FOR - Earnings call transcript Q4 2021

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Operator

Good afternoon, and welcome to Forestar’s Fourth Quarter 2021 Earnings Conference Call. I will now turn the call over to Katie Smith, Director of Finance and Investor Relations for Forestar.

Katie Smith

Thank you, John. Good afternoon, everyone, and welcome to the call to discuss Forestar’s fourth quarter and fiscal 2021 results. Thank you for joining us.

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

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

our Additional factors in could file on events to at performance for with most plan Form lead an weeks. is website about and two filed updated SEC. report we are on recent and Investor the XX-K our information under annual XX-Q, and This our this that to in about Relations which on call, earnings will to After material investor.forestar.com, both quarterly report site investor presentations release we contained post reference. changes in Form of XX-K is its Forestar’s your presentation afternoon’s

over will everyone. Dan I call good Bartok to Katie, the turn Dan Bartok, our afternoon, Thank you, Now, CEO. and

joined to Allen, am I addition to the pleased Jim In today call by our be Officer. Katie, Financial Chief on

market quarter. the as fourth team’s fiscal fourth continue the momentum a are full extremely We result, proud of in and And gain quarter lot our to the Forestar share fragmented in in accomplishments development in year. sustained we the We industry.

creating invested growth operating improving to year-over-year. expansion, meaningful growing resulted shareholders. platform. even a leverage increase deliveries XX% team and XX,XXX in margin This for outstanding than as representing profitability, achieved our lots revenue in significant more customers we our while in value delivered XXXX, heavily fiscal We Forestar in lot and

when with pricing of for select time our profit XXXX. business lots Forestar SG&A points remains prices revenue, increasing of with advantage delivery while XXX combined scaling at enabled take XXXX margin developed This, lots finished strategy fiscal to of The conditions our are efficiently the in demand gross expenses closer strong. X.X% incredibly setting our market lot basis fiscal to We favorable markets. of from

We also we position. projects, made Forestar-sourced to lots and banking continue more lot in from reduce our progress further delivering

business We execute continue to our returns-focused model.

turnover, improvement. manufacturing high to last risk achieve XXX-basis point XX.X% This consecutive us a for Our on an fiscal lower equity year led strategy sixth of and was ROE from quarter improvement our return XXXX.

additional on inventory detail. our expect more our We and to returns discuss to their XXXX fiscal and respective our markets. will platform Jim scale, our team increase share captures as equity in and quarter additional results in maturity continue gains and fourth now

Jim Allen

quarter million with Lots prior the or lots XX% from Thank lot included you, per net Dan. $XX,XXX. to prior year-over-year price per in million $XX In sales $XXX.X million the during Forestar sales compared quarter $X.XX year sold to which $X.XX to to the to increased increased X,XXX average other share revenue. $XX.X quarter, income revenues share attributable of XX% diluted an XX% quarter. year the quarter Consolidated fourth track the increased diluted of or and million, $XX.X for

same of our up from on and projects, of in development will quarter in based location lot expect from XXXX. quarter-to-quarter lots continue were size deliveries. geographic fluctuate in quarter We the our ASP mix the XX% XX% to the sold

track XXXX. in sales $XXX.X revenue. attributable the included per year, per million other XX% $XX.X to or $XX.X year Forestar Consolidated totaled to to and billion, million share million share diluted fiscal fiscal or the diluted $X.X for revenues income net which increased For $X.XX $X.XX compared of

development to XX% projects. lots XXXX of an sold in sales XX% of $XX,XXX. lots sold lots from fiscal average XXXX, with increased fiscal were During XX,XXX price

of represented sold, fiscal sold Forestar’s of XX% during fiscal XX During XXXX. year down the Horton the D.R. than quarter XX% We to the in from Lots XXXX. customers customers XX other lots from during XXXX, quarter, lots Horton total fiscal XX% D.R. fourth fiscal Dan? up Horton sold total lots Forestar’s represented D.R. to of sold sold. to lots in

Dan Bartok

Our pretax the prior over with for XXX million increased margin XX% profit to income $XX.X quarter. was of basis of an points a XX%. This quarter the pretax improvement year

XXXX profit Our our basis margin fiscal $XXX.X pretax for XX% while pretax points to improved to income XXX million, increased XX.X%.

