Removed: Another source of liquidity includes our ability to use letters of credit and surety bonds.
−Removed: These letters of credit and surety bonds relate to certain performance-related obligations and serve as security for certain land option contracts.
−Removed: The majority of these letters of credit and surety bonds are in support of our land development and construction obligations to various municipalities, other government agencies and utility companies related to the construction of roads, sewers and other infrastructure.
−Removed: At December 31, 2022, we had outstanding letters of credit and surety bonds totaling $1 million and $85 million, respectively.
−Removed: These letters of credit and surety bonds are generally subject to certain financial covenants and other limitations.
−Removed: If we are unable to obtain letters of credit or surety bonds when required, or the conditions imposed by issuers increase significantly, our liquidity and results of operations could be adversely affected.
Regional factors affecting the homebuilding industry in our current markets could materially and adversely affect us.
−Removed: Our business strategy is focused on the acquisition of suitable land and the design, construction and sale of primarily single-family homes in residential subdivisions, including planned communities, in Florida, Texas, Colorado, Georgia, the Washington D.C.
−Removed: metropolitan area, South Carolina and North Carolina.
+Added: Our business strategy is focused on the acquisition of suitable land and the design, construction and sale of primarily single-family homes in residential subdivisions, including planned communities, in Florida, Texas, Tennessee, North Carolina, South Carolina, Georgia, Colorado, and the Washington, D.C.
+Added: metropolitan area, which comprises Northern Virginia and Maryland.
In addition, we have lot purchase contracts for the right to purchase lots at a future point in time in all of these areas.
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Our inability to continue to compete successfully in any of our markets could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
−Removed: Any limitation on, or reduction or elimination of, tax benefits associated with homeownership would have an adverse effect upon the demand for homes, which could be material to our business.
−Removed: While tax laws generally permit significant expenses associated with homeownership, primarily mortgage interest expense and real estate taxes, to be deducted for the purpose of calculating an individual’s federal and, in many cases, state taxable income, the ability to deduct mortgage interest expense and real estate taxes for federal income tax purposes is limited.
−Removed: The federal government or a state government may change its income tax laws by eliminating, limiting or substantially reducing these income tax benefits without offsetting provisions, which may increase the after-tax cost of owning a new home for many of our potential homebuyers.
−Removed: For example, the Tax Cuts and Jobs Act, which became effective January 1, 2018, contained substantial changes to the Internal Revenue Code of 1986, as amended (the “Code”), including (i) limitations on the ability of our homebuyers to deduct property taxes, (ii) limitations on the ability of our homebuyers to deduct mortgage interest and (iii) limitations on the ability of our homebuyers to deduct state and local income taxes.
−Removed: Any further future changes may have an adverse effect on the homebuilding industry in general.
−Removed: For example, the further loss or reduction of homeowner tax deductions could decrease the demand for new homes.
−Removed: Any such future changes could also have a material adverse impact on our business, prospects, liquidity, financial condition and results of operations.
−Removed: Federal income tax credits currently available to certain builders of energy-efficient new homes may not be extended by future legislation.
−Removed: On August 12, 2022, the U.S.
−Removed: Congress passed the Inflation Reduction Act of 2022, which was signed into law on August 16, 2022.
−Removed: Such act extended the availability of the Code Section 45L credit for energy-efficient new homes (the “Federal Energy Credits”), which provides a tax credit of $2,000 per qualifying home ($1,600 after the benefit is deducted from cost of sales as required by the IRS) to eligible homebuilders, and made the Federal Energy Credits available for homes delivered through December 31, 2022.
−Removed: Additionally, the act also expanded the credit, resulting in an increase from $2,000 to either $2,500 or $5,000, depending on which specified energy efficiency standards are achieved, per qualifying home to eligible homebuilders, effective January 1, 2023.
−Removed: For the year ended December 31, 2021, we claimed $10 million of Federal Energy Credits.
−Removed: For the year ended December 31, 2022, we have estimated $14 million of Federal Energy Credits within our income tax provision.
−Removed: If legislation to extend the Federal Energy Credits for periods after December 31, 2032 is not adopted, our effective income tax rates thereafter may increase and could potentially be material.
−Removed: Any future government shutdowns or slowdowns may materially adversely affect our business or financial results.
−Removed: Any future government shutdowns or slowdowns may materially adversely affect our business or financial results.
−Removed: We can make no assurances that potential home closings affected by any such shutdown or slowdown will occur after the shutdown or slowdown has ended.
Natural disasters, severe weather and adverse geologic conditions may increase costs, cause project delays and reduce consumer demand for housing, all of which could materially and adversely affect us.
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Furthermore, the occurrence of natural disasters, severe weather and other adverse geologic conditions has increased in recent years due to climate change and may continue to increase in the future.
−Removed: Climate change may have the effect of making the risks described above occur more frequently and more severely, which could amplify the adverse impact in our business, prospects, liquidity, financial condition and results of operations.
+Added: Climate change may have the effect of making the risks described above occur more frequently and more severely, which could amplify the adverse impact on our business, prospects, liquidity, financial condition and results of operations.
There are some risks of loss for which we may be unable to purchase insurance coverage.
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A sizeable uninsured loss could materially and adversely affect our business, prospects, liquidity, financial condition and results of operations.
+Added: A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage.
+Added: Building sites are inherently dangerous, and operating in the homebuilding and land development industry poses certain inherent health and safety risks.
+Added: Due to health and safety regulatory requirements and the number of projects we work on, health and safety performance is critical to the success of all areas of our business.
+Added: Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements or litigation, and a failure that results in a major or significant health and safety incident is likely to be costly in terms of potential liabilities incurred as a result.
+Added: Such a failure could generate significant negative publicity and have a corresponding impact on our reputation and our relationships with relevant regulatory agencies, governmental authorities and local communities, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
+Added: Our geographic concentration could materially and adversely affect us if the homebuilding industry in our current markets should decline.
+Added: Our business strategy is focused on the design, construction and sale of single-family detached and attached homes.
+Added: We do have some geographic concentration present in our operations.
+Added: For instance, a significant portion of our homebuilding operations are concentrated within Florida and Texas.
+Added: A prolonged economic downturn in one or more of the areas in which we operate could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations, and a disproportionately greater impact on us than other homebuilders with larger scale and more diversified operations and geographic footprint.
+Added: Difficulties with appraisal valuations in relation to the proposed sales price of our homes could force us to reduce the price of our homes for sale.
+Added: Each of our home sales may require an appraisal of the home’s value before closing.
+Added: These appraisals are professional judgments of the market value of the property and are based on a variety of market factors.
+Added: If our internal valuations of the market and pricing do not line up with the appraisal valuations, and appraisals are not at or near the agreed upon sales price, we may be forced to reduce the sales price of the home to complete the sale.
+Added: These appraisal issues could have a material adverse effect on our business and results of operations.
+Added: If the market value of our inventory or controlled lot position declines, our profits could decrease and we may incur losses.
+Added: Inventory risk can be substantial for homebuilders.
+Added: The market value of building lots and housing inventories can fluctuate significantly as a result of changing market conditions.
+Added: In addition, inventory carrying costs can be significant and can result in losses in a poorly performing community or market.
+Added: We may be required to write-down the book value of our real estate assets in accordance with accounting principles generally accepted in the United States (“GAAP”), and some of those write-downs could be material.
+Added: Any material write-downs of assets could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
+Added: Additionally, we must continuously seek and make acquisitions of lots for expansion into new markets, as well as for replacement and expansion within our current markets, which we generally accomplish by entering into finished lot option contracts or land bank option contracts.
+Added: In the event of adverse changes in economic, market or community conditions, we may cease further building activities in certain communities, restructure existing land purchase option contracts or elect not to exercise our land purchase options.
+Added: Such actions would result in our forfeiture of some or all of any deposits, fees or investments paid or made in respect of such arrangements.
+Added: The forfeiture of land contract deposits or inventory impairments may result in a loss that could have a material adverse effect on our profitability, stock performance, ability to service our debt obligations and future cash flows.
+Added: We are subject to warranty and liability claims arising in the ordinary course of business that can be significant.
+Added: As a homebuilder, we are subject to construction defects, product liability and home and other warranty claims, including moisture intrusion and related claims, arising in the ordinary course of business.
+Added: These claims are common to the homebuilding industry and can be costly.
