FOR - Earnings call transcript Q1 2021

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Operator

Good afternoon and welcome to Forestar’s First Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Jessica Hansen, Vice President of Investor Relations for D.R. Horton, the majority shareholder of Forestar.

Jessica Hansen

Thank you, Paul. difficulties. you our call delay apologies provider some of financial discuss as each experienced and results for technical welcome to to the Forestar’s our We the brief

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

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

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

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

Dan Bartok

afternoon good and Jessica you, Thank everyone.

plan surpassed last be hard Forestar dedication to size and of implement I’d is our our our social strong team joined in In goals. on pleased unique during and the doubled lofty distancing Jim The time and team. year well business give the to a Forestar to the achieving am Jessica, Their a working by together addition through the first Chief and work. call focused today work I has like obstacles of by and is on plan. remote Officer. to to Allen, Financial shout than The been out team has belief execute their only our our

for a strong are to start fiscal We XXXX. off

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

on XXXX profitability. in capitalizing XX,XXX to residential our we increased We translating expanding now than homebuilders track are Our lots lot market. we business more and the delivered fiscal fiscal finished the and strength into is over in plan to is Executing XXXX. are rapidly deliver on of lots XX,XXX

by to a Our our Forestar points sourced margin the market. XX.X% shift basis less and strength XXX as towards year-over-year intentional result the of increased gross projects, of lot banking profit overall more

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

a the their our of to Forestar’s year-over-year lots to quarter percentage continues since in closings sold deliveries to as Forestar. highest D.R. D.R. lot level of Horton’s D.R. at are builders and Horton Horton’s interest acquisition grow of third-party its

We our has upon business are on which been building foundation model executing set. the and focused returns

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

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

Jim Allen

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

XX% sold were XXXX. The of from the in quarter residential from increased quarter average sold Horton of prior the million to XX% XX% sold year. first quarter X,XXX $XX,XXX. down during was from Lots the of during track $XX quarter for same the of XX% projects, the sales. from in to in quarter $XXX.X lots quarter prior revenues sold, D.R. price up Dan? fiscal represented the lots XX% Forestar’s lots prior the prior quarter the in an from year included The the sales total development quarter lots, from first Forestar’s million. XX% revenues of increase year Residential year quarter totaled quarter.

Dan Bartok

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

gross year XXX up the basis margin from points first XX.X% was prior in quarter, the quarter. Our profit in XX.X%

mentioned I deliveries earlier, to during smaller gross lot margin lesser percentage primarily extent, of a improvement quarter. development in lot margin, As a an was the the sale and due improvement in to banking

our employees expect gross X% our and increased the the the due in X.X% associated timing We as fluctuations was a and and sales. percentage continue in of in SG&A track The revenues of compensation to margins due our of in first our number quarter quarter. to increase lot compared primarily mix expense pre-tax expense year of quarterly deliveries to the ratio prior costs. was the to SG&A

now for Jessica? progress our with efficiently, we pleased XXXX. We employees of ago. significantly SG&A our to believe on expect and our year And while we building support continue managing a employees to than extremely percentage double infrastructure our public building at team homebuilders. still growth. focused XXX significant We our business our are the have to of out pre-tax We from year SG&A our full XX% number most will manage lower fiscal profit margin improve an approximately to remain our

Jessica Hansen

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

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

subject in fiscal expects XXXX land now to at conditions. least and invest billion $X.X lots, development market to in Forestar

at XX,XXX increased Horton revenue. XX% which at controlled through Of of billion XX Forestar’s contracts. XX% owned future lots lots Forestar’s position, and least from land owned purchase XX,XXX position a lot or to $X.X to to contract year lots ago lots, are under are XX,XXX of D.R. are December representing XX,XXX sell

a owned owns owned offer for or XX% purchase supporting under lot margin sales lots. ago not up master are right-of-first agreement. Forestar’s through from at D.R. Forestar’s Forestar than gross more from Forestar, was Lot XX% future a until year Lots Horton the of the to expansion. ago, doubled XX% are XX,XXX a supply year controlled lots. to XX prices contracts contracted of subject by lots to XX,XXX Another December position sourced

So, controlled further contracts Forestar the of the position supporting to margin take potential future of advantage gross home purchase portion that land price through the its expansion. environment rising has on is

Forestar in to X Jim? X-year of owned continues to land lots. inventory a target

Jim Allen

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

Dan Bartok

lots housing timing market expect share of higher generate to market lot cycles and be our the in billion we of between development approximately is the and conditions, in positioned highly Forestar now consolidate revenue XXXX. quarter $X.X market XX,XXX than in first and the expect to $X.X results fragmented to lot the we of development and year uniquely first economic our to lot then schedules, fiscal to Due half on second today’s half. to the industry. in through XX,XXX Based deliver billion deliveries

operating XX%. pre-tax expecting or that financial be to margin we most than At are expect for we our to similar year returns mentioned returns fiscal model mid-cap continue XXXX full the profit homebuilders. better scale, of and our still are I produce earlier, approximately As to to

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

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

land. un-entitled no have We

developing for on focused are We lots priced affordably housing.

