10-Q 1 dfh-20220930.htm 10-Q dfh-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2022
OR
oTransition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from ________ to _________.
Commission file number 001-39916
___________________________________________________________
DREAM FINDERS HOMES, INC.
(Exact name of registrant as specified in its charter)
Delaware85-2983036
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
14701 Philips Highway, Suite 300, Jacksonville, FL
32256
(Address of principal executive offices)(Zip code)
(904) 644-7670
(Registrants Telephone Number, Including Area Code)
___________________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.01 per shareDFH New York Stock Exchange
___________________________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller reporting company
o
Emerging growth company
o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 3, 2022, there were 32,380,013 shares of the registrant’s Class A common stock, par value $0.01 per share, issued and outstanding and 60,380,000 shares of the registrant’s Class B common stock, par value $0.01 per share, issued and outstanding.



TABLE OF CONTENTS
2

PART I. FINANCIAL INFORMATION
ITEM 1. DREAM FINDERS HOMES, INC CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DREAM FINDERS HOMES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
September 30,
2022
December 31,
2021
Assets
Cash and cash equivalents$123,692$227,227
Restricted cash (VIE amounts of $9,260 and $4,275)
38,04054,095
Accounts receivable (VIE amounts of $1,323 and $2,684)
37,92933,482
Inventories:
Construction in process and finished homes1,370,340 961,779 
Company owned land and lots135,988 83,197 
VIE owned land and lots6,502 21,686 
Total inventories1,512,830 1,066,662 
Lot deposits291,307 241,406 
Other assets (VIE amounts of $1,797 and $2,185)
56,008 43,962 
Equity method investments11,440 15,967 
Property and equipment, net7,582 6,789 
Operating lease right-of-use assets24,069 19,359 
Deferred tax asset6,099 4,232 
Intangible assets, net of amortization6,059 9,140 
Goodwill172,207 171,927 
Total assets$2,287,262 $1,894,248 
Liabilities  
Accounts payable (VIE amounts of $0 and $1,309)
$147,510 $113,498 
Accrued expenses (VIE amounts of $4,854 and $6,915)
133,319 139,508 
Customer deposits170,792 177,685 
Construction lines of credit975,000 760,000 
Notes payable (VIE amounts of $0 and $1,979)
1,440 3,292 
Operating lease liabilities24,633 19,826 
Contingent consideration118,196 124,056 
Total liabilities$1,570,890 $1,337,865 
Commitments and contingencies (Note 5)   
Mezzanine Equity  
Preferred mezzanine equity155,830 155,220 
Stockholders’ Equity  
Class A common stock, $0.01 per share, 289,000,000 authorized, 32,380,013 outstanding
323 323 
Class B common stock, $0.01 per share, 61,000,000 authorized, 60,380,000 outstanding
602 602 
Additional paid-in capital262,783 257,963 
Retained earnings283,326 118,194 
Non-controlling interests13,508 24,081 
Total mezzanine and stockholders’ equity716,372 556,383 
Total liabilities, mezzanine equity, and stockholders’ equity$2,287,262 $1,894,248 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

DREAM FINDERS HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenues:
Homebuilding$783,945 $361,322 $2,237,648 $1,067,232 
Other1,724 1,662 5,221 4,588 
Total revenues785,669 362,984 2,242,869 1,071,820 
Homebuilding cost of sales638,456 303,387 1,812,746 898,013 
Selling, general and administrative expense68,839 33,907 196,564 93,359 
Income from equity in earnings of unconsolidated entities(5,137)(1,373)(11,431)(4,230)
Contingent consideration revaluation2,641 602 11,875 5,762 
Other (income) expense, net(1,124)(1,232)(1,815)(8,385)
Interest expense5 14 31 672 
Income before taxes81,989 27,679 234,899 86,629 
Income tax expense(10,371)(4,111)(50,576)(13,405)
Net and comprehensive income71,618 23,568 184,323 73,224 
Net and comprehensive income attributable to non-controlling interests(1,977)(4,433)(8,342)(9,394)
Net and comprehensive income attributable to Dream Finders Homes, Inc. $69,641 $19,135 $175,981 $63,830 
Earnings per share(1)
  
