FOR - Earnings call transcript Q4 2020

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Operator

Good afternoon, and welcome to Forestar's Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the former presentation. [Operator Instructions] I will now turn the call over to Jessica Hansen, Vice President of Investor Relations for DR Horton, the majority shareholder of Forestar.

Jessica Hansen

Thank you, Paul, and good afternoon. you fiscal call XXXX of fourth discuss each and quarter financial welcome to to the Forestar's We results.

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

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

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

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

Daniel Bartok

good you, Thank and afternoon, Jessica, everyone.

Jessica, extremely Treasurer. today in accomplishments Dawson, am DR and Vice the In by addition Horton's XXXX. Financial Finance to joined and of call be We're Collin by I of Forestar Jim pleased fiscal Chief on the to Officer; Allen, our proud President team's Corporate

additional which believe create for key value our milestones, on deliver shareholders. to we continue We will

more strength fiscal market. of business to and our lot capitalized than than the delivered our XXXX, double in more XX,XXX finished residential in deliveries fiscal lots rapidly the on homebuilders We are scaling XXXX. We have

pre-tax profitability. continued implement increased translate drivers, which to to We will

scaling And fiscal fiscal We gross XXX our XXXX. points expect leverage improving we SG&A in business XXXX. basis efficiently with improved are from margins

more Forestar-sourced shift transactions strength the banking. a and and overall of our lot market result less toward intentional As

are life undercapitalized in market and consolidating share fragmented We the development industry.

Horton percentage year-over-year basis. doubled on Forestar's sold As as D.R. D.R. Horton's closings of to a lots a

we addition, project, recently In by which pleased are report our a closed first third-party was we builder. sourced to

to continue upon foundation, and been set. the has which business returns-focused build on model We our execute

Our a manufacturing in Forestar's year-over-year strategy led lower-risk high basis point turnover, on XXX to return improvement equity.

further XXXX our to results continues discuss as fiscal profits to expect in team We scale our in Jim? in generate fiscal and and growth returns quarter our XXXX increases platform more in We'll gain matures. and now fourth detail.

James Allen

fourth per fourth increased quarter, attributable from million revenue share XX% compared or prior sold. per Forestar diluted quarter revenues million, Consolidated of the included million $XXX.X to totaled for $X.X $XX.X the or Thank million you, which income net In tracks $X.XX to in the quarter. to $X.XX Dan. residential diluted year share $XX.X

sold in lot Forestar's the the for from lot from during sales X,XXX year Residential of XX% totaled the from million. year average fourth revenues XXX% $XX,XXX. increased lots, the lots projects, lots sold sales were XX% the the development was increase of quarter prior an The quarter with $XXX.X price lot quarter quarter. from prior banking. quarter to quarter remainder

XXXX to the XXXX. Consolidated attributable revenue $XX.X $XX.X which fiscal per for included in For totaled from or income million was million ended share million, net commercial $XX September sold. diluted or share Forestar XXXX, of $XXX.X per year to and diluted fiscal $X.XX $X.XX residential compared revenues tracks XX, fiscal million

price - Residential development sold of average to was XXXX XXXX lot XXX% during $XXX.X XXXX lot fiscal lots the XX% the totaled from from $XX,XXX, lots, lots from million. prior year The fiscal fiscal year sales for were XXX% XX,XXX $XX,XXX revenues of Forestar's in an sales sold fiscal increased projects. increase and XXXX.

D.R. to Horton During year. the lots fourth lots and sold during the Dan? fiscal XX,XXX quarter, we X,XXX

Daniel Bartok

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

million profit was income XXXX of with a fiscal pre-tax Our margin all of for pre-tax $XX.X X.X%.

expense Our X.X% gross to live mostly fiscal of quarter quarter XX% profit X.X% margin in was in approximately of mix we sales gross SG&A in improve development XXXX. the higher driven margin lower as improvement year. fiscal in We proportion to and XXXX for the expect was sales revenue to a XXXX, pre-tax percentage fiscal lot a Forestar-sourced from the and in as lot expect XX.X% and currently fourth of the margin, for year. profit compared banking our

of However, the we We remain deliveries mix our margins of to on pre-tax still SG&A efficiently, expect manage focused growth. believe while to percentage we and track due significantly the fluctuations an than and potential managing We our and gross timing homebuilders. lot our our in significant most our quarterly our to sales. will Jessica? public continue infrastructure business lower support building SG&A out

Jessica Hansen

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

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

totaled During conditions. fiscal lots, Forestar In and to subject billion lots, to XXXX, $X fiscal investments development, XXXX, expects in invest land at $X.XX market in land approximately and development least billion.

