FOR - Earnings call transcript Q1 2022

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Operator

Good afternoon and welcome to Forestar's First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode, and the floor will be open for your question and comments following the presentation. I will now turn the call over to Katie Smith, Director of Finance and Investor Relations for Forestar.

Katie Smith

Thank you, Catherine. Good afternoon, everyone, and welcome to the call to discuss Forestar's first quarter results. us. joining for you Thank

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

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

about an to our factors our this we performance to with website release tomorrow. Events and information Form annual that Investor Additional earnings material Relations could our plan filed investor.forestar.com changes is site at report Presentations file lead investor in the reference. updated for under XX-K Forestar's your afternoon's presentation will XX-Q post on & to SEC. This After contained in call, we is on

will Dan Now I over CEO. to our Bartok turn the call

Dan Bartok

you afternoon Thank everyone. Katie good and

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

As reflected results, in strong our fiscal had start a to our year. we

to like team. are and call key by start thanking People of business be the I performance. to Forestar our extremely to the the continue proud I'd excellent So our

the Our platform team's that to execute operational ability and we have built.

team's commitment to and capabilities Forestar. first outstanding the direct is quarter of Our result a

diluted growth an to share. The per and During the XX% expansion. revenue income $X.XX our quarter, quarter we in net or $XX.X of margin significant momentum maintained of achieving increase the our highlight million by earnings first is

X,XXX XXX increased points pre-tax to $XXX.X a income primarily XX% profit driven increase deliveries year-over-year in to Forestar margin achieved XX% increase Revenue to $XX.X lot million in an and XX% by lots. million, to XX.X%. our basis expanded pre-tax

This of prices. lots in in enabled of make sourced first Forestar closer to conditions lot to the lots market completion, quarter to advantage more XX% of finished strategy setting quarter XX% compared delivering with projects. the sold our take were combined the continue pricing when of sourced XXXX. from to progress lots of Forestar our Forestar favorable time We

are projects a and lot development ago. than less banking year focus maintaining We are our on doing

gross As compared points in XXXX. profit basis to first our expanded XX% quarter result, the to margin XXX XX.X% a of

to continue fragmented a We development our market increase share highly in lot industry.

up both year year XXXX. made further sold share our while estimate to XX-month market customers ago percentage sold last a Horton sequentially. national X.X%, and We a selling third-party on as closings single-family X.X% to lots Forestar's deliveries based Forestar in year-over-year progress our D.R. from of D.R. growing homes calendar trailing and now is Horton's new lot

developed every Our intermediate-term the national goal Forestar new is homes out built in lot. one on XX being a X% markets representing to achieve of US sold

profitability into our increasing Our is shareholders. for higher returns translating

turnover, that lower achieved XX.X% ago This Forestar of was return from This the our stronger a XX risk developer. year our XXX quarter equity a December demonstrates on traditional of continued XXXX. high the point that strategy ROE trailing further fundamentally same a period land for XX consecutive a improvement months improvement. basis seventh is improvement than manufacturing and ended

additional equity This and continues share on We returns to respective capture team scale their our in our to our and will maturity platform improvements markets. expect drive as gain market inventory. further will

financial quarter in results detail. now will We discuss more Jim? our first

Jim Allen

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

of mix the to price due quarter this markets. from lot higher communities and point higher deliveries was ASP Our

We our the deliveries the XX% in lots expect mix lots Forestar's to first than XX% sold geographic on were quarter and Horton first Horton Dan? quarter. of eight the location XXXX. customers of sold to of lot quarter prior lot year to to XXX quarter-to-quarter the same other a of during We quarter D.R. of XXX% size to was ASP sold from our quarter projects deliveries. in up XXXX. will customers down increase XX% fluctuate from XX% were lots other based the continue compared fiscal D.R. from which in sold development

Dan Bartok

was basis Our pre-tax This profit income $XX.X over margin XXX an the prior for first of of pre-tax quarter. the quarter points million XX.X%. a improvement with was year

margin profit a also XXX year was ago. increase gross basis XX.X% a point XX% Our from

to improvement primarily earlier, quarter. sales largely prior X% as was strong on of X.X%, a to was projects, development capitalizing As I was compared on finished from by year due lot the the first the for driven margins increased quarter in this in percentage mentioned lots. expense demand SG&A revenue which

SG&A pleased extremely continue are at high-quality We on building our mid-single-digit out the believe will our we and our we with have managing to We building attract while infrastructure growth. a focused significant our manage we remain continue efficiently our SG&A percentage. support progress team business Katie? to We talent. made to

