- Earnings call transcript Q4 2022

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Operator

Good afternoon, ladies and gentlemen and welcome to Forestar’s Fourth Quarter 2022 Earnings Conference Call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. I will now turn the call over to Katie Smith, Director of Finance and Investor Relations for Forestar.

Katie Smith

Thank you, Matt. Good afternoon, everyone and welcome to the call to discuss Forestar’s fourth quarter and fiscal 2022 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 factors performance are its which Form information Form annual that Additional on material could of and changes is report filed lead with and most XX-K Forestar’s report both to recent the quarterly contained SEC. in XX-Q, on

plan this XX-K next Presentations to Events Our earnings release for we is call, our on under reference. our updated file we Investor week. late to Investor After website & your post and will an at site Presentation Relations our investor.forestar.com

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

Dan Bartok

Thank you, everyone. Katie afternoon, and good

North In our take Mark? East and our operations I’d regions. before addition overtime Jim started. get to himself Financial in Mark as am responsible Chief Forestar joined be we brief recently our Allen, today to Officer; the also joined pleased Mid have call Atlantic, Walker, Region moment President to Chief on became Operating and a in and for Texas by the our XXXX, like promoted Officer. Mark to Mark Katie, introduce I

Mark Walker

even I’m continue build and to company eager Dan excited to further Forestar at platform our help and to Thanks, hello, my everyone. career out the further.

to investors to I’m with new great in know also high our performing looking and regional have and team divisional a role. my analysts leadership. getting forward We

Dan Bartok

Mark. Thanks,

continue role, team thank that that we are Given participant for Forestar is scale quarter of but strong consolidate market want will today, new an to great our our we execution I and active share. team and he help happy year. as his to the business a he will lead be to fiscal not another Mark

and performance business model market and expectations our to exceeded and results financial our and appropriately a testament to conditions. react is operational strong ability quickly our to team’s Our differentiated

million, pre-tax quarter of quarter margin Our when points fourth our to million to And revenue. improved $XX.X fourth the compared profit $XXX.X to pre-tax XXX increased a XX% last income basis for XX.X% year. our

lot revenues For the our and million to XX% pre-tax billion than fiscal XX% basis pre-tax in last margin revenues the year XXXX, $X.X sold, we increased have lot share XXX Since year, increased in residential to improved have consolidated gain increase Consolidated XX% over income deliveries and an full for fiscal to market profit points to $XXX.X year. fragmented was industry. Forestar’s the more which lots tripled XX,XXX development as XX.X%. continued

share expanded have XXX of XXX%, equity over per pre-tax margin points built period, book same proud the team points, extremely X,XXX earnings return platform Over on increased the share value our to increased expanded per I and basis am XX.X%. XX% that together. our we basis and

want I call over to optimism Jim Before review results, reiterate financial the to Forestar. future turning the to our our for

from a starting position are XXXX strength. We fiscal of

flexibility over lot conditions. has residential provides development the industry, and million structures capital market one with in us Forestar of the of best $XXX tremendous which navigate liquidity to changing

focused detail. in than now fiscal to will Jim Our more for our traditional further and XXXX on lead manufacturing execution creation a land stronger our fourth value fundamentally is will developer high are results which strategy quarter strong turnover discuss we and shareholders.

Jim Allen

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

fluctuations based our geographic ASP of quarterly continued size expect in on We our the location, lot deliveries. and mix

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

increased price fiscal average of sold lots, XXXX, lots to an sales $XX,XXX. XX,XXX During Katie? with XX%

Katie Smith

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

to $XXX.X prior and year pre-tax improved profit the to XX% included period related basis senior Dan? fiscal year for of increased million, notes, pre-tax income debt charge, for margin pre-tax excluding XX% in points X% points. and our loss company’s improved that redemption on the XXX our margin of extinguishment increased XXXX the pre-tax pre-tax XXX $XX.X of profit income to The Our XX.X%. basis million

Dan Bartok

periods development Forestar, to a year, to XX.X% lesser was the and both basis of over an was sourced periods, margin points Improvement lot increased extent, for high and quarter, basis and projects fourth the quarter. in was during on Our XXX primarily fourth in prior year track XX.X% by margin respectively. representing XXX improvement points gross the due gross the margin profit margins in sales sales from

quarter the as refinancing year sales year of the the by Additionally, year. for for points last approximately the to the expense SG&A X.X% basis partially to basis percentage of revenues periods, of the compared our senior interest points XX attributed notes respective charged and a and for decreased to was XX year. cost for prior quarter

costs controlling our Jim? supports on focus business. to ensuring infrastructure or continue our our that SG&A will We