+Added: There can be no assurance that any developments we undertake will be free from defects once completed, and any defects attributable to us may lead to significant contractual or other liabilities.
+Added: Although we provide subcontractors with detailed specifications and perform quality control procedures, subcontractors may, in some cases, use improper construction processes or defective materials.
+Added: Defective products used in the construction of our homes can result in the need to perform extensive repairs.
+Added: When we discover these issues, we utilize our subcontractors to repair the homes in accordance with our subcontractor agreements, our new home warranty and as required by law.
+Added: We maintain and require our subcontractors to maintain general liability insurance (including construction defect and bodily injury coverage) naming the Company as an additional insured and workers’ compensation insurance and generally seek to require our subcontractors to provide a warranty to us and to defend and indemnify us for liabilities arising from their work.
+Added: Therefore, any claims relating to workmanship and materials are generally the subcontractors’ responsibility.
+Added: While these indemnities and insurance policies, subject to deductibles and other coverage limits, protect us against a portion of our risk of loss from claims related to our land development and homebuilding activities, we cannot provide assurance that these indemnities and insurance policies will be adequate to address all of our home and other warranty, product liability and construction defect claims in the future, or that any potential inadequacies will not have an adverse effect on our business, financial condition or results of operations.
+Added: The cost of performing such repairs (not covered by subcontractor warranty or indemnities) or litigation arising out of such issues, may be significant if we are unable to recover certain costs from subcontractors, suppliers and/or insurers.
+Added: Warranty and construction defect matters can also result in negative publicity, including on social media platforms, which could damage our reputation and negatively affect our ability to sell homes.
+Added: Further, the coverage offered by, and the availability of, general liability insurance for completed operations and construction defects are currently limited and costly.
+Added: While the Company records an estimate of warranty expense based on historical warranty costs, we cannot provide assurance that coverage will not become costlier and/or be further restricted, increasing our risks and financial exposure to claims.
+Added: Competing effectively within the mortgage banking and title service sectors may be difficult.
+Added: The competitors of our mortgage banking business include title companies and mortgage lenders, including national, regional and local mortgage banks and other financial institutions.
+Added: Some of these competitors are subject to fewer governmental regulations and have greater access to capital than we do, and some of them may operate with different criteria than we do.
+Added: These competitors may offer a broader or more attractive array of financing and other products and services to potential customers than we do.
+Added: For these reasons, we may not be able to compete effectively in the mortgage banking and title service businesses.
+Added: Any limitation on, or reduction or elimination of, tax benefits associated with homeownership would have an adverse effect upon the demand for homes, which could be material to our business.
+Added: While tax laws generally permit significant expenses associated with homeownership, primarily mortgage interest expense and real estate taxes, to be deducted for the purpose of calculating an individual’s federal and, in many cases, state taxable income, the ability to deduct mortgage interest expense and real estate taxes for federal income tax purposes is limited.
+Added: The federal government or a state government may change its income tax laws by eliminating, limiting or substantially reducing these income tax benefits without offsetting provisions, which may increase the after-tax cost of owning a new home for many of our potential homebuyers.
+Added: For example, the Tax Cuts and Jobs Act, which became effective January 1, 2018, contained substantial changes to the Internal Revenue Code of 1986, as amended (the “Code”), including (i) limitations on the ability of our homebuyers to deduct property taxes, (ii) limitations on the ability of our homebuyers to deduct mortgage interest and (iii) limitations on the ability of our homebuyers to deduct state and local income taxes.
+Added: Any similar future changes could also have a material adverse impact on our business, prospects, liquidity, financial condition and results of operations.
+Added: Federal income tax credits currently available to certain builders of energy-efficient new homes may not be extended by future legislation.
+Added: On August 12, 2022, the U.S.
+Added: Congress passed the Inflation Reduction Act of 2022, which was signed into law on August 16, 2022.
+Added: Such act extended the availability of the Code Section 45L credit for energy-efficient new homes (the “Federal Energy Credits”), which provides a tax credit of $2,000 per qualifying home ($1,600 after the benefit is deducted from cost of sales as required by the IRS) to eligible homebuilders, and made the Federal Energy Credits available for homes delivered through December 31, 2022.
+Added: Additionally, the Inflation Reduction Act of 2022 also expanded the credit to eligible homebuilders, resulting in an increase from $2,000 to either $2,500 or $5,000 per qualifying home, depending on which specified energy efficiency standards are achieved, effective January 1, 2023 through December 31, 2032.
+Added: For the year ended December 31, 2022, we claimed $11 million of Federal Energy Credits.
+Added: For the year ended December 31, 2023, we have estimated $3 million of Federal Energy Credits within our income tax provision.
+Added: The decrease in the amount of expected Federal Energy Credits in 2023 compared to the amount claimed in 2022 was primarily due to homes delivered in 2023 that were already under construction around the time of the change in the eligibility criteria, for which modifications to fully qualify under the new standards were deemed impractical.
+Added: Generally, in a given year, the Company aims to build as many energy-efficient new homes as possible.
+Added: If legislation to extend the Federal Energy Credits for periods after December 31, 2032, is not adopted, our effective income tax rates thereafter may increase and could potentially be material.
New and existing laws and regulations or other governmental actions may increase our expenses, limit the number of homes that we can build or delay completion of our projects.
11 unchanged sentences
with respect to trade policies, taxes, government relations and tariffs may impact our business.
−Removed: The federal government has imposed new or increased tariffs or duties on an array of imported materials and goods that are used in connection with the construction and delivery of our homes, including steel, aluminum, lumber, solar panels and washing machines, raising our costs for these items (or products made with them).
−Removed: Foreign governments, including China and Canada, and the European Union have responded by imposing or increasing tariffs, duties and/or trade restrictions on U.S.
+Added: For example, the federal government has in the past imposed new or increased tariffs or duties on an array of imported materials and goods that are used in connection with the construction and delivery of our homes, including steel, aluminum, lumber, solar panels and washing machines, raising our costs for these items (or products made with them), which resulted in foreign governments, including China and Canada, and the European Union responding by imposing or increasing tariffs, duties and/or trade restrictions on U.S.
goods, and may consider other measures.
−Removed: These trading conflicts and related escalating governmental actions that result in additional tariffs, duties and/or trade restrictions could increase our construction costs further, cause disruptions or shortages in our supply chains and/or negatively impact the U.S., regional or local economies, and, individually or in the aggregate, materially and adversely affect our business and our operating results.
+Added: Such trading conflicts and related escalating governmental actions that result in additional tariffs, duties and/or trade restrictions could increase our construction costs further, cause disruptions or shortages in our supply chains and/or negatively impact the U.S., regional or local economies, and, individually or in the aggregate, materially and adversely affect our business and our operating results.
We and our subcontractors are subject to environmental, health and safety laws and regulations, which may increase our costs, result in liabilities, limit the areas in which we can build homes and delay completion of our projects.
5 unchanged sentences
In some instances, regulators from different governmental agencies do not concur on development, remedial standards or property use restrictions for a project, and the resulting delays or additional costs can be material for a given project.
−Removed: Certain environmental laws and regulations also impose strict joint and several liability on former and current owners and operators of real property and in connection with third-party sites where parties have sent wastes.
−Removed: As a result, we may be held liable for environmental conditions we did not create on properties we currently or formerly owned or operated, including properties we have developed, or where we sent wastes.
+Added: Certain environmental laws and regulations also impose strict joint and several liability on former and current owners and operators of real property and in connection with third-party sites where parties have sent waste.
+Added: As a result, we may be held liable for environmental conditions we did not create on properties we currently or formerly owned or operated, including properties we have developed, or where we sent waste.
In addition, due to our wide range of historic and current ownership, operation, development, homebuilding and construction activities, we could be liable for future claims for damages as a result of the past or present use of hazardous materials, including building materials or fixtures known or suspected to contain hazardous materials, such as asbestos, lead paint and mold.
22 unchanged sentences
Similarly, energy-related initiatives affect a wide variety of companies throughout the United States, and because our operations are heavily dependent on significant amounts of raw materials, such as lumber, steel and concrete, these initiatives could have an adverse impact on our operations and profitability to the extent the manufacturers and suppliers of our materials are burdened with expensive cap and trade or similar energy-related regulations or requirements.
−Removed: Our geographic concentration could materially and adversely affect us if the homebuilding industry in our current markets should decline.