Basic$0.71 $0.20 $1.78 $0.69 
Diluted$0.64 $0.20 $1.67 $0.69 
Weighted-average number of shares  
Basic92,760,013 92,521,482 92,760,013 92,521,482 
Diluted108,286,433 92,695,197 105,117,234 92,658,878 
(1)The Company calculated earnings per share (“EPS”) based on net income attributable to common stockholders for the period January 21, 2021 through September 30, 2021 over the weighted average diluted shares outstanding for the same period. EPS was calculated prospectively for the period subsequent to the Company’s initial public offering and corporate reorganization as described in Note 1, Nature of Business and Significant Accounting Policies, resulting in 92,521,482 shares of common stock outstanding as of the closing of the initial public offering. The total outstanding shares of common stock are made up of Class A common stock and Class B common stock, which participate equally in their ratable ownership share of the Company. Diluted shares were calculated by using the treasury stock method for stock grants and the if-converted method for the convertible preferred stock and the associated preferred dividends.
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

DREAM FINDERS HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Three and nine months ended September 30, 2022
(In thousands, except share amounts)
(Unaudited)
Redeemable Preferred
Units
Mezzanine
Redeemable Common
Units
Mezzanine
Common Units Members’Common Stock - Class ACommon Stock - Class BAdditional
Paid-in
Capital
Retained
Earnings
Total
Non-
Controlling
Interests
Total Equity
UnitsAmountUnitsAmountUnitsAmountSharesAmountSharesAmount
Balance at June 30, 2022157,143$155,621 $ $ 32,378,939$323 60,380,000$602 $261,207 $217,346 $12,056 $647,155 
Equity-based compensation— — — 1,074— — 1,576 — — 1,576 
Distributions — — — — — — — (526)(526)
Preferred stock dividends declared— — — — — — (3,451)— (3,451)
Net income209 — — — — — 69,431 1,977 71,618 
Balance at September 30, 2022157,143$155,830 $ $ 32,380,013$323 60,380,000$602 $262,783 $283,326 $13,508 $716,372 
Redeemable Preferred
Units
Mezzanine
Redeemable Common
Units
Mezzanine
Common Units Members’Common Stock - Class ACommon Stock - Class BAdditional
Paid-in
Capital
Retained
Earnings
Total
Non-
Controlling
Interests
Total Equity
UnitsAmountUnitsAmountUnitsAmountSharesAmountSharesAmount
Balance at December 31, 2021157,143$155,220 $ $ 32,295,329$323 60,226,153$602 $257,963 $118,194 $24,081 $556,383 
Equity-based compensation— — — 84,684— 153,847— 4,819 — — 4,819 
Distributions— — — — — — — (18,916)(18,916)
Preferred stock dividends declared— — — — — — (10,238)— (10,238)
Net income610 — — — — — 175,370 8,342 184,323 
Balance at September 30, 2022157,143$155,830 $ $ 32,380,013$323 60,380,000$602 $262,783 $283,326 $13,508 $716,372 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

