FOR - Earnings call transcript Q1 2020

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Operator

Greetings and welcome to the Forestar's First Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It's now my pleasure to introduce your host, Jessica Hansen, Vice President of Investor Relations for D.R. owner majority XX% the of Forestar. Horton, go please ahead. Jessica,

Jessica Hansen

of Thank results call our We plans. along each you, welcome you capital to and the expected to company's Kevin. with growth discuss Forestar's financial

today's we defined XXXX. as Private call Before the started, may comments forward-looking by Act that Reform Litigation include Securities statements constitute of get

based to believes Forestar no are different. that publicly on outcomes actual statements forward-looking forward-looking assurance any call of be All reasonable this materially statements. available obligation or update on not and Although based such upon statements date the Forestar revise are to will Forestar undertake any is assumptions, information not conference there any does

Report the Additional Commission. could in to information is changes Securities issues which material lead that is filed Form and on XX-K XXXX Exchange with contained about Annual performance in Forestar's

an afternoon's investor.forestar.com at we filed next Forestar's your week. earnings After to and reference. Forestar's presentations under and for events the post investor on release call, be This is planned Investor Relations early updated website this site presentation to is XX-Q will

call to Now, turn the Forestar. over I of Dan Bartok, will CEO

Dan Bartok

Thank and you, good afternoon, everyone. Jessica,

of who Colin me to In this Finance by on am Vice finance and [ph], Forestar's Corporate on works Treasurer, President addition D.R. efforts. pleased be and closely call with Horton's and to I Jessica, joined Jessica Relations Investor

significant and team towards executing progress Our our quarter on for a made solid XXXX. delivered plans fiscal first

development we differentiates first company bring developers, results focus but business everyone in I'd these Unlike and Forestar's discuss the mindset detail, marketplace. to returns production-oriented other in model our to will it land manufacturing like unique process. We a about the how land remind

our a short a development. We buyer focused projects from prior manner, signed making agreement typically lot duration, lot and known new residential significant investments. fully entitled on a have in to any are purchase phased We develop

as we development more to cash achieve than returns is other produce the will lower consistent land flow developers approach and and scales. risk land Our public

has nation's unique with strategic Horton, and a also relationship D.R. the Forestar largest builder.

the operating lots, a universe. footprint Horton broader the relationship that finished revenue expansion growth the to D.R. relationship public immense D.R. to and Our are appetite of derisks an homebuilders. and allows leveraging us we has is than for strategic platform Horton our that geographically most unmatched development homebuilding is deliver diverse more and land topline with have within

I'll to discuss turn some our Jessica it over now highlights. financial of to

Jessica Hansen

to share or $X.XX share, Thank million In attributable in Forestar you, diluted $XX.X net diluted Dan. first $X.XX prior XXX% per per the year the million $X.X to or quarter, to quarter. income increased compared

revenues quarter lots, first quarter Forestar's were increased average sales of $XX,XXX. million from quarter. development Residential total the XXX% sold, the lots the were increase sold the XX% projects lots of X,XXX of quarter which the price in during included approximately quarter. the Of was Forestar's track sales. million from remainder an lot with XXX% for sold from lot during $XXX prior quarter year D.R. sold to Horton $XX to lot The residential totaled X,XXX banking.

Dan?

Dan Bartok

will that returns. company produce It's a our goal consistent to build

our During growth, this results. variability rapid significant period of in expect we quarter-to-quarter

we scale are oriented at produce returns. will our turnover high low manufacturing lot However, production model confident that consistent risk,

X%. for with pre-tax $XX.X income quarter a profit of pre-tax the was Our million margin

Our gross was revenues profit margin percentage first as X.X%. was SG&A of XX.X% a in quarter, and the expense

mid margin range. single-digit in fiscal to to in percentage to continue We expect profit the high XXXX be our pre-tax

XXXX lot generate will anticipate which lot in lot ranging XX%. mix gross XX% two-thirds the fiscal of approximately gross our fluctuations to our deliveries of our incremental building from expect fiscal remainder deliveries, the quarterly pre-tax of our significant and of the track sales, For timing the typically the margins development margins we out and to SG&A still while from due platform. be We of projects, quarterly timing year, in

current lower by the range. sourced margins of Forestar, Our is will at this which project to portfolio produce not weighted end projects, heavily duration shorter development

short-term XXXX. to banking X% portfolio. annual margins Additionally, are banking lot of to X% of one-third fiscal Lot short our to during projects gross XX% XX% to generate expected returns is with expected roughly ranging duration the lot deliveries to from due current be

homebuilder. Finally, an we the to business of will we SG&A lower ability infrastructure support believe continued percentage our At to scale. our require our a at manage build-out platform than increased SG&A achieve will typical scale,

Jessica?