−Removed: Our business strategy is focused on the design, construction and sale of single-family detached and attached homes in 9 states across the United States including the District of Columbia metropolitan area.
−Removed: While our operations are geographically diverse, a prolonged economic downturn in one or more of the areas in which we operate could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations, and a disproportionately greater impact on us than other homebuilders with larger scale and more diversified operations and geographic footprint.
−Removed: Difficulties with appraisal valuations in relation to the proposed sales price of our homes could force us to reduce the price of our homes for sale.
−Removed: Each of our home sales may require an appraisal of the home value before closing.
−Removed: These appraisals are professional judgments of the market value of the property and are based on a variety of market factors.
−Removed: If our internal valuations of the market and pricing do not line up with the appraisal valuations, and appraisals are not at or near the agreed upon sales price, we may be forced to reduce the sales price of the home to complete the sale.
−Removed: These appraisal issues could have a material adverse effect on our business and results of operations.
−Removed: If the market value of our inventory or controlled lot position declines, our profits could decrease and we may incur losses.
−Removed: Inventory risk can be substantial for homebuilders.
−Removed: The market value of building lots and housing inventories can fluctuate significantly as a result of changing market conditions.
−Removed: In addition, inventory carrying costs can be significant and can result in losses in a poorly performing community or market.
−Removed: We may be required to write-down the book value of our real estate assets in accordance with accounting principles generally accepted in the United States (“GAAP”), and some of those write-downs could be material.
−Removed: Any material write-downs of assets could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
−Removed: Additionally, we must continuously seek and make acquisitions of lots for expansion into new markets, as well as for replacement and expansion within our current markets, which we generally accomplish by entering into finished lot option contracts or land bank option contracts.
−Removed: In the event of adverse changes in economic, market or community conditions, we may cease further building activities in certain communities, restructure existing land purchase option contracts or elect not to exercise our land purchase options.
−Removed: Such actions would result in our forfeiture of some or all of any deposits, fees or investments paid or made in respect of such arrangements.
−Removed: The forfeiture of land contract deposits or inventory impairments may result in a loss that could have a material adverse effect on our profitability, stock performance, ability to service our debt obligations and future cash flows.
−Removed: A major health and safety incident relating to our business could be costly in terms of potential liabilities and reputational damage.
−Removed: Building sites are inherently dangerous, and operating in the homebuilding and land development industry poses certain inherent health and safety risks.
−Removed: Due to health and safety regulatory requirements and the number of projects we work on, health and safety performance is critical to the success of all areas of our business.
−Removed: Any failure in health and safety performance may result in penalties for non-compliance with relevant regulatory requirements or litigation, and a failure that results in a major or significant health and safety incident is likely to be costly in terms of potential liabilities incurred as a result.
−Removed: Such a failure could generate significant negative publicity and have a corresponding impact on our reputation and our relationships with relevant regulatory agencies, governmental authorities and local communities, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
−Removed: Our mortgage banking and title services business is competitive and we may not be able to compete effectively in this area.
−Removed: The competitors to our mortgage banking business include title companies and mortgage lenders, including national, regional and local mortgage banks and other financial institutions.
−Removed: Some of these competitors are subject to fewer governmental regulations and have greater access to capital than we do, and some of them may operate with different criteria than we do.
−Removed: These competitors may offer a broader or more attractive array of financing and other products and services to potential customers than we do.
−Removed: For these reasons, we may not be able to compete effectively in the mortgage banking business.
Our mortgage banking and title services businesses may be adversely affected by changes in governmental regulation.
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Additionally, if we are unable to originate mortgages for any reason going forward, our customers may experience significant mortgage loan funding issues, which could have a material impact on our homebuilding business and our consolidated financial statements.
−Removed: Operational Risks Related to Our Business
+Added: Operational Risks
Our inability to successfully identify, secure and control an adequate inventory of lots at reasonable prices could adversely impact our operations.
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We may not be able to pass any increased land costs to our customers, which could adversely impact our revenues, earnings and margins.
−Removed: As the fair market value of controlled lots deviates from that of which the option contracts were originally executed, we attempt to renegotiate the terms of the option contracts to ensure that the yields are aligned with current market conditions.
+Added: Although when the fair market value of controlled lots deviates from that of which the option contracts were originally executed, we attempt to renegotiate the terms of the option contracts to ensure that the yields are aligned with current market conditions, there is no guarantee our renegotiating efforts will be successful.
Increases in our can cellation rate could have a negative impact on our homebuilding revenues and gross margins.
−Removed: Our backlog reflects sales contracts with homebuyers for homes that have not yet been delivered.
+Added: Our backlog reflects sales contracts with customers for homes that have not yet been delivered.
We have received a deposit from a homebuyer for most homes reflected in our backlog, and, generally, we have the right to retain the deposit if the homebuyer fails to comply with his or her obligations under the sales contract, subject to certain exceptions or contingencies, including as a result of state and local law, the homebuyer’s inability to sell his or her current home or, in certain circumstances, the homebuyer’s inability to obtain suitable financing.
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In addition to the contingencies noted above, cancellations can result from declines or slow appreciation in the market value of homes, increases in the supply of homes available to be purchased, increased competition, higher mortgage interest rates, and adverse changes in economic conditions.
−Removed: During the fourth quarter of 2022, demand further tightened in response to additional increases in mortgage rates.
−Removed: The market's reaction to the deteriorating economic conditions negatively affected net new orders and continues to have a negative impact in the cancellation rate for the Company.
+Added: Beginning in the fourth quarter of 2022 and continuing into 2023, demand further tightened in response to additional increases in mortgage rates caused by the Federal Reserve raising interest rates in response to inflationary conditions.
+Added: The market's reaction to the interest rate environment negatively affected net new orders and continues to have a negative impact on the cancellation rate for the Company.
Any continued increase in the level of our cancellations would have a negative impact on our business, prospects, liquidity, financial condition and results of operations.
+Added: Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Business Overview and Outlook” for more information.
Our business and results of operations are dependent on the availability, skill and performance of subcontractors.
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In addition, as we expand into new markets, we typically must develop new relationships with subcontractors in such markets, and there can be no assurance that we will be able to do so in a cost-effective and timely manner, or at al l.
−Removed: The sustained labor shortage in the United States has made the engagement of subcontractors more difficult during 2022.
+Added: The sustained labor shortage in the United States has continued to make the engagement of subcontractors difficult.
The inability to contract with skilled subcontractors at reasonable rates on a timely basis could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
−Removed: We are subject to warranty and liability claims arising in the ordinary course of business that can be significant.
−Removed: As a homebuilder, we are subject to construction defect, product liability and home and other warranty claims, including moisture intrusion and related claims, arising in the ordinary course of business.
−Removed: These claims are common to the homebuilding industry and can be costly.
−Removed: There can be no assurance that any developments we undertake will be free from defects once completed, and any defects attributable to us may lead to significant contractual or other liabilities.
−Removed: Although we provide subcontractors with detailed specifications and perform quality control procedures, subcontractors may, in some cases, use improper construction processes or defective materials.
−Removed: Defective products used in the construction of our homes can result in the need to perform extensive repairs.
−Removed: When we discover these issues, we utilize our subcontractors to repair the homes in accordance with our subcontractor agreements, our new home warranty and as required by law.
−Removed: We maintain and require our subcontractors to maintain general liability insurance (including construction defect and bodily injury coverage) naming the Company as an additional insured and workers’ compensation insurance and generally seek to require our subcontractors to provide a warranty to us and to defend and indemnify us for liabilities arising from their work.
−Removed: Therefore, any claims relating to workmanship and materials are generally the subcontractors’ responsibility.
−Removed: While these indemnities and insurance policies, subject to deductibles and other coverage limits, protect us against a portion of our risk of loss from claims related to our land development and homebuilding activities, we cannot provide assurance that these indemnities and insurance policies will be adequate to address all of our home and other warranty, product liability and construction defect claims in the future, or that any potential inadequacies will not have an adverse effect on our business, financial condition or results of operations.
−Removed: The cost of performing such repairs (not covered by subcontractor warranty or indemnities) or litigation arising out of such issues, may be significant if we are unable to recover certain costs from subcontractors, suppliers and/or insurers.
−Removed: Warranty and construction defect matters can also result in negative publicity, including on social media platforms, which could damage our reputation and negatively affect our ability to sell homes.
