FOR - Earnings call transcript Q3 2020

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Operator

Good afternoon, and welcome to Forestar's Third 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] Please note, this conference is being recorded. I will now turn the call over to Jessica Hansen, Vice President of Investor Relations for D.R. of shareholder majority the Forestar. Horton,

Jessica Hansen

We Thank the market of to each to you, conditions. discuss current Sherri. call with Forestar's you along welcome financial results

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

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

we quarterly Additional are filed This is investor information Forestar's Form afternoon's reference. site Securities to Annual on with lead to & your issues subsequent week. XX-Q, After could on earnings the Commission. contained on is of XX-Q release Presentations all under material reports at call, planned changes post the filed and Form is investor.forestar.com which Investor mid in that for Relations in next to Exchange Report and Forestar's will Forestar's an performance and about be Events website this presentation updated XX-K

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

Dan Bartok

good Thank afternoon, everyone. you, Jessica, and

Forestar front Treasurer. for our all care communities. and to In the President lines by team Finance I on Vice we'd workers to last to Jim Collin addition joined health and the D.R. Officer, am today country's Horton's are our joined to quarter; Jessica, the Allen, Corporate of of Financial gratitude begin, call caring on pleased be to who our Dawson, who Chief express by field like again To dedicated our and

and to affected and communities by the of remain be that people this our thoughts continues pandemic, Our serve. health we and the safety priority with our those

results. Now, environment our about we'll the current quarterly and talk

slowed a of their our expected of throughout of adjust to and purchases declined homebuilders to on sales pandemic. the our of lot lower we March result As as April, the last half second as lots indicated call, levels sales pace home

conditions housing was and demand improved Forestar June, third results. for to market respond and the As quickly in increased residential quarter lots delivered to May solid able

quarter, future. pace of our lot impact economy quarter increased over and increase in steadily improvement X,XXX an lot third operations quarter prior with may throughout remain from of to the the in or the sales year. conditions resulting overall the lots, in as cautious have Our market deliveries in the the the on demand, we Even same COVID-XX on XX%

believe uniquely we because during strong net are to positioned liquidity to participants. and relationship well-capitalized that our D.R. third we will discuss low our consolidate national operate with our well development and Horton. However, overhead that successfully changing of now low positioned conditions, remain and position, model leverage, in market lot market lacks market underserved financial quarter results. the We share our Jim

Jim Allen

in the of $X.X the results Thank $X.XX share carryback quarter. In Act. you, current tax to to or attributable prior Forestar CARES the or benefit XX% third million year share, $XX.X NOL million $X.X to the $X.XX per quarter million compared net income income per related included recently quarter, increased to provisions diluted Dan. enacted diluted The

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

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

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

to of fluctuate pre-tax to and the quarterly expected tract mix sales. Dan? are our gross the lot margins Our due timing deliveries of and

Dan Bartok

our ultimate and terms predict for pandemic on March contracts to customers conditions to on the of early increased prices impact half In lot the and economy housing throughout and takedowns lot we sales of market quarter. the have to velocity result sales adjusted improved worked then the home a of delay future the residential and second builders adjust the market April, to Since the with too our as It's timing pandemic. fewer the of as of lots. sales

price home changes seen not any have broad-based lots. finished experienced we pricing We of have reductions, our and material therefore, not the to

with manage the returns other on we our closely through will continue project-by-project to work customers our basis division balance Horton lot absorptions each our to we and these finished investments. prices As maximize evolving builder to on D.R. and conditions, a market inventory

May, we of have levels investment. normalized Although, purchase lot to April returned March, we our late temporarily land restricted now in activity land development and more in and

We of further that operations. also for are efforts back expansion Forestar's and the recruiting time our paused hiring but hiring during to

with progress teams really and out made to are pleased have the local excited are we continue doing our We building so so. far

operations last COVID-XX, our guidance and we XXXX noted fiscal the As U.S. XXXX. the uncertainty economy to we due and business for in from quarter, our withdrew

to lots on visibility have market today's fiscal a today, based range to in yet more in when plan now XX,XXX conditions, our to XXXX of full deliveries lots lot X,XXX Jessica? XXXX grow to visibility and guidance the between have the and enough conditions. fiscal for XX,XXX provide fiscal XXXX. We for of we expect full year we and Although, guidance deliver don't market reinstate X,XXX to we sufficient

Jessica Hansen

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

June, nine totaled development months For million. $XXX the in and ended land lots investments

owned sell of Horton, future XX% approximately revenue. are XX lot June and XX,XXX D.R. lots Forestar's lots controlled $X was XX,XXX contract contracts. Forestar's are billion which of owned to are Forestar XX,XXX of XX,XXX purchase representing lots position at under lots through or to

of master Another first a Horton are of XX,XXX owned Forestar's D.R. under subject supply lots to agreement. right to offer the

and to three owned inventory four-year a targeting is lots. of land Forestar Jim?