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

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

we have platform our a footprint. allows due are profitable for D.R. our Paul, We the of unique public competitive our for the continuing advantage importantly, would plan execute SG&A at to national a relationship now at and our time, consistently lower with have positioned operating business on most line summarize, percentage which and questions. us up are than an most that are success. to we And Horton, we homebuilders. are continued geographic de-risks open managing to expansion significantly this To

Operator

you. Instructions] [Operator you. Thank Thank

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

John Lovallo

taking guys thank and for my you questions. Hi,

just one it sequentially flat potentially bit seems to little remainder year. to maybe delivery more deliveries be It that’s and of helpful. XX,XXX a XX,XXX a there the answered we sort one of be the you bit should The considering? First else is second color high of down but the anything in or be think through might think that would of you this Dan, extent imply partially range, like I little a the to a issue quarter. Is end that already, timing there seem would

Dan Bartok

of extent it. I think that’s pretty much the

you as really I about up. think would of trend the of timing can the our be lot And is end for quarter year the see, the still deliveries. second

Jessica Hansen

being first it’s they but schedules ready be Clearly the year just to lots is that than developed, are there development into quarter. pipeline half the is expected half. and get not the really so second to pushed Yes, lot demand back the of all the in are the stronger the

John Lovallo

it. Got

of is terms more that even builders Okay, and of you lot limited has the commentary helpful. just the for challenging. more to you I you and communities in more in that are competition XXX that’s the competition. you looking that past, XXX and maybe sort north for land, of guys are the And being still to the talked the then of mean, getting have sort case? more most of incremental lots from hearing finished of seeing being Are we lots about And Is sort I becoming is for? competitive competition where think landscape

Dan Bartok

Yes.

that think prices are have builders land you increasing. up bit to been the see a scale as starting little I go

growth that a fortunate here can that Most long we stuff on have have working see big time, We quarter. we on been been of this been long that of a transactions lots we in working that time. in for a quite have had our last is pretty which in for pretty pipeline you

go price So yes, builders up the seeing to land I seeing chase bigger the start and a deals bit in am am I marketplace. of little

John Lovallo

guys. you Thank much it. very Got

Operator

you. Thank

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

Anthony Pettinari

Good about current prefer of you if of sort rising in a bit color if of home could about prices. can given talk lots the little environment And I on traction pricing trends? been contract, afternoon. under kind pricing you wondering current any there trending is can was talk if level what give not you lot discussions have how

Dan Bartok

now. Clearly, D.R. we lots lots are high at other the A are have definitely projects a with But contracts, as for bringing right of the and prices. some already contract lot Horton online is seeing portion with also in the under new some are good builders. Yes. we we lot level demand without that appreciation

think the now. market very I is strong right

Jessica Hansen

Forestar position but not second remarks, closed scripted they their our in third-party controlling a mentioning increasing on with up having builder, ended their now amount recently only contracts through closed so of and through owned we third-party think land more don’t land Forestar are the is what sourced actually two transactions. in I And transaction purchase on success

Anthony Pettinari

improvement helpful. margin businesses basis on margins we has an kind Is and I think projects. gross there? seen Is Just up in headwind? down possible lot Okay, neutral? each gross you have ASP then trend of about about it margin a kind talk mix as from it any thoughts that of on it strong And Should the Is that’s that those how margin the mix opportunity? like-for-like a builders? development very saw banking’s from to guess of we

Dan Bartok

of first has helped think down of with on us, been products. probably priced just that market the the focused we I moving have Well, because builders affordably rest all all,

to think have trying people product sell. is more in I there we play space So, where the that to just

think that’s a us. So thing been I good for

our getting As than gross X builder I more been to an from first Day control focus margins, trying where far we sourced land Forestar the a assignment transactions, really on for as that from think do has phase. rather

growth to So some I gross it’s in I think continuing margins. think show, future

Jessica Hansen

in to banking on rising at deals improvement banking and Yes. margins longer to is and list seen And But we we to development haven’t a lot the a of are particularly same the the lot have Forestar as so margin inherently both, it has some a since development the gross margin. in held return lot breakdown margin. extent those greater underwritten lot specifically between coming time, that disclosed but the from

Anthony Pettinari

Okay, over. it that’s will I very turn helpful.