−Removed: Further, the coverage offered by, and the availability of, general liability insurance for completed operations and construction defects are currently limited and costly.
−Removed: While the Company records an estimate of warranty expense based on historical warranty costs, we cannot provide assurance that coverage will not become costlier and/or be further restricted, increasing our risks and financial exposure to claims.
A continued shortage of building materials or labor, or continued increases in materials or labor costs, could delay or increase the cost of home construction, which could materially and adversely affect us.
The residential construction industry experiences labor and raw material shortages from time to time, including shortages in qualified subcontractors, tradespeople and supplies of insulation, drywall, cement, steel and lumber.
−Removed: These labor and raw material shortages can be more severe during periods of strong demand for housing, during periods following natural disasters that have a significant impact on existing residential and commercial structures or a result of broader economic disruptions, such as the COVID-19 pandemic.
−Removed: Currently, we are experiencing labor shortages.
+Added: These labor and raw material shortages can be more severe during periods of strong demand for housing, during periods following natural disasters that have a significant impact on existing residential and commercial structures or a result of broader economic disruptions.
+Added: We continue to experience labor shortages.
It is uncertain whether these shortages will continue as is, improve or worsen.
Further, pricing for labor and raw materials could be affected by the factors discussed above and various other national, regional, local, economic and political factors, including changes in immigration laws and trends in labor migration and tariffs.
+Added: For instance, in 2023, Florida enacted legislation that will impose more stringent immigration eligibility requirements that could cause our labor shortage to worsen.
Our success in recently entered markets or those we may choose to enter in the future depends substantially on our ability to source labor and local materials on terms that are favorable to us.
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Labor and raw material shortages and price increases for labor and raw materials could cause delays in and increase our costs of home construction, which in turn could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
−Removed: Global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business, financial condition or results of operations.
−Removed: Our business could be adversely affected by unstable economic and political conditions within the United States and foreign jurisdictions and geopolitical conflicts, such as the conflict between Russia and Ukraine.
−Removed: While we do not have any customer or direct supplier relationships in either country, the current military conflict, and related sanctions, as well as export controls or actions that may be initiated by nations (e.g., potential cyberattacks, disruption of energy flows, etc.) and other potential uncertainties could adversely affect our supply chain by causing shortages or increases in costs for materials necessary to construct homes and/or increases to the price of gasoline and other fuels.
−Removed: In addition, such events could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact our business partners, employees or customers or otherwise adversely impact our business.
−Removed: Our business could be materially and adversely disrupted by an epidemic or pandemic (such as the COVID-19 pandemic), or similar public threat, or fear of such an event, and the measures that federal, state and local governments and other authorities implement to address it.
−Removed: An epidemic, pandemic or similar serious public health issue and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, along with any associated economic and social instability or distress, have a material adverse impact on our business, prospects, liquidity, financial condition and results of operations.
−Removed: The COVID-19 outbreak resulted in widespread adverse impacts on the global economy and financial markets, and on our employees, customers, suppliers and other parties with whom we have business relations.
−Removed: We have experienced disruptions to our business operations as a result of the pandemic.
−Removed: T o the extent that the COVID-19 pandemic adversely impacts our business, results of operations, liquidity or financial condition, it may also have the effect of increasing many of the other risks described in this “Risk Factors” section.
−Removed: There is no guarantee that a future outbreak of this or any other widespread epidemics or pandemics will not occur, or that the U.S.
−Removed: economy will fully recover, either of which could materially and adversely affect our business.
If we are unable to develop our communities successfully or within expected time-frames, our results of operations could be adversely affected.
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When a community requires additional developments, we devote substantial time and capital in order to obtain development approvals, acquire land and construct significant portions of project infrastructure and amenities before the community generates any revenue.
−Removed: In addition, our land bank option contracts often include interest provisions under which delays in land development and/or longer land takedown periods cause us to incur additional cost.
+Added: In addition, our land bank option contracts often include provisions under which delays in land development and/or longer land takedown periods cause us to incur additional cost.
It can take several years from the time we acquire control of an undeveloped property to the time we make our first home sale on the site.
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We may suffer significant financial harm and loss of reputation if we do not comply, cannot comply or are alleged to have not complied with applicable laws, rules and regulations concerning our classification and compensation practices for independent contractors.
−Removed: Each of our divisions retain various independent contractors, either directly or indirectly through third-party entities formed by these independent contractors for their business purposes, including, without limitation, some of our sales agents.
+Added: Each of our divisions retains various independent contractors, either directly or indirectly through third-party entities formed by these independent contractors for their business purposes, including, without limitation, some of our sales agents.
With respect to these independent contractors, we are subject to the Internal Revenue Service (the “IRS”) regulations and applicable state law guidelines regarding independent contractor classification.
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In addition, we could be required to make material expenditures related to the settlement of such issues or disputes or to modify our community development plans, which could adversely affect our results of operations.
−Removed: Our joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on the financial condition of our joint venture partners and disputes between us and our joint venture partners.
−Removed: We have in the past and may in the future co-invest with third parties through partnerships, joint ventures or other entities, acquiring non-controlling interests in, or sharing responsibility for managing the affairs of, a land acquisition and/or a development.
−Removed: In this event, we would not be in a position to exercise sole decision-making authority regarding the acquisition and/or development, and our investment may be illiquid due to our lack of control.
−Removed: Investments in partnerships, joint ventures or other entities may, under certain circumstances, involve incremental risks from involving a third party, including the possibility that our joint venture partners might become bankrupt, fail to fund their share of required capital contributions, make poor business decisions or block or delay necessary decisions.
−Removed: Our joint venture partners may have economic or other business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives.
−Removed: Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor our joint venture partners would have full control over the land acquisition or development.
−Removed: Disputes between us and our joint venture partners may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business.
−Removed: In addition, we may be liable for the actions of our joint venture partners in certain circumstances.
−Removed: There are various potential conflicts of interest in our relationship with DF Capital and certain of its managed funds, including with certain of our executive officers and directors who are investors in certain funds managed by DF Capital, which could result in decisions that are not in the best interest of our stockholders.
−Removed: Conflicts of interest may exist or could arise in the future with DF Capital and certain of its managed funds, including with certain of our executive officers and director nominees who are also investors in certain funds managed by DF Capital.
−Removed: Once a potential lot acquisition that requires a significant upfront commitment of capital is approved by our land acquisition committee, we seek a land bank partner.
−Removed: Historically, we have provided, and we expect to continue to provide DF Capital with the opportunity to have one of its managed funds participate in transactions that require additional funding.
−Removed: Such transactions may not be on terms that are as attractive as those we might be able to achieve if we sought other partners.
−Removed: If DF Capital does not wish to participate in and finance the transaction, we turn to other potential financing sources.
−Removed: Conflicts with DF Capital and certain of its managed funds may include, without limitation:
−Removed: conflicts arising from the enforcement of agreements between us and DF Capital and/or certain of its managed funds;
−Removed: conflicts in determining whether to offer DF Capital the opportunity to participate in a potential lot acquisition financing;
−Removed: if DF Capital does participate, conflicts in determining the terms of the financing;
−Removed: and conflicts in future transactions that we may pursue with DF Capital and/or one of its managed funds.
+Added: Strategic and Financial Risks
Our future success depends upon our ability to successfully adapt our business strategy to changing home buying patterns and trends.
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We believe that, due to anticipated generational shifts, changing demographics and other factors, the demand for more affordable homes will increase.
−Removed: Strategic Risks Related to Our Business
We cannot make any assurances that our growth or expansion strategies will be successful, and we may incur a variety of costs to engage in such strategies, including through targeted acquisitions, and the anticipated benefits may never be realized.
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Accordingly, any such expansion, including through acquisitions, could expose us to significant risks beyond those associated with operating our existing business and may adversely affect our business, prospects, liquidity, financial condition and results of operations.
−Removed: We may not be able to complete or successfully integrate our recent acquisitions or any potential future acquisitions or experience challenges in realizing expected benefits of each such acquisition.
−Removed: From time-to-time, we may evaluate possible acquisitions, some of which may be material.
−Removed: For example, in May 2019, we acquired Village Park Homes, in October 2020, we acquired H&H Homes, in January 2021, we acquired Century Homes, and in October 2021, we acquired MHI, in each case to significantly expand our presence in new and existing geographic markets.
