Dream Finders Homes Inc

Previous wording

We design, build and sell homes in high-growth markets using our asset-light lot acquisition strategy. Our primary focus is on constructing and selling single-family homes across entry-level, first-time move-up, second-time move-up, and active adult markets. To fully serve our homebuyers and capture ancillary business opportunities, we have financial services operations that offer title insurance and mortgage banking solutions.

Current wording

We design, build and sell homes primarily in high-growth markets using our asset-light lot acquisition strategy. Our primary focus is on constructing and selling single-family homes across entry-level, first-time move-up, second-time move-up, and active adult markets as well as homes under built-for-rent contracts. To fully serve our homebuyers and capture ancillary business opportunities, we have financial services operations that offer title insurance and mortgage banking solutions.

Previous wording

On February 1, 2024, we acquired the majority of the homebuilding assets of Crescent Ventures, LLC (“Crescent Homes”), expanding our operations into the Charleston and Greenville, South Carolina and Nashville, Tennessee markets. Refer to Note 15, Subsequent Events to our consolidated financial statements for more information.

Current wording

On January 23, 2025, we acquired the majority of the homebuilding assets of Liberty Communities, allowing us to enter the Atlanta, Georgia market and further expand our operations in Greenville, South Carolina. Assets acquired include over 750 lots and home sites in different stages of construction. Additionally, the Company expects to control approximately 5,000 lots as a result of the transaction. The operations of Liberty Communities will be included in our Southeast segment as of the date of acquisition. Refer to Note 15, Subsequent Events to our consolidated financial statements for more information.

Previous wording

The following table sets forth our results of operations and balance sheet data (in thousands, except per share and share amounts) for the periods indicated:

Current wording

The following table summarizes our results of operations and other financial data (in thousands, except per share amounts) for the periods indicated:

Previous wording

(1)Refer to Note 14, Earnings Per Share to the consolidated financial statements for disclosures related to the calculation of EPS. 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.

Current wording

(2)Refer to Note 14, Earnings Per Share to the consolidated financial statements for disclosures related to the calculation of EPS. Diluted shares were calculated by using the treasury stock method for stock grants and the if-converted method for the redeemable preferred stock and the associated preferred dividends.

Previous wording

(4)Return on participating equity is calculated as net income attributable to DFH, less redeemable preferred stock distributions, dividends and redemptions, divided by average beginning and ending participating equity. Participating equity is stockholders’ equity excluding noncontrolling interests.

Current wording

(5)Return on participating equity is calculated as net and comprehensive income attributable to DFH, less redeemable preferred stock distributions, divided by average beginning and ending total Dream Finders Homes, Inc. stockholders’ equity (“participating equity”) for the trailing twelve months.

Previous wording

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Current wording

(1)Selling, general and administrative expense, which is comprised of homebuilding segments and Corporate expense (“SG&A”), includes $33 million and $19 million of Corporate SG&A for the year ended December 31, 2024 and 2023, respectively. Corporate amounts are included as they primarily relate to our homebuilding business.

Previous wording

(6)Gross margin is homebuilding revenues less homebuilding cost of sales.

Current wording

(4)Homebuilding gross margin is homebuilding revenues less homebuilding cost of sales.

Previous wording

(8)Adjusted gross margin, EBITDA and adjusted EBITDA are non-GAAP financial measures. For definitions of these non-GAAP financial measures and a reconciliation to our most directly comparable financial measures calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.”

Current wording

(6)Adjusted homebuilding gross margin and net homebuilding debt to net capitalization are non-GAAP financial measures. For definitions of these non-GAAP financial measures and reconciliations to our most directly comparable financial measures calculated and presented in accordance with GAAP, see “—Non-GAAP Financial Measures.”

Previous wording

(2)A community becomes active once the model is completed or the community has its fifth net sale. A community becomes inactive when it has fewer than five homesites remaining to sell.

Current wording

(7)A community becomes active once the model is completed or the community has its fifth net sale. A community becomes inactive when it has fewer than five homesites remaining to sell.

