Core Insights - Dream Finders Homes, Inc. (DFH) has released its 2024 Annual Shareholder Letter authored by Patrick Zalupski, the Founder, CEO, and Chairman of the company [1] Company Overview - Dream Finders Homes is headquartered in Jacksonville, Florida, and was recognized as the 2025 National Builder of the Year by Builder magazine [2] - The company builds single-family homes across the Southeast, Mid-Atlantic, and Midwest regions, including states such as Florida, Texas, Tennessee, North Carolina, South Carolina, Georgia, Colorado, Arizona, and the Washington, D.C. metropolitan area [2] - As the Official Home Builder of the PGA TOUR and the Jacksonville Jaguars, Dream Finders Homes is committed to excellence in homebuilding and community service [2] - The company operates an asset-light homebuilding model, which contributes to its industry-leading growth and returns [2] - In addition to homebuilding, Dream Finders Homes provides mortgage financing, title agency, and underwriting services through its wholly owned subsidiaries [2]

Core Thesis - Dream Finders Homes, Inc. (DFH) is facing significant structural challenges despite its previous growth and market rewards, with a bearish outlook emerging due to declining market conditions and operational risks [2]. Company Overview - DFH's share price was $18.67 as of December 17th, with trailing and forward P/E ratios of 6.74 and 6.45 respectively [1]. - The company has adopted a "land-light" strategy post-COVID, which initially drove growth but is now leading to issues such as overpriced land and oversupplied inventory [2]. Market Conditions - The housing market has slowed down, particularly in key markets like Texas and Florida, resulting in declining home prices and underperformance compared to the national average by 15.5% since 2022 [2]. - Average closing prices for DFH have decreased for three consecutive quarters, indicating a troubling trend in sales [2]. Operational Challenges - Poor site selection and construction quality have damaged DFH's brand reputation, leading to a preference among buyers for ready-to-move-in homes [2]. - The reliance on costly option contracts with related-party DF Capital Management has created conflicts of interest and margin compression [2]. Financial Performance - Free cash flow has been deeply negative, contrasting with reported positive earnings, highlighting a disconnect between profitability and cash generation [2]. - Insider selling, extravagant expenditures, and ongoing legal disputes further exacerbate financial concerns [2]. Valuation and Risks - Returns on equity are normalizing towards peer levels, and structural market headwinds suggest a potential sharp compression in DFH's valuation multiple [2]. - If the stock re-rates to peer price-to-tangible-book-value levels, a downside of 47-58% could be anticipated [2]. Hedge Fund Interest - DFH is not among the 30 most popular stocks among hedge funds, with 16 hedge fund portfolios holding DFH at the end of Q3, a slight increase from 15 in the previous quarter [2].

Core Viewpoint - Dream Finders Homes, Inc. (DFH) is facing significant structural challenges due to a slowing housing market, particularly in key regions, leading to concerns about its operational and financial stability [2]. Group 1: Company Overview - DFH's share price was $18.67 as of December 17th, with trailing and forward P/E ratios of 6.74 and 6.45 respectively [1]. - The company has adopted a "land-light" strategy post-COVID, which initially drove growth and premium returns on equity, resulting in a 2.2x price-to-tangible-book-value multiple compared to 1.0x for peers [2]. Group 2: Market Challenges - The housing market slowdown has particularly impacted DFH's key markets in Texas and Florida, leading to overpriced land, oversupplied inventory, and declining home prices [2]. - DFH's portfolio has underperformed the national average by 15.5% since 2022, with average closing prices declining for three consecutive quarters [2]. Group 3: Operational and Financial Risks - Poor site selection and construction quality have damaged DFH's brand, creating reputational risks and slowing sales as buyers prefer ready-to-move-in homes [2]. - The reliance on costly option contracts with related-party DF Capital Management has created conflicts of interest and negative rate arbitrage, compressing margins [2]. - Free cash flow has been deeply negative while reported earnings remained positive, indicating a disconnect between reported profitability and actual cash generation [2]. Group 4: Valuation and Future Outlook - Returns on equity are normalizing toward peer levels, and structural market headwinds suggest a potential sharp compression in DFH's valuation multiple [2]. - If the stock re-rates to peer price-to-tangible-book-value levels, the downside could reach 47-58% [2]. - Additional catalysts for further decline include rising home inventories, continued ROE pressure, and potential impairments on optioned land [2]. Group 5: Investment Sentiment - DFH is not among the 30 Most Popular Stocks Among Hedge Funds, with 16 hedge fund portfolios holding DFH at the end of Q3, up from 15 in the previous quarter [2]. - While there is potential for long-term growth, certain AI stocks are viewed as offering greater upside potential with less downside risk [2].

