FOR - Earnings call transcript Q2 2022

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Operator

Good afternoon and welcome to Forestar's Second Quarter 2022 Earnings Conference Call. [Operator Instructions] 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 second quarter 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

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

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

Dan Bartok

Thank everyone. And good Katie. you, afternoon,

Forestar Allen, In Chief on the diluted the prior Jim Katie, million, $X.XX be Financial $XX.X to or joined with addition today strong per by share. Officer. increasing I to call second a XX% from am pleased team The quarter income delivered our net year to

profit our X,XXX million, increase increased a XX% achieved expanded Revenue sold. primarily deliveries pretax And also XX% basis We margin lot to by million. points income increase in driven pretax $XXX.X to $XX.X XXX in to XX% XX%. lots year-over-year to

for the progress segment a lots total marketed announce during point, purchase for rental of XXX and package make million. the family projects Texas expanding quarter, $XX.X price a developed market. customer our We built that to single of sold lot base. that seven across partially the I'm A of to undeveloped located Forestar purpose from excited continue To to

sale, Forestar the those of part development of lots. will As complete

transacted the favorable the development the we costs. very at buyers finished, being funding terms. Despite However, remaining lot not

and without in over to the time will we financial a the projects development statements. infrastructure. recognize capital the revenue to Additionally, additional development complete deferred We our refer this required profit as committing

XXX structure. This Forestar these delivery revenue. of our all significantly recognize capital in with $XX.X lots improved numbers and this quarter the in our of type communities We efficiency million

pleased monetize a are portion each ability We lots when had it sold fully were our to than earlier project been of developed. with if the

in will built on an Forestar land areas continue some And country. in attractive pursue excellent has and to we the the position capitalize most of opportunities. compelling

profitability and increasing focus returns translating Our is efficiency for higher on our shareholders. into capital

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

results I months, supply in Jim? last made environment base constraints execution for several thank detail. chain our quarter material quarter with in their and the quarter our to commitment outstanding teams and operating was everyone, on Forestar. the results and more additional further especially The capabilities are this markets, more our capture our continued teams returns share their key business want respective our our over to maturity expect results second as possible. We are second they our now costs. equity continue these combined direct challenging gain to market and driving rising We’ll People contractor strong development discuss result will to for improvements of a and due to scale platform financial inventory. team's

Jim Allen

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

Excluding lot sold deferred to sales lot from increased development XX% projects, lots. X,XXX

sales average quarter markets. first lower lower was than the to Our the this mix and price deliveries from point quarter of lot price due communities

sales lot quarter to We fluctuate geographic size price deliveries. and mix expect quarter our to of location on the average will based our continue

quarter lots second of were second sold customers fiscal to XX% project from XX% other sold quarter D. to continue increase the as lot quarter D.R. our the lot lots by D.R. more D. the of prior to customers sourced XXXX. Horton sold year-over-year lot We in grew of in are which quarter. sold a XX% other year in the XXXX. sourced We closings make progress XXX% We Horton’s second in both the quarter XX% pleased Forestar of compared Forestar. from we was compared during sold Horton deliveries and of a XX Forestar that delivering quarter, to were Dan? Horton R. lot than to to percentage to sequentially. R. down X,XXX

Dan Bartok

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

$X.X non-cash XXX XX.X% points. related cost basis charge overruns recorded gross our a basis The impairment was Colorado. margin a real Our by project an impairment quarter, this XX.X% points issue in to expanded to year XX ago. which to compared charge of million profit isolated estate in We reduced one margin gross profit

factors to Excluding contributed the improvement. impairment, our to quarter's gross this XXX points profit Several margin expanded basis margin gross XX.X%.

primarily lot to the lot projects. from from due projects, margins, sales and sales was deferred source Forestar development development improvement this increase to addition In

sales year. our to senior quarter, charged to of compared cost basis to year points prior Additionally, refinancing by approximately interest decreased partially last notes attributed XX the

significant Finally, the from lots has demand strong, home remained market for builders. with

in the SG&A prior year X.X% revenues to percentage quarter of Our expense, a compared the was quarter. first as in X.X%