Previous wording

The following tables summarize homes closings, and ASP of homes closed by homebuilding segment for the years ended December 31, 2023 and 2022, as well as active communities as of December 31, 2023 and 2022:

Current wording

The following tables summarize home closings and average sales price (“ASP”) of homes closed by homebuilding segment for the year ended December 31, 2024 and 2023, as well as active communities as of December 31, 2024 and 2023:

Previous wording

The following table presents income before taxes (in thousands), and homebuilding gross margin percentage by segment for the years ended December 31, 2023 and 2022:

Current wording

The following tables present income before taxes (in thousands) and homebuilding gross margin (or “gross margin”) percentage by segment for the year ended December 31, 2024 and 2023:

Previous wording

Selling, General and Administrative Expense. Selling, general and administrative expense (“SG&A”) for the year ended December 31, 2023 was $309 million, an increase of $38 million, or 14%, from $271 million for the year ended December 31, 2022. SG&A as a percentage of homebuilding revenues for the year ended December 31, 2023 increased 20 bps to 8.3% compared to 8.1% for the year ended December 31, 2022. For the year ended December 31, 2023, SG&A included $28 million of costs related to mortgage forward commitment programs, allowing our homebuyers to lock their interest rates on home loans at the point of sale, which were not incurred in 2022. We expense these costs as incurred.

Current wording

Selling, General and Administrative Expense. SG&A as a percentage of homebuilding revenues was 9.0% for the year ended December 31, 2024, a slight increase of 90 bps from 8.1% for the year ended December 31, 2023. The dollar increase in SG&A was primarily attributable to higher compensation costs of $51 million due to our growth from continued expansion, including the February 2024 acquisition of Crescent Homes and our operational expansions in Florida and Arizona. Additionally, for the year ended December 31, 2024, SG&A included $50 million of spend on forward commitment programs to allow our homebuyers to access lower mortgage interest rates on home loans at the point of sale, representing a $22 million increase when compared to the year ended December 31, 2023.

Previous wording

Refer to the Form 10-K for the year ended December 31, 2022 filed on March 2, 2023 for the results of operations and related discussion for December 31, 2022 compared to the year ended December 31, 2021.

Current wording

Refer to the Form 10-K for the year ended December 31, 2023 filed on February 29, 2024 for the results of operations and related discussion for December 31, 2023 comparedto the year ended December 31, 2022.

Previous wording

The following table presents information concerning our net new orders (“net sales”), starts and closings in each of our homebuilding segments for the periods set forth below:

Current wording

The following table presents information concerning our net sales, starts and closings in each of our homebuilding segments for the periods set forth below:

Previous wording

The following table presents information concerning our ending backlog in number of homes, ASP and aggregate value (in thousands) for our homebuilding segments as of the dates set forth below:

Current wording

The following table presents information concerning our backlog in number of homes, ASP and aggregate value (in thousands) for our homebuilding segments as of the dates set forth below:

Previous wording

(1) Ending backlog represents the number of homes in backlog from the previous period, plus net sales during the period, minus the number of home closings during the current period.

Current wording

(1)Represents the number of homes in backlog from the previous period, plus net sales during the period, minus the number of home closings during the current period.

Previous wording

Backlog of sold homes as of December 31, 2023 was 3,978 homes valued at approximately $1.9 billion based on ASP, a decrease of 1,570 homes and $0.6 billion in value, or 28% and 25%, respectively, from 5,548 homes valued at approximately $2.5 billion as of December 31, 2022. The overall decrease in backlog is reflective of an increase in sales of move-in ready spec homes relative to pre-order sales. Spec homes typically result in quicker closings and turnover of the backlog. Approximately 704 of the homes in our backlog are expected to be delivered in 2025 and beyond.

Current wording

Backlog of sold homes as of December 31, 2024 was 2,599 homes valued at approximately $1.3 billion based on ASP, a decrease of 1,379 homes and $583 million in value, or 35% and 31%, respectively, from 3,978 homes valued at approximately $1.9 billion as of December 31, 2023. The overall decrease in backlog was mostly reflective of a continued trend toward move-in ready spec homes relative to pre-order sales, and to a lesser extent, a reduction in built-for-rent contracts in backlog. Spec homes typically result in quicker closings and turnover of the backlog within the same reporting period. Approximately 187 of the homes in our backlog are expected to be delivered in 2026 and beyond.

Previous wording

Southeast. Backlog for the Southeast segment as of December 31, 2023 was 2,234 homes, a decrease of 1,348 from 3,582 homes as of December 31, 2022. The decrease was primarily attributable to an increase in sales of move-in ready spec homes relative to pre-order sales and to a lesser extent built-for-rent sales in 2022 backlog that did not repeat in 2023.