Katie Smith

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

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

for At lots Finished and XXX,XXX position controlled owned up accounted demand. owned sourced purchase were portfolio XX% on we were XXst, which lots end, consecutive of lots lot were for in December strength from XXst Forestar's by have continued of at December owned lots contracts. quarters less hand. X,XXX At lots year a quarter Forestar our demonstrating ago. Forestar's XX,XXX through XX% XX,XXX five lots XX% was than of had finished

That projects Growth expect percentage in more as Forestar-sourced were will we our deliver to gross in Forestar-sourced ago. improvement continue over time. in further and increase As year our margin his percentage from continue of lots higher to projects start portfolio to of that sold Forestar-sourced the to supports XX% lots. Dan XX% from trend in up remarks, a said projects opening quarter

We lots sell future Horton future into D.R. to approximately to are revenues. billion XX,XXX Of revenue. also representing have owned XX% of our visibility $X.X under good contract

that are three when acquisition a criteria. our least owned Another four lots first right agreements. owned subject offer new Jim? of We to finding of year to We Horton in continuing billion purchase XX% lots. teams underwriting invest market sale ample to executed disciplined conditions and of inventory to and to and on reiterate projects remain land D.R. very, XXXX based are opportunities meet to year land a land subject are and our investing plan $X.XX our fiscal in development and during our at target

Jim Allen

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

encumbered completion project the development after our the finalized. ability development key capital is are are us by from financing competitive in pricing costs price level land inhibits allows and developers to which later lots process. Forestar's closer one Most to them traditional advantages structure of lots

increased make market financing our $XX.XX more corporate financing to can up December to level Additionally, access to With difficult. XX conditions share Forestar unparalleled or our level accelerating slowing value $X.X flexibility. per match year stockholders' equity ago. book and development from has a was institutional At Dan? XX% project billion

Dan Bartok

lots year results approximately quarter we and between billion conditions, of XX,XXX $X.X to are generate XXXX Given now guidance. the and first of to the deliver We current revenue. our strength and fiscal increasing our market expect XX,XXX this

profit last lesser revenue we fiscal leverage. We Consistent half the pre-tax of margin second be expect between first pre-tax XX% operating be XX.X% mix than year and the expect in margins for the our in and half earnings the second and of higher to our year a call, compared year. the with to lot the to extent profit due lower to expected the half first the of to deliveries quarterly expect half we

approximately give our in opportunities healthy strong beyond. and our and teams combined confidence in and the model ability expectations. with us. Forestar's drivers year and core us our the The remainder be to outperform our through execute business Finally, excited to we proven accomplishments of The continue growth expect about to ahead XXXX teams of contractors effective fiscal plan our our We're remain fiscal of extremely business tax our and of rate XX.X%.

this line gain and Catherine, Forestar increase share, for is we'll shareholders. for uniquely market value time generate our meaningful to at up the open positioned questions. profitability

Operator

coming from Reichardt. floor questions. the gentlemen, [Operator Your Instructions] first is for now Ladies open and question is Carl

Your line live. is

Carl Reichardt

sources? couple for financing market what Hi, important -- a would the peers' their everyone. whatever, some growth or advantage company. and rates begins And to look the I financing -- do you. But you they for those here sources of of the you really if Jim advantage long-term share the to peers obviously market Dan One of project have? what due maybe the stability you kind point you What time slow the today. do? structures what is what's level given provide talked might will are private the capital How your taking story anticipation or kind do for your of the What at curious debt Thanks how capital of I'm basis like? dong? private is about look had that

Dan Bartok

I figure additional it's a cross and banks And problem these structural for would project If to or either when deals as balance You don't are as operational And rebalance the their collateralized to I have pull developers. to equity. want in Carl a to point has to all that know how tough loan financing. it are call through times I one back banks advantage loan that then a out oftentimes go tend know, much that basis advantage.

So really them it issue. just an gives administrative

to contractors. is rapidly that The think pay really their thing ability for helps really other us I our

does generate has to process for like checks could loan go someone think build bank draw And anything weekly. -- through if I that than -- So month. cost we pricing probably We every better who the or pay us cut weekly.

as approved rapidly. gets in, paid it people they our invoice mean that I get and So pretty

debt advantage. than I it's operational say of So think a more advantage an pricing I'd

financing. rate fixed have do we However,

can a then fund long they more basis a the have in a go land Oftentimes, before period and hand contracts those of that banks balance that on will project sales and time I think up they structures. cost a control a what -- happens loan of gets even the conservative costs basis we against new again, how require acquisition. and do to of sudden for funded kind So on loan-to-cost all when

their know might So development they're really final locking in before sale price even costs. their they

kinds based So I it's on all debt know pricing the itself. purely that just think there's don't of advantages