the loss to million, for income million XXXX debt, points $XX.X extinguishment to XXX Excluding and basis fiscal $XXX.X increased the margin pretax improved pretax XXX% on our XX.X%. of profit

was demand XX.X% XXXX lot by was quarter to for year strong profit improvement margin in expect improvement by an higher development lot XXXX margins mostly when points XX%, development finished lots. largely prior a points and the market basis periods, respectively. due over sales XXX sales which Forestar-sourced the margin of was the fiscal in was improvement margin fiscal gross fourth profit basis on in for increased to approximately and to capitalizing on driven gross compared be Our XX.X% primarily as today’s This in projects, from sales expect XXXX. conditions, pretax fiscal our lot of year, representing proportion Based we driven on we XXX fiscal

timing expect due and of of to fluctuations the the margins gross sales. pretax lot mix profit deliveries our and to continue quarterly track We quarterly our in

margins fluctuations, We combined expect of manage first half XXXX Katie? currently platform quarterly result the for SG&A our quarter fiscal expenses focused year. growth. significant to have our of compared will we second profit with the managing we pretax continue SG&A our the of to a in seasonal on As believe the to X.X% a of remain was to build operating as volumes in a at and as X.X% support we efficiently mid-single-digit SG&A our out expense the half year. revenue business lower expected leverage, We and percentage. percentage

Katie Smith

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

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

$X.X totaled of development. to and half half least fiscal invest land approximately development, land to XXXX, at land for conditions. land subject $X.XX fiscal In land roughly and expect and billion, During for in billion XXXX land was market we investments development which in was

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

by our Lots offer owned lots a of executed Forestar Horton to first based a of D.R. company’s right grow as by the XX% to lot up Another continue purchase a on our company’s of subject owned lot are gross September XX% improvement supporting position percentage the in ago. year further sale were XX% portfolio, agreements. sourced margins. XX, sourced owned to from and Forestar, Of at

continuing land to inventory of owned three lots. are target a four-year Jim? We and to

Jim Allen

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

was and million. at-the-market During offering equity book up under billion, At proceeds increased fiscal million shares Dan? ago. stockholders’ share $XX.X value equity XX, a X.X program, XXXX, XX% of of raising September $X per we to issued from common our $XX.XX, our net stock year

Dan Bartok

our and of delays, business remain While including chain, the core been disruptions drivers shortages have there delivery in the supply healthy.

are well we Although not successfully supply seen have we through to believe, positioned continue navigating improvement changing conditions. in market the any chain we yet,

industry. the gain And share Our lot to on confidence execute believe and to the accomplishments proven business we Forestar Due billion pace expect We throughout seasonal expect economic higher to and the profit our currently of XX%. teams be in as fragmented fiscal uniquely ability combined market to in XXXX, sales XXXX and fiscal plan second in generate I and growth expect to approximately to deliver than mentioned we fiscal Based $X.XX volumes, with cycles lots XXXX. for XX,XXX fiscal of in pretax our the housing approximately were first revenue year revenue give half. Forestar’s in XXXX between a fiscal remains with October. margin market positioned model, market XX,XXX us in highly conditions, of our full current half pleased development XXXX. earlier, We to the we through be

the the to lesser pretax in fiscal compared We of to quarterly deliveries, leverage. expected due first to a profit lot second XXXX expect lower extent, half half the operating and of margins mix

be Finally, we approximately in our XXXX fiscal tax XX.X%. to expect rate

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

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

We have no unentitled land.

focused the housing We market. priced are developing lots for on affordably

consolidating team that a share through cycles. market and in have navigating We market management experienced is

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

We open strategic while at and our time, To unique relationship at allows have success. are the have relationship importantly, largest up nation’s us minimizing builder. on we questions. executing managing And competitive we are John, to risk. business a continued we’ll nationally, advantage D.R. and highly been line most our This expand to this for profitable platform a positioned summarize, due with the for mid-single-digit increasingly Horton, SG&A our are our percentage. plan

Operator

Research. Truman Thank is the coming [Operator Instructions] from And you. Wolfe first question Patterson from

Your line is live.