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

XX, of sourced at Forestar's from in or year ago. right up XX% owned lot XX% under XX,XXX Of are master Forestar, Horton offer a lots a D.R. Another subject to of the by position agreement. XX% was owned supply first September Forestar's

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

James Allen

and our our was $XXX net XXXX, on on fiscal capacity million, ample remains liquidity debt-to-capital debt cash we year-end million and Total million at focused with XX XXth, ratio $XXX $XXX a maturities and of balance with available approximately including maintaining facility. million sheet leverage. note at September September senior liquidity, of strong At modest Forestar $XXX credit until of had unrestricted no revolving XX.X%. was

stock $XXX During equity the offering our agreement into million of issue we quarter, to to time equity from entered distribution common through program. time sell an and aftermarket up an to

of $XX.XX, September share XXth, September XXth, At issued $XXX X% and value was per up to ago. million, under increased been stockholders' equity have shares the from no book As Dan? our year program. a

Daniel Bartok

deliver today's of approximately through is or share fiscal XX%. And At to expect lot the $X.X the XX,XXX to industry in Forestar XXXX. positioned our consolidate conditions, now uniquely economic development we XX,XXX cycles. and approximately market market be lots, we as operating to we fiscal XXXX Based that I continue homebuilders. market expect revenue margin most highly and currently to and mentioned year produce earlier, and for than in fragmented expect generate mid-cap to between are scale, housing our of to better pre-tax results to billion similar returns financial profit full on model

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

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

We plan. have unentitled no

We affordably are priced developing on housing. for lots focused

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

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

a significantly the D.R. homebuilders. manage for at on geographic continue And expect an most we platform unique To due are time, derisks footprint. with have our our Paul, competitive our percentage we Horton, relationship SG&A We at and our than for are operating are public questions. executing advantage we'll to lower positioned and of a which put business allows up it expansion have to open most success. to importantly, now plans and national us the simply, this line profitable to

Operator

you. Thank

with question-and-answer a [Operator be Please session. proceed question conducting now Gilbert We Ryan will Our Instructions] question. comes your from with BTIG. first

Ryan Gilbert

Hi. taking afternoon. for Thanks. my questions. Thanks Good

to capacity production First XX,XXX. your XX,XXX And XXXX for of quarter talk in expectations fourth I'm XXXX done, guidance. production to thinking guess, wondering a like or to seems as one, that of just the able XXXX. get bit well have into the I place been significant put that the what up, the step-up were you it even if there. you on we November in little January flex you've you've about Pretty cadence it whatever may of initiatives also given and And put from to to can place

So Thank yes, be would you. just helpful. any very color

Daniel Bartok

Sure, Ryan.

up even crisis' slowed period while year, think, COVID main acquisition the I our during little the it during So the, continued program, we land there. obviously a for though

We those haven't lost deals. of any really

out We acquisition. demand And land we lots more continued year. really came potentially soon put up prepared and for making today next and hit that originally may strong, the that ramped to as production than market increase have sure as we saw we are that anticipated, development demand the we under

where the So today sit we provided. feel we we've guidance that comfortable pretty in

Ryan Gilbert

it It there's - if seems up doesn't wondering you the finding competitive source same Okay. can That's it Or you landscape land quarter? does about Is bank. in market. lots - the I up? last I competition talk your should you're or the And as say, that lots about the just question, to mean, XX,XXX are I'm heating for is able on feel But did like lots it in seem sequentially. adequately second like getting it great. that regions.