−Removed: These and potential future acquisitions may pose significant risks to our existing operations if they cannot be successfully integrated.
−Removed: These acquisitions would place additional demands on our managerial, operational, financial and other resources and create operational complexity requiring additional personnel and other resources.
−Removed: In addition, we may not be able to successfully finance or integrate any businesses that we acquire.
+Added: We may not be able to complete or successfully integrate our recent acquisitions or any potential future acquisitions or experience challenges in realizing the expected benefits of each such acquisition.
+Added: From time-to-time, we acquire other businesses to expand our presence in new and existing geographic markets.
+Added: We may not be able to successfully finance or integrate any businesses that we acquire.
Furthermore, the integration of any acquisition may divert management’s time and resources from our core business and disrupt our operations.
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To the extent we pay the purchase price of an acquisition with proceeds from incurring debt, such an acquisition would increase our level of indebtedness and interest expense and could negatively affect our liquidity and restrict our operations.
−Removed: Further, to the extent that the purchase price of an acquisition is paid in the form of an earn out on future financial results, the success of such an acquisition will not be fully realized by us for a period of time as it is shared with the sellers.
+Added: Further, to the extent that a portion of the purchase price of an acquisition is paid in the form of an earn out on future financial results, the success of such an acquisition will not be fully realized by us for a period of time as it is shared with the sellers.
In addition, changes to the fair value of estimated earn out payments could significantly impact our results of operations.
All of the above risks could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
+Added: Our joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on the financial condition of our joint venture partners and disputes between us and our joint venture partners.
+Added: We have in the past, and may in the future, co-invest with third parties through partnerships, joint ventures or other entities, acquiring noncontrolling interests in, or sharing responsibility for managing the affairs of, a land acquisition and/or a development.
+Added: In this event, we would not be in a position to exercise sole decision-making authority regarding the acquisition and/or development, and our investment may be illiquid due to our lack of control.
+Added: Investments in partnerships, joint ventures or other entities may, under certain circumstances, involve incremental risks from involving a third party, including the possibility that our joint venture partners might become bankrupt, fail to fund their share of required capital contributions, make poor business decisions or block or delay necessary decisions.
+Added: Our joint venture partners may have economic or other business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives.
+Added: Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor our joint venture partners would have full control over the land acquisition or development.
+Added: Disputes between us and our joint venture partners may result in litigation or arbitration that would increase our expenses and prevent our officers and/or directors from focusing their time and effort on our business.
+Added: In addition, we may be liable for the actions of our joint venture partners in certain circumstances.
+Added: There are various potential conflicts of interest in our relationship with DF Capital and certain of its managed funds, including with certain of our executive officers and directors who are investors in certain funds managed by DF Capital, which could result in decisions that are not in the best interest of our stockholders.
+Added: Conflicts of interest may exist or could arise in the future with DF Capital and certain of its managed funds, including with certain of our executive officers and directors who are also investors in certain funds managed by DF Capital.
+Added: Once a potential lot acquisition that requires a significant upfront commitment of capital is approved by our land acquisition committee, we seek a land bank partner.
+Added: Historically, we have provided, and we expect to continue to provide DF Capital with the opportunity to have one of its managed funds participate in transactions that require additional funding.
+Added: Such transactions may not be on terms that are as attractive as those we might be able to achieve if we sought other partners.
+Added: If DF Capital does not wish to participate in and finance the transaction, we turn to other potential financing sources.
+Added: Conflicts with DF Capital and certain of its managed funds may include, without limitation:
+Added: conflicts arising from the enforcement of agreements between us and DF Capital and/or certain of its managed funds;
+Added: conflicts in determining whether to offer DF Capital the opportunity to participate in a potential lot acquisition financing;
+Added: if DF Capital does participate, conflicts in determining the terms of the financing;
+Added: and conflicts in future transactions that we may pursue with DF Capital and/or one of its managed funds.
+Added: Interest expense on debt we incur may limit our cash available to fund our growth strategies.
+Added: If our operations do not generate sufficient cash from operations at levels currently anticipated, we may seek additional capital in the form of debt financing.
+Added: Our current indebtedness includes, and any additional indebtedness we subsequently incur may have, a floating rate of interest.
+Added: Higher interest rates could increase debt service requirements on our current floating rate indebtedness, and on any floating rate indebtedness we subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes.
+Added: If we need to repay existing indebtedness during periods of rising interest rates, we could be required to refinance our then-existing indebtedness on unfavorable terms or liquidate one or more of our assets to repay such indebtedness at times that may not permit realization of the maximum return on such assets and could result in a loss.
+Added: The occurrence of either such event or both could materially and adversely affect our cash flows and results of operations.
+Added: Our ability to access and obtain capital in the future could be adversely affected as a result of a downgrade in any of our credit ratings.
+Added: Our ability to access and obtain financing on favorable terms is a key component of the Company’s operating capacity.
+Added: If negative rating actions, including downgrades, were to occur for either the Company’s corporate credit rating or the credit ratings for our senior unsecured notes, it could impact our access to new debt or result in less-than-favorable terms for any future debt obtained, such as harsher covenants, increased cost to obtain new debt and higher interest rates.
+Added: Either scenario could result in a material adverse effect on liquidity, financial condition and results of operations, which could serve to further compound negative rating actions and their effects on our business.
+Added: Our current financing arrangements contain, and our future financing arrangements likely will contain, restrictive covenants.
+Added: Our current financing agreements contain, and the financing arrangements we enter into in the future likely will contain, covenants that limit our ability to do certain things.
+Added: For instance, our c redit agreement requires the Company to meet certain financial ratios and comply with covenants, such as a maximum debt to capitalization ratio, minimum interest coverage ratios and minimum liquidity ratios.
+Added: Furthermore, the Company issued senior unsecured notes in August 2023 which were issued pursuant to an indenture (the “Indenture”).
+Added: In addition to customary events of default, the Indenture contains certain restrictive covenants that, among other things, limit our ability to incur or guarantee certain indebtedness, issue certain equity interests or engage in certain capital stock transactions, and impose constraints concerning mergers, consolidations, and asset transfers.
+Added: If we fail to meet or satisfy any of these provisions, we would be in default under such financing agreement and our lenders could elect to declare outstanding amounts due and payable and terminate their commitments.
+Added: A default also could significantly limit our financing alternatives, which could cause us to curtail our investment activities and/or dispose of assets when we otherwise would not choose to do so.
+Added: In addition, future indebtedness we obtain may contain financial covenants limiting our ability to, for example, incur additional indebtedness, make certain investments, reduce liquidity below certain levels and pay dividends to our stockholders and otherwise affect our operating policies.
+Added: If we default on one or more of our debt agreements, it could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
+Added: Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.
+Added: We have undrawn committed funding from numerous financial institutions under our syndicated revolving line of credit.
+Added: Additionally, we may hold domestic cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured banks which exceed the FDIC insurance limits.
+Added: Bank failures, events involving limited liquidity, defaults, non-performance, or other adverse developments that affect financial institutions, or concerns or rumors about such events, may lead to liquidity constraints.
+Added: The failure of banks, or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, or have undrawn commitments under our revolving line of credit, could adversely impact our liquidity and financial performance.
+Added: There can be no assurance other financial institutions would provide replacement commitments under our line of credit or that our deposits in excess of the FDIC or other comparable insurance limits will be backstopped by the U.S.
+Added: or that any bank or financial institution with which we do business will be able to obtain needed liquidity from other banks, government institutions, or by acquisition in the event of a failure or liquidity crisis.
+Added: Adverse developments affecting financial institutions, including bank failures, could adversely affect our liquidity and financial performance.
+Added: Volatility in the credit and capital markets may impact our cost of capital and our ability to access necessary financing and the difficulty in obtaining sufficient capital could prevent us from acquiring lots for construction or increase costs and delays in the completion of our homes under construction.
+Added: If we require working capital greater than that provided by our operations and our credit facilities, we may be required to increase the amount available under the facilities or to seek alternative financing, which might not be available on terms that are favorable or acceptable or at all.
+Added: If we are required to seek financing to fund our working capital requirements, volatility in credit or capital markets may restrict our flexibility to successfully obtain additional financing on terms acceptable to us, or at all.