Carl Reichardt

Yes. then That that what makes or a customers, And does it's of demand you with trend are lot heard if of self-developing communities -- obviously absorption? who of direction whether or that from positions again. growth margins We've seeing larger mean increase? that's lot for your Thanks sense. other some they're some that's or headed. -- And were overall your kind an the for Horton

Dan Bartok

down accelerate more it at community, demand that phase can we whether or is we year's of that I phase-by-phase then really look but And ground. communities. we we kind a focus on is XXX-lot community we aspect also or for a or think demand. strong, what lots based worth price don't the only put the of a really that phase, next based it's the larger on on a The know we'll of XX-lot lots as way. it We develop slow on roughly demand, it

delivering product Although, in we're types. multiple some cases,

-- that So for multiple acquisitions I recently they in we to lot there, XX-lot I did different bring a more sense. land than But frankly lot the just projects far did the got as deal overall, a builders made room can I into see position larger side, a we same I of for competing get even think projects. on as past. builders see products lot a probably in in the have builder or But

I that So people really don't finished is to buy of think lots. for it wanting the the size important

Carl Reichardt

in just Okay. And more horizontal Thank Got the I one it. then you. if on side. squeeze can

of those now -- get little you're hard of you're -- we've a to might seeing see Do to seeing bit talked a or graders? expensive -- or and abate just and cities to them? about Can maybe challenges chain a to pipe? time as get a -- Is some there go. of it if meaningful if supply ready are If Thanks you little function you you expect when approval significant it taking lot. talk you're shortage it's a additional processes? it that lots is Is the about shortage

Dan Bartok

basis, think the where months worse On how funny. is It's had us. the able don't lots six be in as from adapt I an sooner extended order supply material and sat where I maybe anticipated. than sit ago, getting as learned chain I If maybe better anything today really we've really overall to a I I for feel development little much hasn't to process, deliver like

kind You in our that of quarter results. first see

companies It's to getting think that to that we I biggest is getting we're of little this nervous -- projects then acceptance But don't think have getting of thought nationwide, it where I And probably we on in give similar everybody hot, process same lots sporadic, different because and bit and the like the really but that utility staffing the make electricity get getting a it's guided we manage site didn't say, they country, I'd final where see areas me I acceptance And most the we quarter, -- the frankly transformers volume. that though utility is the issue. cities numbers not the we the the is theme. in clearly it's would did than even the seeing the that probably companies. better to I -- direct others from parts shows.

Carl Reichardt

guys. you lot. care so a Take thank Dan, much. Thanks

Dan Bartok

Hey, Carl, thank you.

Operator

Raghavan. is question Deepa Your next coming from

is line Your live.

Deepa Raghavan

the Hi, everyone. call. taking for afternoon Thanks good

strategy does balance dynamics? upward in the pressure Dan any raising sheet any change does upcoming First of topical rate. that that capital rates interest or question of your obviously your

Dan Bartok

Well, strategies our we've always capital both and in been pretty strategic raising equity. in debt

to grow be make continue going us, when capital continue the we're to And stack. our opportunities to for we think strategic. I sense will

may is capital continue daily, earnings be that, to feel next rate day about fuel helps adding to really expanding that that look maintain that, earnings almost debt one growth can mean without I think stack the future is able we I We're being or fuel alone in not had continue dependent just that the to we really a strong I quarter thing path the just on. growth really to on we're We better to really pretty equity our reinvest base. that the operating. our this growth. that

Deepa Raghavan

Okay.

competitive in a there pressure the maybe Does specifically some have of on any of environment in your Carl's peers may industry can land change where Does be probably unable probably possible, just that and up advantage? Is are mean Just slightly -- but interest following it question, rates development? any those headed? to to this given the you're better compete differently. this of upward the I you of nature mean just

Dan Bartok

Yes, I think --

Deepa Raghavan

the may very Well, it not we're couple next still enough years. make in of impact low don't I know. that

there? color Just any

Dan Bartok

change Yes. seeing the I mean any at in we're say for this point that demand lots. I can't

some us obviously the given has power. I outstrips think which lots still demand pricing for the supply

I I will does I in the business if things to be for the do will to share. homebuilders or alluded and to in soften, some local sooner developers. think stop this land but on if historically will our there's to will developing market land that actually the One project that more I've lots the and I own banks buying stop believe level help I market is And their think buying cycle. and lots be and know developed the model going market financing hesitant past focus want smaller calls, think help, does gain that soften, more

have ability though really that think grow things business market I those even think continue slow, we two demand just an believe overall market to to I share. might still so our I helped alone,