Jim Allen

remains stockholders' June quarter was until ratio XX $XXX value year June totaled maturities focused Dan? balance with was had million $XX.XX, facility. of XX.X%. approximately strong $XXX and and ample and liquidity net from million at book leverage. modest available our we equity capacity Debt $XXX At liquidity unrestricted At of on $XXX cash of end per senior ago. approximately a our million credit $XXX one note XXXX. debt-to-capital Forestar million no share fiscal XX, X% sheet June including at million maintaining XX, revolving up on with And was

Dan Bartok

to pretax uniquely than homebuilders, industry to our to highly through Forestar positioned market fragmented most cycles. scale, results in market and is the financial produce share we and long-term model or consolidate that continue of mid-cap lot At housing XX%. returns approximately better with profit are to operating expect development margins similar economic

investment from to we perspective. Before questions, turn on I'd highlights like touch again briefly my Forestar's to

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

We have no unentitled land.

for We are lots priced focused on developing housing. affordably

cycles. experienced navigate We through team market management have knows how that to an

low and have We balance sheet strong liquidity net position with leverage. a

homebuilder. Horton. at of with our leverage, D.R. us business is net a our levels homebuilders. economic and time Forestar a allows have are strong of I've mentioned, unique we at low extremely closing and the because Sherri, advantage our to liquidity platform to more operate as which most uncertain expansion open diverse low typical this the And competitive questions. a than well to model manage geographically that We SG&A Horton, derisks we'll public most now line up expect at for and operating relationship conditions already continue position, operating lower overhead an percentage importantly, D.R. our In with due and positioned current to have profitable is relationship through than to footprint

Operator

Please John Thank you. first is proceed. from question Bank [Operator with Our Lovallo America. Instructions] of

John Lovallo

tonight. Hey you my guys. for Thank questions taking

The I for XXXX the guidance. apologize. sorry was heard the think and XX,XXX I first prior one That I'm if deliveries I in outlook -- Dan, correctly

X,XXX as to mean there well. conservatism just uncertainty that versus that brought the So X,XXX that And we I like was XXXX is for should something just else XXXXX down there's it where environment prior. guidance or slightly it was consider? current looks given then simply is

Jim Allen

conditions clearly, as did buying are pause our the uncertain. off returned land foot gas But the that market would to we normal We conditions. in take and on I I yes, really really forward. but a uncertainty little say took it's think Well, development lot primarily look

John Lovallo

flat that Okay. the pull And we helpful. next level come sequentially proceed despite in looks of one-time that side, on other words couple that quarters you were costs Were in or of able of nature is in will you to will pretty back that sustainable? was or uptick there the the sort to as out if revenue. it That's sort kind of that in were like G&A then

Dan Bartok

we that our up I think that hiring to compared we are continuing hiring. Obviously, slowed quarter during quarters. prior as the

So on as of think many prior percentage trend lumpy quarter-to-quarter, now. some I I out the on that said And same we as it total as times kind you'll but right be in a continue from month-to-month a revenue, could think pretty see build increase our platform and of to dollars we as we're G&A trend. obviously the think of good we've

Jessica Hansen

reflects seven reference for the June only quarter pause was the XXX the they end people took. which count of John up at their So which was that hiring employee during

to December to their March was at closer XX head look count up XX you or If people. actually

John Lovallo

April month Got in one quarter would you level Is Xst per sales Dan, doing June. to XXX somewhere XXX next guys monthly on a here you here. sales, I XXrd from could it. think more If helpful. in would which from in May imply lot That's and mentioned squeeze I that above April there basis? or XXX around that anything stop the had

Dan Bartok

developed now that think the lots was and was under it that do there there's quarter, anything about The good feel those quarter on development. the where in basis. go-forward have are stand early stops of the ground. hurt inventory I following the don't a part on lots we We is a but us. Clearly, I the

John Lovallo

guys. very Thanks Great. much,

Operator

Our next BTIG. question Please is with from Ryan proceed. Gilbert

Ryan Gilbert

guys. Thanks,

the I just over last many I there question in the been pickup last we've the seen guess I a including think the of of of couple stronger have demand lot So think themes one expected than has us building homebuilders. has months on been that

activities acquisition land are paused also same guess land land that. time, really development from And to their it seeing like and demand. I start reaccelerate accelerate so to you activities seems the homebuilders acquisition, trying at And development, now you're