Jim Allen

and of progress lots in pleased we XX% lots sourced were XX% Forestar-sourced quarter Forestar. lots to lots. quarter. and in Included source fiscal from deliveries to percentages XX% XXXX. XX% up our were other of lots make in to more our sold lots were sold XX% fiscal more In year that sold fiscal lots customers are sold respectively. XXXX, or fourth X,XXX from the in lots who by a quarter to banker continue Forestar our by than X%, of Those deliver delivering of deliveries that the to continue higher compared or at should date. XX% other lot up are fiscal sold as those XXXX D.R. Horton, trend lots customers expects a Horton projects prior in XXX to from in Forestar-sourced, future lots to quarter D.R. XXX to We year sell and fourth XXX XX% project were the

our term. target of We the continue intermediate lots Horton to over to other selling DR XX% than customers

of one out of Horton grow and five year-over-year Approximately a D.R. starts sold lot Forestar’s to homes by continue on sequentially. starts to developed Additionally D.R. Forestar. Horton D.R. every lot Horton a that as percentage is

homes every of built Our goal is mutually by to on lot a Katie? be for that sells one Horton D.R. us. stated developed – out three by

Katie Smith

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

During XXXX, of was million was land in the development, and and $XX land million $XXX $XXX development quarter, and investments which, $X.X we which, fourth development XX% land. and land was land invested in million development for roughly for land. billion, approximately for approximately of XX% In fiscal land totaled for land was

on of discipline our own, during we demonstrating we land year, the increase through development our management most across team’s the navigating and prices already by land market reduced investment As space to our land primarily XX%. footprint experience continue of focused cycles. And

and position was at which, lot owned, lots, purchase are September XXth lots XX,XXX through XX,XXX controlled of Forestar’s lots are XX,XXX contracts.

the own hand. lots of X,XXX ago, owned Our sequentially our X%, and XX% finished and under prior from on both were Forestar up to year year-over-year. XXXX. had by At lot quarter we our or lots XX% of position majority lots sourced lots by end, put decreased were X,XXX contract a

to to land four Dan? inventory owned three target continuing years We’re of years lot. and of

Dan Bartok

align pace. of These the earnest as starts residential continue $X.X expect We a sales to revenue. moderate million billion under representing months are in have $XXX associated our to them. contract of demand future for deposits will with contracts coming to lots money approximately XX% owned new of sell, lots hard homebuilders

pace We owned at capital our offer a subject our are of development matches executed Horton first that lots the finished managing and each emphasis pricing agreements. and appropriate the delivered to pace D.R. to intensely and on based Now XX% sale right efficiency. remain phases returns. the on surrounding project purchase market ensure and of to demand a on We market consistent sales we maximize determine with our to evaluate are lots as conditions focused

and discipline timelines our balance despite development year, inventory demonstrating and management. further grown past inflationary elongated the Over pressures, only has X% inventory strategic

we operating from flow cash fiscal $XXX.X during As result, a XXXX. million activities in Jim? generated our

Jim Allen

available capacity $XXX senior value liquidity, facility, our reduction on to with revolving investing of and we amended disciplined XXXX. with unrestricted sheet October with significant liquidity capital Total million facility We approximately extending our including maintaining by credit credit the half enhance at modest million We after recently XXXX. debt the for of XXth to million $XXX long-term a of outstanding maturity to of a balance the letters are plan note ended leverage a years $XXX of when million $XXX approach maintain year We revolving fiscal the strong Forestar. one and cash and September and was credit. maturities no until

billion disciplined up We the compared continued debt in to ended XX.X% $XX.XX, to management. value ago. stockholders’ equity, XX% of year Our a our $X.X increased the year demonstrating ratio XX.X% prior was from end year to and per net period, at book on our with capital year focus capital share

more of react conditions, are project Forestar’s to complexity biggest and Most costs. capital administrative it adding traditional land structure changing makes by encumbered to is one competitive difficult advantages. market developers level while which financing, our

is are and positioned strategic our conditions us is even corporate than a We leverage may and we financial strength. a Having one economic slowdown in know enable are times another. us to capital operate to operational positions changing At to from incredibly strong team base opportunities when a attractive time struggling, competitors the stronger these plan effectively liquidity strong be to but and Our housing be flexibility, experienced before. financing our themselves. growth having emerge to when present level customer thing, well

key have back in place Dan, to We I’ll those hand for it plan. our pieces you remarks. closing execute to

