FOR - Earnings call 4 2023 | Forestar Group Inc.

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Operator

Good afternoon, and welcome to Forestar's Fourth Quarter and Fiscal 2023 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the call over to Ashley Dagley, Corporate Securities Council for Forestar.

Ashley Dagley

Thank you, John. Good afternoon, and welcome to the call to discuss Forestar's fourth quarter and fiscal 2023 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 Commission. and changes is report filed lead with in most XX-K Forestar's report both to recent the quarterly contained Securities in XX-Q, Exchange on and

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

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

Daniel Bartok

Ashley. for everyone. appreciate this quarter. Good afternoon, Thanks, filling Katie you in We

increased increased XX% X,XXX. diluted increasing prior XX% quarter pretax while taking $XX.X always, $XX.X and fourth year interest Jim XX.X%. margin our our be the results. Revenues Financial income and to from income on to sold pleased share. also highlighted appreciate time to increased million, quarter $XXX.X Operating Pretax your for profit per fiscal Chief in Forestar Mark net in or I'm and to Forestar our Allen, year by lots million, quarter the today XX% Officer. The strong, call year $X.XX our we to by the joined XX% quarter to and million finished discuss Chief As the Walker, was fourth Officer; the team the

was returns cash and $X a year, performance that profit was strong maintained a double-digit margin liquidity of challenges Despite of first the increasing half generating quarter year and $XXX fiscal billion. we While volatility flow occurred operating our than stronger this of ago, XX.X%, challenging. while substantially XXXX the fourth our and pretax million to

Our and our was on book year XX.X%. value from a equity share XX% per ago, increased return

and As is on we for capitalize both demand builder financially begin fiscal lots. to finished well operationally positioned, Forestar XXXX,

for continue to returns turning in and future focus growth, in will development We more highly on industry. Jim and quarter investing will our inventory, discuss fragmented our market maximizing now our fiscal lot the share fourth financial XXXX detail. results consolidating

James Allen

or share revenue In million quarter, includes $XXX.X to $XXX.X the increased $X.X $XX.X to the you, million quarter quarter. the during diluted average increased with quarter deferred in million sales share an Revenues million in price prior prior the compared in increased fourth income net quarter revenue $X.XX XX% million year per from $X.XX to current $XX.X quarter. million sold $XX.X the Thank $XX,XXX. other XX% per diluted Dan. and or and sales in to to projects. Lots fourth development XX% tract The for compared lots of X,XXX year

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

other million decreased diluted per fiscal X% development revenue revenue or million year. totaled Revenue in share or million $XXX.X projects. in from year, prior to compared $XX tract fiscal for to billion, of the share sales For $XXX.X deferred and million $X.X income diluted per $X.XX includes which net the $X.XX $XXX.X XXXX and

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

Mark Walker

with quarter. million $XX.X increased to XX% profit income year the was million margin prior Our pretax in $XX.X fourth pretax compared and quarter the consistent year quarter to our XX.X%, prior

million totaled XX%, XX.X%. was in $XXX.X year fiscal for basis points ago. to and Pretax and from a points profit this XXX XXXX income pretax was $XXX.X year profit sequentially margin margin the basis for quarter XXXX, gross fiscal Our down million our XXX compared

Our gross was year. the down XX.X%, margin prior points from basis XX for year the profit

our XXXX, basis cost basis and margin million margin fiscal reducing to we by profit During points. recorded $XX.X profit pretax points of impairment our estate gross real XXX by sales, of noncash XXX charges

real fiscal pretax profit XX.X% estate profit gross XX.X%, margin margin Excluding and impairment were for charges and respectively. Jim? XXXX,

James Allen

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

up from expense $XX.X in SG&A million the was X.X% prior percentage XX year, X.X% revenues, the points a or as For of year. basis

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

Mark Walker

affordable we of new the affordability rates of continues supply advantage As at lots, and the particularly despite our at incentives remains to remain price higher favorable of buyers finished market are for limited supporting Builder and to supply housing positioned gap homes pressures. points of driver supply and bridge lots. inflationary homebuyers a developed demand resale low affordable construction. many continues new existing The the And of be current for have choosing price to conditions, take be uniquely demographics across helped and vacant constrained mortgage shortage footprint. points,

homes in the develop focused price contractors but are we price to necessary improved has the $XX,XXX. Availability our at overall several sales roughly We land. cost materials not year this on demonstrated past and by average reductions of have over seen developing affordable points of lots for months,

trade continue to Many secure to positions. our our to and land to and in work closeout partners replace to with efficient to projects will We compete are looking growth. communities Homebuilders future possible. lot way position the for value-engineer current continue develop most

land As a result, we any in are not seeing softening prices.