Current wording

Southeast. Backlog for the Southeast segment as of December 31, 2024 was 1,150 homes, a decrease of 1,084 from 2,234 homes as of December 31, 2023. The decrease from prior year was primarily attributable to a continued trend toward move-in ready spec homes relative to pre-order sales and a reduction in net sales under built-for-rent contracts.

Previous wording

Mid-Atlantic. Backlog for the Mid-Atlantic segment as of December 31, 2023 was 599 homes, a decrease of 237 from 836 homes as of December 31, 2022. The decrease in backlog was attributable to the increase in spec inventory sales relative to pre-order sales and to a lesser extent fewer sales under built-for-rent contracts in 2023 relative to 2022.

Current wording

Mid-Atlantic. Backlog for the Mid-Atlantic segment as of December 31, 2024 was 678 homes, an increase of 79 from 599 homes as of December 31, 2023. The increase in backlog from prior year was attributable to the Crescent Homes acquisition and, to a lesser extent, higher net sales relative to closings, partially offset by lower net sales relative to closings under built-for-rent contracts.

Previous wording

(1) Our cancellation rate for a given period is calculated as the total number of new sales contracts cancelled during the period, divided by the total number of new home sales contracts entered into during the period.

Current wording

(1)Our cancellation rate for a given period is calculated as the total number of new sales contracts cancelled during the period, divided by the total number of new home sales contracts entered into during the period.

Previous wording

In addition, other companies may not calculate adjusted gross margin information in the same manner that we do. Accordingly, adjusted gross margin information should be considered only as a supplement to gross margin information as a measure of our performance.

Current wording

Management utilizes specific non-GAAP financial measures as supplementary tools to evaluate operating performance. These include adjusted homebuilding gross margin, EBITDA, and net homebuilding debt to net capitalization. Other companies may not calculate non-GAAP financial measures in the same manner that we do. Accordingly, these non-GAAP financial measures should be considered only as a supplement to relevant GAAP information, as reconciled for each measure below. In the future, we may incorporate additional adjustments to these non-GAAP financial measures as we find them relevant and beneficial for both management and investors.

Previous wording

Adjusted gross margin is a non-GAAP financial measure used by management as a supplemental measure in evaluating operating performance. We define adjusted gross margin as gross margin excluding the effects of capitalized interest, lot option fees, amortization included in homebuilding cost of sales (adjustments resulting from the application of purchase accounting in connection with acquisitions) and commission expense. Our management believes this information is meaningful because it isolates the impact that these excluded items have on gross margin. We include internal and external commission expense in homebuilding cost of sales, not selling, general and administrative expense, and therefore commission expense is taken into account in gross margin.

Current wording

We define adjusted homebuilding gross margin as homebuilding gross margin excluding the effects of capitalized interest, lot option fees, amortization included in homebuilding cost of sales (adjustments resulting from the application of purchase accounting in connection with acquisitions) and commission expense. Our management believes this information is meaningful because it isolates the impact that these excluded items have on homebuilding gross margin. We include internal and external commission expense in homebuilding cost of sales, not selling, general and administrative expense, and therefore commission expense is taken into account in homebuilding gross margin.

Previous wording

As a result, in order to provide a meaningful comparison to the public company homebuilders that include commission expense below the gross margin line in selling, general and administrative expense, we have excluded commission expense from adjusted gross margin. However, because adjusted gross margin information excludes capitalized interest, lot option fees, purchase accounting amortization and commission expense, which have real economic effects and could impact our results of operations, the utility of adjusted gross margin information as a measure of our operating performance may be limited.

Current wording

As a result, in order to provide a meaningful comparison to the public company homebuilders that include commission expense below the homebuilding gross margin line in selling, general and administrative expense, we have excluded commission expense from adjusted homebuilding gross margin. However, because adjusted homebuilding gross margin information excludes capitalized interest, lot option fees, purchase accounting amortization and commission expense, which have real economic effects and could impact our results of operations, the utility of adjusted homebuilding gross margin information as a measure of our operating performance may be limited.