Paul Przybylski

any Paul pretax more Dan, higher of and wondering on it was Przybylski. is Thanks. be might XXXX provide color lower? Actually, how the mix maybe I in revenue could if and you the magnitude of this and

Dan Bartok

to year. and little guess, to to on chain believe that the Well, a again, going clearly the it’s we in our going are higher – of questions going delivered, are revenues bit supply be have best half second be and things we how of

new margins half into half. will the definitely in as higher also land We first the based second think half to to were of themselves the revenues compared compared But put our Some we in expect higher second be when that’s half. on the deals production. first

by driven a the of bit the little projects. and Forestar-sourced more higher from that’s Some rest just volume is

Paul Przybylski

months? your extended – the and the past major for what how those timeline you guess, the roadblocks do what development getting resolved? I are long over Okay. outlook quarter, past has think six And

Dan Bartok

from to we’re have Yes. really it some that honest delays. one answer, I with really No, seeing this division. how amazing delays that point. haven’t you. XX-day XX, different be Others to any divisions there’s division no it’s seen XX, to is at me Because

I think to There pipe, right be of PVC diameter size biggest shortage particularly that. the a is larger in issue the pipe. seems now

and shortages seeing pipe that But valves in again, We’re it’s spotty. for fittings.

have Some waiting markets local things plenty where the suppliers produced. are Others for to had bigger inventories. of things be

shortage labor thing that isn’t that there’s exact It the the little a to that fabricated to being a them. again, use. of little bit The there’s we’re on, of concrete, produce the that structures, shortage seeing shortage market-specific, and it’s concrete is a other the people able be for

So covers. difficulty that another but in spotty we’ve some market-to-market. bit getting humorous, then little again, manhole very And thing seems had a cases

Paul Przybylski

Got Thank it. Appreciate you. it.

Operator

Pettinari The is Citigroup. next coming Anthony question from from

Your line is now live.

Asher Sohnen

lots? a supply sales other board, just little the across maybe This Sohnen are you top of the are kind congrats starting seeing for is there’s more Asher the and any those if on sales back but has bit there chain a I markets on maybe the was or that wondering you quarter. getting heated, constricted on out Obviously, flipside, worry where I’m things pulling little are builders wondering, any on bit? markets of maybe kind just Anthony, to maybe of

Dan Bartok

be to From seeing anywhere, standpoint, you. slowdown with not a demand honest I’m really any

we’re lots. if there’s getting Texas. that market, people on think it’s watched as I that I fast closely, market the As Austin, overall a those lots want The probably ground,

Land I land than market, places. most of demand some But a other There’s fortunate escalated again, than have so of prices just have jobs faster prices a that think and up bit tied people kind to that executing escalated and pretty been little to have strong we frothiness, a to places. positions generated while pretty going sets flood which back well. speak. we’re a really are faster

Asher Sohnen

helpful. that’s Okay,

kind of that But if just over think a looking issue. bit might about I level And wondering pricing there? what can you quarter past you growth was was us in for quarters, price mostly talked sense XXXX, can I you baked Just switching a what’s timing already been talk of be the in price, give about contracted year-over-year. down to a gears of the little

Dan Bartok

Yes.

we’ve X% again, Florida indicative that the But in overall and of revenue lot higher the specific And basically expensive I think we’re A about smaller that’s provided I take less a how sales to projects overall extent. some seen in probably average markets have of guidance you are kind increase because we our lots, – in in that looking specific if an in which lot Texas than lots. is X% we or to don’t been at lot. and or know have may percentage also shifted past, are they prices.

pretty So in basis, have others. prices the in increases a price real markets consistent, even though I on some all held we’re and seeing think heavier definitely

Asher Sohnen

Okay, over. turn thanks. it That’s helpful. I’ll

Operator

Next question coming from Fargo Deepa Wells is Securities. from Raghavan

Your line is live. now

Deepa Raghavan

for everyone. some taking into sourced time? of within the my where time? What the newer seeing you you’re markets this evening expansion Thanks good are Hi, at And this Forestar questions. also, are most lots at entering

Dan Bartok

That are been answer which coming continue those build The major markets, that’s had and teams and have have first. more the land markets. had markets of fruition. teams where I’ll the in size we to second deals the Well, outsourcing question now we those really people to on

if kind the probably within our off Dallas, Orlando, Tampa, most. throughout Florida of think name and Pretty teams those to Austin, really the Tampa, but top markets. Orlando have where country, just execute most we’ve got grown I it’s So Phoenix. ability pretty That’s grown say the our throughout and I much you’ve much in Houston, you the markets where Florida,

