What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-29 compared with 2023-03-02 · 415 added, 547 removed, 371 unchanged (72% of the section changed)

40 unchanged sentences

Valuation of Contingent Consideration

As described in Note 1 to the consolidated financial statements, the Company has recorded contingent consideration related to the acquisitions of McGuyer Homebuilders, Inc.

in 2021, H&H Constructors of Fayetteville in 2020, and Village Park Homes in 2019.

Management recorded the fair value of the contingent consideration as a liability on the respective acquisition dates.

The estimated earn-out payments are subsequently remeasured to fair value at each reporting date based on the estimated future earnings of the acquired entities and the reassessment of risk-adjusted discount rates.

As described in Note 1 to the consolidated financial statements, the Company has recorded contingent consideration related to the acquisition of McGuyer Homebuilders, Inc.

Management recorded the fair value of the contingent consideration as a liability on the acquisition date.

The estimated earn-out payments are subsequently remeasured to fair value at each reporting date based on the estimated future earnings of the acquired entity and the reassessment of risk-adjusted discount rates.

The measurement of contingent consideration was based on projected cash flows such as revenues, gross margin, overhead expenses, and pre-tax income and discounted to present value using the discounted cash flow method.

1 unchanged sentence

The principal considerations for our determination that performing procedures relating to the valuation of contingent consideration is a critical audit matter are (i) the significant judgment by management when estimating the fair value of contingent consideration;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to projected revenue, gross margin and pre-tax income and the risk-adjusted discount rates;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to management’s remeasurement of the contingent consideration, including controls over the projected revenue, gross margin and pre-tax income and risk-adjusted discount rates applied in the contingent consideration valuation calculation.

These procedures also included, among others, testing management’s process for estimating the fair value of contingent consideration, which included evaluating the appropriateness of the discounted cash flow methods, testing the completeness and accuracy of data used in the methods, and evaluating the reasonableness of management’s significant assumptions related to projected revenue, gross margin and pre-tax income and the risk-adjusted discount rates.

Evaluating the reasonableness of the projected revenue, gross margin and pre-tax income involved considering the past performance of the acquired businesses, as well as economic and industry forecasts.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the discounted cash flow methods and the reasonableness of the risk-adjusted discount rates.

These procedures included testing the effectiveness of controls relating to management’s remeasurement of the contingent consideration, including controls over the projected revenue, gross margin and pre-tax income applied in the contingent consideration valuation calculation.

These procedures also included, among others, testing management’s process for estimating the fair value of contingent consideration, which included evaluating the appropriateness of the discounted cash flow method, testing the completeness and accuracy of data used in the method, and evaluating the reasonableness of management’s significant assumptions related to projected revenue, gross margin and pre-tax income.

Evaluating the reasonableness of the projected revenue, gross margin and pre-tax income involved considering the past performance of the acquired business, as well as economic and industry forecasts.

Professionals with specialized skill and knowledge were used to assist in the evaluation of the appropriateness of the discounted cash flow method.

/s/ PricewaterhouseCoopers LLP

Jacksonville, Florida

March 2, 2023

We have served as the Company’s auditor since 2019.

February 29, 2024

We have served as the Company’s auditor since 2019, which includes periods before the Company became subject to SEC reporting requirements.

DREAM FINDERS HOMES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(In thousands, except per share and share amounts)

2023 December 31,

Cash and cash equivalents $ 494,145 $ 364,531

Restricted cash (VIE amounts of $ 4,372 and $ 4,275 )

30,599 54,095

Accounts receivable (VIE amounts of $ 580 and $ 2,684 )

43,490 33,482

Construction in process and finished homes 1,175,107 961,779

Company owned land and lots 196,563 83,197

VIE owned land and lots 6,515 21,686

Total inventories 1,378,185 1,066,662

Restricted cash 54,311 30,599

Accounts receivable 30,874 43,490

Inventories 1,440,249 1,378,185

Lot deposits 247,207 277,258

Other assets (VIE amounts of $ 1,877 and $ 2,185 )

49,913 43,962

Other assets 80,759 59,438

Investments in unconsolidated entities 15,364 14,008

Property and equipment, net 7,043 7,337

Operating lease right-of-use assets 24,084 19,359

Deferred tax asset 4,526 4,232

Intangible assets, net of amortization 4,999 9,140

Right-of-use assets 20,280 24,084

Goodwill 172,207 172,207

Total assets $ 2,562,439 $ 2,371,137

Accounts payable (VIE amounts of $ 353 and $ 1,309 )

$ 134,702 $ 113,498

Accrued expenses (VIE amounts of $ 4,434 and $ 6,915 )

184,051 139,508

Accounts payable $ 134,115 $ 134,702

Accrued expenses 207,389 184,051

Customer deposits 172,574 145,654

Construction lines of credit (VIE amounts of $ 0 and $ 1,979 )

966,248 763,292

Operating lease liabilities 24,661 19,826

Construction lines of credit 530,384 966,248

Senior unsecured notes, net 293,918 —

Lease liabilities 21,114 24,661

Contingent consideration 116,795 115,128

4 unchanged sentences

Stockholders’ Equity

Class A common stock, $ 0.01 per share, 289,000,000 authorized, 32,533,883 and 32,295,329 outstanding as of December 31, 2022 and 2021, respectively

Class B common stock, $ 0.01 per share, 61,000,000 authorized, 60,226,153 outstanding as of December 31, 2022 and 2021

Class A common stock, $ 0.01 per share, 289,000,000 authorized, 32,882,124 and 32,533,883 outstanding as of December 31, 2023 and December 31, 2022, respectively

Class B common stock, $ 0.01 per share, 61,000,000 authorized, 60,226,153 outstanding

Additional paid-in capital 275,241 264,757

Retained earnings 648,412 365,994

Non-controlling interests 12,970 24,081

Noncontrolling interests 13,066 12,970

Total mezzanine and stockholders’ equity 1,086,150 800,693

3 unchanged sentences

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)

(In thousands, except per share and share amounts)

Year Ended December 31,

7 unchanged sentences

Contingent consideration revaluation 46,590 11,053 7,533

Other (income) expense, net ( 1,963 ) ( 1,653 ) 1,749

Interest expense 32 672 871

Income before income taxes

Other income, net ( 4,962 ) ( 1,931 ) ( 981 )

Income before taxes

404,425 356,156 162,049

14 unchanged sentences

CONSOLIDATED STATEMENTS OF EQUITY

Year ended December 31, 2022, 2021, 2020

(In thousands, except share amounts)

7 unchanged sentences

Units Amount Units Amount Units Amount Shares Amount Shares Amount

Balance at December 31, 2019 49,555 $ 58,269 5,774 $ 16,248 76,655 $ 56,503 — $ — — $ — $ — $ — $ 30,471 $ 161,491

Units compensation — — — — — 947 — — — — — — — 947

Contributions — — 1,236 — — — — — — — — — — —

Contributions from non-controlling interests — — — — — — — — — — — — 3,883 3,883

Redemptions ( 1,012 ) ( 13,000 ) — — — — — — — — — — — ( 13,000 )

Distributions — ( 2,522 ) — ( 1,202 ) — ( 14,252 ) — — — — — — ( 7,835 ) ( 25,811 )

Net income — 12,891 — 5,547 — 60,655 — — — — — — 5,420 84,513

Balance at December 31, 2020 48,543 $ 55,638 7,010 $ 20,593 76,655 $ 103,853 — $ — — $ — $ — $ — $ 31,939 $ 212,023

Balance as of December 31, 2020 48,543 $ 55,638 7,010 $ 20,593 76,655 $ 103,853 — $ — — $ — $ — $ — $ 31,939 $ 212,023

Reorganization transactions ( 15,400 ) ( 19,958 ) ( 7,010 ) ( 19,227 ) ( 76,655 ) ( 84,473 ) 21,255,329 213 60,226,153 602 122,843 — — —

1 unchanged sentence

Issuance of convertible preferred stock 150,000 148,124 — — — — — — — — — — — 148,124

Equity-based compensation — — — — — — — — — — 5,233 — — 5,233

Stock-based compensation — — — — — — — — — — 5,233 — — 5,233

Contributions — — — — — — — — — — — — 2,000 2,000

2 unchanged sentences

Preferred stock dividends declared — — — — — — — — — — — ( 3,450 ) — ( 3,450 )

Net income (loss) — 563 — ( 91 ) — ( 996 ) — — — — — 121,657 13,461 134,594

Balance at December 31, 2021 157,143 $ 155,220 — $ — — $ — 32,295,329 $ 323 60,226,153 $ 602 $ 257,963 $ 118,194 $ 24,081 $ 556,383

Equity-based compensation — — — — — — 238,554 2 — — 6,794 — — 6,796

Net income and comprehensive income — 563 — ( 91 ) — ( 996 ) — — — — — 121,657 13,461 134,594

Balance as of December 31, 2021 157,143 $ 155,220 — $ — — $ — 32,295,329 $ 323 60,226,153 $ 602 $ 257,963 $ 118,194 $ 24,081 $ 556,383

Stock-based compensation — — — — — — 238,554 2 — — 6,794 — — 6,796

Distributions — — — — — — — — — — — — ( 23,095 ) ( 23,095 )

Preferred stock dividends declared — — — — — — — — — — — ( 13,688 ) — ( 13,688 )

Net income — 825 — — — — — — — — — 261,488 11,984 274,297

Balance at December 31, 2022 157,143 $ 156,045 — $ — — $ — 32,533,883 $ 325 60,226,153 $ 602 $ 264,757 $ 365,994 $ 12,970 $ 800,693

Net income and comprehensive income — 825 — — — — — — — — — 261,488 11,984 274,297

Balance as of December 31, 2022 157,143 $ 156,045 — $ — — $ — 32,533,883 $ 325 60,226,153 $ 602 $ 264,757 $ 365,994 $ 12,970 $ 800,693

Stock-based compensation — — — — — — — — — — 14,098 — — 14,098

Vesting of stock-based compensation — — — — — — 371,841 4 — — ( 4 ) — — —

Withholding of common stock for taxes — — — — — — ( 23,600 ) — — — ( 322 ) — — ( 322 )

Distributions — — — — — — — — — — — — ( 11,946 ) ( 11,946 )

Redemption of Series B preferred units ( 7,143 ) ( 8,132 ) — — — — — — — — ( 3,288 ) 343 — ( 11,077 )

Preferred stock dividends declared — — — — — — — — — — — ( 13,238 ) — ( 13,238 )

Net income and comprehensive income — 587 — — — — — — — — — 295,313 12,042 307,942

Balance as of December 31, 2023 150,000 $ 148,500 — $ — — $ — 32,882,124 $ 329 60,226,153 $ 602 $ 275,241 $ 648,412 $ 13,066 $ 1,086,150

The accompanying notes are an integral part of these consolidated financial statements.

5 unchanged sentences

Cash Flows from Operating Activities

Net income $ 274,297 $ 134,594 $ 84,513

Adjustments to Reconcile Net Income to Net cash used in operating activities

Net and comprehensive income $ 307,942 $ 274,297 $ 134,594

Adjustments to reconcile net and comprehensive income to net cash provided by/(used in) operating activities

Depreciation and amortization 10,651 11,252 6,065

Gain on sale of property and equipment ( 56 ) ( 92 ) ( 87 )

Amortization of debt issuance costs 3,844 1,960 2,091

Extinguishment of unamortized debt issuance costs — 283 507

Amortization of right-of-use operating lease assets 5,839 3,786 3,843

Stock compensation expense 6,796 5,233 947

Amortization of lease right-of-use assets 7,245 5,839 3,786

Stock-based compensation 14,098 6,796 5,233

Income from Paycheck Protection Program — — 7,220

Deferred tax benefit ( 294 ) ( 946 ) —

Income from unconsolidated entities, net of return on investments 1,810 ( 3,918 ) ( 2,680 )

Remeasurement of contingent consideration 11,053 7,533 1,379

Deferred income tax benefit ( 22,345 ) ( 294 ) ( 946 )

Return on investments, net of income from unconsolidated entities ( 1,286 ) 1,810 ( 3,918 )

Contingent consideration revaluation 46,590 11,053 7,533

Payments of contingent consideration ( 12,331 ) ( 4,461 ) —

6 unchanged sentences

Customer deposits 26,921 ( 32,031 ) 78,167

Operating lease liabilities ( 5,730 ) ( 3,510 ) ( 3,634 )

Net cash (used in) provided by operating activities ( 27,623 ) 65,108 96,911

Lease liabilities ( 6,988 ) ( 5,730 ) ( 3,646 )

Net cash provided by/(used in) operating activities 374,234 ( 27,623 ) 64,972

Cash Flows from Investing Activities

6 unchanged sentences

Cash Flows from Financing Activities

Proceeds from senior unsecured notes 300,000 — —

Proceeds from construction lines of credit 5,410,000 11,023,077 1,897,540

Principal payments on construction lines of credit ( 10,820,121 ) ( 1,450,639 ) ( 771,863 )