Previous wording

The following table presents a reconciliation of adjusted gross margin to the GAAP financial measure of gross margin for each of the periods indicated (unaudited and in thousands, except percentages):

Current wording

The following table presents a reconciliation of adjusted homebuilding gross margin to the GAAP financial measure of homebuilding gross margin for each of the periods indicated (unaudited and in thousands, except percentages):

Previous wording

(1)Gross margin is homebuilding revenues less homebuilding cost of sales.

Current wording

(1)Homebuilding gross margin is homebuilding revenues less homebuilding cost of sales.

Previous wording

(3)Represents amortization of purchase accounting adjustments from the Company’s prior acquisitions.

Current wording

(3)Represents amortization of purchase accounting adjustments from our acquisitions.

Previous wording

Management believes EBITDA and adjusted EBITDA are useful because they allow management to more effectively evaluate our operating performance and compare our results of operations from period to period without regard to our financing methods or capital structure or other items that impact the comparability of financial results from period to period. EBITDA and adjusted EBITDA should not be considered as alternatives to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. Our computations of EBITDA and adjusted EBITDA may not be comparable to EBITDA or adjusted EBITDA of other companies. We present EBITDA and adjusted EBITDA because we believe they provide useful information regarding the factors and trends affecting our business. EBITDA and adjusted EBITDA information should be considered only as a supplement to net income information as a measure of our performance.

Current wording

EBITDA is not a measure of net income as determined by GAAP. EBITDA is a supplemental non-GAAP financial measure used by management and external users of our consolidated financial statements, such as industry analysts, investors, lenders and rating agencies. We define EBITDA as net income before (i) interest income, (ii) capitalized interest charged in homebuilding cost of sales, (iii) interest expense, (iv) income tax expense and (v) depreciation and amortization. Management believes EBITDA is useful because it allows management to more effectively evaluate our operating performance and compare our results of operations from period to period without regard to our financing methods or capital structure or other items that impact the comparability of financial results from period to period. EBITDA should not be considered as an alternative to, or more meaningful than, net income or any other measure as determined in accordance with GAAP. Our computations of EBITDA may not be comparable to EBITDA of other companies.

Previous wording

The following table presents a reconciliation of EBITDA and adjusted EBITDA to the GAAP financial measure of net income for each of the periods indicated (unaudited and in thousands, except percentages):

Current wording

The following table presents a reconciliation of EBITDA to the GAAP financial measure of net income for each of the periods indicated (unaudited and in thousands, except percentages):

Previous wording

(2)Includes amortization of purchase accounting adjustments from prior acquisitions of$7 million and$10 million for the years ended December 31, 2022 and 2021, respectively, which is included in homebuilding cost of sales reported on the Consolidated Statements of Comprehensive Income. For the year ended December 31, 2023, there was no such amortization of fair value adjustments of inventory.

Current wording

(2)Includes amortization of purchase accounting adjustments from our acquisitions.

Previous wording

We generate cash from the sale of our inventory and we intend to re-deploy the net cash generated from the sale of inventory to acquire and control land and further grow our operations year over year. We believe that our sources of liquidity are sufficient to satisfy our current commitments. Our liquidity comes from a variety of sources, including cash, borrowings under a credit agreement (the “Credit Agreement”), and net proceeds from the senior unsecured notes (“2028 Notes”).

Current wording

We generate cash from the sale of our homes and from providing ancillary financial services. We intend to re-deploy our generated net cash to acquire and control land and further grow our operations year over year. We believe that our sources of liquidity are sufficient to satisfy our current commitments. We finance our operations through a variety of sources, including cash, borrowings under a revolving credit facility (the “Credit Agreement”), net proceeds from the senior unsecured notes (“2028 Notes”) and mortgage warehouse facilities used in our mortgage banking operations.

Previous wording

Our principal uses of capital are for lot deposits, lot purchases just-in-time for construction, vertical home construction, operating expenses and the payment of routine liabilities.

Current wording

Our principal uses of capital are for lot deposits, lot purchases just-in-time for construction, vertical home construction, operating expenses, the payment of routine liabilities, business acquisitions and the origination of mortgage loans. Cash allocated to 2024 business acquisitions was approximately $220 million as of December 31, 2024 and none as of December 31, 2023. There was no acquisition activity in 2023. Refer to Note 2, Acquisitions to the consolidated financial statements for more information.

Previous wording

As of December 31, 2023, we were in compliance with the covenants set forth in our Credit Agreement and under the indenture related to the 2028 Notes. See below and refer to Note 2, Debt to our consolidated financial statements for more information on the Credit Agreement and the 2028 Notes.