+Added: If we are at any time unsuccessful in obtaining sufficient capital to fund our planned homebuilding expenditures, we may experience a substantial delay in the completion of homes then under construction, or we may be unable to control or purchase finished lots.
+Added: Any delay could result in cost increases and could have a material adverse effect on our sales, profitability, stock performance, cash flows and ability to service our debt obligations.
+Added: We have access to the committed funds under our Credit Agreement, which is a senior unsecured revolving credit facility.
+Added: Another source of liquidity includes our ability to use letters of credit and surety bonds.
+Added: These letters of credit and surety bonds relate to certain performance-related obligations and serve as security for certain land option contracts.
+Added: The majority of these letters of credit and surety bonds are in support of our land development and construction obligations to various municipalities, other government agencies and utility companies related to the construction of roads, sewers and other infrastructure.
+Added: As of December 31, 2023, we had outstanding letters of credit and surety bonds totalin g $1 million and $195 million, respectively.
+Added: These letters of credit and surety bonds are generally subject to certain financial covenants and other limitations.
+Added: If we are unable to obtain letters of credit or surety bonds when required, or the conditions imposed by issuers increase significantly, our liquidity and results of operations could be adversely affected.
+Added: Access to financing sources may not be available on favorable terms, or at all, especially in light of current market conditions, which could adversely affect our ability to maximize our returns.
+Added: Our access to additional third-party sources of financing will depend, in part, on:
+Added: • general market conditions;
+Added: • the current interest rates;
+Added: • the market’s perception of our growth potential;
+Added: • with respect to land acquisition and/or development financing, the market’s perception of the value of the land parcels to be acquired and/or developed;
+Added: • our current debt levels;
+Added: • our current and expected future earnings;
+Added: • our cash flow;
+Added: • the market price per share of our common stock.
+Added: The global credit and equity markets and the overall economy can be extremely volatile, which could have a number of adverse effects on our operations and capital requirements.
+Added: For the past decade, the domestic financial markets have experienced a high degree of volatility, uncertainty and, during certain periods, tightening of liquidity in both the high yield debt and equity capital markets, resulting in certain periods when new capital has been both more difficult and more expensive to access.
+Added: If we are unable to access the credit markets, we could be required to defer or eliminate important business strategies and growth opportunities in the future.
+Added: In addition, if there is prolonged volatility and weakness in the capital and credit markets, potential lenders may be unwilling or unable to provide us with financing that is attractive to us or may increase collateral requirements or may charge us prohibitively high fees in order to obtain financing.
+Added: Consequently, our ability to access the credit market in order to attract financing on reasonable terms may be adversely affected.
+Added: Investment returns on our assets and our ability to make acquisitions could be adversely affected by our inability to secure additional financing on reasonable terms, if at all.
+Added: Depending on market conditions at the relevant time, we may have to rely more heavily on additional equity financings or on less efficient forms of debt financing that require a larger portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities and other purposes.
+Added: We may not have access to such equity or debt capital on favorable terms at the desired times, or at all.
Risks Related to Our Organization and Structure
We depend on key management personnel and other experienced employees.
−Removed: Our success depends to a significant degree upon the contributions of certain key management personnel, including, but not limited to, Patrick Zalupski, our founder, President, Chief Executive Officer and Chairman of our Board of Directors, our Senior Vice President and Chief Operating Officer, Doug Moran, and our Senior Vice President and Chief Financial Officer, Anabel Fernandez.
+Added: Our success depends to a significant degree upon the contributions of certain key management personnel, including, but not limited to, Patrick Zalupski, our founder, President, Chief Executive Officer and Chairman of the Board of Directors, our Senior Vice President and Chief Operating Officer, Doug Moran, and our Senior Vice President and Chief Financial Officer, Anabel Fernandez.
Although we have entered into employment agreements with Mr.
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Failure to attract and retain such personnel or to ensure that their experience and knowledge is not lost when they leave the business through retirement, redundancy or otherwise may adversely affect the standards of our service and may have an adverse impact on our business, prospects, liquidity, financial condition and results of operations.
−Removed: Our current financing arrangements contain, and our future financing arrangements likely will contain, restrictive covenants.
−Removed: Our current financing agreements contain, and the financing arrangements we enter into in the future likely will contain, covenants that limit our ability to do certain things.
−Removed: For instance, our Credit Agreement requires the Company to meet certain financial ratios and comply with covenants, such as maximum debt to capitalization ratio, minimum interest coverage ratios and minimum liquidity ratios.
−Removed: If we fail to meet or satisfy any of these provisions, we would be in default under such financing agreement and our lenders could elect to declare outstanding amounts due and payable and terminate their commitments.
−Removed: A default also could significantly limit our financing alternatives, which could cause us to curtail our investment activities and/or dispose of assets when we otherwise would not choose to do so.
−Removed: In addition, future indebtedness we obtain may contain financial covenants limiting our ability to, for example, incur additional indebtedness, make certain investments, reduce liquidity below certain levels and pay dividends to our stockholders and otherwise affect our operating policies.
−Removed: If we default on one or more of our debt agreements, it could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
−Removed: Zalupski has the ability to direct the voting of a majority of the voting power of our common stock, and his interests may conflict with those of our other stockholders.
+Added: Zalupski owns a significant amount of our stock and his interests may conflict with those of our other stockholders.
Our common stock consists of two classes:
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Holders of Class A common stock and Class B common stock vote together as a single class on all matters presented to our stockholders for their vote or approval, except as otherwise required by applicable law or our certificate of incorporation.
−Removed: Zalupski, our founder, President, Chief Executive Officer and Chairman of our Board of Directors, owns, through personal holdings and an entity that he controls, 100% of our Class B common stock (representin g 85% of the total combined voting power of our Class A and Class B common stock as of December 31, 2022).
+Added: Zalupski, our founder, President, Chief Executive Officer and Chairman of the Board of Directors, owns, through personal holdings and an entity that he controls, 100% of our Class B common stock (representin g approximately 85% of the total combined voting power of our Class A and Class B common stock as of December 31, 2023).
As a result, Mr.
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Zalupski’s concentration of stock ownership may also adversely affect the trading price of our Class A common stock to the extent investors perceive a disadvantage in owning stock of a company with significant stockholders.
+Added: Sales of shares pledged for margin loans by our directors and officers could cause our stock price to decrease.
+Added: Under the Dream Finders Homes, Inc.
+Added: Insider Trading Policy (“our Insider Trading Policy”), our directors, officers and employees can pledge shares of our common stock as collateral for a loan or hold shares of our common stock in a margin account if the value of Company securities held in one or more margin accounts does not exceed 30% of the total value of all of the Company securities owned by the shareholder at the time such loan or loans (individually or in the aggregate) are originated and the director, officer or employee obtains pre-clearance from the designated compliance officer.
+Added: As of December 31, 2023, Mr.
+Added: Zalupski had 17,500,000 shares of our Class B common stock pledged as security for a margin loan.
+Added: In the event that such margin loan (or any other margin loan by an officer or director) were to be called and the shares of common stock were sold on the open market by the lender, the price of our common stock would likely decline materially.
Certain of our directors have significant duties with, and spend significant time serving, entities that may compete with us in seeking acquisitions and business opportunities and, accordingly, may have conflicts of interest in pursuing business opportunities.
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Alternatively, if a court were to find these provisions of our amended and restated certificate of incorporation inapplicable to, or unenforceable in respect of, one or more of the specified types of actions or proceedings, we may incur additional costs associated with resolving such matters in other jurisdictions, which could adversely affect our business, financial condition or results of operations.
−Removed: We have not declared or paid cash dividends on our Class A common stock and we cannot assure that cash dividends will be paid.
−Removed: Consequently, a return may only be achieved on an investment if the price of the Class A common stock appreciates and the Class A common stock is sold at a price greater than what was paid for it.
−Removed: There is no guarantee that the price of the Class A common stock that will prevail in the market will ever exceed the price that was paid.
Provisions in our charter documents or Delaware law, as well as Mr.
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In addition, some of the restrictive covenants contained in our various financing agreements may delay or prevent a change in control.
−Removed: We are a “controlled company” within the meaning of the NYSE rules, which allows us to rely on exemptions from certain corporate governance requirements.
+Added: We are a “controlled company” within the meaning of the New York Stock Exchange rules, which allows us to rely on exemptions from certain corporate governance requirements.