Payment of debt issuance costs ( 5,539 ) ( 7,657 ) ( 1,995 )

Repayments on construction lines of credit ( 5,845,864 ) ( 10,820,121 ) ( 1,450,639 )

Payments of debt issuance costs ( 11,385 ) ( 5,539 ) ( 7,657 )

Proceeds from common stock issuance — — 143,630

Proceeds from issuance of convertible preferred stock — — 148,500

Payments of preferred stock dividends ( 13,688 ) — —

Payments of equity issuance costs — — ( 14,009 )

Distributions — ( 23,289 ) ( 17,257 )

Redemptions — ( 25,530 ) ( 13,000 )

Contribution from conversion of converted LLC units — 123,658 —

Payments of preferred stock dividends ( 13,238 ) ( 13,688 ) —

Payments for common stock withheld for taxes ( 322 ) — —

Conversion of LLC units

— — ( 123,658 )

Contributions from non-controlling interests — 2,000 3,883

Distributions to non-controlling interests ( 23,095 ) ( 23,319 ) ( 7,835 )

Contributions — — 125,658

Distributions ( 11,946 ) ( 23,095 ) ( 46,608 )

Redemptions of preferred units ( 11,077 ) — ( 25,530 )

Payments of contingent consideration ( 32,592 ) ( 13,679 ) ( 1,207 )

Payments on financing leases — ( 136 ) ( 154 )

Net cash provided by (used in) financing activities 146,955 645,884 ( 65,830 )

Net cash (used in)/provided by financing activities ( 216,424 ) 146,955 646,020

Net increase in cash, cash equivalents and restricted cash 153,326 113,808 187,949

11 unchanged sentences

Restricted cash 54,311 30,599 54,095

Total cash, cash equivalents and restricted cash shown on the Consolidated Statements of Cash Flows $ 395,130 $ 281,322 $ 93,373

Total cash, cash equivalents and restricted cash $ 548,456 $ 395,130 $ 281,322

Supplemental disclosures of cash payments:

Cash paid for interest $ 80,111 $ 105,224 $ 33,946

Cash paid for income taxes, net of refunds 81,320 47,935 27,819

Supplemental disclosures of noncash activities:

Noncash Investing Activities

Investment capital reallocation $ — $ ( 3,469 ) $ 1,171

Noncash Financing Activities

Financed land payments to seller — 8,916 —

Equity issuance costs incurred — 1,282 —

Accrued distributions 825 3,450 719

Contingent consideration — ( 1,841 ) 94,573

Leased assets obtained in exchange for new operating lease liabilities 10,564 8,149 2,963

Total noncash financing and investing activities $ 9,548 $ 112,901 $ 21,163

Financed land payments to seller — — 8,916

Total noncash financing activities $ — $ ( 1,841 ) $ 103,489

The accompanying notes are an integral part of these consolidated financial statements.

4 unchanged sentences

Dream Finders Homes, Inc.

(the “Company” or “DFH, Inc.”) was incorporated in the State of Delaware on September 11, 2020.

The Company was formed for the purpose of completing an initial public offering (“IPO”) of its common stock and related transactions in order to carry on the business of Dream Finders Holdings LLC, a Florida limited liability company (“DFH LLC”), as a publicly-traded entity.

Pursuant to a corporate reorganization and completion of its IPO on January 25, 2021, the Company became a holding company for DFH LLC and its subsidiaries.

In connection with the IPO and pursuant to the terms of the Agreement and Plan of Merger by and among DFH, Inc., DFH LLC and DFH Merger Sub LLC, a Delaware limited liability company and direct, wholly owned subsidiary of DFH, Inc., DFH Merger Sub LLC merged with and into DFH LLC with DFH LLC as the surviving entity (the “Merger”).

As a result of the Merger, all of the outstanding non-voting common units and Series A Preferred Units of DFH LLC converted into 21,255,329 shares of Class A common stock of DFH, Inc., all of the outstanding common units of DFH LLC converted into 60,226,153 shares of Class B common stock of DFH, Inc.

and all of the outstanding Series B Preferred Units and Series C Preferred Units of DFH LLC remained outstanding.

We refer to this and certain other related events and transactions, as the “Corporate Reorganization”.

Following the Corporate Reorganization, the Company owns all of the voting membership interest of DFH LLC.

The Company successfully completed its IPO of 11,040,000 shares of Class A common stock (which included full exercise of the over-allotment option) at an IPO price of $ 13.00 per share.

Shares of the Company’s Class A common stock began trading on the Nasdaq Global Select Market under the ticker symbol “DFH” on January 21, 2021, and the IPO closed on January 25, 2021.

On January 27, 2021, the Company redeemed all of the outstanding Series C Preferred Units for $ 26.0 million, including accrued unpaid preferred distributions.

On October 10, 2022, the Company transferred the listing of its Class A common stock from the Nasdaq Global Select Market to the New York Stock Exchange.

The Company's Class A common stock continues to trade under the stock symbol "DFH".

The following is a description of the significant accounting policies and practices, which conform to accounting principles generally accepted in the United States of America (“U.S.

(together with its subsidiaries, “Dream Finders”, the “Company” or “DFH, Inc.”) designs, builds and sells homes in markets throughout the United States.

The Company also offers title insurance and mortgage banking solutions.

The Company was incorporated in the State of Delaware on September 11, 2020.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of DFH, Inc., its wholly-owned subsidiaries and its investments that qualify for consolidation treatment (see Note 7 ).

The accompanying consolidated financial statements include the accounts of DFH, Inc., its wholly owned subsidiaries and its investments that qualify for consolidation treatment (Note 6, Variable Interest Entities ).

The noncontrolling interests represent equity interests held by others in certain of our subsidiaries.

All intercompany accounts and transactions have been eliminated in consolidation.

There are no other components of comprehensive income not already reflected in net and comprehensive income on our Consolidated Statements of Comprehensive Income.

As a result of the Corporate Reorganization, for accounting purposes, our historical results included herein present the combined assets, liabilities and results of operations of DFH, Inc.

and DFH LLC and its direct and indirect subsidiaries for the period September 11, 2020 to January 21, 2021.

Use of Estimates

The preparation of financial statements in conformity with U.S.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ materially from those estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents and Concentration Risk

Cash and cash equivalents consist of highly liquid instruments, with original maturities of three months or less.

Cash and cash equivalents includes cash proceeds from home closings in-transit from or held by third-party title company escrow accounts for the benefit of the Company, typically for less than five days.

Cash and cash equivalents include cash proceeds from home closings in-transit from or held by third-party title company escrow accounts for the benefit of the Company, typically for less than five days.

At various times throughout the year, the Company may have cash deposited with financial institutions that exceed the federally insured deposit amount.

Management reviews the financial viability of these financial institutions on a periodic basis and does not anticipate nonperformance by the financial institutions.

The Company has entered into insured cash sweep account agreements that protect material deposit balances with certain financial institutions.

In addition, management reviews the financial viability of these financial institutions on a periodic basis and does not anticipate that any potential nonperformance by the financial institutions would have a material impact to the Company’s results of operations or cash flows.

Restricted Cash

Restricted cash represents funds held in accounts that are restricted for specific purposes, primarily related to escrow monies held in title companies.

Inventories and Cost of Sales

Inventories inclu de the costs of direct land acquisition, land development, construction, capitalized interest on qualifying assets, lot option fees, real estate taxes and direct overhead costs incurred related to land acquisition and development, home construction, and sales commissions.

Indirect overhead costs are charged to selling, general, and administrative expenses as incurred.

Land and development costs are typically allocated to individual residential lots on a pro rata basis based on the number of lots in the development.

The costs of residential lots are transferred to construction in process when home construction begins and are expensed on a specific identification basis as homebuilding cost of sales as the homes close.

Homebuilding cost of sales for homes closed includes the specific construction costs of each home and all applicable land acquisition, land development and related costs allocated to each residential lot, as well as interest and sales commissions.

Inventories are carried at the lower of accumulated cost or net realizable value.

The Company reviews the performance and outlook of its inventories for indicators of potential impairment at the community level on a quarterly basis.

In addition to considering market and economic conditions, the Company assesses current sales absorption levels and recent profitability.

The Company looks for instances where sales prices for homes in backlog or potential sales prices for future sold homes (expected undiscounted future cash flows) would be at a level at which the carrying value of the home may not be recoverable.

Recoverability is measured by comparing the expected undiscounted future cash flows of the inventory to its carrying amount.

There were $ 2.0 million and $ 1.8 million in inventory impairment charges recorded for the years ended December 31, 2023 and 2022, respectively, and no impairment charges recorded for the year ended December 31, 2021.

Debt Issuance Costs

Debt issuance costs that are recorded to capitalized interest are amortized to interest expense over the estimated economic life of the underlying debt instrument using the straight-line method, which approximates the effective interest method.

Portions of this amortization are evaluated for capitalization as inventories and subsequently expensed through cost of sales at the home closing.

Lot deposits represent amounts paid by the Company to secure the ability to acquire finished lots or land for development through an option contract.

The contracts provide for a due diligence period, during which the deposit is refundable.

After this period, the deposit may be partially or completely forfeited should the Company decide not to proceed.

The Company reviews lot deposits for impairment on a quarterly basis and will record an impairment charge if it believes it will forfeit its deposit on an individual or portfolio of lots.

Impairment charges are included in selling, general and administrative expense (“SG&A”) on the Consolidated Statements of Comprehensive Income.

There were $ 3.3 million and $ 3.0 million in impairment charges recorded for the years ended December 31, 2023 and 2022 , respectively, a nd no impairment charges recorded for the year ended December 31, 2021.

Variable Interest Entities and Investments in Unconsolidated Entities

Pursuant to Accounting Standards Codification (“ASC”) 810 and subtopics related to the consolidation of variable interest entities (“VIEs”), m anagement analyzes the Company’s investments first under the variable interest model to determine if they are VIEs and, if so, whether the Company is the primary beneficiary.

Management determines whether the Company is the primary beneficiary of a VIE at the time it becomes involved with a VIE and reconsiders that conclusion if changes to the Company’s involvement arise.

To make this determination, management considers factors such as whether the Company could direct finance, determine or limit the scope of the entity, sell or transfer property, direct development or direct other operating decisions.

The primary beneficiary is defined as the entity having both of the following characteristics:

1) the power to direct the activities that most significantly impact the VIE’s performance, and 2) the obligation to absorb losses and rights to receive the returns from the VIE that would be potentially significant to the VIE.

Management consolidates the entity if the Company is the primary beneficiary or if a standalone primary beneficiary does not exist and the Company and its related parties collectively meet the definition of a primary beneficiary.

If the investment does not qualify as a VIE under the variable interest model, management then evaluates the entity under the voting interest model to assess if consolidation is appropriate.

Refer to Note 6, Variable Interest Entities, for a description of the Company’s interests, including which entities were determined to be VIEs.

Accounting for Unconsolidated VIEs

Investments for which the Company is not identified as the primary beneficiary, but the Company has significant influence are accounted for as equity method investments.

Investments for which the Company does not have significant influence are accounted for at cost under the cost method.

Equity and cost method investments are classified as investments in unconsolidated entities on the Consolidated Balance Sheets.

For equity method investments, the Company shares in the earnings (losses) of these unconsolidated entities generally in accordance with its respective equity interests.

In some instances, the Company recognizes earnings (losses) that differ from its equity interest in the unconsolidated entity.

For distributions received from equity method investments, the Company has elected to use the cumulative earnings approach for the Consolidated Statements of Cash Flows.

Under the cumulative earnings approach, distributions up to the amount of cumulative equity in earnings recognized are treated as returns on investment within operating cash flows and those in excess of that amount are treated as returns of investment within investing cash flows.

When applicable dividends are declared for the cost method investments, we record them as income of unconsolidated entities on the Consolidated Statements of Comprehensive Income.

The Company determines if an arrangement is, or contains, a lease at inception.

We recognize leases when the contract provides us the right to use an identified asset for a period of time in exchange for consideration.

Leases are included in right-of-use (“ROU”) assets and lease liabilities in the Consolidated Balance Sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

As most of the Company’s leases do not provide an explicit rate, management uses the Company’s incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

An explicit rate is used when readily determinable.

The ROU assets also include any lease payments made, reduced by any lease incentives.

Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The Company applies the practical expedient to combine lease and nonlease components when accounting for the ROU assets and liabilities for all asset classes.

Variable lease costs are expensed as incurred.

Leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheets.

Goodwill represents the excess of purchase price over the fair value of the assets acquired less the liabilities assumed in a business combination.

Refer to Note 7, Contingent Consideration, for details on recent acquisitions.

The Company tests for impairment at least annually as of October 1, but the Company tests for impairment more frequently if a triggering event occurs.

This test assesses qualitative factors to determine if it is more likely than not that the fair value of the reporting units is less than their carrying value.

These qualitative factors include, but are not limited to, economic conditions, industry and market considerations, cost factors, overall performance of the reporting unit and other entity and reporting unit specific events.