Daniel Bartok

actively same on larger the think From on It would transaction feels are pipeline pipelines that or to we're And out, I that more maybe for definitely what builders targeted a with like to opportunity, have building we the smaller trying But the while working smaller this maybe competition as a transaction. positions, call the focused I lot they're Forestar-sourced we've been slightly XXX now. doesn't lots. positions land refill XXX that lots. have their

is for I what we buy think So there's out pipeline trying more we're our today, land strong people a lot very doing. to still like feel although

Ryan Gilbert

the turn I'll much. great. Okay Thanks queue. back at very

Daniel Bartok

Ryan. Thanks,

Operator

Please Our comes Bank next America. question. John with Lovallo with proceed from your question of

John Lovallo

would with is Hi makes well. starting seems to I you're like guys. my questions outlook. what more of revenue growth? Is what's Maybe for around growth XX% growth you as XX% focus help taking any that sort off just it preventing Or mean, contemplating. growing you Thank What from right a on And being it rate? be that appreciated. on profitable the faster?

Daniel Bartok

finished crazy with taking feel this feel really a year, the with and what lots guess from of into been we we XX,XXX as looking to under to year comfortable be development. if our We're best year. comfortable XX,XXX a forward lots. today about X,XXX the obviously ended some guidance it's about potentially Well, very and lots upside could with we XX,XXX year-end, There

meet additional beyond come to prepared be to current any trying we're demand think our may that comfort I level. So

Jessica Hansen

so the and by being expected of that's mix that's And the the revenue between a result as just driven decline delta really ASP lots sold really guidance, then, an John, shift.

So guidance revenue versus that's that. to up actually is lower the than the up guidance XX% for lot XX% slightly

John Lovallo

Right.

us remind margin the less of things improve. one the That's year, differential that you expect Forestar-sourced deals. and think then called Can third-party-sourced you And third-party-sourced And heading just was deal deal? to into a next gross we you what if just Okay. about helpful. out margin between is it

Daniel Bartok

hard Yes. control good It's that or is Horton mean, really they to the exactly. transaction. deal it they're whether Whenever thing about the builder, I transaction. we pinpoint be the bringing control us, third-party a when builder, to a deal that Forestar-sourced

Right? they to could they do So the self-develop with developer choices. different they So always it, or it a hand off us. have can transaction

the of So It that now. of margin. the on competitive about we really where market as of good size deal, right the transaction stand more really just the the in it's feel to kind be. of what that is going We varies mix the to length

John Lovallo

were it if looks takes the second. the The us just the in I the margin dovetail of quarter, low think, million. a then? for help like Maybe relatively you in quarter just I on $X.X margin XX.X%, Can understand some sales quarter off the could gross track and that of Okay. puts in

Daniel Bartok

answer I'm not that. quite how to sure XXX%

it's the - The kick from mix. the based So deals. Forestar-sourced to standpoint sales. again, are deals, just deals really what live selling Forestar-sourced always we on within are itself, banking quarter of And or transactions starting shorter-duration in product

from in So I I quarter, where see lot And is were again, think that to continue roll banking off. expansion margin. we this to starting

coming lot to up. be year, XX% XX% there's banking as to did the probably year compared going year last sub-XX% think and I total this we

Jessica Hansen

sales, John, sale the recall, QX, you not quarter The than track lot other really not track on different the if of change abnormally then, a And lot did was call sale whole we pretty this margin was margin low. in out low.

margin. relatively So we stay not QX, the of movement is of saw development QX lot - lot also driving to banking from a that part benefit a and whole but flat part in

John Lovallo

you, Thank it. Got guys.

Operator

Thank you.

Our with proceed Anthony next your Pettinari with from question question. comes Please Citigroup.

Unidentified Analyst

growth quarter cadence my maybe and Ashish we then in Anthony. the for your be can is This demand actually or of think just on normalizing think maybe talk half? year And about how of in thinking [ph] first housing cadence goes the of reflective 'XX guess about - even for the you the maybe accelerating Thanks contemplated is about just demand? questions. sales back on? of as taking more the kind guidance? front-loaded maybe lot the sustainability in off, I that Should as maybe with year XXXX Or even in throughout the then you overall

Daniel Bartok

cadence, the a of this did guidance. when year that happen market, show was the we're a the to any what the kind bit think during in monthly We from to Again, of Yes. - earlier not really going during wondering crisis, little the I height everybody is variability. giving just

seasonality think in our lot numbers. I we a really don't of see

it's there's probably of an we but to really to that really look think we've that look guidance I the basis. it some Again, more that. when quarter-to-quarter, with guidance forward the at on hard given, So to pinpoint we've comfort given volatility going be the annual that I