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

Katie Smith

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

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

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

ago. Jim sourced As in a increase as Growth projects to projects that by we of sourced further in from said year margins. to or of over improvement sourced Forestar gross from up our XX% lots projects in percentage expect And time. continue start continue lots. the Forestar higher portfolio to supports XX% sold to trend will deliver That percentage our quarter Forestar more

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

and first XX% to offer lots sale on right our subject purchase D.R. owned Another executed Horton agreements. of are a of based to

ample meet underwriting acquisition Our are our that teams criteria. finding opportunities

to remain three in We to invest land continuing we land billion However, XXXX to inventory four to land are development and plan when approximately Jim? and disciplined very in a target fiscal owned of investing projects. conditions, subject and lots. $X.XX during new market year

Jim Allen

senior our capital balance a million quarter of of upgraded and was and of ample facility. at rating senior notes and million and respectively. million, Forestar’s to recently credit credit of debt ratio revolving available rating B also maintaining BB financial to our end, maturities note XX.X%. had until improving with BaX. on leverage. unsecured And senior modest and Forestar Poor's during debt corporate unrestricted unsecured minus remains Forestar’s March rating Moody's liquidity, to quarter liquidity sheet corporate capacity approximately on rating In $XXX focused credit upgraded recognition $XXX quarter notes was and Standard at profile, plus XXXX. the net Total strong end million with XX, $XXX we $XXX cash including our At no

of pricing the lot closer development Forestar’s lots in in key are lots competitive capital has level from completion institutional unparalleled the which process. finalized. developers costs access and our access after project land advantages is by one corporate financing, allows later development are With industry. Forestar to development to them price to inhibits our flexibility financing, to Most traditional ability us the encumbered level

$X.X was complexity share $XX.XX, financing it more billion, conditions, costs. value level from to book ago. quarter At market our makes XX% adding Dan? stockholders’ changing project increased react a end, equity Additionally, to and administrative year and to up per while difficult

Dan Bartok

more has us fiscal I As earnings supply to will said become continue XXXX call in impact challenging disruptions believe environment late potentially January. my and chain We XXXX. throughout since in opening into remarks the

and However, the environment to well. continue relentless solvers, problem they navigate are our teams exceptionally

earlier in as to cycle, development development alternative we addition there substituting if materials plans the modifying is available In ordering materials needed. are and are an

any generating we inflationary future development Despite for to backlog. with by see we not We to supply, costs strong rising between seen $X.X to lot cost demand and environment which fuel in this pass for XX,XXX our our outlook approximately affirm Consistent through interest result supported rising softening plan billion demand. our the demand fiscal increases into We of year, any imbalance XXXX have of expect in lots, rates, on as quarters, positive revenue. further We of deliveries remain and lots is a pricing. prior XX,XXX finished guidance the prices. the increases lot

to XX.X% margin XX% from year, now XX%. expect pretax guidance our we to and our the However, prior up of between for profit be XX.X%

mix the lesser expected We expect to to due third to compared and fourth quarter, margins our profit deliveries and in extent, a the quarterly operating to quarter higher revenue lot of be the leverage. pretax

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

plan our the model, ability continue confidence year our in our give Our The fiscal expectations. beyond. our teams team, me and proven accomplishments of remainder execute business to of Forestar with throughout to combined contractors outperform the growth and and

We are us. of extremely the excited about ahead opportunities

up this the to open and for profitability our meaningful annual continue our we gaining is will increasing positioned questions. share, Forestar market at generating line uniquely shareholders. for now John, time, value

Operator

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

Paul Sadowski

development? lots wondering given one? how from Good going do moving additional you the economics think fund FOR I on multiple that seeing to those color any sale it’s guess you could I just forward? compared And How do business scalable transaction. this is is SFR interest And of afternoon. Paul the are first that if Actually or all, provide Sadowski. operator you was operators to