Dan? adjustment terms. we have contract markets, back to However, in more normal an seen most

Daniel Bartok

homes run a Horton and the important developed X-star lot. D.R. of largest our closed customer. Horton D.R. this XX% most year is

is developed R. by out for to X every X Our lot mutually goal be D. that stated sells homes on Forestar. a of Horton

our We significant within market grow Horton. have D.R. share to opportunity

unique to XXX expand Jim? lots to XXXX fiscal an D.R. XX our compared builders are deliveries lots sold XX selling and to the other or our Horton. customers year prior We of than customers have were in relationships other of to our sold XX% of also working We fourth goal and with in homebuilders. homebuilders to other lots quarter intermediate-term XX%

James Allen

Forestar's underwriting projects inventory minimum investment for at a of months. average and initial pretax a within criteria return XX unchanged development cash remains on return our new XX%

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

was $XXX $X.X to billion was currently the in For of land. million expect $XXX we to million invested $XXX we full investments $X.X billion. land and year, development million, fiscal total and approximately In XXXX, for development our which acquisition land for Mark?

Mark Walker

owned of through controlled lots of finished. XX lots are lots September contracts. are lot are lots, and Our XX,XXX which position XX,XXX at XX,XXX purchase X,XXX own was our

efficiency. remain deposits lots, our consistent and representing hard to under million to We continue target future our market X-year with X- development phases owned focused lots owned pace with associated contracts inventory our of to finished managing on to emphasis deliver matches are have $X.X XX% lots capital demand, at approximately a land earnest and that $XXX.X of billion on contract of of them. money sell revenue. These a

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

James Allen

book debt at stockholders' was available of and was until We per are million Total undrawn senior our with and billion $XXX strong. and quarter liquidity including XX have capacity year million ended no $X to of on fiscal share net sheet value the September facility. billion revolving our equity, ratio We maturities $XXX cash ended approximately modest liquidity, and using We XX% million an credit of a keep note the quarter with our $XXX balance our balance debt-to-capital significant of leverage from $XX.XX. increased XXXX to $X.X X.X%. ago with unrestricted

us our from of land X more and rate which development rates acquisition are expensive, which use other restrictive, land rising it of and and competitive complexity, typically generally have development less sets a administrative project-level developers continued structure available capital are particularly and apart loans level impacts developers. biggest in competitors. environment. floating Forestar's become Other is to the today loans have more create advantages, our majority Project

now with us to strong while you flexibility positions for when of us operational to closing will our advantage it over attractive Our structure I liquidity turn remarks. capital opportunities they arise. Dan, provides take back

Daniel Bartok

Thanks, Jim.

the the with experienced returns. Thank strong lots. years The challenging current for the quarter to Forestar ability finished fluctuations especially backdrop was and that you company interest to all market team create with of double-digit the X,XXX year. The of XXXX the throughout illustrates quarter-to-quarter delivering share. Forestar's flexibility next factors fiscal strong XXXX, maintaining execution as market to members illustrates changes. pleased rate delivery market profitability variability our and team's the demand It of are We increasing we environment for almost and during in and fourth also a position several can adjust delivery we occur its The your the Forestar efforts this lots. fiscal

XXXX, we to billion current to deliver and $X.X on we generate between of XX,XXX billion As lots and market to fiscal look revenue. based $X.X conditions, currently forward XX,XXX expect

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

highly in lots. demand are take for advantage builder are We and a fragmented finished of and the leader industry we uniquely market to undercapitalized positioned

market Our double to same, over to our the intermediate share term. goal X% remains the

of few to in significant our Forestar. to enhance market investing continue share disciplined maintaining will aggregate capital while approach value next long-term We the over years the

capitalize utilize on our execution platform through We that build opportunities With have experienced shareholder a to and track strong industry-leading our has solid team record well for this sheet dynamic will value. future growth balance successfully managed questions. of our strengthening investing that cycles, time, the for position. John, to and open prior line we are we'll further at this market our navigate while equipped environment and

Operator

Carl Instructions] from The Reichardt comes first question BTIG. with [Operator

Carl Reichardt

development I could that's -- right, a last -- spend I year. more year at XX% from this if talk heard guys and was plus looking you wondering land if in bit between than in spend think I you're X development that And if or fiscal XX% next you new little leaning you're up any there terms on in or versus about lots. split be could alterations already investing the existing markets just new mix, significant direction geographic in. markets lots of the So

