Earnings call transcript Q1 2023

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Operator

Good afternoon, and welcome to Forestar’s First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]

I will now turn the call over to Katie Smith, Director of Finance and Investor Relations for Forestar.

Katie Smith

good Forestar’s and first and call to John, discuss to quarter you, afternoon, welcome everyone the Thank results. Thank you for joining us.

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

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

Additional lead report performance on and factors information annual is XX-K. about that to material Form Forestar’s could contained in changes

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

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

Dan Bartok

Good Thank afternoon, Katie. you, everyone.

taking in As always, we discuss and interest appreciate Forestar first the results. to your quarter our time

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

as Mortgage severely record a rose during result pace been rates affordability housing has impacted. XXXX, at a

decline from nearly New a were revenue and down resulting XX%. home year headwinds a XX% ago. in sales of fell December XX% a November in from ago year housing starts Despite those

profit our gross was basis Our and to pre-tax margin XXX profit margin increased XX.X%. XX.X%, points

has over real is The that past the story here years. five transformation undergone the Forestar

in play lot company United largest the States. pure the become residential have We manufacturing

focused. flexible a assembled a We team platform and have is and that built

look will ways shareholder to have value. further continue and to opportunistic be in strengthened that We balance our build sheet

we have with largest market D.R. consolidate customer a positioned share. as Horton, base have we America's We to expand ourselves our and strategic builder, relationship

The period is transition. housing through going of market a

proactively acquisition past reducing are have over We land the and been disciplined XX-months.

residential plan lots for increases. be activity our We projects for development the have been when to prepared at staging

flexibility of adjust to meet Our needs quickly enables the customers. our to us

prepare strive We to to continue periods of to maximize and growth. while rapid we to return plan returns,

Having a we and strong but thing, a team plan. that the operational relationship, flexibility, the most growth plan capital importantly, execute is structure, the one customer have

serve and share. positioned new better than consolidate and current market customers ever is to Forestar

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

Jim Allen

Thank first year Dan. share, quarter to diluted compared net first In was totaled million quarter share the or diluted million quarter. you, compared or million $XXX.X for revenues XXXX. $X.XX quarter, $XX.X Forestar Consolidated the of the to per the $XXX.X income during prior per to in $XX.X $X.XX attributable million,

the sold sales X,XXX quarter price of We during lots average with an $XX,XXX.

quarterly expect and on average fluctuations We of location lot based geographic mix sales our continued size the price deliveries. our in

lots continue sales to align We to new expect as demand will for a in be months starts homebuilders coming the residential impacted pace.

million, totaled income pre-tax $XX.X for year. Our first last quarter million $XX.X compared to in of the the quarter

profit XX.X% was points pre-tax leverage. of operating last margin year, lower driven Our reduced than by XX basis

basis gross profit year improvement prior XX.X%, was points period. XXX over representing of Our margin an the

revenues, of was In or the year XX.X% million prior the $XX.X quarter. SG&A percentage a to compared first million expense quarter, $XX.X as in

quarters. expense SG&A for was would revenue were sequentially and X% dollars a as our While last the has like, percentage higher absolute than the we down three of decreased

We will Mark? business. continue to supports SG&A our focus ensuring our on infrastructure controlling costs, while our that

Mark Walker

Concrete, continue ago, to see still Cement are a cost for starts contractor in falling, year development Transformers greater family Materials trades As with stage Despite single we on from and a market conditions, to to roughly to December develop a decline. our project-by-project secure. lot challenging and to availability current front-end residential home XX% basis. continued are starting like

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

costs. development trade continue partners and -- proactive We be our with work develop to will control to cost

at project evaluate returns. market $XX,XXX. developing appropriate points price of We for the as focused remain average pricing to roughly homes sale by pace We price on surrounding maximize lots determine conditions and we each affordable sales the demonstrated and our

inventory elongated further our demonstrating months, development grown has XX inflationary past strategic Jim? X%. pressures and Despite balance timelines, only discipline management. inventory the Over and

Jim Allen

X% customers D.R. of deliveries deliveries of other our D.R. the than trailing sold quarter term. XX% of selling to to lots to customers customers first XX% intermediate sold other target the year Horton continue XX-months in quarter. over to we other XX% Horton, the than prior our and were to our compared In were

sequentially. Horton sold Additionally, D.R. lots Horton a year-over-year D.R. and to to starts continue percentage of Forestar’s grow as

of starts out a lot every Horton developed Approximately that five is Forestar. on D.R. homes one by