Current wording

As of December 31, 2024, the Credit Agreement had an aggregate commitment of up to $1.4 billion. The Credit Agreement will mature on June 4, 2027. Certain of our subsidiaries guaranteed the Company’s obligations under the Credit Agreement and the 2028 Notes. As of December 31, 2024, we were in compliance with the covenants set forth for all of our debt obligations. Refer to Note 3, Debt, to the consolidated financial statements for more information on the Credit Agreement, 2028 Notes and the mortgage warehouse facilities.

Previous wording

Cash flows generated by our projects can differ materially from our results of operations, as these depend upon the stage in the life cycle of each project. The majority of our projects begin at the land acquisition stage when we enter into finished lot option contracts by placing a deposit with a land seller, banker or developer. Our lot deposits are an asset on our balance sheets and these cash outflows are not recognized in our results of operations. Early stages in our communities require material cash outflows relating to finished rolling option lot purchases, entitlements and permitting, construction and furnishing of model homes, roads, utilities, general landscaping and other amenities, as well as ongoing association fees and property taxes. Except for furnishings of model homes, these costs are capitalized within our real estate inventory and are not recognized in our operating income until a home sale closes. As such, we incur significant cash outflows prior to the recognition of revenues.

Current wording

Cash flows generated by our homebuilding projects can differ materially from our results of operations, as these depend upon the stage in the life cycle of each project. The majority of our projects begin at the land acquisition and development stage when we enter into finished lot option and land bank option contracts by placing a deposit with a land seller, developer or land banker. Our lot deposits are an asset on our Consolidated Balance Sheets. Early stages in our communities require material cash outflows relating to finished lot purchases from option contracts, entitlements and permitting, construction and furnishing of model homes, roads, utilities, general landscaping and other amenities, as well as ongoing association fees and property taxes. Except for furnishings of model homes, these costs are capitalized within our inventories and are not recognized as an expense until a home sale closes. As such, we incur significant cash outflows prior to the recognition of revenues and the related cost of sales.

Previous wording

We actively enter into finished lot option contracts by placing deposits with land sellers based on the aggregate purchase price of the finished lots. When entering into these contracts, we also agree to purchase finished lots at predetermined prices, time frames, and quantities that match our expected selling pace in the community. We also enter into land development arrangements with land sellers, land developers and land bankers. Furthermore, to satisfy performance-related obligations in connection with certain land option agreements, we enter into surety bonds and letters of credit arrangements. Refer to “—Off-Balance Sheet Arrangements” for additional information.

Current wording

We actively enter into finished lot option contracts by placing deposits with land sellers or land bankers based on the aggregate purchase price of the finished lots. When entering into these contracts, we also agree to purchase finished lots at predetermined prices, time frames, and quantities that match our expected selling pace in the communities. We also enter into land development arrangements with land sellers, land developers and land bankers. Furthermore, to satisfy performance-related obligations in connection with certain land option agreements, we enter into surety bonds and letters of credit arrangements. Refer to “—Off-Balance Sheet Arrangements” for additional information.

Previous wording

The above cash strategies allow us to maintain adequate lot supply in our existing markets and support ongoing growth and profitability. Although currently there is economic uncertainty that is impacting the homebuilding industry, we continue to operate in geographic regions with consistent increases in demand for new homes and constrained lot and inventory supply compared to population and job growth trends. We intend to continue to reinvest our earnings into our business and focus on expanding our operations. In addition, as the opportunity to purchase finished lots in desired locations becomes increasingly more limited and competitive, we are committed to allocating additional liquidity to land bank deposits on land development projects, as this strategy mitigates the risks associated with holding undeveloped land on our balance sheet, while allowing us to control adequate lot supply in our key markets to support forecasted growth.

Current wording

The above cash and land-light strategies allow us to maintain an adequate lot supply in our existing markets and support ongoing growth and profitability. We continue to operate in geographic regions with consistent increases in demand for new homes and constrained lot and inventory supply compared to population and job growth trends. We intend to continue to reinvest our earnings into our business and focus on expanding our operations. In addition, as the opportunity to purchase finished lots in desired locations becomes increasingly more limited and competitive, we are committed to allocating additional liquidity to land bank deposits on land development projects, as this strategy mitigates the risks associated with holding undeveloped land on our balance sheet, while allowing us to control adequate lot supply in our key markets to support forecasted growth. As of December 31, 2024 and 2023, our lot deposits related to finished lot option contracts and land bank option contracts were $458 million and $247 million, respectively.