Zalupski beneficially owns a majority of our outstanding voting interests.
−Removed: As a result, we are a “controlled company” within the meaning of the NYSE corporate governance standards.
+Added: As a result, we are a “controlled company” within the meaning of the New York Stock Exchange (“NYSE”) corporate governance standards.
Under the NYSE rules, a company of which more than 50% of the voting power is held by another person or group of persons acting together is a “controlled company” and may elect not to comply with certain NYSE corporate governance requirements, including the requirements that:
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The dual class structure of our common stock may adversely affect the trading market for our Class A common stock.
−Removed: In July 2017, S&P Dow Jones Indices and FTSE International Limited announced changes to their eligibility criteria for the inclusion of shares of public companies on certain indices, including the Russell 2000, the S&P 500, the S&P MidCap 400 and the S&P SmallCap 600, to exclude companies with multiple classes of shares of common stock from being added to these indices.
−Removed: As a result, our dual class capital structure makes us ineligible for inclusion in any of these indices, and mutual funds, exchange-traded funds and other investment vehicles that attempt to passively track these indices will not be investing in our stock.
−Removed: Furthermore, we cannot ensure that other stock indices will not take a similar approach to S&P Dow Jones or FTSE Russell in the future.
−Removed: Exclusion from indices could make our Class A common stock less attractive to investors, and, as a result, the market price of our Class A common stock could be adversely affected.
+Added: We cannot predict whether our dual class structure, combined with the concentrated control of Mr.
+Added: Zalupski, will result in a lower or more volatile market price of our Class A common stock, or in adverse publicity or other adverse consequences.
+Added: In the past, some index providers have announced restrictions on including companies with multiple class share structures in certain of their indices, although in some instances, those restrictions have been reversed.
+Added: For example, in April 2023, S&P Down Jones Indices announced that companies with multiple share class structures will be considered eligible for certain indices.
+Added: While other indices have also reversed course on multi-class stock restrictions and/or bans, we cannot predict whether indices will reinstate or announce such policies in the future, making us ineligible for inclusion in certain indices.
+Added: Given the sustained flow of investment funds into passive strategies that seek to track certain indices, exclusion from certain stock indices would likely preclude investment by many of these funds and would make our Class A common stock less attractive to other investors.
+Added: As a result, the trading price and volume of our Class A common stock could be adversely affected.
+Added: We have not declared or paid cash dividends on our Class A common stock and we cannot assure that cash dividends will be paid.
+Added: Consequently, a return may only be achieved on an investment if the price of the Class A common stock appreciates and the Class A common stock is sold at a price greater than what was paid for it.
+Added: There is no guarantee that the price of the Class A common stock that will prevail in the market will ever exceed the price that was paid.
+Added: If securities or industry analysts do not publish research or reports about our business, they adversely change their recommendations regarding our Class A common stock or our operating results do not meet their expectations, our stock price could decline.
+Added: The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business.
+Added: If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
+Added: Moreover, if one or more of the analysts who cover our company downgrades our Class A common stock, or if our operating results do not meet their expectations, our stock price could decline.
+Added: Our share buyback program that was approved by the Board in June 2023 could affect our stock price and increase its volatility, and may reduce the market liquidity for our stock.
+Added: The share buyback program may also materially impact the Company’s liquidity.
+Added: Repurchases pursuant to the share buyback program entered into in June 2023, or any other share buyback program we adopt in the future, could affect our stock price and increase its volatility and may reduce the market liquidity for our stock.
+Added: The existence of a share buyback program could also cause our stock price to be higher than it would be in the absence of such a program.
+Added: Additionally, these repurchases will diminish our cash and may subject us to additional taxes, which could impact our ability to pursue possible future strategic opportunities and acquisitions and would result in lower overall returns on our cash balances.
+Added: There can be no assurance that any share repurchases will, in fact, occur, or, if they occur, that they will enhance stockholder value.
+Added: Although share buyback programs are intended to enhance long-term stockholder value, short-term stock price fluctuations could reduce the effectiveness of these repurchases.
Our Class A and B common stock r ank junior to our convertible preferred stock with respect to dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs.
+Added: On September 29, 2021, we sold 150,000 shares of convertible preferred stock with an initial liquidation preference of $1,000 per share, for an aggregate purchase price of $150 million.
Our Class A and B common stock rank junior to our convertible preferred stock, with respect to the payment of dividends and amounts payable in the event of our liquidation, dissolution or winding-up of our affairs.
−Removed: Upon our liquidation, dissolution or winding up, each share of Convertible Preferred Stock will be entitled to receive an amount per share equal to the initial liquidation preference of $1,000 per share, subject to adjustment, plus all accrued and unpaid dividends thereon, which dividends accrue at a rate equal to 9% per annum.
+Added: Upon our liquidation, dissolution or winding up, each share of convertible preferred stock will be entitled to receive an amount per share equal to the initial liquidation preference of $1,000 per share, subject to adjustment, plus all accrued and unpaid dividends thereon, which dividends accrue at a rate of 9% per annum.
No distribution of our assets may be made to holders of our Class A and B common stock until we have paid to holders of our convertible preferred stock such liquidation preference.
−Removed: In addition, as a holding company, we are dependent on cash distributions from DFH LLC and, thus, our ability to cover our expenses, all applicable taxes payable and dividends, if any, declared by us depends on DFH LLC’s ability first to satisfy its obligations to its creditors and make distributions to holders of the Series B preferred units of DFH LLC and then to us.
+Added: In addition, as a holding company, we are dependent on cash distributions from Dream Finders Homes Holdings, LLC (“DFH LLC”) and, thus, our ability to cover our expenses, all applicable taxes payable and dividends, if any, declared by us depends on DFH LLC’s ability first to satisfy its obligations to its creditors and make distributions to holders of the Series B preferred units of DFH LLC and then to us.
Shares of our convertible preferred stock are convertible into shares of our Class A common stock in certain circumstances and, upon conversion, will dilute common stock shareholders’ percentage of ownership.
−Removed: Subsequent to the fifth anniversary of its issuance (or earlier in the event of non-compliance with a protective covenant), a holder can convert the Convertible Preferred Stock into shares of Class A common stock at a conversion price that will be based on the average of the trailing 90 days’ closing price of the Class A common stock, less 20% of the average (increasing to 25% in the event of non-compliance with a protective covenant) and subject to a floor conversion price of $4.00.
+Added: Subsequent to the fifth anniversary of its issuance (or earlier in the event of our non-compliance with a protective covenant), a holder can convert the convertible preferred stock into shares of Class A common stock at a conversion price that will be based on the average of the last reported sales price of the Company’s Class A common stock for the ninety trading days immediately preceding but not including the date of the Optional Conversion Notice (as defined in the certificate of designations for the convertible preferred stock), less 20% of the aforementioned average (increasing to 25% in the event of non-compliance with a protective covenant) and subject to a floor conversion price of $4.00.
Although we intend to call the shares of convertible preferred stock for redemption prior to their conversion, in the event the shares of convertible preferred stock are converted into shares of Class A common stock, such issuance will cause substantial dilution to the holders of our common stock.
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If we undergo a Change of Control (as defined in the certificate of designations for the convertible preferred stock), we must redeem all of the shares of convertible preferred stock for cash consideration equal to the initial liquidation preference of $1,000 per share, subject to adjustment, plus all a ccrued and unpaid dividends thereon, plus if the Change of Control occurs before the fourth anniversary of the date of issuance, a premium equal to the dividends that would have accumulated on such share from and after the date of the Change of Control and through the fourth anniversary of the date of issuance of the convertible preferred stock.
−Removed: Interest expense on debt we incur may limit our cash available to fund our growth strategies.
−Removed: If our operations do not generate sufficient cash from operations at levels currently anticipated, we may seek additional capital in the form of debt financing.
−Removed: Our current indebtedness includes, and any additional indebtedness we subsequently incur may have, a floating rate of interest.
−Removed: Higher interest rates could increase debt service requirements on our current floating rate indebtedness, and on any floating rate indebtedness we subsequently incur, and could reduce funds available for operations, future business opportunities or other purposes.
−Removed: If we need to repay existing indebtedness during periods of rising interest rates, we could be required to refinance our then-existing indebtedness on unfavorable terms or liquidate one or more of our assets to repay such indebtedness at times that may not permit realization of the maximum return on such assets and could result in a loss.