If the qualitative assessment indicates a stable fair value, no further testing is required.

However, if the qualitative assessment indicates that the fair value of a reporting unit has declined past its carrying value, the Company will then calculate the fair value of the reporting unit based on discounted future cash flows.

An impairment loss is recorded if this assessment concludes that the fair value of the reporting unit is less than its current carrying value.

The Company completed its most recent goodwill impairment test as of October 1, 2023 and determined that the fair value of each of the reporting units was not less than carrying value.

No goodwill impairment was recognized during the years ended December 31, 2023, 2022 or 2021.

Intangible Assets

The Company has intangible assets that consist of trade names that are recorded in connection with acquisitions at their fair value based on the results of valuation analyses.

Trademarks acquired in business combinations are generally valued using the relief-from-royalty method, which is a Level 3-type measurement.

Trademarks with finite lives are amortized over no more than five-year periods.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.

Maintenance and repairs are charged to expense as incurred and betterments are capitalized.

When items of property and equipment are sold or otherwise disposed, the asset and related accumulated depreciation accounts are eliminated and any gain or loss is included in operations.

Depreciation expense is included within SG&A on the Consolidated Statements of Comprehensive Income.

Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets as follows:

Asset Class Useful Life Years

Furniture and fixtures 2 - 7

Office equipment 4

Software 1 - 4

Business Combinations and Contingent Consideration

Business combinations are evaluated and accounted for in accordance with guidance set forth in ASC 805.

Once a business combination has been identified, all material assets and liabilities of the business are recognized at fair value as of the acquisition date.

Any residual amount remaining of the purchase price in excess of the fair value of the net assets is recognized as goodwill.

In connection with applicable business combinations, the Company records the fair value of contingent consideration as a liability on the acquisition date as prescribed by the underlying agreement.

The initial measurement of contingent consideration is based on projected cash flows such as revenues, gross margin, overhead expenses and pre-tax income of the acquired business and is discounted to present value using the discounted cash flow method.

Subsequently, the future estimated contingent consideration payments are remeasured to fair value at each reporting date based on the estimated future pre-tax income of the acquired entities and the re-assessment of risk-adjusted discount rates that reflect current market conditions.

The adjustments made as a result of the remeasurements at each reporting date are included in contingent consideration revaluation on the Consolidated Statements of Comprehensive Income.

Contingent consideration payments are included within cash flows from financing on the Consolidated Statements of Cash Flows to the extent these payments do not exceed the initial liability recorded at the acquisition date for each arrangement.

Payments exceeding the initial contingent consideration liability estimated at acquisition are classified as cash used in operating activities.

Maximum potential exposure for the contingent consideration payments is not estimable based on the contractual terms, as the contingent consideration arrangements allow a percentage payout based on a potentially unlimited range of pre-tax net income.

Customer Deposits

Customer deposits are amounts collected from customers in conjunction with the execution of the home sale contract, and are recorded as a liability when cash is received.

Customer deposits are applied against the final settlement due at the home closing.

In the event of contract cancellation, the customer deposit is contractually forfeited and recognized as homebuilding revenue.

Warranty Reserve

The Company provides a limited warranty for its homes for a period of one year .

The Company’s standard warranty requires the Company or its subcontractors to repair or replace defective construction during such warranty period at no cost to the homebuyer.

At the time a home is sold, the Company records an estimate of warranty expense based on historical warranty costs.

An analysis of the warranty reserve is performed quarterly to ensure the reserve’s adequacy.

The warranty reserve is classified on the Consolidated Balance Sheets as an accrued expense.

Revenue Recognition

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A contract liability would be recorded in cases where we have received funds in excess of costs incurred.

At December 31, 2022 and 2021, the contract asset related to percentage of completion contracts was $ 20.7 million and $ 21.0 million, respectively, and is included in other assets on the Consolidated Balance Sheets.

At December 31, 2022 and 2021, the contract liability related to percentage of completion contracts was $ 2.2 million and $ 3.9 million, respectively, and is included in accrued expenses on the Consolidated Balance Sheets.

As of December 31, 2023 and 2022, the contract asset related to percentage of completion contracts was $ 13.7 million and $ 20.7 million, respectively, and is included in other assets on the Consolidated Balance Sheets.

As of December 31, 2023 and 2022, the contract liability related to percentage of completion contracts was $ 1.2 million and $ 2.2 million, respectively, and is included in accrued expenses on the Consolidated Balance Sheets.

Revenues include forfeited deposits, which occur when home sale or land sale contracts that include a nonrefundable deposit are cancelled.

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Refer to Note 9, Segment Reporting for a more detailed disaggregation of our revenues by reportable segments.

Other Income and Expense

Other income includes income from the sale of non-core assets, interest income and management fees we earn from shared services with the former owner of MHI and from managing certain joint ventures.

In general, we earn four to six percent of the sales price of homes built by us on behalf of the joint ventures.

Other expense consists primarily of expenses related to the sale of non-core assets.

For 2021, other income and expense also included the one-time forgiveness of the $ 7.2 million Paycheck Protection Program (“PPP”) loan and a $ 7.6 million litigation settlement expense.

Inventories include the costs of direct land acquisition, land development, construction, capitalized interest, real estate taxes and direct overhead costs incurred related to land acquisition and development and home construction.

Indirect overhead costs are charged to selling, general, and administrative expenses as incurred.

Land and development costs are typically allocated to individual residential lots on a pro rata basis based on the number of lots in the development, and the costs of residential lots are transferred to construction work in progress when home construction begins.

Units are expensed on a specific identification basis as homebuilding cost of sales.

Inventories are carried at the lower of accumulated cost or net realizable value.

The Company reviews the performance and outlook of its inventories for indicators of potential impairment on a quarterly basis at the community level.

In addition to considering market and economic conditions the Company assesses current sales absorption levels and recent profitability.

The Company looks for instances where sales prices for a home in backlog or potential sales prices for a future sold home would be at a level at which the carrying value of the home may not be recoverable.

There were $ 1.8 million in inventory impairment charges recorded for the year ended December 31, 2022.

There were no impairment charges recorded for the years ended December 31, 2021 and 2020.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.

Maintenance and repairs are charged to expense as incurred and betterments are capitalized.

When items of property and equipment are sold or otherwise disposed, the asset and related accumulated depreciation accounts are eliminated and any gain or loss is included in operations.

Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets as follows:

Asset Class Useful Life Years

Furniture and fixtures 2 - 7

Office equipment 4

Software 1 - 4

Long-Lived Assets

The Company evaluates the carrying value of its long-lived assets for impairment whenever events or changes in circumstances indicate an impairment may exist.

Recoverability is measured by the expected undiscounted future cash flows of the assets compared to the carrying amount of the assets.

If the expected undiscounted future cash flows are less than the carrying amount of the assets, the excess of the net book value over the estimated fair value is charged to current earnings.

Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, appraisals, and, if appropriate, current estimated net sales proceeds from pending offers.

There were no triggering events or impairments recorded during the years ended December 31, 2022, 2021 or 2020.

Intangible Assets, Net of Amortization

The Company has intangible assets that consist of trade names that are recorded in connection with acquisitions at their fair value based on the results of valuation analyses.

Trademarks acquired in business combinations are generally valued using the relief-from-royalty method, which are Level 3-type measurements.

Trademarks with finite lives are amortized over no more than five-year periods.

Goodwill represents the excess of purchase price over the fair value of the assets acquired and the liabilities assumed in a business combination.

See Note 2, Business Combinations, for details on recent acquisitions.

The Company tests for impairment at least annually as of October 1, but the Company tests for impairment more frequently if a triggering event occurs.

This test assesses qualitative factors to determine if it is more likely than not that the fair value of the reporting units is less than their carrying value.

If the qualitative assessment indicates a stable fair value, no further testing is required.

An impairment loss is recorded if this assessment concludes that the fair value of the reporting unit is less than its current carrying value.

The Company completed its most recent goodwill impairment test on October 1, 2022 and determined that the fair value of all the reporting units was not less than carrying value.

No impairment was recognized during the years ended December 31, 2022, 2021 or 2020.

In addition, the Company has not identified any triggering events that would result in the Company performing additional impairment tests.

The Company determines if an arrangement is, or contains, a lease at inception.

We recognize leases when the contract provides us the right to use an identified asset for a period of time in exchange for consideration.

Operating leases are included in operating lease right-of-use (“ROU”) assets and operating lease liabilities in the Consolidated Balance Sheets.

Finance leases are included in finance lease ROU assets and finance lease liabilities in the Consolidated Balance Sheets.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease.

ROU assets and liabilities are recognized at the commencement date based on the present value of lease payments over the lease term.

An explicit rate is used when readily determinable.

The ROU assets also include any lease payments made, reduced by any lease incentives.

Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expense for operating leases is recognized on a straight-line basis over the lease term.

The Company elected the practical expedient to combine lease and nonlease components when accounting for the ROU assets and liabilities for all asset classes.

Variable lease costs are expensed as incurred.

Leases with an initial term of 12 months or less are not recorded in the Consolidated Balance Sheets.

Lot deposits represent amounts paid by the Company to secure the ability to acquire finished lots or land for development through an option contract.

The Company enters into contracts with different land sellers to ensure it has property on which to build future homes over a two to four-year timeline.

The contracts provide for a due diligence period during which the deposit is refundable, after which time the deposit may be partially or completely forfeited should the Company decide not to proceed.

The Company reviews lot deposits for impairment on a quarterly basis and will record an impairment charge if it believes it will forfeit its deposit on an individual or portfolio of lots.

There were $ 3.0 million of impairment charges recorded in 2022, a nd no impairment charges were recorded in 2021 and 2020.

Warranty Reserve

The Company provides a limited warranty for its homes for a period of one year .

The Company’s standard warranty requires the Company or its subcontractors to repair or replace defective construction during such warranty period at no cost to the homebuyer.

At the time a home is sold, the Company records an estimate of warranty expense based on historical warranty costs.

An analysis of the warranty reserve is performed quarterly to ensure the reserve’s adequacy.

The warranty reserve is classified on the Consolidated Balance Sheets as an accrued expense.

Business Acquisitions and Contingent Consideration

Business acquisitions are evaluated and accounted for in accordance with guidance set forth in ASC 805.

Once a business combination has been identified, all material assets and liabilities of the business are recognized at fair value as of the acquisition date.

Any residual amount remaining of fair value over net assets is recognized as goodwill.

In connection with applicable acquisitions (Note 2 ), the Company records the fair value of contingent consideration as a liability on the acquisition date as prescribed by the underlying agreement, usually resulting in additional purchase price allocations which is calculated as a percentage of future estimated pre-tax income of the acquiree.

The initial measurement of contingent consideration is based on projected cash flows such as revenues, gross margin, overhead expenses and pre-tax income and is discounted to present value using the discounted cash flow method.

The remaining estimated contingent consideration payments are subsequently remeasured to fair value at each reporting date based on the estimated future earnings of the acquired entities and the re-assessment of risk-adjusted discount rates that reflect current market conditions.

Maximum potential exposure for contingent consideration is not estimable based on the contractual terms of the contingent consideration agreements, which allow for a percentage payout based on a potentially unlimited range of pre-tax net income.

Customer Deposits

Customer deposits are amounts collected from customers in conjunction with the execution of the home sale contract, and are recorded as a liability when cash is received.

Customer deposits are applied against the final settlement due at the home closing.

In the event of contract default or termination, the customer deposit is generally forfeited and recognized as revenue.

Debt Issuance Costs

Debt issuance costs are amortized to interest expense using the straight-line method over the estimated economic life of the underlying debt instrument.

Portions of this amortization are evaluated for capitalization as inventories and subsequently expensed through cost of sales at the home closing.

Variable Interest Entities

Pursuant to ASC 810 and subtopics related to the consolidation of variable interest entities (“VIEs”), m anagement analyzes the Company’s investments first under the variable interest model to determine if they are VIEs and, if so, whether the Company is the primary beneficiary.

The primary beneficiary is defined as the entity having both of the following characteristics:

If the investment does not qualify as a VIE under the variable interest model, management then evaluates the entity under the voting interest model to assess if consolidation is appropriate.

See Note 7, Variable Interest Entities, for a description of the Company’s interests, including which entities were determined to be VIEs.

Accounting for Unconsolidated VIEs

Investments for which the Company is not identified as the primary beneficiary, but the Company has significant influence are accounted for as equity method investments.

Investments for which the Company does not have significant influence are accounted for at cost under the cost method.

Equity and cost method investments are classified as unconsolidated entities on the Consolidated Balance Sheets.

For equity method investments, the Company shares in the earnings (losses) of these unconsolidated entities generally in accordance with its respective equity interests.

In some instances, the Company recognizes earnings (losses) that differ from its equity interest in the unconsolidated entity.

For distributions received from equity method investments, the Company has elected to use the cumulative earnings approach for the Consolidated Statements of Cash Flows.

When applicable dividends are declared for the cost method investments, we record them as income of unconsolidated entities on the Consolidated Statements of Comprehensive Income.