DREAM FINDERS HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
Three and nine months ended September 30, 2021
(In thousands, except share amounts)
(Unaudited)
Redeemable Preferred
Units
Mezzanine
Redeemable Common
Units
Mezzanine
Common Units Members’Common Stock - Class ACommon Stock - Class BAdditional
Paid-in
Capital
Retained
Earnings
Total
Non-
Controlling
Interests
Total Equity
UnitsAmountUnitsAmountUnitsAmountSharesAmountSharesAmount
Balance at June 30, 20217,143$6,703 $ $ 32,295,329$323 60,226,153$602 $255,290 $45,611 $20,874 $329,403 
Issuance of convertible preferred stock, net 150,000147,995 — — — — — — — 147,995 
Equity-based compensation— — — — — 1,472 — — 1,472 
Contributions— — — — — — — 2,000 2,000 
Distributions— — — — — — — (4,534)(4,534)
Net income194 — — — — — 18,942 4,433 23,568 
Balance at September 30, 2021157,143$154,893 $ $ 32,295,329$323 60,226,153$602 $256,762 $64,552 $22,772 $499,904 
Redeemable Preferred
Units/Stock
Mezzanine
Redeemable Common
Units
Mezzanine
Common Units
Members’
Common Stock - Class ACommon Stock - Class BAdditional
Paid-in
Capital
Retained
Earnings
Total
Non-
Controlling
Interests
Total Equity
UnitsAmountUnitsAmountUnitsAmountSharesAmountSharesAmount
Balance at December 31, 202048,543$55,638 7,010$20,593 76,655$103,853 $ $ $ $ $31,939 $212,023 
Distributions(3,617)(1,275)(18,384)— — — — (3,476)(26,753)
Net income (loss)(157)(91)(996)— — — — 210 (1,034)
Balance at January 20, 2021 - prior to reorganization transactions and IPO48,543$51,864 7,010$19,227 76,655$84,473 $ $ $ $ $28,673 $184,237 
Reorganization transaction(15,400)(19,958)(7,010)(19,227)(76,655)(84,473)21,255,329213 60,226,153602 122,843 — —  
Issuance of common stock in IPO, net— — — 11,040,000110 — 129,887 — — 129,997 
Issuance of convertible preferred stock, net150,000147,995 — — — — — — — 147,995 
Equity-based compensation— — — — — 4,032 — — 4,032 
Contributions— — — — — — — 2,000 2,000 
Redemptions(26,000)(25,531)— — — — — — — (25,531)
Distributions— — — — — — — (17,085)(17,085)
Net income522 — — — — — 64,552 9,183 74,257 
Balance at September 30, 2021157,143$154,893 $ $ 32,295,329$323 60,226,153$602 $256,762 $64,552 $22,772 $499,904 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6

DREAM FINDERS HOMES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
20222021
Cash Flows from Operating Activities
Net income$184,323 $73,224 
Adjustments to Reconcile Net Income to Net cash used in operating activities  
Depreciation and amortization8,006 3,025 
Gain on sale of property and equipment(99)(73)
Amortization of debt issuance costs2,708 1,267 
Extinguishment of unamortized debt issuance costs 282 506 
Amortization of right-of-use operating lease assets4,154 2,494 
Stock compensation expense4,819 4,032 
Deferred tax benefit(1,867)(3,941)
Income from equity method investments, net of distributions received4,078 (2,234)
Remeasurement of contingent consideration11,875 5,762 
Changes in Operating Assets and Liabilities  
Accounts receivable(4,447)(6,918)
Inventories(446,168)(153,372)
Lot deposits(49,901)(89,889)
Other assets(10,971)(19,855)
Accounts payable and accrued expenses27,823 24,422 
Customer deposits(6,893)45,447 
Operating lease liabilities(4,057)(2,369)
Net cash used in operating activities(276,335)(118,472)
Cash Flows from Investing Activities  
Purchase of property and equipment(4,321)(1,696)
Proceeds from disposal of property and equipment127 441 
Investments in equity method investments  (1,200)
Returns of investment from equity method investments449 636 
Business combinations, net of cash acquired(280)(22,694)
Net cash used in investing activities(4,025)(24,513)
Cash Flows from Financing Activities  
Proceeds from construction lines of credit8,007,500 1,536,317 
Proceeds from issuance of convertible preferred stock 148,500 
Principal payments on construction lines of credit(7,792,500)(1,386,702)
Proceeds from notes payable578 2,836 
Principal payments on notes payable(2,429)(24,930)
Payment of debt issuance costs(5,490)(7,505)
Payment of equity issuance costs (12,985)
Payments on financing leases (102)
Payments of contingent consideration(17,735)(1,207)
Payments of preferred stock dividends(10,238) 
Contributions from non-controlling interests  2,000 
Distributions to non-controlling interests(18,916) 
Proceeds from stock issuance 142,982 
Distributions (43,837)
Redemptions (25,531)
Contribution from conversion of converted LLC units 123,658 
Conversion of LLC units (123,658)
Net cash provided by financing activities160,770 329,836 
Net increase (decrease) in cash, cash equivalents and restricted cash(119,590)186,851 
Cash, cash equivalents and restricted cash at beginning of period281,322 85,211 
Cash, cash equivalents and restricted cash at end of period$161,732 $272,062 
Non-cash Financing Activities  
Financed land payments to seller$ $8,916 
Leased assets obtained in exchange for new operating lease liabilities8,864 676 
Equity issuance costs incurred 906 
Non-cash Investing Activities  
Investment capital reallocation (3,469)
Total non-cash financing and investing activities$8,864 $7,029 
Reconciliation of Cash, cash equivalents and Restricted cash  
Cash and cash equivalents$123,692 $90,211 
Restricted cash38,040 181,851 
Total Cash, cash equivalents and Restricted cash shown on the Consolidated Statements of Cash Flows$161,732 $272,062 