Jessica Hansen

includes underwriting pre-tax XX% of inventory a projects investment annual XX and initial a months. for Forestar's minimum return criteria within new return the development on cash

$XXX development land totaled first and which in for development. land the quarter, land, million was of $XXX was for million, During million investments lots, $XXX and

fiscal Forestar market conditions. continues In subject $X to to invest approximately billion XXXX, to expect

is currently from and four year an XX markets states, increase and is in XX which markets a Forestar XX of operating ago. states

today more Forestar homebuilders. is than more most diversified and in markets

office. to continues There to continue through successful, growth for tremendous efforts it's Horton. recruiting markets our opened Forestar's recently and the Forestar's be date to relationship be D.R. company very and existing division with opportunity thirteenth has

position lot at XX,XXX to sequentially Forestar's XXth increased September lots quarter-end. from XX%

at XX,XXX owned and are are XX,XXX position controlled December lot Forestar's contracts. XXst, through purchase

XX% already sell under contract are owned of to Forestar's to Horton of $X revenue. approximately D.R. or XX,XXX future billion representing lots

Master a the Another Horton D.R. are offered Agreement. of owned under XX,XXX first right of to Forestar's Supply lots subject in

lots. a to own of land Forestar four and inventory currently expects three year to

Colin?

Unidentified Company Representative

the While credit is including approximately and liquidity, scale grow of had $XXX $XXX million on Forestar and modest unrestricted December company its At liquidity, Forestar XXst, rapidly, $XXX million capacity its approximately continues available platform of maintaining million and of to cash revolving leverage. facility. focused sufficient on

and quarter-end at convertible are expected ratio notes cash that $XXX of March capital in the in to company be at maturity. settled to debt was maturing senior has million X.X%, net Forestar's

value net December $XX.XX, per while balance additional book markets the from ago. was Forestar a XX% and is up growth equity was company At ratio share to million, sheet a leverage public managing that to X% Subject stockholders less. access maintaining of or year strong utilize expects one modest on XXst, for $XXX focused to markets the long-term provide will capital to opportunistically leverage. conditions,

Dan?

Dan Bartok

economic Forestar generate share We $XXX in cycles. XXXX, is fiscal a in of in consolidate deliver uniquely XXXX. to expect lots to million market million to revenue to to and approximately development deliver generate XX,XXX lots housing now expect billion fragmented, million and positioned revenue lot and continue and industry market $XXX highly $XXX fiscal to XX,XXX through of $X

At scale, mid-cap XX%. of and we results to margins expect our produce most better pre-tax than similar financial to with approximately that operating or long-term model are homebuilders, returns

I we As XX% approximately fiscal profit expect margin pre-tax a single-digit XXXX range fiscal XXXX. be percentage and in our for earlier, to high mid to still indicated by

like remind Forestar's of from highlights to everyone turn my investment perspective. we I'd Before questions, to

a developer. lot than We unique a very business have different model, manufacturing typical land

Horton, a have with We relationship D.R. strategic nation's builder. largest the

are we We affordably are geographically are focused priced lots the of heart for growth a developing we on in significant the housing, diversified, trajectory; market.

and that our at matures about it balance operating build are success. We our as enhance a our our we to sheet we continue continued are have excited profitable experienced and positioned With plans an team position, our and current portfolio we results executing on simply, is opportunities. strong put liquidity we for management are staff. levels and will To

the Kevin, time, for lineup open at we'll questions. this now

Operator

coming is [Operator question you. today from Thank Our Truman Wells from first Instructions] Patterson Fargo.