Deepa Raghavan

to one. your other Okay. substantially? coming helping dynamic of Can that? a raise That's is pretty all lots? fair. margins. behind strong Last self-sourced you pretty guide address that's And to specifically, of It's raise talk any or some mainly benefit that mix, your there your you drivers the Or leverage margin because is

Jim Allen

really the about them. come talked builder when is or We've compared price project to development Jim. lots. more flexibility lots projects we've us Forestar-sourced -- about during the that. projects source that to us to this And Primarily that talked increases allows more sold ready later closer give Deepa, the from we're lots to call, in Forestar-sourced that and sell

the that's the biggest of probably driver really So in increase margin.

Deepa Raghavan

All Appreciate care. right. much. Take Bye. Thanks very it, and Dan Jim.

Jim Allen

Thank you.

Operator

Your next question Truman coming from is Patterson.

Truman Patterson

Hey, Thanks good everyone. afternoon, questions. my taking for

our cost back is downturn a about a now, -- land you using to all So liquidity the housing Or developing of advantage your right investors continue structural downturn can event lot And not finished of pull do share look market? sustained development, But are just advantage in do much taking up earlier? discretionary us necessarily clearly remind worried how you development? you you on take view. that of the discussed shore market in

Dan Bartok

Yes.

I lot the think that the change of in up the XX% grading, footprint, a ground, a to XX% about streets couple pretty overall from the was close market development That in what answer lot with itself, things is again the still in think it national about is your to seen for land lot. it ago the to a of for and I develop first I in thought question finished we that us the cost Truman, of make although pipes the to haven't ratio that. stays years cost, market it us our any varies finished big

little the as the going what way bit same that forward far think rack. happens I a As will builders

by We'll putting kind ground. those projects. look is our I again and look land that, if of strong slow is those on make -- the be right? the I we'll finished cognizant those of think the we So key before of But can't strength keeping key where But take and really to blanket the to phases lot strong, at to traffic necessarily not key purchases. lots of will project share. gain reset still weakness. at balance ground, every to and continue isn't individually will on make The But where times we still sheet strong advantage a that at balance be next the for continue we've keep us. project try of trying sell to a is our do market several sheet. model on up and is sales give think really in very timing I prices thing the will opportunity land said First as be to project us I all it to is reaction finished, that decisions strong the the having is And versus look where

Truman Patterson

Okay.

markets Okay. the are And mentioned in any in intentionally land then But you're in downturn acquisition back might areas a there pulling current the you perceive curbing the markets of currently a frothy? bit where weaker you possibly environment, right? as event the country in

Dan Bartok

know think you yet, investor but on I there. probably I -- if Well, presentation we map live have the that isn't

our Utah, are Oregon, rest the states see probably controlled the it of where grow. in being that, Washington, and owned totals come western country some of of lower little kind down to a You'll whereas lot continues probably bit, has

a environment, of a well land get harder is prices, And the ground. some and prices land regulatory of a to as those that accelerating bit high function little little on lots tougher as

as But I been buy where in was seeing kind are there seeing -- as am of Texas we're increases has is the there to the big price land extremely my Phoenix last again, inflation, where second think think a demand land. question pretty far the probably strong. quarter Austin, same I and answer I rapid As

increases those have for to those I So so markets been absorb think able far now. land that

Truman Patterson

any uptick slightly year-over-year. when in I that seen your deceleration I'm that's Yes, the -- picked despite But encouraging you haven't in it lot rates. looking at SG&A definitely demand know up

your continue leverage Just costs XXXX build trying line on of to out some in driver to nationwide. understand that whether infrastructure and the or as should we expect more you this

Dan Bartok

Yes.

that try to of guide in to continue X% digits maybe We the range. mid-single to kind X% to

think our at a was in I we out close being the timing. to basis. percentage probably be the mostly markets. that the year our kind -- number last SG&A teams PTI to is and -- look at continuing Overall, netted build core on of to it out uptick for what think expect pretty really our year, We're our I

it's were a this those don't see mostly So really I X% of when was a it at going lots don't opening and we or really last good, last leverage trend. quarter and timing see are It's people hits I how -- quarter, the lot X.X% If kind don't timing delivered. up and X.X% see that the I the being where into being I it's offices of of versus adding like significantly. not but

Truman Patterson

Thank you. Okay.