Core Insights - The portfolio consists of approximately four dozen stocks, with the top 10 holdings representing about 44% of the total value [1][15] Group 1: Top Stock Holdings - SoFi has experienced a remarkable growth of about 400% from its cost basis, becoming the largest position in the portfolio due to its stellar growth and profitability [4] - MercadoLibre is recognized as the "Amazon of Latin America," with significant potential for growth in e-commerce and fintech sectors in its key markets [5] - General Motors is viewed as undervalued and overlooked, now ranking as the second-largest electric vehicle manufacturer in the U.S., with potential benefits from lower interest rates [6] - Realty Income is highlighted as a top dividend stock with a 5.7% yield and a strong track record of income growth, owning over 15,000 properties [6] - Pinterest is enhancing its e-commerce capabilities and utilizing AI for user experience improvements, showing impressive user growth despite facing international advertising challenges [8] - Berkshire Hathaway is noted for its diverse portfolio of over 60 subsidiaries and a stock portfolio exceeding $300 billion, maintaining strong cash reserves [9] - Dream Finders Homes is positioned to benefit from pent-up demand for entry-level homes, focusing on affordable markets and effective capital allocation [10] - Kinsale Capital Group specializes in specialty insurance products with a strong profitability track record, presenting a buying opportunity after a recent pullback [11] - Walt Disney is recognized for its profitable theme parks and valuable intellectual property, with significant profit potential in its streaming strategy [12] - Howard Hughes Holdings focuses on real estate development, creating value through master-planned communities and commercial property ownership [13] Group 2: Portfolio Composition and Strategy - The portfolio is heavily concentrated, with the top 10 stocks making up 44% of the total account value, reflecting high conviction in these investments [15] - The investor plans to diversify and build smaller stock and ETF positions using new deposits in 2026 [15] - The portfolio also includes substantial ETF holdings, particularly in Vanguard index funds, which would rank among the largest holdings if included [14]

Homebuilding Performance - Homebuilding revenues for Q3 2025 were $916.7 million, a decrease of $69.6 million or 7% compared to Q3 2024 [127]. - The average sales price (ASP) of homes closed decreased by 8% to $476,962 in Q3 2025 from $518,553 in Q3 2024 [131]. - Home closings increased by 1% to 1,915 in Q3 2025 compared to 1,889 in Q3 2024 [127]. - Homebuilding revenues for the nine months ended September 30, 2025, were $2,986.4 million, an increase of $122.6 million, or 4%, from $2,863.7 million for the same period in 2024 [141]. - Home closings increased by 497 homes, or 9%, totaling 6,072 for the nine months ended September 30, 2025, compared to 5,575 in 2024 [141]. - The average sales price (ASP) of homes closed decreased by $24,988, or 5%, to $485,216 for the nine months ended September 30, 2025 [141]. - The cancellation rate improved to 12.5% in Q3 2025 from 13.8% in Q3 2024, a reduction of 1.3% [127]. - The cancellation rate improved to 12.7% for the nine months ended September 30, 2025, down from 15.8% in 2024, representing a decrease of 3.1 percentage points [141]. Financial Performance - Net income attributable to Dream Finders Homes, Inc. for the nine months ended September 30, 2025, was $158.5 million, down from $206.1 million in the same period of 2024, representing a decline of 23% [123]. - The EBITDA margin for Q3 2025 was 11.0%, down from 13.2% in Q3 2024 [123]. - Selling, general and administrative expenses (SG&A) increased by $79.4 million, or 29%, to $357.3 million, representing 12.0% of homebuilding revenues for the nine months ended September 30, 2025 [149]. - Homebuilding gross margin percentage decreased to 17.7% for the nine months ended September 30, 2025, down 1.0 percentage points from 18.7% in 2024 [141]. Segment Performance - The Southeast segment reported homebuilding revenues of $317 million, an increase of 8% from $293 million in Q3 2024, driven by a 20% increase in home closings [134]. - The Mid-Atlantic segment experienced a 15% decline in homebuilding revenues to $242 million, attributed to a 9% decrease in ASP and lower home closings [135]. - The Midwest segment homebuilding revenues increased by $48 million, or 