Daniel Bartok

opportunities some expect you'll seeing spend. pretty of land mean more now, we're I last quarter and was probably increase reflective from land our year. what significant over see that our we spend will significantly Yes, right last

but some know have our increase as balance we breakout, costs between As this and I land our that do don't to far really that to expect of year. liquidity actual spend, sheet use split the I development

as us building really new the opening markets. that in, But within out up to don't depth I markets make what in as place. is of most we're investments continue markets team the platform. got As doing of we're see our lot We'll we're We've in in. far that a we build teams

deal a in you'll last see Virginia there. western quarter, reentered think D.C. this then we in actually on the I West this of one, -- year and did suburbs this we Seattle

we entered share X focus continuing already be So we in Carl. of of be new a a there'll one, and to X reenter. of I in, entered markets markets at new more market couple most those or that have build probably X or our least that probably to reentered Again, the think going is on we're and

Carl Reichardt

'XX then, the we lower lots Jim, that this fluctuation bound And lot the know of revenue in or 'XX you've you average in to said you're in going and that prices. before, might said you've of that Okay. have delivering delivering type this around. numbers give the or of just the us it's on on beyond? pipeline before, expect Could upper all even based or you some And lot bounce we anticipating per bound kind

James Allen

I whether this don't a But range can know size see as that we we margins. price our mean There's this prices -- the or can to I It's even I be you lot changing margins it's to range. due pretty always opposed lot can mean you underwrite to and give lot significant. mix. average quarter around. from know because we've that. don't is quarter had be focus last really does mix, bounce returns on geographic have lot that and I real I going to year, -- pretty

Daniel Bartok

a is X% the the quarter, our from year market, I individual the something when would range was the going year next fluctuate X% And to I X% versus from assume what back year probably I'll doing that. clearly, last given a about year Yes. it on that's based that But for in we're doing What's interesting chart, but any year. at from the right. year, little you bit. was add this then If over year again, up it's was look probably ASPs X% or before in could year. quarter-to-quarter, a prior about up it Carl, for or fluctuate

Carl Reichardt

And X you That it. if Okay. in. was default, could my I answer more sneak then if didn't

more deliveries terms sort So with differentials, Obviously, volume. there's matches know of 'XX for their the guidance timing up in less your delivery I on that. customer of biggest or and

grow So you'd grow you outside what that that that rate say largest builders, them to to of that a fluctuate Horton? I want to to distinctly of customer you D.R. is expect terms expanding your you similar other that? more terms as you business of that do in do base in to expect XXXX basically to mix your know sales Or in at since

Daniel Bartok

to looking mix year that I is with to going us, of honest the it's the Yes. pretty front at stay, At be the would in point, to assume you. much stay same this going

look difficulty as But in 'XX, we'll I builders I having their think the we a lots getting delivering own lot are I development that's stuff think financing. and we're getting partners already in when interest development. also at that all overall, be from other more

that So flat. share stay expect would I that, would rata pro pretty

Operator

next Truman The from Research. comes Patterson question Wolf with

Truman Patterson

I apologize, has phone been cutting out. my

geographical at lots mix ASPs there duplicate. it if more increased Carl's mix 'XX kind that When moving questions. recognizing? power or Is So any we're want of if thinking looking remain is XX% quarter focus pricing at a or year-over-year you're this move-up And like to consumer is pricing, that perhaps But this looks did fiscal follow true your your like shift? currently X of I fourth to on lot guide, up of forward. at a $XX,XXX. level I'm looking I'm larger a shift

Mark Walker

Yes.

to and it's think lots community our and lots of true but trying geography. the going returns, the market, are size pricing mean just inflationary we quarter, the pricing out power. to costs I deliveries returns. and additional can I I again think geography in mix market grab tune, to lot But our we we'll themselves. market it's sell grab particular it's community, for obviously, with additional phase by up, don't But again, if by go anything are fourth

Daniel Bartok

think I expensive That a It mostly is of a fourth was spike quarter lots. some run not clearly mixture is geography. more rate.