New Albuquerque. took sold so We think project. quarter the land a markets, a this of was before. market, it to an out It’s project. new only find of that constrained market time were some we new Fe, actually appropriate which I past us bit little in Albuquerque/Santa

several in I’d one before. that, than recent. to market I any entered, have So that even other new don’t the quarter, at been Other last that look we is here. year, I for though we’ve over would had We’ve new of it’s new I market entries know say the the it are markets. over list a think

went so in QX, QX. new Gainesville, And market. Carolina North that in actually Florida, was In several. into for had And We Iowa, Columbus, us You handy, Des was Savannah, a we Portland/Salem, Katie? Wilmington, got Salem Spokane, Okay, that Carolina North Georgia, Florida, Ocala, and Asheville, Savannah. market QX, Ohio. Moines, Portland it.

going markets we’re of an So developers. at, profitable reach, of lots we the be but so land in competition affordable again, prices attractive for markets, a our really to us. much market. There’s smaller markets lot out those have Obviously, think smaller put able to strong bit new finding a teams not little with are where on ground. I markets they’re but Land aren’t

Deepa Raghavan

I it. capital follow-up color. on My appreciate raises. great That’s is

expecting As here we stand raise now, are year? you to any fresh capital next

Dan Bartok

did in We we update in program shelf our have the offering. up. to an Well, for had coming year. years few last intend ATM next place one We place

I into how ability that things market equity the of But to about that’s returns. when markets place markets opportunistic I to at we can obviously, a think good get and that capital pretty we’re be feel feel will quick the we we to And shareholders, capital on our value continue to add some on look and regular the think go. basis. just equity. to based we going the And raise continue and

robust continue I think We would expect a we pretty raising ATM program. again, through have to we’re our pipeline. going be opportunistic, still equity But but to

Deepa Raghavan

it. Thanks Got Good much. luck. very

Dan Bartok

you. Thank

Operator

The next question Mike from coming from JPMorgan. Rehaut is

Your line is live. now

Mike Rehaut

Good afternoon, Thanks. everyone.

pretax you XX%. margin First, and XXXX in, if fiscal probing to on wanted guidance this I is that the XXXX, dive earlier, on one hit just apologize of

if basis you’re roughly outline expansion, that you drivers this the points point, presume, I’m just at So And sorry year-over-year. I’m if driven gross thinking Safe and that of pushing it’s primarily XXX I I be before, the guess by to expecting you’re sorry, this forward. – say up hit of gross mid-single-digit margin – going just since could that’s XXX on to case, persist. to but what’s kind SG&A again, you if again margin

Dan Bartok

a primary think I – just the strong and the driver demand is lots. is, for high market demand one

be think buying. we’ll a if the has drove you sourced. that continued the we I pricing I I’m our there, the one that. I And we’ve transactions think builder better Forestar had in of increase, on sourced onetime I versus the we’ve some think other may also, But profit think, of been think that transactions is excluding sourced always I which mistaken, power that have not charge development

– were think XX I what, we

Katie Smith

XX.X% year. for the

Dan Bartok

year without the it for for? XX%, onetime the charge, to going XX.X% was but what

Katie Smith

XX.X%.

Dan Bartok

XX.X%.

a point only onetime actually it’s So about XX-basis exclude if expansion the you charge.

Mike Rehaut

I appreciate I guess the that. annual That’s I flow something didn’t through tab.

currently give So us a or are though, just be back going just where of you XXXX, a you XXXX maybe sourced, XXXX, period? and you Forestar could over the where can longer reminder to

Dan Bartok

our year sourced about owned end of owned Forestar our lots were at the lots. the of XX% Well,

XX%. I to think increase. We’d to about last continue was expect that year

Mike Rehaut

I meant, though, I percent lot as of deliveries. guess a

Jim Allen

year deliveries, was last it about It of XX% and our XX% I this about past was year. lot think

Okay.

Dan Bartok

grow, inventories to you’ll But a trailing see of be continue effect as that those there’ll sales. lot

on increase it expect what percentage Forestar another would I Jim’s deals. So in that the from sourced based in sales of number came of – throughout – the might there, be XX%

Mike Rehaut

Right. of lastly, and And differential just just Horton sourced? remind margin I between guess sourced us D.R. Forestar the the gross you could the

Dan Bartok

Yes. think anything don’t we’ve I that’s that provided.