Non-Controlling Interests

The equity interests held by others in DFH Leyden LLC, DFH Amelia LLC, DFH Clover LLC, DFH Leyden II LLC, DFH MOF Eagle Landing LLC, DCE DFH JV LLC, DFH Capitol LLC, DFC Mandarin Estates LLC, DFC East Village LLC, DFC Wilford LLC, DFC Amelia Phase III LLC, DFC Sterling Ranch LLC, DFC Grand Landings LLC and FMR IP, LLC, have been reflected as non-controlling interests in the Consolidated Balance Sheets.

Income attributable to these non-controlling interests are presented in the Consolidated Statements of Comprehensive Income as net income attributable to non-controlling interests.

We are a corporation subject to income taxes in the United States.

Our proportional share of the Company’s subsidiaries’ provisions are included in our consolidated financial statements.

Stock-Based Compensation

The Company records expense for restricted stock units awarded to employees in return for employee service.

The cost is measured as of the grant-date fair value of the restricted stock units and recognized as stock-based compensation on a straight-line basis over the employee service period, which is normally the vesting period.

We recognize forfeitures of restricted stock units as a reduction to stock-based compensation in the period in which they occur .

Stock-based compensation is included within SG&A on the Consolidated Statements of Comprehensive Income.

Our deferred income tax assets and liabilities are computed for differences between the asset and liability method and financial statement amounts that will result in taxable or deductible amounts in the future.

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Interest and penalties related to unrecognized tax benefits are recorded in income tax expense.

Our proportional share of the Company’s subsidiaries’ provisions are included in our consolidated financial statements.

Refer to Note 8, Income Taxes.

The Company expenses advertising costs as they are incurred.

Advertising expense for the years ended December 31, 2022, 2021 and 2020 was $ 15.5 million, $ 7.1 million and $ 6.2 million, respectively.

Equity-Based Compensation

Certain individuals on our management team are eligible for equity-based compensation, which is awarded according to the terms of individual contracts with those managers.

The Company records compensation cost for equity units awarded to employees in return for employee service.

The cost is measured at the grant-date fair value of the award and recognized as compensation expense over the employee service period, which is normally the vesting period.

We recognize forfeitures of equity-based awards as a reduction to compensation costs in the period in which they occur .

Reclassifications

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Recent Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-04, Reference Rate Reform, which provides practical expedients and exceptions for applying GAAP when modifying contracts and hedging relationships that use LIBOR as a reference rate.

These amendments are not applicable to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022.

In June 2022, we amended and restated our revolving credit facility, with no material impact as a result of the shift away from LIBOR (see Note 4).

Business Combinations

Century Homes

On January 31, 2021, the Company completed the acquisition of Century Homes Florida, LLC (“Century Homes”) from Tavistock Development Company for a total purchase price of $ 35.6 million.

The acquisition was accounted for as a business combination under ASC 805.

We recorded an allocation of the purchase price to Century Homes’ tangible assets acquired and liabilities assumed based on their estimated fair values as of January 31, 2021.

There were no identifiable intangible assets.

Goodwill was recorded as the residual amount by which the purchase price exceeded the provisional fair value of the net assets acquired and is expected to be fully deductible for tax purposes.

Goodwill consists primarily of expected synergies of combining operations, the acquired workforce, and growth opportunities, none of which qualify as separately identifiable intangible assets.

As of January 31, 2022, the Company completed its allocation of the purchase price and no measurement period adjustments were identified.

The final purchase price allocation as of January 31, 2022 was as follows (in thousands):

Cash acquired $ 3,993

Other assets 754

Goodwill 1,795

Inventories 34,324

Property and equipment, net 549

Liabilities ( 5,831 )

Total purchase price $ 35,584

On October 1, 2021 , the Company completed the acquisition of certain assets, rights and properties, and assumed certain liabilities of privately held Texas homebuilder McGuyer Homebuilders, Inc.

and related affiliates (“MHI”), including:

(i) single-family residential homebuilding;

(ii) owning model homes;

(iii) acquisition, ownership and licensing of intellectual property (including architectural plans);

(iv) purchasing and reselling homebuilding supplies;

(v) development, construction and sale of condominium units in Austin, Texas;

(vi) mortgage origination through a mortgage company;

and (vii) title insurance, escrow and closing services through a title company.

The acquisition allowed the Company to expand its existing footprint in the Texas market.

Total cash paid at closing of approximately $ 471.0 million included $ 463.0 million in purchase price based on the preliminary value of purchased net assets and a 10 % deposit on a separate land bank facility.

On December 3, 2021, the Company paid an additional $ 25.2 million in cash for customary post-closing adjustments based on the final value of the net assets acquired as of September 30, 2021.

Additionally, the Company agreed to the future payment of additional consideration of up to 25 % of pre-tax net income for up to five periods, the last of which ends 48 months after the closing subject to certain minimum pre-tax income thresholds and certain overhead expenses, estimated at approximately $ 94.6 million as of the acquisition date.

The total purchase price was as follows (in thousands):

Cash consideration $ 488,178

Contingent consideration based on future earnings 94,573

Total consideration $ 582,751

The Company used $ 20.0 million of cash on hand and proceeds from the sale of the Convertible Preferred Stock (see Note 12 ) and from unsecured debt incurred under the Credit Agreement, to fund the MHI acquisition.

On October 1, 2021, the Company borrowed approximately $ 300.0 million under the Credit Agreement and paid off MHI’s vertical lines of credit in connection with the closing of the acquisition (See Note 4 ).

The acquisition was accounted for as a business combination under Topic 805.

We recorded an allocation of the purchase price to MHI tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of October 1, 2021 .

The amounts for intangible assets were based on third-party valuations performed.

Goodwill was recorded as the residual amount by which the purchase price exceeded the provisional fair value of the net assets acquired and is expected to be fully deductible for tax purposes.

Goodwill consists primarily of expected synergies of combining operations, the acquired workforce, and growth opportunities, none of which qualify as separately identifiable intangible assets.

As of September 30, 2022, the Company completed its purchase price allocation and no further updates to goodwill are expected as a result of the acquisition.

Pursuant to Topic 805, the financial statements will not be retrospectively adjusted for any provisional amount changes that occur in subsequent periods.

Rather, we will recognize any provisional adjustments during the reporting period in which the adjustments are determined.

We will also be required to record, in the same period’s financial statements, the effect on earnings, if any, as a result of any change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.

The final purchase price allocation as of September 30, 2022 was as follows (in thousands):

Cash acquired $ 297

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) Number 2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures” (“ASU 2023-09”).

ASU 2023-09 requires more disaggregated income tax disclosures, including additional information in the rate reconciliation and additional disclosures about income taxes paid.

ASU 2023-09 will become effective for us for the fiscal year ending December 31, 2025.

Early adoption is permitted, and guidance should be applied prospectively, with an option to apply guidance retrospectively.

We are currently evaluating the impact of the adoption of ASU 2023-09 on our consolidated financial statements.

In November 2023, the FASB issued ASU Number 2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures” (“ASU 2023-07”).

ASU 2023-07 requires disclosure of significant segment expenses that are regularly provided to the chief operating decision maker(s) that are included within each reported measure of segment profit or loss.

The guidance also expands disclosure requirements for interim periods, as well as requires disclosure of other segment items, including the title and position of the entity’s chief operations decision maker(s).

ASU 2023-07 will become effective for us for the fiscal year ending December 31, 2024, and for interim periods starting in our first quarter of 2025.

Early adoption is permitted, and guidance is required to be applied retrospectively.

We are currently evaluating the impact of the adoption of ASU 2023-07 on our consolidated financial statements.

Senior Unsecured Notes

On August 22, 2023, the Company issued $ 300.0 million in aggregate principal amount of 8.25 % senior unsecured notes due August 15, 2028 (the “2028 Notes”), which were issued pursuant to an indenture (the “Indenture”).

Interest on the 2028 Notes is payable in arrears semiannually on each February 15 and August 15, beginning February 15, 2024.

The 2028 Notes are fully and unconditionally guaranteed on a joint and several senior unsecured basis by certain of the Company’s subsidiaries.

The Company received net proceeds from the issuance and sale of the 2028 Notes of $ 293.5 million after unamortized debt issuance costs of $ 6.5 million, which reduce the carrying value of the 2028 Notes reported on the Consolidated Balance Sheets.

The net proceeds from the 2028 Notes were used to repay a portion of the then outstanding balance under the Company’s Credit Agreement.

As of December 31, 2023, unamortized debt issuance costs were $ 6.1 million.

The 2028 Notes are redeemable by the Company prior to August 15, 2025 through the payment of the principal amount due, which can be accomplished through the issuance of certain restricted equity offerings for specified portions of principal notes outstanding, plus specified rates and accrued and unpaid interest, and a make-whole premium in the event 100 % of the principal amount is redeemed.

On or after August 15, 2025, the 2028 Notes are redeemable at specified rates equal to 104.1 % of the principal balance, plus accrued and unpaid interest, and periodically decrease to 100 % on August 15, 2027.

Upon the occurrence of a Change of Control (as defined in the Indenture), the holders of the 2028 Notes will have the right to require the Company to repurchase all or a portion of the 2028 Notes at a price equal to 101 % of the aggregate principal amount of the 2028 Notes, plus any accrued and unpaid interest.

The Indenture includes customary events of default.

Subject to specified exceptions, 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.

In addition, the Indenture contains certain limitations related to mergers, consolidations, and transfers of assets.

Credit Agreement

On July 19, 2023, the Company entered into amendments to its existing credit agreement (as amended, the “Credit Agreement”).

The amendments, among other things, (i) provide for an increase in the aggregate commitments under the revolving credit facility to $ 1.2 billion, subject to a borrowing base;

(ii) extend the maturity date from June 2, 2025 to July 17, 2026 for certain new and existing lenders comprising $ 1.1 billion of the $ 1.2 billion of aggregate commitments under the Credit Agreement;

(iii) authorize the non-extending lenders to extend their maturity dates to July 17, 2026, with the consent of the Company;

(iv) provide the Company with the ability to incur certain additional unsecured debt;

and (v) reference a Secured Overnight Financing Rate (“SOFR”) based rate, as described below.

Certain of our subsidiaries guaranteed the Company’s obligations under the Credit Agreement.

The amendments also updated the Company’s minimum tangible net worth covenant which resulted in an increase to the base component of such covenant from $ 385.0 million to $ 607.0 million.

The Credit Agreement retains an accordion feature that allows the aggregate commitments to increase up to $ 1.6 billion, subject to a borrowing base.

Under the Credit Agreement, the Company has the option to draw “Term SOFR Rate Loans” or “Daily Simple SOFR Rate Loans”.

Term SOFR Rate Loans bear interest based on Term SOFR rates for one, three or six-month interest periods, which include SOFR adjustments of 10 , 15 and 25 basis points for each interest period, respectively.

Daily Simple SOFR Rate Loans bear interest based on Daily Simple SOFR rates and include a SOFR adjustment of 10 basis points.

Interest under Term SOFR Rate Loans and Daily Simple SOFR Rate Loans also include an “applicable rate margin” determined based on the Company’s net debt to capitalization ratio, equivalent to credit spreads of 2.5 % to 3.3 %.

As of December 31, 2023 and 2022, the outstanding balance under the Credit Agreement was $ 530.0 million and $ 965.0 million, respectively.

Under the Credit Agreement, the funds available are unsecured and availability under the borrowing base is calculated based on specific advance rates for each of finished lots, construction in process, and finished homes inventory on the Consolidated Balance Sheets, and reduced for any outstanding unsecured indebtedness permitted under the Credit Agreement, including the 2028 Notes.

The Company had capitalized debt issuance costs related to construction lines of credit, net of amortization, of $ 7.0 million and $ 7.3 million as of December 31, 2023 and 2022, respectively, which were included in other assets on the Consolidated Balance Sheets.

Debt issuance costs that are recorded to capitalized interest are expensed in cost of sales as the homes close.

The Company was in compliance with all debt covenants as of December 31, 2023 and 2022.

The Company expects to remain in compliance with all debt covenants over the next 12 months.

Inventories consist of owned land and fi nished lots, and construction in process (“CIP”) and finished homes, including capitalized interest costs incurred under our debt obligations discussed in Note 2.

In addition, preconstruction costs related to finished lots or land under development held by third-party land bank partners incurred prior to the Company’s purchase of the land, including lot option fees, property taxes and due diligence costs are capitalized into owned land and lots.

Finished lots are generally purchased just-in-time for construction, whether for speculative (“spec”) or sold homes, and are included within owned land and lots in the table below until construction begins when the finished lot cost is transferred to CIP.

CIP represents homes under construction or completed, including sold, spec and model homes.

CIP includes the cost of finished lots and all direct costs incurred to build homes.

The cost of homes is expensed on a specific identification basis when the home is delivered to the customer.