4%, to $1,239 million for the nine months ended September 30, 2025 [148]. - The Southeast segment homebuilding revenues increased by $78 million, or 9%, to $992 million for the nine months ended September 30, 2025 [146]. Backlog and Inventory - Backlog units as of September 30, 2025, decreased by 34% to 2,619 from 3,996 units in 2024 [130]. - The backlog of sold homes decreased to 2,619 homes valued at approximately $1.2 billion, down 34% in volume and 42% in value from 3,996 homes valued at approximately $2.0 billion as of September 30, 2024 [169]. - The backlog for the Southeast segment as of September 30, 2025, was 1,143 homes, a decrease of 502 from 1,645 homes as of September 30, 2024 [170]. - The Midwest segment backlog fell to 578 homes, a decrease of 664 from 1,242 homes as of September 30, 2024, primarily due to higher closings relative to net sales [172]. Cash and Liquidity - The company's cash and cash equivalents increased to $251.0 million as of September 30, 2025, compared to $204.9 million in 2024 [123]. - As of September 30, 2025, the company's cash and total liquidity were $624.7 million, down from $816.0 million as of December 31, 2024, reflecting a decrease of approximately 23.5% [199]. - The company reported net cash used in operating activities of $244.2 million for the nine months ended September 30, 2025, a significant improvement compared to $563.1 million for the same period in 2024, representing a reduction of 56.6% [205]. - Net cash provided by financing activities was $396.5 million for the nine months ended September 30, 2025, down from $445.0 million for the same period in 2024, a decrease of approximately 10.9% [207]. Debt and Financing - The net homebuilding debt to net capitalization ratio was 47.3% as of September 30, 2025, compared to 45.6% in 2024 [191]. - Total debt increased to $1,766,134 million as of September 30, 2025, from $1,456,088 million in 2024 [191]. - The company issued $300 million in senior unsecured notes with a 6.875% interest rate, due September 15, 2030, to repay a portion of the outstanding balance under the Credit Agreement [202]. - The company amended its Credit Agreement to increase aggregate commitments to $1.5 billion and extended the maturity date to August 21, 2028 [201]. Mortgage and Financial Services - Mortgage revenues for the three months ended September 30, 2025, were $16,306, a 1% increase from $16,079 in 2024 [176]. - Total financial services revenues surged to $53,133, marking a 163% increase from $20,168 in the same period of 2024 [176]. - Mortgage revenues increased by $32,770 million, or 204%, for the nine months ended September 30, 2025, compared to the same period in 2024 [177]. - Title and other services revenues rose by $64,793 million, or 637%, for the nine months ended September 30, 2025, compared to the same period in 2024 [177]. - Total financial services revenues reached $123,821 million, a 372% increase for the nine months ended September 30, 2025, compared to the same period in 2024 [177]. - The number of mortgage loans originated increased by 644, or 20%, totaling 3,926 loans for the nine months ended September 30, 2025 [177]. - The capture rate for mortgage originations improved to 78.3%, up 5% from 73.6% in the previous year [177]. - The acquisition of Alliant Title in April 2025 contributed $32 million to the increase in title and other services revenues for the three months ended September 30, 2025 [178]. Lot Deposits and Land Bank - Lot deposits for finished lot option and land bank option contracts increased to $551 million as of September 30, 2025, up from $458 million as of December 31, 2024 [154]. - As of September 30, 2025, the total controlled lots increased to 64,341, a rise of 18% from 54,698 as of December 31, 2024 [156]. - The number of active communities rose to 283, reflecting an increase of 48 communities or 20% compared to 235 active communities as of September 30, 2024 [158]. - The company plans to allocate additional liquidity to land bank deposits to mitigate risks associated with holding undeveloped land [198]. Interest Rate Risk - Jet HomeLoans is exposed to interest rate risk related to its lending activities, underwriting and originating mortgage loans sold through forward mortgage commitments [228]. - The loan portfolio of Jet HomeLoans is held for sale and is subject to forward sale commitments, with interest rate lock commitments used to hedge mortgage-related interest rate exposure [228].