The accompanying notes are an integral part of these condensed consolidated financial statements.
7

DREAM FINDERS HOMES, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1.    Nature of Business and Significant Accounting Policies
Nature of Business
Dream Finders Homes, Inc. (the “Company”, “DFH, Inc.” or “we”) 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 a 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."
Basis of Presentation and Consolidation
The accompanying unaudited, condensed 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 statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and with instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for a complete set of financial statements. As such, the accompanying statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The accompanying statements include all adjustments that are of a normal recurring nature and necessary for the fair presentation of our results for the interim periods presented, which are not necessarily indicative of results to be expected for the full year. 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 Condensed 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 January 1 to January 21, 2021.
Use of Estimates
The preparation of financial statements in conformity with 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.
8

Contingent Consideration
In connection with applicable acquisitions, the Company records the fair value of contingent consideration as a liability on the acquisition date, based on estimated pre-tax net income of the acquiree for future periods 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 and is discounted to present value using the discounted cash flow method. The remaining 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 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.
As of September 30, 2022 and December 31, 2021, the Company remeasured contingent consideration related to the acquisition of Village Park Homes, LLC and adjusted the liability to $2.6 million and $7.6 million, respectively. The Company recorded contingent consideration adjustments resulting in a decrease of $0.8 million and an increase of $0.1 million in expense for the three months ended September 30, 2022 and 2021, and $1.9 million and $0.6 million of expense for the nine months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022 and December 31, 2021, the Company remeasured contingent consideration related to the acquisition of H&H Constructors of Fayetteville, LLC (“H&H”) and adjusted the liability to $15.3 million and $19.7 million, respectively. The Company recorded contingent consideration adjustments resulting in a decrease of $2.5 million and an increase of $0.5 million in expense for the three months ended September 30, 2022 and 2021, and $0.1 million and $5.2 million of expense for the nine months ended September 30, 2022 and 2021, respectively.
The Company measured contingent consideration related to the acquisition of MHI on October 1, 2021 (see Note 2), and recorded a liability of $94.6 million. As of September 30, 2022 and December 31, 2021, the Company remeasured contingent consideration related to the MHI acquisition and adjusted the liability to $100.3 million and $96.7 million, respectively. The Company recorded contingent consideration adjustments resulting in $5.9 million and $9.9 million of expense for the three and nine months ended September 30, 2022, respectively.
The contingent consideration re-measurement adjustments are included in contingent consideration revaluation on the Condensed Consolidated Statements of Comprehensive Income. The payment of the H&H and MHI earn-outs are also subject to certain minimum earnings thresholds, which must be met by H&H and MHI, respectively, before an earn-out payment occurs.
During the three months ended September 30, 2022 and 2021, the Company made no contingent consideration payments. For the nine months ended September 30, 2022 and 2021, total contingent consideration payments were $17.7 million and $1.2 million, respectively. See Note 10, Fair Value Disclosures, for additional discussion on fair value measurement inputs related to contingent consideration.
Change in Accounting Principle – Cash and cash equivalents
On December 31, 2021, the Company elected to change its accounting policy for the presentation of cash proceeds that are in transit from or held within title company escrow accounts for the benefit of the Company, typically for less than five days. Under the new principle, these proceeds are included in cash and cash equivalents, whereas previously, they were considered accounts receivable and included in other assets. The Company believes this reclassification to be preferable because it is a more accurate reflection of its liquidity at period end and the predominant method used in the industry. This change in accounting principle has been applied retrospectively. This reclassification had no impact on the Condensed Consolidated Statements of Comprehensive Income or Condensed Consolidated Statements of Equity.
The impact of the retrospective presentation change on the Condensed Consolidated Statement of Cash Flows for the nine month period ended September 30, 2021, is shown below (in thousands):
As previously reported As adjusted Effect of change
Net cash used in operating activities$(123,144)$(118,472)$4,672 
9