Inventories consisted of the following as of December 31, 2023 and 2022 (in thousands) :

Construction in process and finished homes $ 1,251,767 $ 1,148,654

Owned land and lots 188,482 229,531

Inventories $ 1,440,249 $ 1,378,185

Lot deposits 40,452

Other assets 14,722

Property and equipment 3,163

Equity method investments 6,192

Intangible assets 8,840

Goodwill 141,071

Operating lease right-of-use assets 1,508

Accounts payable ( 41,466 )

Accrued expenses ( 25,801 )

Customer deposits ( 37,756 )

Operating lease liabilities ( 1,508 )

Total purchase price $ 582,751

On January 31, 2022, the Company made a cash payment of $ 34.9 million for model homes from MHI Models, Ltd., a Texas limited partnership (the “ MHI Model Homes”).

The post-close consideration payment completed the asset purchase transaction, which was considered to be economically separate from the acquisition of MHI and the related purchase price allocation above.

See Note 6, Commitments and Contingencies for discussion on subsequent sale and leaseback transactions related to the MHI Model Homes.

Contingent Consideration

At December 31, 2022 and 2021, the Company remeasured the fair value of contingent consideration related to the 2019 acquisition of Village Park Homes, LLC (“VPH”) and adjusted the liability to $ 1.4 million and $ 7.6 million, respectively, based on revised pre-tax income forecasts and revised discount rates as of the balance sheet date and from accretion of the liability.

The Company recorded contingent consideration adjustments resulting in $ 0.7 million of expense, $ 0.7 million of expense, and $ 1.4 million of expense for the years ended December 31, 2022, 2021 and 2020, respectively.

These adjustments are included in contingent consideration revaluation on the Consolidated Statements of Comprehensive Income.

At December 31, 2022 and 2021, the Company remeasured the fair value of contingent consideration related to the 2020 acquisition of H&H and adjusted the liability to $ 11.6 million and $ 19.8 million, respectively, based on revised pre-tax income forecasts and revised discount rates as of the balance sheet date and from accretion of the liability.

The Company recorded contingent consideration adjustments resulting in $ 2.0 million of income and $ 4.6 million of expense for the years ended December 31, 2022 and 2021, respectively.

These adjustments are included in contingent consideration revaluation on the Consolidated Statements of Comprehensive Income.

At December 31, 2022 and 2021, the Company remeasured the fair value of contingent consideration related to the 2021 acquisition of MHI and adjusted the liability to $ 102.1 million and $ 96.7 million, respectively, based on revised pre-tax income forecasts and revised discount rates as of the balance sheet date and from accretion of the liability.

The Company recorded contingent consideration adjustments resulting in $ 12.4 million of expense and $ 2.2 million of expense for the years ended December 31, 2022 and 2021, respectively.

These adjustments are included in contingent consideration revaluation on the Consolidated Statements of Comprehensive Income.

See Note 10, Fair Value Disclosures for the fair value measurement for contingent consideration.

Capitalized interest activity related to our construction lines of credit and senior unsecured notes, net is summarized in the table below for the years ended December 31, 2023 and 2022 (in thousands):

Capitalized interest as of beginning of the period $ 27,682 $ 16,317

Interest incurred 77,278 52,972

Interest expensed ( 1 ) ( 32 )

Interest charged to homebuilding cost of sales ( 77,648 ) ( 41,575 )

Capitalized interest as of end of the period $ 27,311 $ 27,682

Property and Equipment

Property and equipment consisted of the following as of December 31, 2022 and 2021 (in thousands):

For the Years Ended

Property and equipment, net consisted of the following as of December 31, 2023 and 2022 (in thousands):

Furniture and fixtures $ 22,787 $ 18,753

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Depreciation expense was $ 4.8 million, $ 5.0 million and $ 3.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Construction Lines of Credit

On January 25, 2021, the Company entered into a $ 450.0 million syndicated senior unsecured credit facility with Bank of America, N.A.

(the “Credit Agreement”), subsequently repaid $ 340.0 million in outstanding debt and terminated all then-existing construction lines of credit.

Through subsequent amendments to the Credit Agreement in September 2021 (the “Amendments”), additional lenders were added as well as provisions for any existing lender, at the Company’s request, to increase its revolving commitment, add new revolving loan tranches or add new term loan tranches, not to exceed—through an accordion feature— an aggregate of $ 1.1 billion, which would include the exercise of the accordion feature (collectively, the "Existing Credit Agreement").

On June 2, 2022, the Company entered into an agreement to amend and restate its Existing Credit Agreement (the “Amended and Restated Credit Agreement”).

The Amended and Restated Credit Agreement is substantially similar to the Existing Credit Agreement except that the Amended and Restated Credit Agreement, among other things, (i) provides for an increase in the aggregate commitments under the facility from $ 817.5 million to $ 1.1 billion;

(ii) allows the facility to expand to a borrowing base of up to $ 1.6 billion through its accordion feature;

(iii) extends the maturity date from January 25, 2024 to June 2, 2025;

and (iv) transitions the applicable interest rate from a Eurodollar based rate to a Secured Overnight Financing Rate (“SOFR”) based rate, as described below.

Certain of our subsidiaries guaranteed the Company's obligations under the Amended and Restated Credit Agreement.

Under the Amended and Restated Credit Agreement, loans bear interest at the Company’s option of (1) a “Base Rate”, which means, for any day, a fluctuating rate per annum equal to credit spreads of 1.5 % to 2.6 %, which are determined based on the Company’s net debt-to-capitalization ratio, plus the highest of (a) the Federal Funds Rate plus 0.5 %, (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate,” (c) Term SOFR plus 1.0 % and (d) 1.0 %, or (2) a “Term SOFR/Letter of Credit Rate”, which means for any day a fluctuating rate per annum equal to credit spreads of 2.5 % to 3.6 %, which are determined based on the Company’s debt-to-capitalization ratio, plus the adjusted term SOFR rate (based on one, three or six-month interest periods).

On June 30, 2022, the Company received an additional commitment of $ 50.0 million under the terms of the accordion feature.

As of December 31, 2022, available liquidity under the Credit Agreement wa s $ 122.0 million resulting in $ 486.5 million in total liquidity for the Company.

As of December 31, 2022 and 2021, the outstanding balance under the Amended and Restated Credit Agreement was $ 965.0 million and $ 760.0 million, respectively.

Under the Amended and Restated Credit Agreement, the funds available are unsecured and availability under the borrowing base is calculated based on specified percentages of finished lots, construction in process, and finished homes inventory on the Consolidated Balance Sheets.

The Company had capitalized debt issuance costs related to the line of credit and notes payable , net of amortization, of $ 7.3 million and $ 5.5 million as of December 31, 2022 and 2021, respectively, which were included in other assets on the Consolidated Balance Sheets.

The Company amortized $ 3.8 million and $ 2.0 million of debt issuance costs for the years ended December 31, 2022 and 2021, respectively.

The Credit Agreement contains restrictive covenants and financial covenants.

The Company was in compliance with all debt covenants as of December 31, 2022 and 2021.

The Company expects to remain in compliance with all debt covenants over the next twelve months.

Inventories consist of finished lots, construction in process (“CIP”) and finished homes, including capitalized interest.

In addition, lot option fees related to off-balance sheet arrangements and due diligence costs related to land development are also capitalized into inventory.

Finished lots are purchased with the intent of building and selling a home and are generally purchased just-in-time for construction.

CIP represents the homebuilding activity associated with homes to be sold and speculative homes.

CIP includes the cost of the finished lots and all of the direct costs incurred to build the homes.

The cost of the homes is expensed on a specific identification basis.

Interest is capitalized and included within each inventory category above.

Capitalized interest activity is summarized in the table below for the years ended December 31, 2022 and 2021 (in thousands):

For the year ended

Capitalized interest at the beginning of the period $ 33,266 $ 21,091

Interest incurred 121,964 45,355

Interest expensed ( 32 ) ( 672 )

Interest charged to homebuilding cost of sales ( 60,595 ) ( 32,508 )

Capitalized interest at the end of the period $ 94,603 $ 33,266

Commitments and Contingencies

Legal Proceedings

Weyerhaeuser Lawsuit

The Company was involved in an appeals process of civil litigation related to defective products provided by Weyerhaeuser NR Company (“Weyerhaeuser”) (NYSE:

WY), one of our lumber suppliers.

Our Colorado division builds a number of floor plans that include basements using specialized fir lumber.

On July 18, 2017, Weyerhaeuser issued a press release indicating a recall and potential solution for TJI Joists with Flak Jacket Protection manufactured after December 1, 2016.

The press release indicated the TJI Joists used a Flak Jacket coating that included a formaldehyde-based resin that could be harmful to consumers and produced an odor in certain newly constructed homes.

We had 38 homes impacted by the potentially harmful and odorous Flak Jacket coating and incurred significant costs directly related to Weyerhaeuser’s defective TJI Joists.

Accordingly, we sought remediation and damages from Weyerhaeuser.

The press release by Weyerhaeuser had a pronounced impact on our sales and cancellation rates in Colorado.

We filed suit on December 27, 2017—Dream Finders Homes LLC and DFH Mandarin, LLC v.

Weyerhaeuser NR Company, No.

17CV34801 (District Court, City and County of Denver, State of Colorado)—and included claims against Weyerhaeuser for manufacturer’s liability based on negligence, negligent misrepresentation causing financial loss in a business transaction and fraudulent concealment.

Weyerhaeuser asserted a counterclaim asserting an equitable claim for unjust enrichment.

After completion of a jury trial on November 18, 2019, the District Court issued a verdict in our favor on our claims, awarding Dream Finders Homes LLC $ 3.0 million in damages and DFH Mandarin, LLC $ 11.7 million in damages.

On February 21, 2020, the District Court dismissed Weyerhaeuser’s counterclaim.

Weyerhaeuser appealed the Colorado District Court’s jury verdict and on December 2, 2021, the Colorado Court of Appeals reversed the judgment entered against Weyerhaeuser for negligence, negligent misrepresentation and fraudulent concealment.

As a result, Dream Finders Homes LLC and DFH Mandarin, LLC (collectively, “DFH”) filed a petition for writ of certiorari to the Colorado Supreme Court on January 13, 2022 to appeal the Colorado Court of Appeals ruling —Dream Finders Homes LLC and DFH Mandarin, LLC v.

Weyerhaeuser NR Company, Case No.

2022SC24 (Colorado Supreme Court).

On September 12, 2022, the Colorado Supreme Court issued a denial of certiorari.

As a result of the denial of certiorari, the Company recorded a legal accrual of $ 0.9 million as of December 31, 2022 as part of Weyerhaeuser's motion for costs incurred in defense of this case.

Silver Meadows Townhome Owners Association, Inc.

On October 9, 2019, Silver Meadows Townhome Owners Association, Inc.

filed a lawsuit in Boulder County Colorado District Court against DFH Mandarin, LLC (“Mandarin”) and Dream Finders Homes, LLC (collectively with Mandarin, “DFH”), both wholly-owned subsidiaries of the Company, as well as other named defendants.

The lawsuit alleges certain construction and development defects.

Mandarin successfully compelled arbitration.

On March 2, 2022 during arbitration proceedings, the parties settled the matter for $ 12.0 million subject to the execution of a mutually acceptable settlement agreement, including a denial of any admission of liability on behalf of DFH.

DFH’s insurance carrier agreed to pay the policy limit of $ 4.0 million toward the settlement.

In April 2022, the parties executed a mutually acceptable settlement agreement and DFH paid the settlement amount, net of the insurance proceeds received.

In April 2022, DFH also commenced the formal legal process to seek contribution toward DFH’s portion of the settlement amount from responsible subcontractors and vendors who performed work on the project.

As of December 31, 2022 , DFH settled with one subcontractor for contribution toward DFH's amounts paid toward the settlement and continued its

proceedings to collect additional contributions from responsible subcontractors and vendors, which is still in progress as of the date of this filing.

The Company has operating leases primarily associated with office space that is used by divisions outside of the Jacksonville area, model home sale-leasebacks and a corporate office building sale-leaseback in Jacksonville, Florida.

This corporate office building lease has a remaining lease term of 12 years.

The Company also has finance leases for corporate office furniture.

Leases with an initial term of 12 months or less are not recorded on the balance sheet;

the Company recognizes lease expense for these leases on a straight-line basis over the lease term.

Lease and nonlease components for new and reassessed leases are combined.

We are party to legal matters from time to time that typically are derived from the Company’s general business practices, primarily related to the construction of homes.

The Company believes that if a claim has merit, parties other than the Company would be, at least in part, liable for the claim, and the eventual outcome of the claim would not have a material adverse effect upon our consolidated financial statements.

When we believe that a loss is probable and estimable, we record the estimated contingency loss in our Consolidated Statements of Comprehensive Income.

We do not believe that any future outcomes of any claims or lawsuits currently outstanding will have a material adverse effect upon our consolidated financial statements.

The Company has operating leases primarily associated with office space that is used by our divisions, model home sale-leasebacks and a corporate office building sale-leaseback in Jacksonville, Florida.