Homebuilding Performance - Homebuilding revenues for Q3 2025 were $917 million, a decrease of 7% compared to $986 million in Q3 2024[3] - Home closings rose by 1% to 1,915 in Q3 2025, up from 1,889 in Q3 2024, also a company record[3] - Net new orders increased by 20% to 2,021 in Q3 2025 from 1,680 in Q3 2024, marking a record for the company[12] - Home closings totaled 1,915 in Q3 2025, slightly up from 1,889 in Q3 2024, indicating a 1.4% increase[24] - The average sales price of homes closed decreased to $476,962 in Q3 2025 from $518,553 in Q3 2024, a decline of 8.0%[24] Financial Performance - Total revenues for Q3 2025 were $969.8 million, a decrease of 3.5% from $1,006.4 million in Q3 2024[22] - Pre-tax income decreased to $61 million in Q3 2025 from $92 million in Q3 2024[3] - Financial services pre-tax income increased by 11% to $9 million in Q3 2025 from $8 million in Q3 2024[3] - Net income attributable to Dream Finders Homes, Inc. was $47.0 million in Q3 2025, compared to $70.7 million in Q3 2024, reflecting a decline of 33.9%[22] - Adjusted homebuilding gross margin for Q3 2025 was $245.1 million, down from $272.1 million in Q3 2024, a decrease of 9.9%[29] Liquidity and Debt - The company issued $300 million in senior unsecured notes at a rate of 6.875% to repay part of its revolving credit facility[3] - Total liquidity as of September 30, 2025, was $625 million, consisting of cash and cash equivalents and availability under the revolving credit facility[3] - Net homebuilding debt to net capitalization ratio increased to 47.3% as of September 30, 2025, compared to 45.6% as of September 30, 2024[33] Backlog and Guidance - The backlog as of September 30, 2025, included 2,619 homes valued at $1.2 billion, with an average sales price of $447,133[13] - The backlog as of September 30, 2025, was valued at $1.17 billion, down from $2.00 billion as of September 30, 2024[24] - The company revised its full-year 2025 guidance to approximately 8,500 home closings, down from a previous estimate of 9,250[16] Expenses and Cancellation Rate - Selling, general and administrative expenses increased by 8% to $110 million in Q3 2025, representing 11.9% of homebuilding revenues[10] - The cancellation rate improved to 12.5% in Q3 2025 from 13.8% in Q3 2024[24]

Core Viewpoint - Dream Finders Homes Inc. reported quarterly earnings of $0.47 per share, matching the Zacks Consensus Estimate, but down from $0.70 per share a year ago [1] - The company posted revenues of $969.8 million for the quarter ended September 2025, missing the Zacks Consensus Estimate by 14.96% and down from $1.01 billion year-over-year [2] Financial Performance - Earnings per share (EPS) for the latest quarter was $0.47, compared to $0.70 in the same quarter last year [1] - The company had a surprise of -13.85% in the previous quarter, with actual earnings of $0.56 against an expected $0.65 [1] - Revenues for the quarter were $969.8 million, missing estimates and down from $1.01 billion year-over-year [2] Market Performance - Dream Finders Homes shares have declined approximately 7.1% since the beginning of the year, contrasting with the S&P 500's gain of 17.2% [3] - The stock currently holds a Zacks Rank 5 (Strong Sell), indicating expected underperformance in the near future [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.82 on revenues of $1.38 billion, and for the current fiscal year, it is $2.39 on revenues of $4.66 billion [7] - The outlook for the Building Products - Home Builders industry is currently in the bottom 20% of Zacks industries, which may negatively impact stock performance [8]