Reclassifications
Certain other reclassifications have been made in the 2021 condensed consolidated financial statements to conform to the classifications used in 2022.
Recent Accounting Pronouncements
In March 2020, the FASB issued 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 of 2022, we amended and restated our revolving credit facility, with no material impact as a result of the shift away from LIBOR (see Note 3). We will continue to evaluate the impact of the shift and relevant guidance on our financial statements and disclosures, as applicable.
2.    Business Acquisitions
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 FASB Topic 805, Business Combinations (“Topic 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 has 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 assets754 
Goodwill1,795 
Inventories34,324 
Property and equipment, net549 
Liabilities(5,831)
Total purchase price$35,584 
MHI
On October 1, 2021, we 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 10.0% 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 25.0% 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.
10

The total purchase price was as follows (in thousands):
Cash consideration$488,178 
Contingent consideration based on future earnings94,573 
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 6) 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 3).
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 has 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 
Inventories473,037 
Lot deposits40,452 
Other assets14,722 
Property and equipment, net3,163 
Equity method investments6,192 
Intangible assets, net of amortization8,840 
Goodwill141,071 
Operating lease right-of-use assets1,508 
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.
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. 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.
11

3.    Construction Lines of Credit
On January 25, 2021, the Company entered into a $450.0 million syndicated senior credit facility with Bank of America, N.A. (the “Credit Agreement”), and subsequently repaid $340.0 million in outstanding debt and terminated all then-existing construction lines of credit. Through subsequent amendments 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 under the Credit Agreement, add new revolving loan tranches under the Credit Agreement or add new term loan tranches under the Credit Agreement, not to exceed 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.

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 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 September 30, 2022 and December 31, 2021, the outstanding balance under the Amended and Restated Credit Agreement was $975.0 million and $760.0 million, respectively, and the effective interest rate was 5.7% and 3.8%, respectively. Under the Amended and Restated Credit Agreement, the funds available are unsecured and availability under the borrowing base is calculated based on finished lots, construction in process, and finished homes inventory on the Condensed Consolidated Balance Sheets.

The Company had capitalized debt issuance costs related to the line of credit and notes payable, net of amortization, of $8.0 million and $5.5 million as of September 30, 2022 and December 31, 2021, respectively, which were included in other assets on the Condensed Consolidated Balance Sheets. The Company amortized $1.1 million and $0.5 million of debt issuance costs for the three months ended September 30, 2022 and 2021, and $2.7 million and $1.3 million of debt issuance costs for the nine months ended September 30, 2022 and 2021, respectively.

The Credit Agreement contains restrictive covenants and financial covenants. The Company was in compliance with all debt covenants as of September 30, 2022 and December 31, 2021. The Company expects to remain in compliance with all debt covenants over the next twelve months.
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4.    Inventories
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 inventories – finished lots and land. 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 lot and all of the direct costs incurred to build the home. The cost of the home 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 three and nine months ended September 30, 2022 and 2021 (in thousands):
For the Three Months Ended
September 30,
For the Nine Months Ended
September 30,
2022202120222021
Capitalized interest at the beginning of the period$62,036 $18,790 $33,266 $21,091 
Interest incurred33,630 9,672 84,063 23,669 
Interest expensed(5)(14)(31)(672)
Interest charged to homebuilding cost of sales(14,470)(5,600)(36,107)(21,240)
Capitalized interest at the end of the period$81,191 $22,848 $81,191 $22,848 
5.    Commitments and Contingencies
The Company is currently involved in the appeals phase 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 could have exposure as part of Weyerhaeuser's motion for costs incurred in defense of this case. However, this would not include attorneys' fees. As we do not believe the amount to be material, we have not recorded a liability for this matter as of September 30, 2022.
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
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subcontractors and vendors who performed work on the project. As of September 30, 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.
6.    Equity
Pursuant to the Corporate Reorganization effective January 25, 2021, the Company is authorized to issue 350,000,000 shares of common stock, par value of $0.01 per share, consisting of 289,000,000 shares of Class A common stock and 61,000,000 shares of Class B common stock. In addition, 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. 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 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