This corporate office building lease has a remaining lea se term of 11 years with potential renewal options.

There are no significant operating or finance leases that have not yet commenced as of December 31, 2023.

Most leases include one or more options to renew, with renewal terms that can extend the lease term.

The exercise of lease renewal options is at the Company’s sole discretion.

The Company only includes these renewal options in its lease terms if they are reasonably certain to be exercised.

Finance lease assets are recorded within other assets and are net of accumulated amortization.

On March 24, 2022, the Company sold 93 completed model homes for $ 55.4 million, including the MHI Model Homes.

The Company simultaneously entered into 93 individual lease agreements.

The Company is responsible for paying the operating expenses associated with the homes while under lease.

Consistent with similar sale and leaseback agreements in previous years, the Company considered the terms of the sale and leaseback arrangement and based on applicable GAAP guidance, concluded the transaction qualifies for sale treatment and that the leases should be classified as operating leases.

The following table shows the lease costs for the years ended December 31, 2022, 2021 and 2020 (in thousands):

For the Years Ended December 31,

The following table shows the operating lease costs for the years ended December 31, 2023, 2022 and 2021 (in thousands):

Year Ended December 31,

Lease Cost Classification 2023 2022 2021

Operating lease cost (1)

Selling, general and administrative expenses $ 11,547 $ 6,403 $ 5,932

Finance lease cost:

Amortization of right of use assets Selling, general and administrative expenses 95 158 158

Interest on lease liabilities Interest expense 7 19 29

Total finance lease cost 102 177 187

Net lease cost $ 11,649 $ 6,580 $ 6,119

Selling, general and administrative expense $ 12,378 $ 11,547 $ 6,403

(1) Includes short-term leases and variable lease costs which are immaterial.

Supplemental disclosure of noncash activities related to leases was as follows (in thousands):

Year Ended December 31,

2023 2022 2021

Leased assets obtained in exchange for new operating lease liabilities $ 3,442 $ 10,564 $ 8,149

During the year ended December 31, 2023, there have been no material changes in our lease liabilities for the next five years.

Weighted average remaining lease term

Operating leases 6 years 6 years

Weighted average discount rate

Operating leases 6.3 % 6.3 %

The following table shows the maturities of our lease liabilities as of December 31, 2023 (in thousands):

Maturity of Lease Liabilities Operating

2023 $ 7,861 $ 35 $ 7,896

2024 5,733 — 5,733

2025 3,700 — 3,700

2026 3,121 — 3,121

2027 1,666 — 1,666

Thereafter 6,102

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(1) We use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments.

During the year ended December 31, 2022, there have been no material changes in our lease liabilities for the next five years.

As of December 31,

Weighted average remaining lease term

Operating leases 6 years 8 years

Financing leases 1 years 2 years

Weighted average discount rate

Operating leases 6.3 % 5.6 %

Financing leases 7.5 % 7.5 %

Variable Interest Entities

The Company holds investments in certain limited partnerships and similar entities that conduct land acquisition, land development and/or other homebuilding activities in various markets where our homebuilding operations are located, which are considered variable interests.

The Company also has an interest in Jet Home Loans LLC (“Jet Home Loans” or “Jet LLC”), where the primary activities include underwriting, originating and selling home mortgages.

The Company’s investments create a variable interest in a variable interest entity (“VIE”), depending on the contractual terms of the arrangement.

The Company’s investments create a variable interest in a VIE, depending on the contractual terms of the arrangement.

Additionally, the Company, in the ordinary course of business, enters into option contracts with third parties and unconsolidated entities for the ability to acquire rights to finished lots for the construction of homes.

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The maximum exposure to loss related to the VIEs is disclosed below for both consolidated and unconsolidated VIEs, which equals the Company’s capital investment in each entity.

Consolidated VIEs

For VIEs that the Company does consolidate, management has the power to direct the activities that most significantly impact the VIE’s economic performance.

For VIEs that the Company does consolidate, management has the power to direct the activities that most significantly impact the VIEs’ economic performance.

The Company typically serves as the party with homebuilding expertise in the VIE.

The Company does not guarantee the debts of the VIEs, and creditors of the VIEs have no recourse against the Company.

There were no new consolidated VIEs during the years ended December 31, 2022, 2021 or 2020.

The table below displays the carrying amounts of the assets and liabilities related to the consolidated VIEs (in thousands):

For VIEs that the Company does not consolidate, the Company does not hold the power to direct the activities that most significantly impact the VIEs’ economic performance.

The Company’s maximum exposure to loss is limited to its investment in the entities because the Company is not obligated to provide them any additional capital and does not guarantee any of the unconsolidated VIEs’ debt or other liabilities.

The tables below display the carrying amounts of the assets and liabilities related to the consolidated VIEs, as well as the Company’s investments in unconsolidated VIEs (in thousands):

Consolidated 2023 2022

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Liabilities 1,766 4,787

Unconsolidated VIEs

For VIEs that the Company does not consolidate, the Company does not hold the power to direct the activities that most significantly impact the VIE’s economic performance.

The table below shows the Company’s investments in the unconsolidated VIEs (in thousands):

Unconsolidated 2023 2022

Jet Home Loans $ 7,102 $ 6,133

Jet HomeLoans (1)

$ 9,301 $ 7,102

Other unconsolidated VIEs 6,063 6,906

Total investment in unconsolidated VIEs $ 15,364 $ 14,008

(1) On September 30, 2023, the joint venture was converted into a limited partnership, now known as Jet HomeLoans LP (“Jet HomeLoans”).

Refer to Note 11, Related Party Transactions for more information.

Lot Option Contracts

The Company generally does not engage in the land development business.

Instead, we employ an asset-light land financing strategy, providing us optionality to purchase lots on a ‘‘just-in-time’’ basis for construction and affording us flexibility to acquire lots at a rate that matches the expected sales pace in a given community.

We primarily employ two variations of our asset-light land financing strategy, finished lot option contracts and land bank option contracts, pursuant to which we secure the right to purchase finished lots at predetermined market prices from various land sellers and land bank partners, by paying deposits based on the aggregate purchase price of the finished lots.

These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled for any reason, and our sole legal obligation and economic loss as a result of such forfeitures is limited to the amount of the deposits paid pursuant to such option contracts and, in the case of land bank option contracts, our loss is limited to the related lot option fees paid to the land bank partner, any potential performance obligations, management of the land development to completion and any cost overruns relative to the project .

None of the creditors of any of the land bank entities with which we enter into lot option contracts have recourse to our general credit.

We generally do not have any specific performance obligations to purchase a certain number or any of the lots or guarantee any of the land bankers’ financial or other liabilities.

We are not involved in the design or creation of the land bank entities from which we purchase lots under lot option contracts.

The land bankers’ equity holders have the power to direct 100 % of the operating activities of the land bank entity.

We have no voting rights in any of the land bank entities.

The sole purpose of the land bank entity’s activities is to generate positive cash flow returns for such entity’s equity holders.

Further, we do not share in any of the profit or loss generated by the project’s development.

Instead, the Company employs an asset-light land financing strategy, providing us optionality to purchase lots on a ‘‘just-in-time’’ basis for construction and affording us flexibility to acquire lots at a rate that matches the expected sales pace in a given community.

The Company primarily employs two variations of our asset-light land financing strategy—finished lot option contracts and land bank option contracts—pursuant to which the Company secures the right to purchase finished lots at predetermined market prices from various land sellers and land bank partners, by paying deposits based on the aggregate purchase price of the finished lots.

These option contracts generally allow us, at our option, to forfeit our right to purchase the lots controlled for any reason, and our sole legal obligation and economic loss as a result of such forfeitures is limited to the amount of the deposits paid pursuant to such option contracts and, in the case of land bank option contracts, our loss is limited to the related lot option fees paid to the land bank partner, and for certain land bank option contracts, any potential performance obligations, management of the land development to completion and any cost overruns relative to the project.

None of the creditors of any of the land bank entities with which the Company enters into lot option contracts have recourse to our general credit.

The Company generally does not have any specific performance obligations to purchase any of the lots or guarantee any of the land bankers’ liabilities.

The Company is not involved in the design or creation of the land bank entities from which the Company purchases lots under lot option contracts.

The land bankers’ equity holders have the power to direct 100 % of the operating activities of the land bank entity and the Company has no voting rights.

The sole purpose of the land bank entity’s activities is to generate returns for such entity’s equity holders.

Further, the Company does not share in any of the profit or loss generated by the project’s development.

The profits and losses are passed directly to the land bankers’ equity holders.

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Certain of those land bank entities are deemed to be VIEs.

Therefore, the land bank entities with which we enter into lot option contracts are evaluated for possible consolidation by the Company.

We believe the activities that most significantly impact a land bank entity’s economic performance are the operating activities of the land bank entity.

Therefore, the land bank entities with which the Company enters into lot option contracts are evaluated for possible consolidation by the Company.

The Company believes the activities that most significantly impact a land bank entity’s economic performance are the operating activities of the land bank entity.

In the case of development projects, unless and until a land bank entity delivers finished lots for sale, the land bank entity’s equity investors bear the risk of land ownership and do not earn any revenues, except for lot option fees paid by the Company.

The operating development activities are managed by the land bank entity’s equity investors.

We possess no more than limited protective legal rights through the lot option contracts in the specific finished lots we are purchasing, and we possess no participative rights in the land bank entities.

Accordingly, we do not have the power to direct the activities of a land bank entity that most significantly impact its economic performance.

The operating development activities are directed by the land bank entity’s equity investors.

Dream Finders possesses no more than limited protective legal rights through the lot option contracts in the specific finished lots that are purchased, and possesses no participative rights in the land bank entities.

Accordingly, the Company does not have the power to direct the activities of a land bank entity that most significantly impact its economic performance.

For the aforementioned reasons, the Company concluded that it is not the primary beneficiary of the land bank entities with which it enters into lot option contracts, and therefore the Company does not consolidate any of these VIEs.

The Company’s risk of loss related to finished lot option and land bank option deposits and related fees and interest was $ 461.6 million as of December 31, 2022.

The Company’s risk of loss related to finished lot option and land bank option deposits and related fees was $ 328.0 million and $ 461.6 million as of December 31, 2023 and 2022, respectively .

Contingent Consideration

As of December 31, 2023 and 2022, the Company remeasured the fair value of contingent consideration related to the 2020 acquisition of H&H Constructors of Fayetteville, LLC and adjusted the liability to $ 11.7 million and $ 11.6 million, respectively, based on actual results achieved, revised pre-tax income forecasts and revised discount rates as of the balance sheet date and from accretion of the liability .

The Company recorded contingent consideration adjustments resulting in $ 2.9 million of expense , $ 2.0 million of income, and $ 4.6 million of expense for the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023 , there were 9 months remaining under the contingent consideration agreement.

As of December 31, 2023 and 2022, the Company remeasured the fair value of contingent consideration related to the September 2021 acquisition of McGuyer Homebuilders, Inc.

(“MHI”) and adjusted the liability to $ 105.1 million and $ 102.1 million , respectively, based on actual results achieved, revised pre-tax income forecasts and revised discount rates as of the balance sheet date and from accretion of the liability .

The Company recorded contingent consideration adjustments resulting in expense of $ 43.3 million, $ 12.4 million, and $ 2.2 million for the year ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023 , there were 21 months remaining under the contingent consideration agreement.

Refer to Note 10, Fair Value Disclosures for the fair value measurement for contingent consideration.

The Company is a corporation subject to U.S.

federal income taxes, in addition to state and local income taxes.

As the Company became subject to tax as a corporation in 2021, no provision for federal or state income taxes was made prior to 2021 and, therefore, there are no comparative balances relating to corporate income taxes for the 2020 period herein.

Income tax expense for the years ended December 31, 2023, 2022 and 2021 , consists of the following (in thousands):

Current expense:

Year Ended December 31,

2023 2022 2021

Federal $ 101,093 $ 66,473 $ 26,336

State 17,734 15,680 5,088

Total current expense 82,153 31,424

Deferred expense:

Total current 118,827 82,153 31,424

Federal ( 19,471 ) 5 ( 3,305 )

State ( 2,873 ) ( 299 ) ( 664 )

Total deferred (benefit) ( 294 ) ( 3,969 )

Total deferred ( 22,344 ) ( 294 ) ( 3,969 )

Total income tax expense $ 96,483 $ 81,859 $ 27,455

The following table reconciles the statutory federal income tax rate to the effective income tax rate:

Year Ended December 31,

2023 2022 2021

Income taxes at federal statutory rate 21.0 % 21.0 % 21.0 %

3 unchanged sentences

Other ( 0.3 ) 1.1 0.2

Effective rate 23.0 % 18.5 %

Effective tax rate 23.9 % 23.0 % 18.5 %

The significant components of deferred income tax assets and liabilities as of December 31, 2023 and 2022, consist of the following (in thousands):

Deferred tax assets:

Property and equipment, net $ 1,085 $ 238

Contingent consideration $ 14,876 $ 4,145

Equity-based compensation 246 1,265

Right-of-use liabilities 5,809 —

Incentive compensation plans 9,232 246

Lease liabilities 4,951 5,809

Other 9,705 2,493

1 unchanged sentence

Deferred tax liabilities:

Property and equipment, net ( 2,423 ) ( 588 )

Right-of-use assets ( 4,789 ) ( 5,674 )

Other ( 7,106 ) ( 2,493 )

Total deferred tax liability ( 8,167 ) ( 588 )

Net deferred income tax asset $ 4,526 $ 4,232

Total deferred tax liabilities ( 11,895 ) ( 8,167 )

Net deferred tax asset $ 26,869 $ 4,526

Management believes that we will have sufficient future taxable income to make it more likely than not that the net deferred tax assets will be realized.