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

Katie Smith

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

quarter. invested million land. quarter, reduction the During million year we development, in land of $XX $XXX $XXX and development for was was the million to first land prior and XX%, compared for land a

As investment of the our during primarily anticipation land to focus phase of already development the prices land across own. most land in proactively reduce to housing of slower continue footprint started on we our that increase and we XX-months, market

we with opted contracts. extend We are sellers and working cases in to closing land dates have to certain terminate

as our on the market intensely efficiency. in at focused market demand Mark? with blocks emphasis to model conditions capital adjust of development that to development strive operating on allows our consistent unique and matches based deliver managing we we phases a Our on finished remain pace pace us

Mark Walker

controlled contracts. loss of Forestar's December XX,XXX purchase of was XX,XXX as which are lots XX position XX,XXX are and lots, owned through

X,XXX Our and million diligence quarter. of lot or $X.X write-offs in the or lots incurred We lots option deposits XX% by XX,XXX year-over-year. decreased due and X% sequentially by position

finished XXXX, from we land cost under end, and inventory owned X,XXX basis our during the no we had majority purchase placed of attractive were At prior on in hand. quarter lots contract an to resulting impairments sellers quarter. had to The lots

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

approximately revenue. These future of owned sell, $XXX $X.X contracts contract our million billion them. XX% of associated deposits money hard of earnest lots are to of representing under with

first to off our of to XX% lots Horton executive Another Jim? offer D.R. of agreements. purchase owned are based sale right and a subject

Jim Allen

quarter We of we for the with capacity reduction unrestricted $XXX with credit and plan including and are disciplined approximately when sheet $XXX letters facility of to enhance and Forestar. our million our value approach after of over long-term cash a million available strong We ended of revolving million to liquidity, $XXX maintain significant liquidity the maintaining of capital credit. outstanding on modest balance investing leverage the

million XXXX. fiscal maturities Total note with senior debt XX at was until no $XXX December

up XX XX.X% year from value period. of year debt We the and from year in increased Our book to down our net the was at ended to capital prior share ago. $X.X a December billion with XX.X%, equity XX% $XX.XX, per ratio stockholders'

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

level to strong financing conditions strategic enable economic to us Our changing effectively and present be us corporate through liquidity when positions operate themselves. opportunities and attractive

navigate We the have significant flexibility upcoming year. Katie? to

Katie Smith

we for a and fiscal earnings current XXXX this Consistent time. result certainties, market with the our not guidance are of as providing call at last

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

us are and are positioned strategic and and to housing to been short-term industry. challenges quickly adapt well the the we disciplined have very before We that

for you hand back will closing to it remarks. I Dan,

Dan Bartok

Thank you, Katie.

as XXXX our XXXX. difficult Forestar will industry adjusts continue to facing housing fiscal comparisons results throughout the

We platform, us and maintain returns during enabled quarter. have to building remarkable progress a made Forestar’s strong which challenging margins

future will can backdrop the and increasing we demand While stay focused growth. housing, for directly cannot or to we control drive platform and efficiencies our the influence on strengthening macroeconomic operational

are closely market We and submarket each price to project and maximize returns. balance as we monitoring strive pace to

and market the consolidate and continue optimistic ability market to execute are in operating a undercapitalized are Forestar’s to highly about We leader share any industry in environment. fragmented well,

be a the a dealt that comment knowledge past be would I way experience they the this on that I year Their more is are Jim's this big team proud than earlier team. to capital to our competitive and part our and because our remarkable. add have truly is advantage. about of it of could challenges with not being advantage, to like biggest structure

Looking from balance buying shift focus and our land forward, of With attractive self-developing. that believe their many other experienced most importantly, we lots footprint, sheet, Instead towards Horton and strong positions, developers. continue D.R. geographic to finished team. third-party broad homebuilders will our

last be well of to the positioned supplier to is choice Forestar homebuilders.

pace are have playbook for long-term planning a current and execution. our land ago We for adjusting today's environment. in new implement proactively We acquisition of by and the track to of methodically our over XX-months solid record preparation downturn started

our will sheet When and opportunities leverage of platform build value. appropriate, to advantage take to balance shareholder we

enables needs flexibility of us the to Our adjust to customers. quickly meet our

positioned and before cycles market these through managed has challenging conditions. we to well navigate team market are Our

the up open now we'll time, for this at John, line questions.

Operator

proceed. you. Wolfe from [Operator Truman first Instructions] Our Patterson Please is with Thank question Research.