Truman Patterson

everybody, results. evening nice good Hi,

aggressive? walk sheet this debt lot to thinking XXXX, decided you purchasing count this outright on lots total you're lot us counted touch will XX% million a XXXX? in to capital; replenished; range you lot be know, as balance that have up ending moving where parts, want lots be lot all will how just to total be increase need about year it could could you increase XX,XXX we similar which I XXXX more has XXXX, it you strong think very through should total option just we the that would you're net or should but in count I capital, $XXX XX,XXX vanish by over a in First, how year-over-year should know of your about had only count [ph], of take liquidity, in lot delivering too

Dan Bartok

think we're is, a only lot four target have sales; One we to back targeting our lot we're three what supply. to remember thing go for that saying I as to year

You our are significant all continued without growth of to know, and we're continuing support kind deal to transactions; our buying lots in in in that grow our in just controlled growth. going by a last to we're clearly opportunistically We're quarter deal unique was inventory. order execute increase this the platform

Truman Patterson

more Okay. Is underwriting land your there to find decision? of ability that hurdles limit just limiting or factor any of meaning in or and internal an that that is of kind cap that would is

Dan Bartok

transactions. the Well, it more limiting to in our factor, addition really, people Forestar from goes continuing support building team; really in getting I That great source transactions think to capital. source we're we're Horton is a we're a source back - to

strong we're is ever poised feel really pipeline our the for think I it's I and execution. been like as

Jessica Hansen

need profits four years phase to part of supply delivering lot year big owned three of the growth and their to and over a to the three gives is the them continue is returns so own grow four into develop the to that and more they years; to believe in four to that's revenue year supply. on than land, years don't coming the improving continued on more sufficient lot for coming we three ability And as

Truman Patterson

have all discuss Okay. backlog you you your lots do many in developed fully currently? Could how

Jessica Hansen

X,XXX.

Dan Bartok

X,XXX. about Yes,

Jessica Hansen

of X,XXX Yes. at the December. end

Truman Patterson

back in then queue. final then, And and great. Okay, one hop for me I'll

lot of of appreciation the at over when kind been Just you to price or some of land? in to core pass-through all past i.e. the have what what your side, able have either kind the D.R. Horton your on months, out go cost the inflation up seen seen you markets; you're what you've working looking XX end-user,

Dan Bartok

On homework probably know to really a we're on could market-by-market most hard but don't definitely little a selling a question. risk more lots I'm on a new transactions, were if that, but we're that answer. really today answer you the I in contracted I XX to seeing basis, That's pricing number an I a percentage for of individual seeing ago before want to year do I months bit a basis question give

Truman Patterson

be a low your to Would ballpark just core mid-single-digits; maybe of in markets of some so… kind

Dan Bartok

where our think good again, cost easily increase think I really up probably yes. increased there certain an a taking relates really But has development have been some little pricing I I able gone is concrete place - bit bit of a to of little think is gone a limited it's And work lot the markets concrete those as grading, a costs I some we've costs. It's our there - it think in in sub-markets. to guess, in on achieve - of but to up,

Truman Patterson

Thank Nice all. quarter. Okay. you,

Operator

you. Thank

BTIG. Ryan Our coming today next from question Gilbert is from

Ryan Gilbert

guys. thanks Hi,

year-to-date? been ability you the an has to increases market, price you above seeing Just given you're seeing to the in question; take are cost how back just on Truman's that demand

Dan Bartok

say margins I maintain we're any returns our underwriting in all pricing. lot in Yes. that able clearly our would of cost to and projected pass-on in increasing

Ryan Gilbert

throughout above range? that XX,XXX year. meet production to your even is been about Okay, we the guess for holding business, said the to And the got land this you And a and like goal with far event slow has talk we've I'm up it. lot higher and out time lot that ability a seems out manufacturing. delivery guess, I XXXX then, I in lot it get so in good capacity pretty had Can there demand that I as XX,XXX understanding the that development lot flex now. wondering potentially demand demand some see

Dan Bartok

getting me on most actually We're lots the Yes. takes year at market of it second ground. to in the Again, of cases year, couple even ground. monitoring me to demand; order closely any increased phases, to and it accelerating on try get we in ahead closer a we're get on lots sales of are when close takes with sub-divisions pretty our a all to

going we get So and comfortable that it's you quarter-to-quarter. we're XX,XXX quarter to able along pretty But look at you had think but that I great pretty easy - the to we we'll what to our tried if you think assure be all first be we'll there. simply I exceed feel it's we've and a lumpy mean quarter hopeful guys that but

Ryan Gilbert

terms public the in accessing preference your Great, for for understood. can XXXX last And about me; just of in versus then debt one equity you markets talk capital?

Dan Bartok

take a one? to Colin do want you that at shot [ph],

Unidentified Company Representative

Sure, Dan.

unique We're of XX% would a be and is our can to last raising going evaluate markets, will capital markets our capital and the is philosophy Forestar make our the certainly with flexible approach the together decisions opportunistic - being where capital we - timing centered on capital any capital than versus performance we're leverage through on the efforts in opportunistic less be position we of equity. as conservative, approach disciplined a certainly So structure being to a sequencing relates debt business; year net. disciplined our And great be centered the maintaining to to it and structure, certainly, as in parallel tapping but and so really on capital structure. our conservative but we

Ryan Gilbert

Okay, great. Thank you.