Dan Bartok

the due rising to certain inflation, materials. mortgage Consistent call, remain expect of earnings challenging shortages will and rates, interest we delays continued municipality with environment our persistent last

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

will the we to in that We areas can control. continue proactive be

not guidance for result XXXX this of we current the uncertainties, a providing As at time. market are fiscal

when market we We will guidance visibility reevaluate in the annual have providing sufficient conditions.

optimistic adapt We make goals that increasing We have positioned remain ability towards of us. are to and to short quickly to before Forestar’s our disciplined, and strategic returns. very progress the well and share gaining we to been are about term very challenges continue market

balance to has continue experienced will cycles shift lot broad towards buying is homebuilders We the our and be sheet, of their to I leadership to of will before. our third-party well With continue to self-developing. conclude strong homebuilders. Forestar D.R. believe instead land to other most team, positions, supplier from attractive footprint, that team Horton by positioned choice many developers saying finished lots market focus our importantly, managed geographic

been disciplined and have on are liquidity. management inventory strong in We maintaining focused

customers adapt with working is all. that way our are We a beneficial current to in to to market conditions

questions. of We team this will we’ll for incredibly advantage performing open ahead. value. for platform we’ll at the challenges Forestar leverage take the line strategic prepared be that we’re and approach our will the opportunities time, build proud of in and shareholder to Matt, our I’m high

Operator

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

live. is line Your

Carl Reichardt

Thanks, everybody.

turning moment? and about of development might think starting on side geographic you’re to begin opportunities, be talked your where peers you deals? markets Jim, potentially you to where are You they peers take at too. the the most to if the Are drop them? curious or And some struggling I’m Dan see to the

Dan Bartok

opportunities. No, we’re dropped. they’ve I being can’t here. attractive some definitely think that we better are continues deals But to as been time extremely we starting yet. say seeing yeah, to will But get that they see on move

out at the to seeing developers are We’re that that kind have to loans get of go are little of I we with again, need think other before their looking issues get extremely positions. But they where a having their still opportunities attractive. time

Carl Reichardt

find. help talked up. to where are to true a the Are in folks likely loosen a you you trades pavers, us delays at them up of for you And lots vertical know at use ’XX? getting And about price least get to you starting are starting construction pace for frontend thing being the actually like Obviously, through continuation Thanks, the and whoever all are running now the getting or development itself. side that that Okay. and excavators, actually the is to tell that communities development seeing that builders ability process to then the Dan. you from easier same

Dan Bartok

exactly getting some starting to to now. that to are people to think we’re see and job don’t are think Yeah loosened there these right next the don’t last electric moving year think where I in and transformers that has seeing side it’s And their I start see it’s efficiencies. on the really we get improve any dirt we’ll I more but yeah, that send up goes worse. minute the But things, think of I still somewhere company pipe up. crews to and contractors the primarily out getting frontend you it as don’t not loosening have know cost much then

Carl Reichardt

back get in Thanks. I’ll Dan. you, queue. Thank

Dan Bartok

thanks. Okay,

Operator

you. Thank

from Your next Morgan. from JP Rehaut question Mike is coming

live. Your line is

Mike Rehaut

offering Yeah afternoon. and Thank good you mic. the

touched a roughly? efforts on years non-DHI to if guys look your give regarding But three further know years in progressing do this earlier. two your on bit can how you maybe little like love this know to growing can you I’d business? are You what And color

Dan Bartok

we Well, progress. are making

than again, to get we next are we help sharp think And up of years XX% is that self-developing going these but be finished frankly, will buy know And increase, our our of than three that expected making with builders or other know to builders Horton. definitely times the want lots having lots. never business years to rather You some maybe the right progress two to now goal other to it I only we’re for tougher a you builders.

on and will we’re what think years I we’re I like be beneficial for So the I two trend. seeing us. these think very next

Mike Rehaut

you’re looking and And certain as a But then give guidance XXXX. is thanks. about to Great, XXXX progresses? the you there next insight you over of know how things for gross give bit as any you’re I quarters margins thinking way for guys little don’t to few out

Dan Bartok

margin know takedowns. there’s are it’s a on the know to you And reset start be a year, definitely renegotiating paces know paces we know we’re you lot Yeah start probably see to we’ll you little from going going challenging be be to going trying we’ve what to their builders at not really with probably may it’s of so margin, pace bit been able compression, know early come to back deal that too to really but know tell that some be, you us. but up far to extent just and slowing you point will giving

Mike Rehaut

Got it. Thanks guys.