Jessica Hansen

a ramp some even So to going quarter-to-quarter And further variability 'XX. growth that. of in significant course, 'XX annually Dan as mentioned, beyond. forward, But and into

Unidentified Analyst

look Thank maybe then growth that we that - for your there the might happen that of on pricing. sort negotiation to on of does that to just right. you. lumber, slow? rising help prices. if home lot in ASP back And ASPs then in driven driven terms the and as We've has of margins facing to rising your maybe I'm helpful. decline? costs, Or a some only to concessions particularly you a gears starts about seen possibility kind preserve that strength maybe wondering, And is of think - of come pricing builders, with builders just kind your end? them All is when others And That's switching really actually

Daniel Bartok

than sales pace. we're year. incentives that what been slowing. really most up to few under turn or From has selling a you a usually try our ASPs standpoint, think They see more when to I decline, first to regain that to for contract of months

advantage can. So we for definitely see we immediately But the don't next movements as we're market. see taking a of phases, the price we in lot pricing set we when of prices strength where

Unidentified Analyst

Okay, over. thank it turn you. I'll

Operator

Thank you.

Our comes next question your Rehaut question. proceed of JPMorgan. with Michael Please from

Elad Hillman

questions. quarter and This on thanks Hillman is Elad on for Congrats taking my for Mike. the

development And you First, - for one-third. year. the that lot you're mix expecting what you're two-thirds about is I banking less think and you next this thinking mentioned of past, banking in XXXX I'm lot lot point? roughly talked between the if and just at kind curious

Daniel Bartok

Yes.

build sub-XX%. For to our a this pipeline. XXXX, lot while it use we I of see - we lot to cash banking being our work put Again a

less So at it work. money this to using we're put point, that to

year. this So I see it sub-XX% being

Elad Hillman

Okay. Great.

that. So that on up - following just

kind of to you be think impacting color if on just the I there. could wondering you development, takes. pre-COVID-XX, higher pre-tax I'm a And what of Thanks. a pre-tax much lot to higher having margin give those had about generally of and Any puts mix roughly guided how think margins which is at XX%. you're margin. now could

Daniel Bartok

I back number. we're think to XX% guiding approximate that

what COVID, I we feel about that performance we think to before strong of being that regain able level. kind saw

XX% between think - we see, that's we to have pre-tax the model is delivered a I basis, that SG&A on go-forward to our expect and percentage, be that's able margins which that margin.

Jessica Hansen

that improvement. to And XXX be this point compared approximately year, will basis

pretty substantial a basis. So year-over-year driver a on

Elad Hillman

Thank Okay. you.

Operator

Thank you.

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

Truman Patterson

Congrats Good really a afternoon quarter. everyone. on nice

after some the crews of the Are six able mean, horizontal see now around any all you to Could you the secured on lengthen was the while questions horizontal you pressure still were originally that the development. times you to And in business? finding know more your I earlier some plenty I of has demand inflationary starting than year? seven just availability? expected. strategy a of development of everyone seeing XX% essentially deliver, returned? you concessions pausing. lots past development Are discuss side to sort few price you are months think, all you I First,

Daniel Bartok

Yes.

think year We're or new our putting in the busy, those putting more and on an I - whether guys town from phase. some work really strategy off earlier has for think making that next sure putting guys keeping to that at us. availability, crews keeping we're this the work I paid lots on it's in job of ground

keeping I think part is people our that strategy at of and that paying we're quickly sure work. making we're

to off bit have availability primarily From We've in ground. it's any going pretty won't to a we seen of it seeing PVC generally, work. in not of fall prices, some a petroleum taken the because increase, little standpoint, try the pipe stayed kind far, that long, pricing tied which Hopefully, actions of so to save last consistent. we're in that's And off. have

little I the pipe shut a the and think of which demand of it's over producing bit shortage. down a while, maybe some a created for plants are

I long-term at this point. see So problem it being don't a

ability So about ground. really put to continue to right we feel the on now, good the lots

Truman Patterson

Okay.

third-party So development your developer seeing aren't And are line the necessarily lengthen? you increasing. actually time costs

Daniel Bartok

we No. from Again, ground And next asking on again, move stay they're they're the prior try the it Often, pricing to for right costs lots we the pace. quick phase start to putting seeing not we're same. if looking relatively to phase. enough, people the and holding keep alternates we're because on

Truman Patterson

Okay.

those pricing? all escalators us pricing helpful. the really follow-ups. portfolio you of walk phased And portion to well really you market has your are robust positioned I'm escalators? the had recently. then How tied in could thinking, just And on, builders what That's participate of a price through have couple One Okay. are to very upside?