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Segment Reporting

The Company primarily operates in the homebuilding business and is organized and reported by division.

There are six reportable segments:

(i) Jacksonville, (ii) Colorado, (iii) Orlando, (iv) The Carolinas, (v) Texas and (vi) Jet LLC, the Company’s mortgage operations.

The Company includes the Century Homes operations within the Orlando segment and the MHI operations comprise the Texas segment, and excludes legacy Austin, Texas operations.

The remaining operating segments are combined into the “Other” category, along with the corporate component, which is not considered an operating segment.

As of December 31, 2022, DC Metro, which was previously its own reportable segment comprising our homebuilding operations in the Washington D.C.

metropolitan area, has been included in Other.

It no longer meets the quantitative thresholds prescribed by ASC 280 Segment Reporting warranting separate disclosure, individually or in the aggregate with the Other segment.

The current and comparative disclosures below reflect this change in segment reporting as of and for the years ended December 31, 2022 and 2021.

The Company primarily operates in the homebuilding business and is organized and reported primarily by region.

During the third quarter of 2023, organization of the homebuilding segments for making operating decisions and assessing performance changed from divisional to regional.

There are now four reportable segments, which are comprised of the following:

• Southeast (Jacksonville, Orlando, and Tampa, Florida;

Savannah, Georgia;

Hilton Head and Bluffton, South Carolina;

Active Adult and Custom Homes operations in northeast Florida)

• Mid-Atlantic (The Carolinas and DC Metro)

• Midwest ( Austin, Dallas, Houston and San Antonio, Texas and Denver, Colorado )

• Financial Services (primarily Jet HomeLoans and Golden Dog Title and Trust)

The corporate component, which is not considered an operating segment, is reported separately as “Corporate”.

In accordance with ASC 280, operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision-makers (“CODM”) in deciding how to allocate resources and in assessing performance.

The Company’s CODM primarily evaluate performance based on the number of homes closed, average sales price and financial results.

Segment profitability is primarily measured by income before taxes.

The following tables summarize revenues and net and comprehensive income by segment for the years ended December 31, 2023, 2022 and 2021 as well as total assets and goodwill by segment as of December 31, 2023 and 2022 (in thousands):

For the Years Ended

2022 2021 2020

Jacksonville $ 679,321 $ 452,891 $ 430,811

Colorado 169,378 114,260 122,275

Orlando 304,767 244,143 124,769

The Carolinas 482,646 370,477 89,324

Texas 1,325,274 361,138 —

Jet Home Loans 26,399 28,056 28,629

Year Ended December 31,

2023 2022 2021

Southeast $ 1,521,414 $ 1,237,389 $ 914,765

Mid-Atlantic 633,131 566,632 464,070

Midwest 1,584,343 1,530,538 538,466

Financial Services 48,878 34,175 34,665

Total segment revenues 3,787,766 3,368,734 1,951,966

1 unchanged sentence

Consolidated revenues $ 3,748,586 $ 3,342,335 $ 1,923,910

For the Years Ended

Net and comprehensive income:

2022 2021 2020

Jacksonville $ 86,872 $ 55,578 $ 41,380

Colorado 17,740 3,971 14,052

Orlando 32,070 15,937 10,680

The Carolinas 25,965 14,623 6,034

Texas 112,855 21,797 —

Jet Home Loans 3,655 10,630 15,921

Year Ended December 31,

Income before taxes 2023 2022 2021

Southeast $ 183,537 $ 165,367 $ 103,136

Mid-Atlantic 54,646 40,028 25,277

Midwest 168,115 164,377 35,585

Financial Services 28,915 21,219 11,782

Corporate (1)

( 21,334 ) ( 28,971 ) ( 7,110 )

Total segment net and comprehensive income 280,161 141,215 92,443

Total segment income before taxes 413,879 362,020 168,670

Reconciling items from equity method investments ( 9,454 ) ( 5,864 ) ( 6,621 )

Consolidated net and comprehensive income $ 274,297 $ 134,594 $ 84,513

As of December 31, 2022 2021 2022 2021

Jacksonville $ 300,491 $ 207,502 $ — $ —

Colorado 187,813 116,121 — —

Orlando 276,720 131,882 1,795 1,795

The Carolinas 311,469 247,250 16,853 16,853

Texas 793,219 743,306 141,071 141,070

Jet Home Loans 96,108 77,074 — —

Consolidated income before taxes $ 404,425 $ 356,156 $ 162,049

December 31, December 31,

2023 2022 2023 2022

Southeast $ 781,162 $ 770,029 $ 14,003 $ 14,003

Mid-Atlantic 404,657 422,490 16,853 16,853

Midwest 915,199 1,007,604 141,071 141,071

Financial Services 207,385 170,151 280 280

Corporate (1)

407,932 89,696 — —

Total segments 2,716,335 2,459,970 172,207 172,207

1 unchanged sentence

Consolidated $ 2,562,439 $ 2,371,137 $ 172,207 $ 172,207

(1) Other includes the Company’s title operations, homebuilding operations in non-reportable segments, operations of the corporate component and corporate assets such as cash and cash equivalents, cash held in trust, prepaid insurance, operating and financing leases, as well as property and equipment.

(1) Corporate includes operations of the corporate component, and corporate assets such as cash and cash equivalents, cash held in trust, prepaid insurance, operating and financing leases, as well as property and equipment, net.

Fair Value Disclosures

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The fair value of financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, notes payable and customer deposits, approximate their carrying amounts due to the short-term nature of these instruments.

The fair value of the construction lines of credit approximate their carrying amounts since they are subject to short-term fixed interest rates that reflect current market rates.

The fair value of the construction lines of credit approximate their carrying amounts since they are subject to short-term floating interest rates that reflect current market rates.

The senior unsecured notes are Level 2 financial instruments.

The estimated fair value of the 2028 Notes as of December 31, 2023 is $ 318.2 million, based on recent trades or quoted market prices for debt of similar terms, including maturity, to achieve comparable yields.

Related Party Transactions

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The majority of these transactions are entered into to secure finished lots for the construction of new homes.

Consolidated VIEs

The Company has arrangements to acquire land, develop finished lots and build homes.

Certain stockholders, directors and members of management of the Company, have invested in these VIEs and some are limited partners in these VIEs.

DFH Investors LLC is the managing member of certain of these VIEs.

The VIEs are consolidated for accounting purposes (see Note 7) .

DF Residential I, LP

DF Residential I, LP (Fund I) is a real estate investment vehicle, organized to acquire and develop finished lots.

Dream Finders Homes LLC, has entered into six joint ventures and ten land bank projects with Fund I since its formation in January 2017.

DF Capital Management, LLC (“DF Capital”) is the investment manager of Fund I.

DF Capital Management, LLC Funds

DF Capital Management, LLC (“DF Capital”) organizes real estate investment funds to acquire land and develop and sell finished lots.

DF Capital is the investment manager of the funds.

The Company owns a 49 % membership interest in DF Capital.

DF Capital is controlled by unaffiliated parties.

Certain directors and executive officers have made investments in Fund I as limited partners.

In addition, certain members of management have made investments in Fund I.

The general partner of Fund I is DF Management GP, LLC (“DF Management”).

Dream Finders Homes LLC is one of four members of DF Management with a 25.8 % membership interest.

The total committed capital in Fund I, which was fully committed in 2019, is $ 36.7 million.

Collectively, the Company’s directors, executive officers and members of management invested $ 8.7 million or 23.8 % of the total committed capital in Fund I.

Additionally, Dream Finders Homes LLC and DFH Investors LLC, collectively invested $ 1.4 million or 3.8 % of the total committed capital of Fund I.

DF Residential II, LP

DF Residential II, LP (“Fund II”) initiated its first close on March 11, 2021.

DF Management GP II, LLC, a Florida limited liability company, serves as the general partner of Fund II (the “General Partner”).

Fund II raised total capital commitments of $ 322.1 million and was fully committed as of January 2022.

DF Capital is the investment manager of Fund II.

DF Residential I, LP (“Fund I”), the first of such investment vehicles was fully committed in 2019 with total capital commitments of $ 36.7 million.

Dream Finders Homes LLC and DFH Investors LLC, collectively, invested $ 1.4 million or 3.8 % of the total committed capital of Fund I.

Fund I is nearing its final stage in which residual earnings are distributed.

DF Residential II, LP (“Fund II”) was organized in 2021.

DF Management GP II, LLC, serves as the general partner of Fund II (the “General Partner”).

The Company indirectly owns 72.0 % of the membership interests in the General Partner and receives 72.0 % of the economic interests.

The General Partner is controlled by unaffiliated parties.

The Company’s investment commitment in Fund II is $ 3.0 million or 0.9 % of the total committed capital of Fund II.

Fund II was fully committed as of January 2022 with total capital commitments of $ 322.1 million.

The Company invested $ 3.0 million or 0.9 % of the total committed capital of Fund II.

Certain directors, executive officers and members of management invested as limited partners in Fund II in an aggregate amount of $ 33.9 million or 10.5 % of the total committed capital.

In addition, Rockpoint Group, LLC, an affiliate of a former director of the Company invested $ 100.0 million in Fund II.

On March 11, 2021, the Company entered into land bank financing arrangements and a Memorandum of Right of First Offer with Fund II, under which Fund II has an exclusive right of first offer on any land bank financing projects that meet its investment criteria and are undertaken by the Company during Fund II’s investment period.

Certain directors, executive officers and members of management have made investment commitments as limited partners in Fund II in an aggregate amount of $ 133.9 million or 41.6 % of the total committed capital of Fund II as of December 31, 2022, inclusive of a $ 100.0 million commitment from Rockpoint Group, LLC discussed below.

As of December 31, 2021, these investment commitments were $ 33.9 million or 10.5 % of the total committed capital of Fund II.

Land Bank Transactions with DF Capital

DF Capital raised additional commitments from limited partners through deals other than Fund I and Fund II, which provided land bank financing for specific projects.

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The Company continues to purchase lots controlled by these funds.

As of December 31, 2022 and 2021, the Company had $ 58.6 million in outstanding lot deposits primarily related to Fund II and other land bank transaction deals, and $ 3.7 million in outstanding lot deposits primarily related to other land bank transaction deals, respectively, in relation to DF Capital projects.

As of December 31, 2023 and 2022 , the Company had $ 48.5 million and $ 58.6 million , respectively, in outstanding lot deposits primarily related to Fund II and other land bank transaction deals in relation to DF Capital projects, controlling approximately 4,028 lots.

Aircraft Agreement

In November 2023, the Company entered into an aircraft dry lease agreement with a company owned by Patrick Zalupski, DFH’s President, Chief Executive Officer, and Chairman of the Board (the “Aircraft Agreement”).

The Aircraft Agreement provides the Company access to an airplane owned by Mr.

Zalupski on a non-exclusive basis at a fixed monthly rate for an annually set number of hours.

The Aircraft Agreement has an eight-year term, which is automatically extended for up to two successive one-year periods unless terminated by either party.

The Company and Mr.

Zalupski have separately contracted with a non-affiliated aviation management entity to provide aircraft-related services.

The Company incurred $ 1.3 million in expense related to the use of the airplane during the year ended December 31, 2023, inclusive of one-time set-up and other costs incurred prior to the commencement of the Aircraft Agreement, included in selling, general and administrative expense on the Consolidated Statement of Comprehensive Income .

Transactions with Rockpoint Group, LLC and affiliates

From time to time, the Company enters into land bank option contracts with Rockpoint Group, LLC (“Rockpoint”) or its affiliates in connection with the Company’s acquisition and development of land.

Rockpoint or its affiliate provides the funding for the land acquisition and the Company secures the right to purchase finished lots at market prices by paying deposits based on the aggregate purchase price of the finished lots and any related fees, similar to land bank option contracts with non-related, third-party land bankers.

Walton III is the founding principal of Rockpoint and a member of the Company’s Board of Directors.

On February 15, 2022, DFH entered into a Memorandum of Right of First Offer with Rockpoint, under which Rockpoint has an exclusive right of first offer on certain land bank financing projects that meet certain criteria and are undertaken by the Company during Fund II’s investment period.

On the same date, Rockpoint provided funding relating to its $ 100.0 million commitment to Fund II.