Operator

Thank you.

from Your next question is coming from Anthony Citi. Pettinari

live. Your line is

Anthony Pettinari

Good afternoon.

below would wondering, and But know that of to wondering a You you start metric, help directionally maybe risk well and you thinking where ‘XX margins impairments. about just know you you I’m about if how volumes potential about away And impairments? from we think far there you market? can potentially continue are to you’re on – or home prices have just or is you trade or whatever you know choose, book threshold talk softer as

Jim Allen

Well think widespread was you was that seeing projects any not compression it. isolated the had still have year see that’s more we money costs had might and that not I The off long, impairments we really to for margin diligence at our but a this know have we we writing likely. from or know margins incident, isolated if pursue, may know But we earnest just really in year year, the we’re one an the of deals due only you kind have during are still impairments decide there be maybe you know around of know, more kind it point, impairments. some that you we’re maybe we just strong. long way know you I you during mean

Dan Bartok

over know the own XXXX. purchase You you know, half today, we again, contracted of to we lots – before

recent bases So the we current more really market land have you relative expectations. to pretty low know the

You our can new significantly know, really this year. purchasing really past you fell see land of

weather storm. the So we’re in kind of like I good shape to feel pretty

Anthony Pettinari

in affordability And then obviously and mind top of helpful. Okay, rise that’s given rates builders. homebuyers very the for just is and

shrink are or greater know price? sizes know final changes home for development? started to You the can to watt projects to any affordability have know you projects there you for You levers pull drive you in other

Dan Bartok

Well, the affordable you segment. know we’ve on focused always

that we’ve prices small and affordable lot position think market. a already in I relatively So been that of

good project from So positioning, it. I I think a feel about really

slower for more expectation – of rightsizing know kind it’s it’s of phases, us, started started a demand. know, You on year inventory controlling about smaller we flow, that you that know you even phases over ago working

quickly. it’s inventory and our returning efficiency it So about like think I really sure capital Jim our call capital our and making controlling flow a to –

Anthony Pettinari

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

Operator

Thank you.

Your from is Reichardt Carl next question coming from BTIG.

live. line Your is

Carl Reichardt

Thanks, time guys. additional the I’m for Thanks back.

things Dan, And this deals pace does accelerate significant slow a your to slowdown think? if slowdown is the which do out, really more at pace thinking you ability come better we if pretty Horton? So, – accelerate on the get you is your is and that a do in on or likely deals do your slow make the nicely self-source then reliant sell-source that, ramp see to it more business, actually can margin does significant you do things when down,

Dan Bartok

some former why I we of the think that’s believe what way. slowed again liquidity significant buyers, that to strategy for. along, going been position That’s about me we so kind our there’s this is built – kept up it’s of playing come Carl. land our part we’ve and strong our been our opportunities And to [inaudible] that’s positioning that be

Carl Reichardt

that about a take what like traditional down or you then big the a a margins there price just in little little on a – with then difference talk banker, or customer with be that a bit builder? would terms to if sold sense, wanted there’s makes That you bit to lot And sure. XXX? expand Lot be a can maybe

Dan Bartok

You it place an transaction. no know had really we there assignment was was contract bulk it a of to really sell was a take change, And in lots. that

than takedown. in think a lot banker those the know into middle a the lots builder of and environment you involved buying rather inserted in of I I’m bulk, the more

really a contract matter of original living was it to of builder So the up with us. the terms the

found positive. be that we to So a

Carl Reichardt

Was the of contemplated year? original then deliveries in lot just for full the XX,XXX for this Dan. And follow-up, guidance your trying Okay. transaction

Dan Bartok

than took between that contract Well, again, rather we contract originally a how builder as the the lot directly, in set inserted them guidance, banker it account. original on the And again, they performed closing and contemplated. they definitely into just was we

Carl Reichardt

All Thanks got. all what right, That’s I right. much. very it. Appreciate

Dan Bartok

Yeah, thanks.

Operator

Showing remarks. further questions, Q&A that you. Thank to the for hand our session. closing Please back Dan concludes no conference go ahead. will I now Bartok

Dan Bartok

Thank hard this your very everyone the work. and the results of for thank year. And Matt. you, on you proud focus team to team the Forestar achieved I’m

stay on look will fiscal we and consolidate disciplined, with XXXX. call We We to time you in again our appreciate the flexible share opportunistic first you. speaking Thank market today results. to January quarter everyone’s in as and forward share

Operator

you, gentlemen. concludes event. This today’s and ladies Thank

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

Forestar (FOR) 10 Nov 222022 Q4 Earnings call transcript