Dan Bartok

us, we to understand we trying transaction. geographies. all thought from build opportunities demand characteristics. and several land just market, we of for for how for experiment these learned the where Paul, were we They're was types values the the and people was other sourced to It to our it an a lot identified opportunities opportunity people actually markets different and at And had was well a transactions really really were suited different successful learned looking perspective, parcels it going what and Forestar somewhat about and of rent lots some extent, -- these were how One, land we bunch, develop. would they had for to a obviously and/or the where be we that around looking take on to doing. was

what the I and the us. think as a identify getting of, just capital you to equity we sell of were the of at well for specific things opportunities margins builder. the upfront, margins we've favorable in it, land will me, us really big look really in efficiency And putting it I they from sale mean, our perspective to margin for our to continue higher. than our big value -- needed, not the we going fully these transaction I FOR future own a drive for think us. lot [Indiscernible] to can that were lots developing as finishing least A as of were well part them of really we're tell disclose more not at set monetize but was part value drives up

Paul Sadowski

you or six home then in in your land given the in weeks? over land environment, from themselves seen Great, any inflection price here to back have inflation get builders any maybe four you kicked past environment? the good. there that the rate been deceleration underwritten rate the Has were And have more Or market? lower deals, I competitors, guess aggressively the any higher seen

Dan Bartok

fall any right. although the thumbs seen be interest really for strong cautious, need at are stars. this We're want not in point from have obviously seeing we still up, they all housing, off that perspective, demand is point, up, giving still our this rates us At go to builders for demand more lots you and

from feel this maybe I I far yet there point. So hear have perspective, can a some builders, nothing parcels on is as any land really are seen really and not but pricing off that closing deals, but that as of finger little my around to that scuttlebutt at not rumblings We're out. on good starting to starting fall going land some deals fall put

Operator

next question The from Carl coming Reichardt is from BTIG.

Carl Reichardt

see going Paul's if Hey, Katie. can I much. to He let about me nuanced. scalability. Dan, I Jim and into was but very Thanks turn ask question asked

you from you and is And lot it what build this How time? position. or over is I line. learned this transaction, with say I'd channel of a Or this feel well this look those singular kind if we comfortably do business would current what a type learned not you is in cost your might How you today at occasional new you at and what lots? to well had guess one develop you of transaction? feel do that guess do bet, I you if the business and a could jives feel an that So look and say you is look, off, from long-term and you of this

Paul Sadowski

that when a I lot. are country, I capitalize think to opportunities look portfolio there we on. at looked land our that And other the learned to across we again, try definitely Well,

I of parcels, think to we characteristics learned different it the that in we and for. also for maybe we're want as things look looking

So targets. our somewhat I think it will acquisition modify

I process some time, scale be it's time three it's to think a one too going at time think trend told remember somebody time mean, or So that number, a one to point, a it's that I and is a is tell. whether time a is I early me, a this I two coincidence, trend.

third So the trend. when sale, my tell to I'll I get you portfolio

Carl Reichardt

lots to with and say, to this we are and for don't seem want buy can't do builders get you. finished to your finished competing moving the then product been Thank sense of developers their who've lot are be shifting being away are a from my that business, really can done enough. fair the just you. with a option seen public towards with lot had we've I lower, land lot banker portfolios how sense is Okay, of bankers And to other of self-develop. builders builder -- I'm more but land seeing this margins And has And you us builders to you developers that to the a banking land the costs because I'm curious or more volume. or whether you're land share lot have whether an the bankers falling. look because where opportunity been and given not given and get at they And we gain from finished not, trying with

Dan Bartok

Frankly, lot think with bank. bank compete I a don't land or I

One trend think of results I that of and think we're and our it's, been a same financing bankers just to I a I we kind we're time’s what we've in really and it's one look And you than kind transaction. it's and the service, the faster. longer And land lots. a able to my of it if other hold bucket. and are to banker able Land Because efficiently think that starting lot. a proving them of they are are two, a that that. with be in the lots a finished lot, when probably me things out, I'm delivering at fine the period to helps think builder. I providing effectively more for do, Maybe number, deliver again, good that But bring at to developers monetize time, really buy want we