Jet LLC performs mortgage origination activities for the Company including underwriting and originating home mortgages for Company customers and non-Company customers.

The Company owns 49.9 % of Jet LLC, but is not the primary beneficiary.

Jet LLC is accounted for under the equity method and is a related party of the Company (see Note 9 ).

Corporate Reorganization

Prior to the Corporate Reorganization, the Company had issued non-voting common units, common units, Series A and C Preferred Units, all of which were classified in mezzanine equity.

As a result of the Corporate Reorganization, all of the outstanding non-voting common units and Series A Preferred Units of DFH LLC converted into 21,255,329 shares of the Company’s Class A common stock and all of the outstanding common units of DFH LLC converted into 60,226,153 shares of the Company’s Class B common stock.

On January 27, 2021, shortly after the Corporate Reorganization, the Company redeemed all of the outstanding Series C Preferred Units for $ 26.0 million, including accrued unpaid preferred distributions .

Following the Corporate Reorganization, the Company owns all of the voting membership interest of DFH LLC.

The Board of Directors of the Company (the “Board of Directors”) has the authority to issue one or more series of preferred stock, par value $ 0.01 per share, without stockholder approval.

Series B Preferred Units of DFH LLC

As of December 31, 2022 and 2021, the Company had 7,143 and 7,143 , respectively, of Series B Preferred Units (“Series B Preferred Units”) issued and outstanding with a carrying value of $ 7.9 million and $ 7.1 million, respectively, which includes cumulative undeclared and unpaid distributions.

In the event of a liquidation, dissolution or winding up of DFH LLC, the Series B Preferred Units have a liquidation preference of $ 1,000 per unit and are senior to common units.

The Series B Preferred Units have an 8 % annual cumulative preferred distribution on the liquidation preference that is payable if and when distributions are declared.

The Series B Preferred units do not participate in discretionary distributions.

As of December 31, 2022 and 2021, these units have an aggregate unpaid amount of cumulative preferred distributions of $ 3.7 million and $ 2.9 million, respectively, which is $ 516.56 and $ 401.07 , respectively, per unit.

The Series B Preferred Units shall automatically be deemed to be cancelled when a holder of a Series B Preferred Unit receives aggregate distributions from DFH LLC on a Series B Preferred Unit equal to the sum of (i) $ 1,000 per unit and (ii) the unreturned capital contributions per unit plus an 8 % per annum cumulative preferred return (the “Series B Distribution Amount”).

In the event of a liquidation or dissolution of DFH LLC, the holders of Series B Preferred Units shall have preference over the Company’s membership interest in DFH LLC.

Further, in the event of (i) a sale of substantially all of DFH LLC’s assets or (ii) a merger or reorganization resulting in the members of DFH LLC immediately prior to such transaction no longer beneficially owning at least 50 % of the voting power of DFH LLC, the holders of the Series B Preferred Units may demand redemption of their Series B preferred units at a price equal to the Series B Distribution Amount (less prior distributions on such shares).

The Series B Preferred Units are not convertible into the Company’s common stock.

Series A Convertible Preferred Stock of the Company

Walton III is the founding principal and chief executive officer of Rockpoint.

Walton served as a member of the Board through May 21, 2023.

During the year ended December 31, 2023 , no transactions were entered into between Rockpoint and the Company.

Jet HomeLoans LP, formerly Jet HomeLoans LLC

Jet HomeLoans performs mortgage origination activities for the Company, including underwriting and originating home mortgages for Company customers and non-Company customers.

On September 30, 2023, the Company entered into a limited partnership agreement with the partners of Jet HomeLoans LLC to convert the venture into Jet HomeLoans LP.

As part of the limited partnership agreement, the Company’s ownership percentage changed from 49.9 % to 60.0 %, but the Company is not the primary beneficiary.

The change in ownership was effectuated through a distribution to the partners in exchange for the additional 10.1 % ownership.

Jet HomeLoans is accounted for under the equity method and is a related party of the Company.

Jet HomeLoans is included within the Financial Services segment (Note 9, Segment Reporting).

Mezzanine and Stockholders’ Equity

Series B Preferred Units

On August 31, 2023, the Company redeemed all of its previously 7,143 outstanding Series B preferred units .

The Company made an aggregate cash payment to the Series B holders of $ 11.1 million, which included $ 7.1 million in principal plus cumulative undistributed earnings, less a negotiated discount on that date.

Following the redemption, no Series B preferred units remain outstanding.

The difference between the carrying amount and the cash redemption was reclassified to retained earnings as it reflects a return from the Series B unit holders and resulted in a one-time, non-cash increase to net income available to common stockholders of $ 0.3 million utilized in the computations of basic and diluted earnings per share for the year ended December 31, 2023.

Share Buyback Program

In June 2023, the Company’s Board of Directors (the “Board”) approved a share buyback program under which the Company can repurchase up to $ 25.0 million of its Class A common stock through June 30, 2026 in open market purchases, privately negotiated transactions, or otherwise in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended.

The actual timing, number and value of shares repurchased under the share buyback program will depend on a number of factors, including constraints specified in relation to price, general business and market conditions, and alternative investment opportunities.

The share buyback program does not obligate the Company to acquire any specific number of shares in any period, and may be expanded, extended, modified or discontinued at any time.

As of February 29, 2024, we have not executed any repurchases under our share buyback program.

Series A Convertible Preferred Stock

On September 29, 2021, the Company filed a Certificate of Designations with the State of Delaware establishing 150,000 shares of Series A convertible preferred stock with an initial liquidation preference of $ 1,000 per share and a par value $ 0.01 per share (the “convertible preferred stock”) and sold 150,000 shares of convertible preferred stock for an aggregate purchase price of $ 150.0 million.

The Company used the proceeds from the sale of the Convertible Preferred Stock to fund a portion of the MHI acquisition (See Note 2 ).

The Company used the proceeds from the sale of the convertible preferred stock to fund a portion of the MHI acquisition (Note 7, Contingent Consideration ).

Pursuant to the Certificate of Designations, the convertible preferred stock ranks senior to the Company’s Class A and B common stock with respect to dividends and distributions on liquidation, winding-up and dissolution.

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Under the Registration Rights Agreement, the Company is required to register the convertible preferred stock owned by the Purchasers and the shares of Class A common stoc k issuable upon conversion of such shares equal to 19.99 % of the outstanding shares of Class A common stock for resale, which registration statement was filed and declared effective during March 2022.

Equity-Based Compensation

The Company is authorized to grant up to an aggregate of 9.1 million of stock-based awards under the 2021 Equity Incentive Plan (the “2021 Plan”), which is administered by the Compensation Committee of the Board of Directors.

Stock-Based Compensation

The Company is authorized to grant up to an aggregate of 9.1 million of Class A common stock under the 2021 Equity Incentive Plan (the “2021 Plan”), which is administered by the Compensation Committee of the Board of Directors.

The Company grants restricted stock to certain executives, directors and members of management, primarily as incentive awards.

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The fair value of these grants is derived by using the closing stock price on the date of the grant.

Expense, net of forfeitures related to equity-based compensation under the 2021 Plan was $ 6.8 million and $ 5.2 million for the year ended December 31, 2022 and 2021, respectively.

As of December 31, 2022 and 2021, the total unrecognized compensation expense under the 2021 Plan was $ 11.3 million and $ 16.7 million, respectively.

The unrecognized compensation expense will be recognized over a weighted-average period of two years .

The Company’s restricted stock awards as of December 31, 2022 and changes during the year then ended are presented below (in thousands, except share amounts):

Expense, net of forfeitures related to stock-based compensation under the 2021 Plan was $ 14.1 million, $ 6.8 million and $ 5.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.

As of December 31, 2023 and 2022, the total unrecognized stock-based compensation under the 2021 Plan was $ 20.3 million and $ 11.3 million, respectively.

The unrecognized stock-based compensation will be recognized over a weighted-average period of two years .

The Company’s restricted stock units as of December 31, 2023 and changes during the year then ended are presented below (in thousands, except share amounts):

Shares Weighted Average Grant Date Fair Value

Outstanding - December 31, 2021

Balance as of December 31, 2022

892,556 $ 20.29

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Vested ( 347,524 ) $ 21.22

Outstanding - December 31, 2022

Balance as of December 31, 2023

2,359,250 $ 14.21

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The following weighted-average shares and share equivalents were used to calculate basic and diluted earnings per share (“EPS”) for the years ended December 31, 2023, 2022 and 2021 (in thousands, except share amounts):

For the Years Ended December 31,

Year Ended December 31,

2023 2022 2021

Net and comprehensive income attributable to Dream Finders Homes, Inc.

$ 295,900 $ 262,313 $ 121,133

Preferred dividends (1)

Preferred dividends, net (1)

13,482 14,513 4,845

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Net and comprehensive income available to common stockholders (2)

$ 282,418 $ 247,800 $ 117,532

Weighted-average number of common shares outstanding - basic 93,066,564 92,745,781 92,521,482

Common stock equivalent shares (3)

12,960,984 13,945,467 2,792,111

Weighted-average number of shares outstanding - diluted 106,027,548 106,691,248 95,313,593

(1) For the diluted earnings per share calculation, $ 13.7 million and $ 3.5 million in preferred dividends associated with convertible preferred stock that are assumed to be converted have been added back to the numerator for the year ended December 31, 2022 an d 2021, respectively.

The remaining amounts of preferred dividends that are not added back to the numerator are associated with paid-in-kind dividends for preferred mezzanine equity which is not convertible into the Company’s common stock.

(2) The Company calculated EPS for the year ended December 31, 2021 prospectively for the period subsequent to the Company’s IPO and Corporate Reorganization, based on net income attributable to common stockholders for the period January 21, 2021 through December 31, 2021 over the weighted average shares outstanding for the same period.

Therefore, the net income per share for DFH, Inc.

is not shown for the fiscal year ended December 31, 2020.

Basic earnings per share is calculated by dividing net income available to common stockholders for the period by the weighted-average number of shares of Class A common stock and Class B common stock outstanding for the period, which participate equally in their ratable ownership of the Company.

Diluted shares were calculated by using the treasury stock method for restricted stock grants and the if‐converted method for the convertible preferred stock.

Diluted earnings per share gives effect to shares of potentially dilutive restricted stock grants outstanding during the period and the convertible preferred stock and the associated preferred dividends.

Since the conversion price of the Company’s Convertible Preferred Stock is based on the average trailing 90 days’ closing price of Class A common stock, changes in the price of the Class A common stock may significantly affect, as it did in 2022, the number of additional assumed common shares outstanding under the if-converted method for diluted earnings per share, even when the number of Convertible Preferred Stock shares outstanding is unchanged.

There were no anti-dilutive shares for the years ended December 31, 2022 and 2021.

(1) Includes a one-time increase of $ 0.3 million to the numerator of the computations of basic and diluted EPS for the year ended December 31, 2023 for the excess of the carrying amount over the redemption amount of the Series B preferred units.

Refer to Note 12, Mezzanine and Stockholders’ Equity.

(2) For the diluted EPS calculation, $ 13.2 million, $ 13.7 million and $ 3.5 million in preferred dividends associated with convertible preferred stock that are assumed to be converted have been added back to the numerator for the years ended December 31, 2023, 2022 and 2021, respectively.

(3) Since the conversion price of the Company’s convertible preferred stock is based on an average of the closing price of Class A common stock for the 90 trading days immediately preceding the end of the current period, changes in the price of the Class A common stock may significantly affect the number of additional assumed common shares outstanding under the if-converted method for diluted EPS, even when the number of convertible preferred stock shares outstanding is unchanged.

Stock-based compensation awards are excluded from the calculation of diluted EPS in the event they are antidilutive.

There were 0.6 million, 0.8 million, and 0.2 million of common stock equivalent shares excluded from the diluted earnings per share calculation during the years ended December 31, 2023, 2022 and 2021, respectively, related to unvested restricted stock that were antidilutive.

Subsequent Events

Crescent Homes Acquisition

On February 1, 2024, the Company completed the acquisition of certain assets and assumed certain liabilities, comprising of the majority of the homebuilding business of Crescent Ventures, LLC (“Crescent Homes”) through DFH subsidiaries, Dream Finders Holdings LLC, and DFH Crescent, LLC (“DFH Crescent”), a newly formed entity for purposes of consummating this transaction.

This acquisition allows us to expand into the markets of Charleston and Greenville, South Carolina, and Nashville, Tennessee.

The consideration given for the Crescent Homes acquisition was cash in the amount of $ 185 million, subject to customary post-closing adjustments based on the closing date net asset value of the purchased assets and assumed liabilities.

As part of the transaction, the former owner of Crescent Homes received a 10 % non-controlling ownership in DFH Crescent and contractual rights to a portion of its future earnings according to the terms of the agreement.

The Company has not yet completed its evaluation and determination of consideration paid and certain assets and liabilities acquired in accordance with ASC 805.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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.

What changed 10-K

Item 8. Financial Statements and Supplementary Data