Operator

you. Thank

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

Ryan Gilbert

to bit seeing are you thanks seeing just everyone. Hi, particularly maybe and color customers how the you as from time hoping could level for if activity or just homebuilder that was pre-COVID your that are little you and I far of Dan, just on any in strength in the last in to strong? you dig a particular a maybe want get the to so that compares markets time demand maybe of this highlight the XXXX year little

Dan Bartok

clear Ryan, a I shortage think is in general, out that it there. is lot there

across priced the it jumped over of that markets board. are ringing it increased there and be people we business There really control. we plan, think the demand there. builders whether you, been that pretty seen it, trying has haven’t positions with of affordably seeing calls, is lots heard and original I focused is to like on be that other it’s lot phenomenal. to not constantly comments on phone their is And into get honest quite our were It’s very kind I for few but we anything be everybody always I’ve lots whether market really or

of into really our hands. played it’s kind well So,

Jessica Hansen

as it’s so up we release that in down the for a than Horton, the other like first and they year-over-year sound XX it And lots progress ago, still it Ryan. lots the although quarter but which are a to it I builders lot, on of Yes, time from press deliveries Forestar think Horton, this whole mentioned a script, going majority may in but sold front. of percentage have not XXX year did are come to the making D.R. we put and

Ryan Gilbert

does a you just your pipeline Okay, builder? does with look XXXX? How follow-up into the that’s signed that’s we how hear to great that generally go there, great. – the as And third-party deal rest of maybe quickly to second that have

Dan Bartok

far third-party is builders, your As as that question?

Ryan Gilbert

Yes, yes.

Dan Bartok

Forestar development a – lot sourced more into phase. the put we Again, on deals the

in brought and sourced that doing we So as sales as negotiations I us. think you third-party probably will of continue and in builders more with deals growth are to a far see to builders they

upwards. X% to continue to said to the will a based But you’ll now. think have volume is Horton much gradual as they our XX% right see to so to think going under think, a overnight, that contract I I I continue trend see quarter that So, number last things I ago just from second because growth, on you of go

Ryan Gilbert

it. got Okay,

quarter up there – the the normal if increase that sequential was $X.X something that SG&A and a good don’t And SG&A is run-rate going up than million we a bigger forward on am Just saw kind back that’s one had quick step if think to just I or sequential is of if a in go quarters? you expected. you mind, prior step I a I the or bit one-time might one-time in or rate more the in run wondering

Dan Bartok

and will although the run management don’t go rate step it it the also this team, but up prior of quarter support adding of think at are the Again, think at I up. middle I from also rate, we will be to last it’s our kind levels. probably

same will rate. overall So don’t we that the add I you headcount, think as see

offices. new several opened also We

now a kick time. for things over period to of are see you in will that be that starting fixed So and rents

Jessica Hansen

comment And for the and what earlier SG&A that the to it like and leverage about right to Ryan volume follows conversation not. always ability or John’s and year, volume, looks

you potentially when of in QX. back in significant the and would with expect think decreased about modeling in remainder much of SG&A as So, the the QX not half volumes leverage year year, more the

Ryan Gilbert

it. Got

much. very Thanks great. Okay,

Operator

you. Thank

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

Unidentified Analyst

on for Mike. Hi, this is [indiscernible]

was I banking just projects. the but remainder projects think I I of lot development First, missed was to projects, about a think is new so XX% wondering being of sub year, rest of this, being quarter for for more this mix the year? this was if rate for the the lot prior and curious versus development you run lot banking the I And of XX% mentioned had

Dan Bartok

but hard quarter that, to quarter. will but we maybe predict quarter look, sub than and think going are from that’s to it’s it to quarter lower from to how Well, to a even that be little going fluctuate I definitely XX% probably

Unidentified Analyst

some I lot XXX improvement. the basis to expansion and the that Great. you the curious also margin stronger of there or it’s you sourced just breakout could you for what of due development of was drivers color was majority lots mostly it are gross market kind more just was if on that, the it margin if mentioned if the Within And of could any was provide? then maybe that also just points

Dan Bartok

predominantly that when That’s think power it that overall. we builder based locked Forestar’s where phase in I first is the pricing generally, on pricing. really we have source do lots. that better sourced Because is really

really have market. are don’t current we – to So the any hit pricing power we not

transactions sourced I it’s Forestar predominantly So, that driving think expansion.

Unidentified Analyst

Great. Thanks.

I more in to guidance. growth fiscal about XX% like in think the in I are you or this that business Any still about the ‘XX, what in, one forward being about benchmarks as it and current growth how fiscal if Just being growth things going XX% or in think or year? closings up could year to terms the year of squeeze growth beyond year could thinking beyond ‘XX look strong

Dan Bartok

from Well, I rate capital XX% a to structure. guidance any base, any we that, probably I increase – think but haven’t can without with to our we that our current growth substantiate given really think capital

do at So, in equity that, again, and look have tap market any holds beyond that capital as to I good as times. long about the expansion and said feel markets as the opportune we before, good debt we both

Unidentified Analyst

helpful. That’s Thank very you.

Operator

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

Dan Bartok

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

Operator

This concludes today’s teleconference.

disconnect may lines Have time. at wonderful participation. your a you evening. Thank your You this for

Forestar (FOR) 22 Jan 212021 Q1 Earnings call transcript