So a We're opportunities. I'm those providing see competing I different that product. don't for with guys really

Carl Reichardt

had And project not now me development folks. share In to were hearing potential Thank for couple will developers great. long-term guys, out to talking there, Dan. one that other I then if Okay, you, indulge only builders, been who a heftier overruns. but in deposits, are some of you cost more. also land there asking

if So I'm something that's the curious incurred fixed doing years seen price now, or developer significant the There contracted costs. two have now. lot you've from that overruns. cost a those would be to the could share change more price all right here, it if wouldn't builder

Dan Bartok

We're, saying that the not asked customer us have in not for our to something say never been there's we contracting or can't budget. wrong if I a are upfront. builder that help we but I'm

I capitalized later lots in of the way of one think is a when we're most in costs our One process of identified. the our, price that our those to little ability benefits are

sure little push trying all bit it. little plus really And our again, we the say really are that when be probably been that we're can is But to agree delivering you'll the bit builder, back go So able know. thing But able in focused those we've front and the get make to costs you model. we've up. have later been on cases, a to up correctly to to we what when through try mostly been and Obviously, problem them upfront. gone prices is that. able to you what and that's pricing set do costs say through you a able again, pricing is you get what to, best to some The to

Operator

next Raghavan Wells Securities. have Deepa with Fargo Up we

Deepa Raghavan

at starting is sourcing more good purchases slow SFR are pretty on everyone. much a about Hi. defensive move And it things time. relatedly your this you taking land Dan, part? experiment, my or afternoon, Thanks to thinking cautiously? this for are appears Good call. But

Dan Bartok

I'm of first. second going at question defensive to No, the think I take that don't part all. it's

looked our that we that offer the marketplace. think for capital and improve to ways new always look for products efficiency, I into markets opportunities and

I was think bit. opposite defensive, think little was it the a it of maybe I

in But even third there's the there new it to we something of could put package it. how space, see capitalize to rent because Again, a we we the most on hopefully out make trend. we we very for one. our no, can invest looked we'll the at looking we really were future, the get clearly, started into of built do together, how Some and think the learn when thoughtful share to fair that we'd and a lot like more money I

As land far carefully prior our think was more our underwriting. past we've land I quarters. and being as I been that less cautious, in will cautious. We're slowing this say acquisition in always very than quarter

there is it deals and deals our a we bit. a Some down few that And had maybe some us. you've down that went noticed when got we total deals, due little of that just to lot sense control drop were make not did didn't lots into contract under we and probably underwriting diligence,

entitlements on permits it, are And all those to little don't know, them starting taking other moved the of and that been didn't try process. we've that things until those, now thing projects. before bit But is cautious. completed force And we're in to hand. we the get through just like actually is a you always I to think it we on. a I see it as and buy hearing is to So bit We was I've permitting little longer seen

purchase the properties until deferred those have we get them. we of So

So the leads to compared prior up probably end of us things to the the less quarter. quarter the control at of lots and owned having another that one

Deepa Raghavan

fair. That's

defensive you are the ROE, defense, moves go protect the to into thing, of slowdown? and could Just take a should we staying what on the margins some

Dan Bartok

a what we at again, in be I price way I protecting way think that. guess I our Well, look lots to do good a margin, strategy to

really I pricing. we think costs know core we before our our -- strategy trying of just set make to sure that our

costs, And along. you're material, it then protect trying don't we not going want to mean it possible. been defensive to rising Because to and much I defensive all is It the If is you erosion, these on challenging, well changes how having good and as us, that get want landscape it's we've margin we But, as and more time things, I you again, these challenging, price when definitely that customers keep is of the land knowing believe we call pricing seeing we're going having good differences. can keep think on points. affordable and that having a in we're positioned. budget us being to positions, product more deliver and

Deepa Raghavan

purchases, Is in one it, housekeeping lot, deferred for guide? deferred final The the Got that XXX. sorry, accounted question. the

Dan Bartok

Yes.

the revenue and in counted two, sales though lot from quarter were even XXX gain So all those as lots. the

revenues projects, be lot future – sales. separate the quarter all and profit And the So count of it'll would will recognized. that revenue be seven XX-month included be future margins in over of because this so or the but in some a period that these is quarters are probably and

So yes, it is accounted for in our guide.