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Company Performance - Dream Finders Homes Inc. (DFH) closed at $23.36, reflecting a decrease of 2.91% from the previous day, underperforming compared to the S&P 500's loss of 0.63% [1] - Over the last month, DFH shares have decreased by 14.53%, contrasting with the Construction sector's loss of 0.63% and the S&P 500's gain of 0.92% [1] Upcoming Earnings - The company is expected to report an EPS of $0.47, which is a decline of 32.86% from the prior-year quarter [2] - The Zacks Consensus Estimate for revenue is projecting net sales of $1.14 billion, an increase of 13.26% from the year-ago period [2] Fiscal Year Estimates - For the entire fiscal year, the Zacks Consensus Estimates predict earnings of $2.39 per share and revenue of $4.66 billion, indicating changes of -28.44% and +4.63%, respectively, from the previous year [3] Analyst Forecasts - Recent revisions to analyst forecasts for DFH are important as they reflect changing near-term business trends, with positive changes indicating a favorable outlook on business health and profitability [4] Zacks Rank and Valuation - DFH currently holds a Zacks Rank of 5 (Strong Sell), with no changes in the Zacks Consensus EPS estimate over the past month [6] - The company is trading at a Forward P/E ratio of 10.07, which is a discount compared to the industry average Forward P/E of 11.74 [7] PEG Ratio - DFH has a PEG ratio of 6.54, compared to the average PEG ratio of 3.22 for the Building Products - Home Builders industry [8] Industry Context - The Building Products - Home Builders industry is part of the Construction sector and has a Zacks Industry Rank of 208, placing it in the bottom 16% of all industries [9]

Company Performance - Dream Finders Homes Inc. (DFH) ended the recent trading session at $24.58, showing a -4.17% change from the previous day's closing price, which is worse than the S&P 500's daily loss of 0.38% [1] - Shares of Dream Finders Homes Inc. have lost 17.23% in the past month, while the Construction sector lost 1.68% and the S&P 500 gained 4.06% during the same period [1] Earnings Forecast - Dream Finders Homes Inc. is projected to report earnings of $0.47 per share, representing a year-over-year decline of 32.86%, with a revenue estimate of $1.14 billion, reflecting a 13.26% rise from the same quarter last year [2] - For the entire year, the Zacks Consensus Estimates forecast earnings of $2.39 per share and revenue of $4.66 billion, indicating changes of -28.44% and +4.63%, respectively, compared to the previous year [3] Analyst Estimates and Rankings - The Zacks Consensus EPS estimate has moved 30.73% lower over the past month, and Dream Finders Homes Inc. currently holds a Zacks Rank of 5 (Strong Sell) [5] - Research indicates that estimate revisions are correlated with near-term share price momentum, and the Zacks Rank system provides a rating based on these changes [4] Valuation Metrics - Dream Finders Homes Inc. has a Forward P/E ratio of 10.73, which is a discount compared to the industry average Forward P/E of 11.95 [6] - The company's PEG ratio is currently 6.97, while the average PEG ratio for Building Products - Home Builders stocks is 2.62 [7] Industry Context - The Building Products - Home Builders industry is part of the Construction sector and currently holds a Zacks Industry Rank of 214, placing it in the bottom 14% of all industries [8]