Operator

from next is Mike question coming Your Rehaut.

live. Your line is

Doug Wardlaw

Hi. Doug on Wardlaw Rehaut. for Mike

And updated on give And there wondering I you if was shake You you be potential that's guys guidance drivers throughout your that? guys there annual you a could breakdown going year. think guys if this could are changes how out or of further some quarter. to feel what changes could be the some

Katie Smith

Yes.

lot our of like to we Dan the did to our of guidance first for remarks, revenue increase And in scripted relative by year. we expect said in XXX the come to the the half higher that back the we year alluded half lots. it So

question? do greatest Does we're pickup. probably your So the else? to Or that's you that answer going see where anything have

Doug Wardlaw

curious just forward rates. but in just XXX uptick was already terms moving guidance you guys about been it's the as -- only that's in is well? know I accounted Like for on lots were talking the lot Yes. of I something that

Katie Smith

bit demand guidance. we really seen We chain our than of them that demand originally deteriorate happen. when lot that we had And really a quicker that just able lots. our strength Yes. and were thinking further anticipated. We supply we've and haven't the a continued considered in see to little we been to We've for definitely develop might were updating

we were And year did quarter. comfortable that we going last so more we saying just to than this deliver felt lots more

Doug Wardlaw

Awesome. Thank you.

Operator

question is coming Pettinari. from next Your Anthony

live. is line Your

Asher Sohnen

just wondering, guided was land you I kind I it I of in Sohnen development and XXXX, delivered about Asher roughly XX% maybe and is $X.XX that's single-digit This just to think just XXXX on was high growth if your for over intact. spend implied spend to growth. still compared wondering guidance Anthony. lots billion And previously Hi. of

you're three target wondering just that just your for makes sense -- supply four-year in mean at lots. high that? forward at end couple to single-digit -- with maybe But I years? is of next I to XXXX? the range I'm wondering maybe higher down your So, the of given should growth going land maybe the step in Or does how of it respect spend was Or about I think

Katie Smith

too. I'll is This Katie. Yes. take that

We expect in to least $X.XX year. spend billion this at development land

And obviously we in to really put could and higher. to need that we feel opportunities down about really accelerate so see to invest amount If that that's development good number But or being this capital land land development our good of and fluctuate baseline. able year.

And position have that really lot from yes, really those Going built we we've earnings is said invested. want very land we develop dollars generate of But would so forward, we've that all far. I about that and start to right. had what good say always a we sounds now that already up that to

just a spend into go new acquiring of development So proportion development land you'll positions. our see greater versus

Asher Sohnen

of negotiations remain Okay. of not a on of are the going I your price of rates, And start in talked lose et the for may little builders appreciation having just home lot some was be how helpful. national in any I'm terms some seeing on mean pricing the then uncontracted level conversations a despite price cetera. on you're demand to lots, on bit you that momentum. builders if we is just Thanks. wondering the and about reflected deliveries. That's to wondering for kind I of in growth terms you part lots with of -- of strong slow that

Dan Bartok

like No. go Builders to prices up. lot never see

say, important pushback. achieve we time a that So really the we to asset and we our -- getting but best because It's at same focused start with margin subdivisions our can on in balance what again bit velocity we're off every sure as velocity there's there's price is making the we're that think return-focused pricing that -- I'd those time is find a every goal as model, between is discussion, the turns. with

lots is So always there's that. to come their a -- conversation say a always we a find resolution. they of pricing or But demand. -- to can't it's that every pay we way And

balance it concerned continue the discovery. -- it's that little velocity So lot right we said -- how it's pricing price, finding things think master I to a that -- between get that times to equation. more -- is us of It's we're of what into around a We get It good the the and market every project different. find works of than is the velocity offer But with. fine right supply way I again agreement is price it's I we nice probably many first say really allow considering one the -- that should the but process. does that builders balance

Katie Smith

a we for Yes. And, fires be digest do rise we're we for affordably new rates do pause, of this see really that But I some rates. also if in lots we sort slowdown developing new priced a would on they is and add, those there homes. Katie. priced while will might really quickly homes housing, affordably demand and see still focused believe

business model. we confident in our so feel And

Asher Sohnen

questions. my over. turn taking for Thanks I’ll it Understood.

Operator

closing this for from have floor remarks. back We the to no Dan at to time. further lines would the turn I Bartok like now questions

Dan Bartok

continuing speaking in the to working appreciate look focus efficiencies, everyone look forward hard call April Catherine We for everyone's quarter second share on your increased again Forestar to for growth. you and team you. our today time with Thank you to together We work. results. and our thank Thank and strive you, the on while as forward we to

Operator

This ladies conference Thank you, and concludes call. gentlemen. today's

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

Forestar (FOR) 28 Jan 222022 Q1 Earnings call transcript