Operator

Thank you.

Our Michael Morgan. next from [ph] question coming from is today JP

Unidentified Analyst

Lauda this this for Hi, is Mike. on job [ph] quarter. Nice

creates and in again, mix West [indiscernible], the issues First, over XQ? and the at land ASPs speed it are again, was being the in thus Coast to do you expect accelerate elevated maybe lots, drivers

Dan Bartok

to I we're illicit of in and I you the you it see this You've that - mix ASP the I the quarter for see can banking lot in a expect banking it's amount follow-up of year. there year, quarter, that - rest was don't concentration hit came you the a as of for West see sales our did it lots [ph] the think lot where was both banking and a I of same mean, in somewhat if continue, you rest in we think lot this where quarters. definitely right on. XX,XXX the last of I that through steering quarter-to-quarter the quarter; will and of

Unidentified Analyst

of thank terms SG&A? Okay, you. that in you color provide margin of also, continuing, closings, XQ other terms And just or could in gross any

Jessica Hansen

No, really annual we're with guidance. sticking

indicated, trajectory. quarter-to-quarter, an going basis lumpy As on although it's it's be Dan already to very from significant a growth annual

lumpy lot it's quarter-to-quarter, to we're quarterly deliveries of guidance. to mix, the going Just impact planning not be with any the so provide of timing and

Unidentified Analyst

Okay.

you was just I turning 'XX what's another big track year baked given wondering So had in revised fiscal revenue guide this the full into of terms year, to track the sale total residential quarter? sales

Dan Bartok

and Yes, that's sales feel what of multi-family That so three had bottom two was. track. residential won't our that's about guidance. revenue repeated, one in really why this pieces larger it We quarter, the pretty track good be small raising we actually

Unidentified Analyst

Okay. Thank you.

Operator

Our Thank [ph] question Instructions] [Operator you. from Alex coming Research Housing [ph]. is next from

Unidentified Analyst

my a was I guess would biggest Thanks. out shouldn't quarter's run you or of few take what just questions Yes, guidance I because year; will be this revenue your for answered What of given it rate and cause figure fluctuate guess driver? as this kind of trying we to to kind I the then.

Jessica Hansen

right. you're Alex,

was it [indiscernible]; this which revenue, a we specific quarter of didn't to to this we be for $XXX we on million $XXX what did and then million So in being sales $XXX included quarter, which one, we've since meaning aren't delivered sell what out previous guidance of quarter we $XX single end residential guidance are felt track talked low to about million move million. the the we of every somewhat, that $XXX from could and recurring those million comfortable

the deliveries So this track that driven solid really is lot with of which coupled quarter $XX sales. by million

Unidentified Analyst

this XX% and to the a lot next there pipeline where of Okay. demand would And growing obviously, this year it beyond obviously that Is but for the faster why growing, kind constraint seem of it only would what order seems an than and capital you're of everybody it the really year, constraint giving to me more idea the in would us it not be is people? - quarter that is or around be land XX%? is even

Dan Bartok

see see an now year, in that XXXX I you at but in revenue put first day to money work; leading some before it you being the and really impact just the think it's raised about - we XXXX. get kind bulk of we to a - it's Well, event; end of additional takes capital last year that the leading can from buy We the that that to of land so will back is us indicator. so

Jessica Hansen

to come, a do should for guidance It years. growth multitude we be for a definitely past going story giving years we're comfortable today just to not in feel story expect position a of growth be to but a this 'XX

Unidentified Analyst

luck. It would best of and Well, seem that thanks way.

Dan Bartok

you. Thank

Operator

our floor question-and-answer of reached for closing to over Dan I'd turn or the to comments. have further like We end any back session. the

Dan Bartok

look to call quarter our work. results. our you, again We everyone to coming years. to Forestar thank and appreciate for the second Thank continue Kevin. you growing focus Thank working on operations speaking hard with to and look today We And your you over April time team the forward forward and in you. improving to the on everyone's together share

Operator

Thank today's you. conclude That does teleconference.

You may disconnect have and for We your today. your thank lines time wonderful at participation this a day. you

Forestar (FOR) 23 Jan 202020 Q1 Earnings call transcript