Operator

Up Nate Okay. have Citi. Pettinari we next with

Anthony Pettinari

maybe talked little Good entitlements, supply any you you that some chain just a were Anthony. supply constraints I'm kind taking a the more factor? demand see weren't the of could you swing you labor, the there expected? be from higher chain the get concerned cases. from maybe end during It's challenges quarter it in about of cost, you of builder to permits incremental the or talked about Do quarter longer just a chain supply conditions about think afternoon. bit your guide? when the, bottlenecks perspective more Dan, in about wondering, of worsening? sort materializing what and is you and may customers or lower maybe potentially And Are permitting

Dan Bartok

attack that one. how see, Let's I

able concrete. be supply might it be chain might another as get Let's, one another structures it's as constraints, one be you markets, some bit market, concrete might to tough from market, pipe, far to get big market spotty the not to one

over Probably and the we were and electrical the for to concrete be out schedule that the companies of when to that the lots. I I'm in time ability get having materialized thing one to getting would want on more and power have say differently. country. to has market the last markets Some we transformers get the a there hard seeing we the across broader that is scale, utility quarter

I'd of is kind just And the companies. challenging the was that again, hard So utility say of that the in control is, one to here one that thing. hands

we're convince trying doing order and of we're them the transformers problem, it to it, ahead transformers think, stay others ahead. So some to sooner our them didn't whatever. do to try of on of to just But are or ordering company, I depends power they and have no best again, a good job

that's And one, the lessons think earlier anything other goes so the the more one we've far trying product that I lot learned is in widespread are more say and to else. things of than and pipe vice as in certain as And or ordering particular a a we concrete readily available for situation. using of substitute instead pipe that depending versa, plastic instances plastic steel or what's instead on some like of

still is maybe on we're I on people houses. it. as prices And for continue pass And point haven't what sale, worried at bidding point, at does costs, obviously, hearing there's those still we've lower point, And rates mean, a ground higher lead our and fear I costs and the to not rising about and demand? as going up. to At always to I'm able demand far I'm a they're what that are housing prices. housing into this houses. releasing through to science interest rocket houses are up, there's that because say this been there's for going As seen cost higher

We're it, seeing got cautious. thinking ear I'm any to but on the we're we've So our really impacts of not us about those yet. ground,

Anthony Pettinari

builders? need do you that sort among this, relationship And key that? building? about more of I and to maybe Or specific of is a things missed of baked a Or bit can matter helpful. to or third just there that party percentage drive just penetration realistic your more a very guidance? into kind Are time third of one sales maybe for parties if little talk apologies Is it you ‘XX? that's there Okay, but is to of two

Dan Bartok

by is to have source the Yes, number. of XX%, numbers. term, time raise we to kind XX%, haven't any I'll first us see always really a those for try long a I good non-Horton we that to Forestar get Obviously, It number on we'd the over said, customers. we the given think XX% to guidance like us. probably just But deals. And about probably constraint get target of is

So Forestar some lots then little bit can and as and -- projects, to being a I have I deals, I builders. aren't have have source that first, I so offered multiple can Horton bigger

but we're they communities again, our to We customers. customer Horton, just broaden party want see trend. I really them probably, I was of to trends, week, a continuing types. help wouldn't those accelerate more you'll see us think big customer to are base, great say by continuing product next third sales offering what this one on think execute. which, I And BFR love to and I this by couple this is try added see continue. multiple is to of quarters, you'll it the mean, in last in and done that's us, a for quarter This you'll kind in a sales I sale, quarter probably little higher

Operator

to I'd now like back Bartok turn to the call Dan for over remarks. closing

Dan Bartok

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

Operator

Thank event. you, ladies and gentlemen. does conclude today's This

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

Forestar (FOR) 22 Apr 222022 Q2 Earnings call transcript