Mike Rehaut

Okay. question, I could. One last if

the sorry, margin I’m SG&A. – the on Just gross

continues build time, a which this You’re we we to steady similar digits, expecting should that or state, this to as could your grow? is this XXXX. leverage how you of Is did something particularly past of sounds bit business think as year you did see kind network? mid-single what of less in X.X still out to and little a you continue Or over more the

Dan Bartok

that’s question. great Yes. a I mean,

a is myself. take give SG&A efficient extremely running number at think X% I or

continues on give would off I to basis. to I of just know have today. But But continued that I see me hope sub-X a would the that grow, can building out prove But getting number. into as been teams. also works. that that deeper run we’re you hard will leverage guidance scale I don’t here it’s really our I we the We that to and some think hope that for teams

Mike Rehaut

very Okay, much. good. so Thanks

Dan Bartok

Yes, thanks.

Operator

next from from BTIG. Instructions] question Downey [Operator Max is coming The

live. Your line is

Max Downey

guys. Hi questions. taking Thanks for my

Is quarter is wondering, driving you this else there to Just of kind environment kind this so out? better sold year? kind more last anything of last deal Is time XXX Or about that? anything than that’s of year. there lots builders than third-party that helping the

Dan Bartok

XXX of to like very a happened just scheme other XXX It’s mover. off obviously, big a or sourced of feel the But lot it doesn’t lots two still but had builders. be base of a sound that with growing lots, it contracts that in we’re low Forestar a project were to lots like delivered say – doesn’t things doesn’t that

just I this direction third-party or think number but of Obviously, it’s I new sales, be the quarter’s in trending for going lumpy builder to look we’re a wouldn’t run as while. at rate a anything. more

lumpy for just think I while. it’s a be to going

Max Downey

That’s accelerate on about you makes think then I or That any in developer sense. to your any Is growth. kind of guys’ past, to to is, interest And in really second there the that? helpful. for the potential interest change we’ve doing sell M&A my one in talked end

Dan Bartok

have We in opportunities on definitely as transacting they and an finding interest fit.

have our We anything strategy. at price and opportunities, some to But at of our model continue a we look really seems look to it will that not that attractive. continue yet is part fit found but

Max Downey

guys. thanks Alright, helpful. That’s

Operator

Okay.

from a Patterson’s coming line from follow-up Wolfe Truman have We Research. question

live. now is line Your

Unidentified Analyst

you contracted costs? how those price Paul of can basis remind those impact cost oil/fuel sale, have then looking what like make And us number versus rising again. many lots the mix a of inflators? your that for of those more at This you have how I development does is that price or fixed guess of the

Dan Bartok

directly pass because fuel I’m as bit, resin settles that rising a just cost the don’t, are plastic plastic through. anticipate increase really their going chain also going due of down easier. in yet. I’m gone second issues plastic seen resin bit, in costs that that then more that’s fuel but that’s a probably because but supply it’s quite one would hard development you we And our We pipe, think that’s than actually the some of of we a that, result a oil. normally, are up, take to huge resin a hoping one, pipe, going to to the haven’t which to But little contractors, up predict. costs

number I’ve the of I that that cost how really oil. So know you could related for don’t is that seen, directly a I much pinpoint to

it’s As it to board. over little contracts, a relates bit the

where of contracts fixed Some buy I are is what Others when to we’re They deliver all we closes, our sell have the the done. would and price lots bulk lots. the a every price. inflator or so takedown or there quarter of that is many cases, months. provisions where take a X cost into contract so a they In many built all month those call

it’s so that we’re escalator that base price somewhat holding compensated So the being time, increase lots. those for plus an will over

that them takedown escalators. of all features have So have

Unidentified Analyst

Okay, thank Appreciated. you.

Operator

comments. I’d like now to Bartok Dan back it closing turn to for

Dan Bartok

everyone Thanks you, Thank call on John. the to the specifically, to thanks team. Forestar today. And

this has Your really focus results work these made achievable. and year hard

and So team growing this improving we January Thanks. together forward working to continue to on thank quarter I’m again call, year, we our to and the today forward in results. you, for the with look operations. first achieved our And you your to proud share and guys. time everyone And appreciate speaking look results of really the

Operator

conclude Thank you, does gentlemen. call. conference today’s ladies This and

for participation. Thank may at disconnect have a and You your wonderful time, you phone this lines day. your

Forestar (FOR) 6 Nov 212021 Q4 Earnings call transcript