Previous wording

We continue to evaluate our capital structure and explore options to strengthen our balance sheet. We will remain opportunistic while assessing available capital in the debt and equity markets.

Current wording

We continue to evaluate our overall capital structure and explore options to strengthen our balance sheet. We will remain opportunistic while assessing available capital in the debt and equity markets.

Previous wording

Net cash used in financing activities was $216 million for the year ended December 31, 2023, as comp ared to $147 million of cash provided by financing activities for the year ended December 31, 2022. The change in net cash used in financing activities was primarily attributable to higher net payments on the construction lines of credit of $436 million in 2023 compared to $203 million of net proceeds in 2022, and to a lesser extent, a one-time payment related to the redemption of the Series B preferred units during the year ended December 31, 2023. The full net proceeds from the issuance of unsecured senior notes of $300 million during the year were used to pay down a portion of the outstanding balance under the Credit Agreement.

Current wording

Net cash provided by financing activities was $270 million for the year ended December 31, 2024, as compared to $216 million of net cash used in financing activities for the year ended December 31, 2023. The change in net cash provided by/(used in) financing activities was primarily attributable to net proceeds from our homebuilding debt of $171 million during the year ended December 31, 2024 used to release housing starts and purchase lots for our homebuilding operations, compared to $136 million of net homebuilding debt repayments during the year ended December 31, 2023. Additionally, there were $180 million of net proceeds from the mortgage warehouse facilities during the year ended December 31, 2024 resulting from the Jet HomeLoans acquisition.

Previous wording

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%.

Current wording

Under the Credit Agreement, the Company has the ability 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 or three-month interest periods and include a SOFR adjustment of 10 basis points for each interest period. 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 2.00% to 2.95%.

Previous wording

The Company had capitalized debt issuance costs, net of amortization, related to construction lines of credit totaling $7 million as of both December 31, 2023 and 2022, 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.

Current wording

The Company had capitalized debt issuance costs related to construction lines of credit, net of amortization, of$10 million and $7 million as of December 31, 2024 and 2023, respectively, which were included in other assets on the Consolidated Balance Sheets.

Previous wording

The Credit Agreement contains covenants that, among other things, require that we (i) maintain a maximum debt to capitalization ratio, as of the last day of each fiscal quarter, of 60.0%; (ii) maintain an interest coverage ratio, as of the last day of each fiscal quarter, of not less than 2.0 to 1.0; (iii) maintain a liquidity ratio, as of the last day of each fiscal quarter, of not less than 1.0 to 1.0; (iv) maintain tangible net worth of not less than the sum of (A)$607 million, (B) 50.0% of net income earned in each fiscal quarter after March 31, 3023 and (C) 50.0% of the aggregate increases in shareholders’ equity of the consolidated group after March 31, 2023 by reason of the issuance and sale of equity interests of the members of the consolidated group; (v) maintain a risk assets ratio (defined as (A) the sum of the GAAP net book value for all finished lots, lots under development and land held for future development or disposition to (B) tangible net worth), as of the last day of each fiscal quarter, of no more than 1.0 to 1.0; (vi) not allow aggregate investments in unconsolidated affiliates to exceed 15.0% of tangible net worth, as of the last day of any fiscal quarter; and (vii) not incur indebtedness other than, among other things, (A) the obligations under the Credit Agreement, (B) non-recourse indebtedness in an amount not to exceed 15.0% of tangible net worth, as of the last day of each fiscal quarter, (C) operating lease liabilities, finance lease liabilities and purchase money obligations for fixed or capital assets not to exceed $5 million in the aggregate, (D) indebtedness of financial services subsidiaries and variable interest entities, (E) indebtedness under hedge contracts entered into for purposes other than for speculative purposes, and (F) permitted unsecured indebtedness (including the 2028 Notes). 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.

Current wording

The Company was in compliance with all debt covenants as of December 31, 2024 and 2023. The Company expects to remain in compliance with all debt covenants over the next 12 months. Refer to Note 3, Debt, to the consolidated financial statements for more information on covenants in the Credit Agreement.