Truman Patterson

afternoon, everyone my thanks questions. for and taking good Hey,

the increase into or and past their steady backdrop, needs. do given Horton all continue all ultimately home First, been Or of prices percentage lot current third see you current starts supplying your Do a mentioned throughout orders the of of trending over to kind housing close think XXXX? year? a digest you settle? run to you the that state, environment, goal where lot about stated of you You XX%

Dan Bartok

will year. Thanks It Yes. Thanks, interesting Truman. for an question. the be

five from be our is of I market I this four I to that But one to Horton. of would plays it increase our that seeing think will to see how year, do to increase, Horton but be is continue probably some expect pretty out. that out share going it going aggressive. to within in one decrease. homes forward market will looking expect that out during expect I everybody don't within share

Truman Patterson

you. is to discounted got all capital too some there's on land call that buy early? are got further the downside? distressed impression seeing deploy actually yet or to and perhaps deals? just ready you're still not I any maybe okay, you Or Okay, And the bit opportunities it a then

Dan Bartok

have starting would that back are But when distressed I discounted, or opportunities deals particularly dropped. may We're where more though that to deals in those we severely hard seeing now but either and they've seen see somebody that yet, on passed looking call as far before them. haven't for been I coming outbidder’s around as really or Yes. anything we're

Truman Patterson

in in are final have constraints the impairments now think Understood. about kind maybe markets more down greatest nationwide? And more and which right acceptable, which you. XX% and made just oversupplied new at do industry the I'm me, you asking peak one from from we risk. the home the markets say pricing are of then Got potential we'll just is lease lock because

Dan Bartok

any market is see in back to nothing I saw timeframe. all ‘XX oversupplied. Again, ’XX, really we don't compared what that at

and really developed. to it's lots get still So I think hard they lots get entitled

see don't being oversupplied. I again, So anything

kind probably are we everybody as some to the And ones two Washington and Denver. And in we going about, of and far bounce I for ran got think that in in I Arizona, I of I hear most to at to happened as the But say little the the out missed it's Lake think is ones up carefully that the back. talk us, stuff that Boise. look of you I'd are be, probably right, the markets, Arizona the Northwest, which of Colorado. Salt would riskiest up kind we think be a on so point that would and most ones slower

Truman Patterson

Perfect. Appreciate time. Thank you the all.

Dan Bartok

Truman. Thanks, Great.

Operator

question proceed. BTIG. Carl Please next Reichardt The is with Okay. coming from

Carl Reichardt

taking Thanks. wanted just on Good for afternoon, Truman’s. question. everybody. to I follow-up my Thanks

some Obviously, the sort the slowed average lot You reasonably quarter. West the this lot. on Southeast has has degree, $XX,XXX has been Texas a have to good, revenue of markets remained a change per decent rate

about ’XX what think Do from you going it giving recognizing thinking not to it's appreciably in mix geographically of you're XXXX, in you're your speaking? As guidance? was deliveries adjust

Dan Bartok

we $XX,XXX going would the It's sales and probably product the I type ASP our market. some on we last will that number in lots And Western West. sales this trend mix what higher from always we've maybe overall when usual is Again, also will little down that it's hit year. challenging priced quarter, more We again. some what a but but Seattle then skewed in might other bit $XX,XXX, had sold highest I the dates we up think market is had that expect to sell than that increase our probably reenter a not little probably a So attractively

Carl Reichardt

doing your builders regarding they towards sense as looking the self-development. some to about Dan. sort that of lot on potential to own opportunities, are move Thanks, back those the market. before you coming not now right. there builders And want on now you some for seeing more for to vertically Is margin? integrated that deals All their finished that any talked need may passed developing at transactions be given of you're then Besides opposed comments it

not new seeing dropping market distress deals, the deals? out are So effectively at from That looking disappearing there developers firm other level but kind only you And of not yet? at just all.

Dan Bartok

Yes.

the I are new on think, I've negotiating financing that's having existing new developers on are I clearly, a probably getting smaller with their seen banks that projects. time hard sense. their my And deals,

that seeing together, have I they're but again, put stressed couple happen. I may That feel don't think some developers We packages are don't feeling a overly yet. it.