I'm could homebuyer around that about demand? that guidance you billion if spend seeing if to really that And like as can homebuilders pre-COVID just you're meet and you then the on wondering try based or meet stronger they that. of on be acquisition just from original I'm $X if land that maybe -- reaccelerate thinking quarter I activities it just lots talk would still could extent seems about spend land about development the So your that, the third the the demand for opportunity to guess, really that's about Yes, then just talk Thanks. be helpful. still, land should that you own table

Dan Bartok

with development spend for still I about lumpy, your I guess good there. last intended regaining Yes, that the pretty year. pretty it's and point feel original starting but land

up $X that And to bit. well line billion where be. back we in think think expect a as is I positioning again, I with ourselves, to clearly just little

that piece know it's before revenue a I usually land, buy event. year you once first my As of

I slight to lots it very about strange pause over -- kind times and controlled. think much there the don't well it demand lot that owned that positioned and the out of hit term know. owned expected really we to and with think I able have over inventory that good when No being have see with So And this XX,XXX impact But having we as what's in all meet a demand XX,XXX the I one materializes. demand we feel took. COVID. it's in of we're I develops. if it happening as would Again, kind economy we're near of

Jessica Hansen

reference million the call. $XX land in jumped $XX presentation and in on monthly just the to be will in for website in million April, lot their in spent $XXX up they all May But Ryan after that's out broken million development and June. And that a

it back in picked but tone the on did side purchase still it dollars So mainly spent decently development really land really and in up then they June. back,

Ryan Gilbert

event that's there, Got higher from Or this -- Okay. up demand TBD? builders following are just And is you I an to it. materializing? seeing still guess still

Dan Bartok

I'd higher not but say that from Horton, about only third-party we today demand as we are builders talked seeing before.

my phone than think ringing I has... is now it more ever

Ryan Gilbert

heard We've it.

Dan Bartok

positions. As we're looking for

about we good feel where I really are. So

well think really positioned. I we're

good. So yes, I feel

Ryan Gilbert

the like lastly that was just then about talk land sequential banking little you And drop sequential surprising sequentially. down what Great. in given the think looks Okay. I a Could percentage gross just was it debt? margin, drove

Jessica Hansen

of It's really function sale a quarter. tract just in the the

banking tract was sale and you if underwriting so a not a attractive. think they're similarly to sales margin and they tract return about margin to but hold that gross it in pretty a So for return to gross was lot the the very long didn't low, that

Ryan Gilbert

Got it.

very Thanks Okay. much.

Operator

with Our next question Truman Fargo. proceed. from Please Wells Patterson is

Trevor Allinson

the and quarters. increased the comes therefore development cost constraints seen Hey, good homebuilder actually for labor for afternoon. the it the given half increased for in of when Truman. about My competition been taking you next we've coming demand This on my hearing recently, Allinson over first is is we development to Thank any and question. for equipment Trevor year? have you strong Are anticipating back potential question

Dan Bartok

At now as already been that hit Actually some future They but may. price developing. as a of costs yet. of we for. this actually is Most the concessions not. and undertaking things for been some button, good news the builders other has in priced continued if stop we're kind -- year? lots got every think and repricing, up development those did I increase that development. point, we contracted of right The that pause haven't later for did the developers And are go the Will we most some us all even

our account for So in pricing should be we able policy. to that

Trevor Allinson

aren't between seeing, expect got and in a premium, you've would spoken be builders' would actually a been lots And more seeing prices? that any contract? do given strong lots already changes And demand pricing selling in that those have at lots lots Okay. in lots lot contract? of we've Great. you for again there a the any time for you thirst we that given second And at is any under the difference are

Dan Bartok

lots seeing we in increased have that we where the and today some have are under the contract, that definitely not of taking those. To obviously, power pricing we're to delivered seeing we some lots and that extent We're we're any on ready change demand can. advantage that ground be in

Trevor Allinson

then going Can looking And seeing I Okay, you just if in. variance Thank sneak any about you. that are great. like talk could you're an areas more you region? by Are any opportunity forward? seeing one specific

Dan Bartok

the is but you think what's in generally, -- where think in think, When happened off. think I I Well, and I look big California broad-based, shown positioned. And have right it's the pretty where well Northeast at demand we're now. have probably there which don't just best and and that, Florida, really positions strength, the Texas Carolinas has I weakest that we is paid with it's strategy

Trevor Allinson

Thank great. Okay, you.