Truman Patterson

Okay.

range Trying of at lower higher closings of if towards Got any sales. or that into demand just built range. you. then And get to are looking muni market what understand of there a Okay. potentially delays interest are it's end the us function kind your that end XX.X to those XX.X would of purely anything the lot And just whether rates really changing and of thinking I'm development kind along this or or lines? or

Daniel Bartok

a out. subdivisions I mean to focus best on the and active. the rate year think to environment made going guess. that there play to low I moving makes guess the we've that -- lots Yes. sure interest we're making the returns out end, we're of are today challenging and our But The think it I little to rest going is continue how

of is into as our forecast. account difficulties we do our what in taken, we've knowledge think the municipalities I different

have reason, down range. finished about that could lot lots think be, The be I that in position and feel accelerate, inventory come end range. we'll a we'll I and high I under the rates development a think strong the at upside to good home be for definitely if, So of some sales that

Truman Patterson

I if in. Okay. X squeeze Perfect. more And could

elaborate just little on value up Could bit? engineering, that brought your positions. you all lot You a

Mark Walker

Yes.

looking be timing go we our through As we're as possible plan to and cost. projects, and with efficient as

on gas disciplined gas. on developments foot we from on basically phase or to better the asset. and standpoint, flexible or to really more to to we need even been that take due -- But in the and and we through existing be a if remain looking calls developments an we timing. and able phasing to but value our engineering to asset as for off cost, So we've plans But every development within upfront an at we're after increase going step turn engineer an value when it's our related diligence, our also own -- for very very project look

in, are day something that it's out. the teams doing day So

Operator

have with Rehaut we Up next, JPMorgan. Mike

Douglas Samuel Wardlaw

for on Wardlaw Doug Mike.

don't kind progressed XXXX rate continued saw You same mentioned maybe as throughout that, the volatility the call, any in kind got. -- throughout trends in your And expecting, throughout can scale I quarter advantage of saw? trends guys give this have of as competitors rate kind the you you've wondering if volatility? of that was to stages addition of you what other the industry as the you summer, any early least what you're likely In at this

Daniel Bartok

standpoint competition more the a on fuzzy here, demand or looking but from are development speaker from little a lot You're a standpoint? you

Douglas Samuel Wardlaw

More standpoint. a competition from development so

Daniel Bartok

seeing hard definitely other of where place time getting cost we're run financing a up. opportunities and having developers has in their Well, are that financing

potentially that close saying, deals up tied no now can So get literally they've or that on their not they either are or developed more. banks

I have But think seeing will like last up perform to opportunities we feels on. the of be we quarters. least this that quarter banks and a we're to more more than standpoint, more like we other did it bit definitely our prior are it difficult a continue And little a we're positions people maybe saw high rate trend nervous. while can't environment in that -- pick seeing interest from at

Operator

Citi. The next question comes Anthony from with Pettinari

Anthony Pettinari

Can we year you terms don't past full just year a the from confidence you and X, about amount rate guide, fair in giving now talk the On the maybe for think outlook given of a big quarters. you've have picture I'm -- macro year next still provided what's giving full perspective, guidance I uncertainty? X of volatility

Daniel Bartok

a still levels and for get deliveries, between sign-offs chain year, happening lot at Last wild I at is to things. better of which off what couple impacts a was final of -- guidance. what was and those to of municipal kind understanding didn't we attribute I'd has problems the or give it think supply bit Where leveled last a are. like why we feel have least a understanding that little year, a of of guess, I

this that be rates have yet sales other and you builder if the the interest strong finding would the would to thinks builders would and me price. environment. At you approaching rate laughed market probably at I be continue point, homes The mortgage have told X%, are market selling is the still this right when

bit builders little environment. the that is I feel in in able consistency I interest think this even to So higher rate that there like more deliver being

both guidance make feel point. us about this those things think I good of pretty So giving that at

Anthony Pettinari

in Okay. helpful. understanding That's think guide, in is cadence choppy. then keep just should of And Is baked of full the year there very about quarterly Or in kind year of we business terms any of a way guide? seasonal kind current the deliveries the implied Is kind of specific kind to full kind that any cadence of contracts? of there your into dynamic mind?

Daniel Bartok

of when different analyze you to back of the X It's it's to it It's to don't really you give like the at X seemed delivered. contractually the quarter the -- fourth put last to quarter there. a I there cadence. any know has to how how be the say, or varies. the appears being on would quarter. back But feels few the look always better thing able hard try when it a good our this next. any are last a that and be wouldn't years, But be I just But really look again, kind that. guess X trend quarters was for year, I that mean, lots reason numbers, to I just I -- look

Operator

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

Daniel Bartok

Thank with team as on consolidating results. continue share the your to January Thank you, flexible Forestar and to to today share. the appreciate on in on work XXXX, while quarter hard you. fiscal And for thanks we opportunistic, focus you enter stay again disciplined, first our and forward look John. We and everyone market to everyone's speaking time call focusing

Operator

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

Forestar (FOR) 7 Nov 232023 Q4 Earnings call transcript