I see to think, transactions definitely I begin. are what with by seeing we selling developers. guess, slow about a the up we'll here happens But season spring in

I yet. in interesting. getting I conversations are last As looking as People in for everybody over builders, the think the far that therefore have going months Again, XX is of not with sales what ramp been positions areas to desire to the builders But they're couple we're trigger. weeks eight again. think the see pull next to to and starts up over really happens ready

Carl Reichardt

Okay, very Thanks it, appreciate great. much. I Dan. all. Thanks

Dan Bartok

Carl. Thanks,

Operator

Okay. coming The next question question. Anthony Please from proceed your with with Citigroup. Pettinari is

Asher Sohnen

Hi, question. my Asher taking this Sohnen Thanks for for Anthony. is on

expect lot of per kind due under doing? that which ASP of already so, to prices delivery seeing prior in of we terms pricing, deliveries? rose the then like the year? what then the of And you to of, loss line be And we're seems of headwind time of not, baked contract builders with largely and home somewhat renegotiations there of any a over should with they're that So between in renegotiation to X% prices what out put those start if price is So if was balance into quarter-over-quarter, number?

Jim Allen

Allen. Dan and respect mix Well. with as This the with do guess to more the mentioned. [Multiple respect anything renegotiating to probably for had the increase With think $XX,XXX Speakers] quarter, Jim there is ASP to than what I I

Dan Bartok

looking so Renegotiating, we're maybe flexibility some their seeing builders not for with terms, takedown. but us pricing, come to much

So pretty now held pricing has right steady.

us The highest for puts other mentioned in spot where we the is in $XX,XXX builders thing affordable be to a it want for with think sweet demand marketplace. that ASP, is pricing an we

on come pricing side, talk had builders that we we not want the seen us So terms. to yet about to but back have and that

Katie Smith

renegotiate to getting add and a This return I'd a us that builder for is in Dave. wants we're to on takedown, comes too, when typically to something that.

those a money be or So higher whether deposit lots. it on a larger escalator earnest

there an a a little of far whenever do So offset, as is schedule. price takedown we bit extend as decide to

Asher Sohnen

following been bit trending have land Is it What coming kind yet underlying has little like so following That's just write there? Great. through of on sort that contracts that sort sort you haven't then still yet. really new helpful. are lots are that pricing contracted of down? look Dan, of as the a sort for starting not coming prices And of to pipeline give up up up Or stable, price you of, there? to

Dan Bartok

I all unique They think characteristics. we look at have that project-by-project, market-by-market.

all looking intangibles but lots, for market, we is pricing when we're finished So steady. the pricing our at right for each now up set

Asher Sohnen

it good That's Thank to and very Great. you, turn hear helpful. over. I'll

Operator

is Rehaut question with JPMorgan. proceed next question. Mike Please with Our your from

Doug Wardlaw

Hi not, the most to, guys, of Last how potential of terms to weren't on quarter of, And do Wardlaw this that on if year has recent rest Doug kind going a in the And you impairment? curious mentioned just after quarter of getting warnings mindset that changed? any was for you potential guys the after the envision I maybe impairments closer quarter. Mike. you any

Dan Bartok

the quarter. money impairment. this to for related review regularly costs no of projects deals we impairments rates. on. that the Mark on margin, rest due what go see margins year basis. say we the a we with expected. pretty and little may we at had a expect don't We held on contingent early at point, will We write-off to But not earnest diligence conditions year, in close to bit the point, more for this did isolated what a We and our widespread general be through market Probably decided seen bit a this monitor and that We've it to some pricing impairments impairments. see have point as as has and widespread we for don't our Well, said, in At indicators little of which up well. but we compression happens of

Doug Wardlaw

Great, what thanks. of terms just I'm margins. And in said with that, on following up you

and the seen at compression the expectations your haven't to margin more XQ, of you you relative So of expected? less end

Dan Bartok

up Sequentially, but a little quarter, well. bit gross pretty margin this held came it's down

Our well. pricing has up held

reduced due We have operating to volume. leverage lost

than SG&A the But for said higher revenue earlier, So our X% down was have quarters. a three decreased we've a as has I of SG&A like. and as expense certainly, percentage we'd last sequentially

Katie Smith

with Gross in we line quarter expected. is margin this much pretty for what

Dan Bartok

Yes.

Doug Wardlaw

Great. Thank you.

Operator

end the turn Dan Bartok remarks. to And of now session. the reached question-and-answer over have for We I will closing the call

Dan Bartok

Thank Thank team the you work. on to quarter. focus achieved for proud your team I'm the you, the hard this John. and results of Forestar everyone

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

Operator

concludes you Thank at for this participation. This your you time. disconnect conference your and may lines today's

Forestar (FOR) 24 Jan 232023 Q1 Earnings call transcript