Daniel Bartok

we What market tied phase price There's escalators by no we pricing. phase. automatic do is to

evaluate inventory, pricing selling to We can. at our then continue that for we're just with look more to basis, that opportunities we is, inventory they're than we we the on as in sales. to their where returns-focused that the always theirs. project-by-project when stand velocity locked sure returns we make what push too we we those need builders where margin-focused. not we're long, want a cognizant So look well improve are at we and for But their again, and - our And as velocity

Jessica Hansen

third And that - pipeline, today. third about not is there of contract under or though, is ROFO Forestar's there's

yet. even So negotiated that been entire third hasn't

the they ROFO not then where definitely of but conditions. full that's advantage So of the take well, definitely third as some can housing the portion on robust And contracted. market that's

Truman Patterson

And billing the know just Okay. competitive. Okay, more any I I then are different, on with finally, realize And areas deals you deals. you or guys bit say are sort land bit a are inflation of But markets but that you would land a frothy? overheated then there getting what larger becoming seeing? focus every

Daniel Bartok

on not with. XX% about at and ago, Again, California it of was land I've few as that anywhere out than little begin in like - a from least we're goes push markets inflation by market. weeks we're And feels seen out At those of But seen, think I kind very it it some looking yet. deep numbers there the trying in the in know, are else. word I more market to we're hit the California street you landowners else the a is again, to things haven't I anywhere pricing at. looking

Truman Patterson

upcoming helpful. good the And that's extremely on right luck year. All

Daniel Bartok

Thanks. Appreciated.

Operator

you. Thank

question. proceed next Ryan your with Gilbert question BTIG. Please Our with comes from

Ryan Gilbert

there was and like for taking the inventory nice a your calls. third, a the percentage just It a was up? balance of Or gotten in that that's Thanks see increase you little Is quarter anything that, your from can turns of surprising lot in to there Hi. fourth function lots controlled? to looked pickup it the cash more point else the that turnover. doing options is as a

Daniel Bartok

us. entirely strong we I were that sold it was lots strong. Sales It think it to very was X,XXX quarter, last the fact almost quarter almost I'll a that. for attribute

strong controlled lot our use which for quarter. last a function just contracts is option to was continuing sales, of lots. are higher our a really really, purchases We as it of But percentage

Jessica Hansen

as And XXX to driver point the that really that year-over-year for is prepared return Ryan, called improvement remarks. main out in equity his in pointing the on the out thanks turns, in increase basis Dan

Ryan Gilbert

one was third-party first a Great. hear source I then signed interested me. builder. you've for last third-party first lot that Okay. with your your builder a And project deal or to with

wonder if builders you color maybe market there's sizing market you're And Horton? potential add third-party there? any for can thinking then for how about - Just that or versus DR

Daniel Bartok

of part been as third-party build Horton our always as It's to the goal business. well Yes. business

we I staffed, XX business that division there. We first now to deal think be heard XX% think builders to At teams us to to not our point, that. able with the have first belts. other I parties. our we you've would at times, to toward looking Horton. of call place be stick demand think transactions. staffed me continue able now have out nice under if well being fully of many one as least had on basis, we've in to offices are, a builders have always maybe I the with is this to say third deliver. for long-term kind It's of The - The than have enough with think kind I I And they're steered

We from to went X%. doubled sales I think year. X% our of last we

have have belt. we under first it's ways to that So nice to get one our there, clearly but

Ryan Gilbert

much. Okay great. Thanks very

Jessica Hansen

Thanks, Ryan.

Operator

There you. Bartok would floor no to are closing turn further questions this time. the for I Dan comments. to like at Thank over back

Daniel Bartok

look to everyone our with share and results again We time thank very together continue Thank the to growing you team in to call fiscal forward forward speaking focus proud you January year first to quarter operations improving everyone's the to work. and working the results. And our during this XXXX. on appreciate today I'm on team Paul. you. achieved we you, and your look Forestar for the hard and Thank of

Forestar (FOR) 8 Nov 202020 Q4 Earnings call transcript