−Removed: The occurrence of either such event or both could materially and adversely affect our cash flows and results of operations.
If we fail to maintain an effective system of internal controls, we may not be able to accurately determine our financial results or prevent fraud.
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Although we have implemented systems and processes intended to secure our information systems, there can be no assurance that our efforts to maintain the security and integrity of our information systems will be effective or that future attempted security breaches or disruptions would not be successful or damaging.
+Added: Presently, we employ a limited array of both traditional and generative artificial intelligence (“AI”) solutions for specific sales, administrative, and operational functions, including aiding in the drafting of disclosures subject to management review.
+Added: It is conceivable that we might integrate further AI solutions into our information systems in the future, potentially assuming a more critical role in our operations over time.
+Added: The continuous advancement and utilization of technology, encompassing cloud-based computing and AI, introduce possibilities for the inadvertent exposure or misuse of the personal data integral to our business operations, as well as the unintentional disclosure or deliberate destruction of confidential information stored within our systems or those of our third-party providers, via portable media or storage devices.
+Added: Such occurrences may lead to considerable increases in operational and security expenses, tarnished reputation, regulatory penalties, or expenses related to legal defense.
+Added: AI programs can incur significant costs and demand substantial expertise for development, pose challenges in setup and management, and necessitate periodic updates.
+Added: Competitors or other entities may integrate AI into their information systems and business operations more swiftly or effectively than us, potentially impairing our competitive edge and negatively impacting our financial performance.
+Added: Furthermore, our information technology infrastructure requires sustained allocation of substantial resources for the upkeep, safeguarding, and enhancement of existing systems, as well as for the development of new systems.
+Added: This ensures our ability to keep abreast of ongoing advancements in information processing technology, evolving legal and regulatory standards, the growing imperative to safeguard employee and customer data, shifts in unauthorized data access methods, and the evolving IT demands tied to our expanding product portfolio.
+Added: There is no guarantee that our endeavors, encompassing system consolidation, fortification, upgrades, and expansion, along with embedding security into the architecture of our information systems, and the development of new systems to match the pace of technological evolution, including generative AI platforms, will yield the desired outcomes or prevent the emergence of additional system-related challenges in the future.
Our business is subject to complex and evolving U.S.
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Increasing attention to environmental, social and governance matters may impact our business, financial results or stock price.
−Removed: In recent years, increasing attention has been given to corporate activities related to environmental, social and governance (“ESG”) matters in public discourse and the investment community.
+Added: In recent years, increasing attention has been given to corporate activities related to ESG matters in public discourse and in the investment community.
A number of advocacy groups, both domestically and internationally, have campaigned for governmental and private action to promote change at public companies related to ESG matters, including through the investment and voting practices of investment advisers, public pension funds, universities and other members of the investing community.
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Negative publicity could adversely affect our reputation as well as our business, financial results and stock price.
+Added: Our business success is dependent upon the reputation of the Dream Finders brand and its association with quality and integrity.
+Added: If we are unable to maintain the position of our brand, our business may be adversely affected, which could result in lower sales and earnings.
Unfavorable media related to our industry, company, brands, marketing, personnel, operations, business performance or prospects may affect our stock price and the performance of our business, regardless of its accuracy or inaccuracy.
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Any of these circumstances could have a material adverse effect on our business, prospects, liquidity, financial condition and results of operations.
−Removed: Access to financing sources may not be available on favorable terms, or at all, especially in light of current market conditions, which could adversely affect our ability to maximize our returns.
−Removed: Our access to additional third-party sources of financing will depend, in part, on:
−Removed: • general market conditions;
−Removed: • the current interest rates;
−Removed: • the market’s perception of our growth potential;
−Removed: • the duration and effects of the COVID-19 pandemic;
−Removed: • with respect to acquisition and/or development financing, the market’s perception of the value of the land parcels to be acquired and/or developed;
−Removed: • our current debt levels;
−Removed: • our current and expected future earnings;
−Removed: • our cash flow;
−Removed: • the market price per share of our common stock.
−Removed: The global credit and equity markets and the overall economy can be extremely volatile, which could have a number of adverse effects on our operations and capital requirements.
−Removed: For the past decade, the domestic financial markets have experienced a high degree of volatility, uncertainty and, during certain periods, tightening of liquidity in both the high yield debt and equity capital markets, resulting in certain periods when new capital has been both more difficult and more expensive to access.
−Removed: If we are unable to access the credit markets, we could be required to defer or eliminate important business strategies and growth opportunities in the future.
−Removed: In addition, if there is prolonged volatility and weakness in the capital and credit markets, potential lenders may be unwilling or unable to provide us with financing that is attractive to us or may increase collateral requirements or may charge us prohibitively high fees in order to obtain financing.
−Removed: Consequently, our ability to access the credit market in order to attract financing on reasonable terms may be adversely affected.
−Removed: Investment returns on our assets and our ability to make acquisitions could be adversely affected by our inability to secure additional financing on reasonable terms, if at all.
−Removed: Depending on market conditions at the relevant time, we may have to rely more heavily on additional equity financings or on less efficient forms of debt financing that require a larger portion of our cash flow from operations, thereby reducing funds available for our operations, future business opportunities and other purposes.
−Removed: We may not have access to such equity or debt capital on favorable terms at the desired times, or at all.
−Removed: If securities or industry analysts do not publish research or reports about our business, they adversely change their recommendations regarding our Class A common stock or our operating results do not meet their expectations, our stock price could decline.
−Removed: The trading market for our Class A common stock will be influenced by the research and reports that industry or securities analysts publish about us or our business.
−Removed: If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
−Removed: Moreover, if one or more of the analysts who cover our company downgrades our Class A common stock, or if our operating results do not meet their expectations, our stock price could decline.
+Added: Global economic and political instability and conflicts could adversely affect our business, financial condition or results of operations.
+Added: Our business could be adversely affected by unstable economic and political conditions within the United States and foreign jurisdictions and geopolitical conflicts, including the continued conflicts between Israel and Hamas and Ukraine and Russia.
+Added: While we do not have any customer or direct supplier relationships in either country, the current military conflict, and related sanctions, as well as export controls or actions that may be initiated by nations (e.g., potential cyberattacks, disruption of energy flows, etc.) and other potential uncertainties could adversely affect our supply chain by causing shortages or increases in costs for materials necessary to construct homes and/or increases to the price of gasoline and other fuels.
+Added: In addition, such events could cause higher interest rates, inflation or general economic uncertainty, which could negatively impact our business partners, employees or customers or otherwise adversely impact our business.
+Added: Our business could be materially and adversely disrupted by an epidemic or pandemic, or similar public threat, or fear of such an event, and the measures that federal, state and local governments and other authorities implement to address it.
+Added: An epidemic, pandemic or similar serious public health issue and the measures undertaken by governmental authorities to address it, could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period, and thereby, along with any associated economic and social instability or distress, have a material adverse impact on our business, prospects, liquidity, financial condition and results of operations.
+Added: Global and U.S.
+Added: agencies declared the end of the related emergency from the COVID-19 pandemic in May 2023.
+Added: This health crisis had far-reaching adverse effects on the global economy, financial markets, and various stakeholders including our employees, customers, suppliers, and other business associates.
+Added: There is no guarantee that a future outbreak of this or any other widespread epidemics or pandemics will not occur, or that the U.S.
+Added: economy will fully recover, either of which could materially and adversely affect our business.
+Added: Any future government shutdowns or slowdowns may materially adversely affect our business or financial results.
+Added: Any future government shutdowns or slowdowns may materially adversely affect our business or financial results.
+Added: We can make no assurances that potential home closings affected by any such shutdown or slowdown will occur after the shutdown or slowdown has ended.
Cautionary Statement about Forward-Looking Statements and Risk Factor Summary
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• a continued shortage of building materials or labor, or continued increases in costs that delay or increase the cost of home construction;
−Removed: • the impact from global economic and political instability and conflicts, such as the conflict between Russia and Ukraine, could adversely affect our business, financial condition or results of operations;
+Added: • the impact from global economic and political instability and conflicts could adversely affect our business, financial condition or results of operations;
• a slowdown in the homebuilding industry or changes in population growth rates in our markets;
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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 Annual Report on Form 10-K.
−Removed: UNRESOLVED STAFF COMMENTS
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.