Operator

Anthony Pettinari Please proceed. next Our is from with question Citi.

Anthony Pettinari

Builders to of afternoon. talked and couple weeks to delays Good Hey. deliveries. have hold of anywhere times between couple to about their a from orders a cycle days

maybe do has times COVID kind first outlay, from capital all? of that cycle you initial phase the forward? your out going COVID-related at restrictions or pushed of maybe the Or frame In terms anticipate time delivery,

Dan Bartok

I haven't change. also we to any as on little, we up able is of sites, right other us seen Well, in develop But builders as now. which don't And saw development kind what of development push-out faster. time a a crews that pick as allowed multiple stopped maybe, certain projects. acceleration see We to were long-term really actually

I bit site times blip relationships really our it long have I don't really in and see contractors. leveraging a think, maybe probably good cases some And this Horton's the the couple think any another relationships last months. at months I with a In for with contractors, little point. our here continue, of we few increased was will kind development of over term,

Anthony Pettinari

Okay. maybe. That's helpful. on And question then just following last the

points terms lots what de-urbanization think in types Is know? that is of as you pre-COVID? price And of of kind playing has of out, been maybe, post-COVID soon if recovery or differently trend. to made of sizes greater geographies or I'm specific too in maybe mix. lot you've itself I it than were seen interest expecting just a this or kind wondering, a manifest sort Or of in

Dan Bartok

Well, at on points. focused strategy changes have all. think I suburban we kind it price mean, affordable been of don't our the I

continue, if we're de-urbanization that, where really that think because is land I positioned at. well to the lot trends and that, on think I capitalize our positions is

Anthony Pettinari

I’ll That's helpful. turn Okay. it over.

Operator

our And from Michael is JPMorgan. next question proceed. with Rehaut Please

Elad Hillman

volatile doing this you Congrats mix of hope well. the are thanks still to the just out of that Hi. on This the Hillman deliveries quarter. just Mike. quarter-to-quarter, the on taking you gave, expecting it was still projects I projects years? And all for question within Elad development come XX%. couple know of guidance My I my it's on are is next over that higher new development sort for first question. was you I But quarter. curious, two-thirds to

Dan Bartok

from it one-third. guidance probably to this Well quarter I is still that point, at I that two-thirds, think think, quarter, as will good but vary

Elad Hillman

Okay. you year? residential is sales, tract could on was quarter. that, we demand pretty rest of Great. question residential for if was tract level little year provide this think about And the strong May my sales on, the June? What color the how thought the the And of should process second and just next if in and more a behind

Dan Bartok

just to sell and way more we we it being for And a Well. out execution the to month were on. periods our co-develop. we was situation tracts. figured out parcel that trying D.R. actually complicated. of property. few we It's Horton a a really was land not thought that over us up move as up to business ended figure to selling a much core was tied And particular It best off This adjacent parcel

good complexity months, a quickly. going only on made getting to to a inventory fit really couple are shovel-ready. held of box. And it. for And that And the -- of we things to wasn't have that seemed I of one So we're that that be really trying but it just we return it knew rid our move think

move time on. to was it So

Jessica Hansen

And quarter. so the be tract every Don't will lumpy. sales expect them

of not have Dan But they As could some and core said, there. part here business. their still

Elad Hillman

you. Okay. Great. Thank

Operator

do from Gilbert question follow-up Please Ryan we proceed. And have BTIG. with a

Ryan Gilbert

corporate I just maybe and fully on efforts on and out less somewhat you corporate having so thanks building I progress functions, shared update to out guys. get the timing Hey, your a Thanks. for back-office agreement, or services -- guess start can the relying office. wanted built-out building a

Dan Bartok

a IT. made reliance on certain We've build Well. plus under to There big on HR there. was for out he's back a Horton and him to starting are accelerate, lot was progress. from board an less getting IR Jim team of we which I think Obviously, support going to and like office maintain, accounting pieces the us. a And look

So keep we'd as to. things like us long those will to as they allow

we're other all have good a yet. -- we are I But I think I in making the areas, progress. think time mind progress. good really line making we're in don't

Ryan Gilbert

Thank Great. you.

Operator

of reached Q&A have I for turn to the over Bartok, end like would our to session. remarks. the We Dan closing back call

Dan Bartok

Sherri. you, Thank

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

Operator

conference. today's conclude does This you. Thank

lines your this may you at And time. for your thank You disconnect participation.

Forestar (FOR) 23 Jul 202020 Q3 Earnings call transcript