FOR - Earnings call 1 2024 | Forestar Group Inc.

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Operator

Good afternoon, and welcome to Forestar's First Quarter 2024 Earnings Conference Call. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to Katie Smith, Director of Finance, and Investor Relations for Forestar.

Katie Smith

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

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

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

Additional will material on Forestar's report information is filed and Securities be its about annual factors in in quarterly or that recent Form could with the XX-Q, in lead contained Commission. XX-K most changes Exchange to both report of Form on are performance which

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

call turn President our CEO. I and will Oxley, Andy over to Now the

Anthony Oxley

I'm on Thanks, Operating afternoon, everyone. Chief Walker, Officer; Jim and Chief joined Katie. Mark our by the call Officer. Allen, Good our today Financial

a discuss conference the my prior results, like we calendar moment from transitioning at at the this year, joined I'd Before the since tenure to Horton. Forestar first to quarter's myself call. I take introduce public this is quarterly beginning D.R. of

recent the Senior Business roles, While President numerous most being there, served I in Development. Vice of

helm. We to D.R. company's and being joined D.R. new service. years the Forestar as team many Horton role the the CEO and utmost banking I development. opening with previous him and involved in Dan his addition new markets I'm in and Forestar the Bartok, respect opportunity In Forestar. the land to including X activity, I for actively Horton's of to and during my Dan contributions the Forestar excited investment at the relationships strategic to appreciation thank accomplished in have his in being for what M&A oversaw team in have serve CEO. involved

platform healthy our portfolio building, strong experience continue over and land operations to robust focused confident as the further sheet, our remain maximizing future leading returns acquisition, and Forestar's developer. development investing to home lot XX We share we us balance for highly and Forestar's growth, market growth. expand pretax will position a well and With for consolidating years strengthen development inventory, lot on fragmented turning of in I'm in future margins land industry. position

to results. Now on our

our to first net quarter or highlighted results increasing $X.XX We with per income are XX% share. [ by pleased ] $XX.X diluted million

million, income pretax our increased XX% margin points $XX.X improved XX.X%. and XXX pretax Our and basis to profit to

revenues with were These financial significant reducing detail. increased of XXXX XX% anticipation lot, now in first will interest builders rates mortgage rapidly. demand our results discuss Jim when for lots of for new a to reflected XX% to after lower finished quarter's more compared while sold demand Our homes in results X,XXX rose lots starts increased $XXX.X consolidated lots. first to million, the improvement fiscal quarter in

James Allen

increased with lots Lots $XXX.X fiscal sold quarter net $X.XX in in XX% or increased In quarter. $XX.X X,XXX to $XX,XXX. to an million the revenues prior per compared diluted of our to the $XX.X in $X.XX the year income diluted quarter, share, or to first Thank the for year you, Andy. quarter million first million increased to sales price average share prior per million compared XX% $XXX.X Consolidated XX% quarter.

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

prior XX.X%, in compared year compared our quarter. to this of pretax in profit to year. last increased the income XX% margin was $XX.X the And first pretax million $XX.X quarter Our million to quarter XX.X%

closeout margin Our year positively gross legacy ago. sequentially by up was margin quarter. Gross from the during points XXX a was basis impacted a XXX XX.X%, up profit of and basis community points the

the would been $XX first expense the gross million. In margin lot have Excluding our quarter, SG&A sales, profit XX.X%. first legacy quarter was community

improved a As of basis to quarter. XXX year the XX.X% percentage in points from revenue, SG&A expense prior X.X%

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

Mark Walker

choosing interest existing supply of inflationary gap Builder have affordability limited. pressures. demand market favorable, current supporting for elevated housing rates Demographics points As affordable to at conditions, construction. be to a [indiscernible] is incentives lots, price finished despite of to helped of our take is the homes and shortage constrained the positioned uniquely new the for developed vacant especially be still of homebuyers and driver at lots. mortgage Forestar new remained affordable price and many advantage footprint, across low continues Supply resale continues of buyers supply points and

the of over for contractors has Our of we price materials of and reductions months, at necessary price cost lots our several ongoing focus improved sales seen homes affordable develop is quarter this land. to past though developing have points not average the $XX,XXX. Availability overall roughly in demonstrated

value projects work way efficient in with trade and our continue most partners engineering possible. will the We lots our to develop

times positions to for closeout compete communities current Our development continue be Homebuilders continued have many to impacted lot cycle to future to looking and secure delays. land position ] [ to and replace governmental growth. are

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

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

James Allen

Horton is developed D.R. XX With homes and a have in Horton. D.R. the out to opportunity significant months our a by homes a grow most customer. stated be developed lot. market Horton mutually share Forestar, X-star within lot of the we every goal X to D.R. important XX% X past our started D.R. largest sells on on of were of Horton

in expanding were on who Horton quarter the sold deliveries third-party relationships first includes date. XXX to those our our result banker future XXX year D.R. to prior other of expects a our lot lots to of work a homebuilders, to sell homebuilders. lots Katie? other deliveries customers. at X% to sold that continue also of were lots We XX% with were quarter which

Katie Smith

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

the first $XXX and approximately acquisition. land land split development, development and equally quarter, land invested During million between we land in

strong the year demand lots, to billion quarter's billion fiscal finished the in double quarter. still to in and subject for almost prior conditions. total our expect investments market We to $X.X Given was this investment acquisition development land $X.X XXXX,

owned December XX,XXX and Our we contracts. of At XX lot was position finished hand. lots X,XXX on controlled end, which XX,XXX to lots lots are XX,XXX at are quarter purchase lots, had

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

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

James Allen

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

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

operational flexibility, you liquidity Our capital provides us closing advantage take arise. for remarks. positions they our to back Andy, opportunities it hand us structure to of strong attractive I'll when while with

Anthony Oxley

Jim. Thanks,

to We with start are XXXX. pleased Forestar's fiscal

interest deliver construction drive affordability, new maintained team our and relationship while clear the housing homes with D.R. remain a will rates for provides believe to but Horton We to Our existing profitability. place. of in underlying to impact of path revenues to the growth. continue shortage strong Elevated low continuing growth fundamentals strong buyers mortgage with continue double-digit supply

expect Our revenue. of guidance conditions, deliver between for generate we and fiscal to XX,XXX billion market $X.X XX,XXX lots and XXXX remains on unchanged. Based $X.X current to billion

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

market our industry share a lots. presence expand finished for operate significant in, the in advantage leader in and same, to market goal is over builder of the the highly double fragmented and our uniquely intermediate we term. to our to and opportunity take a undercapitalized are remains positioned to that There X% markets demand We

to next significant of expect market years the the a approach few while investing this the We maintaining aggregate capital at questions. long-term disciplined line Forestar. enhance open John, time, we'll to for value over share with

Operator

first comes Instructions] Wolf [Operator question Truman Patterson from Our with Research.

Truman Patterson

been market are congrats short to in the the here. in role future. kind forward big you time there working I and role. of with only you're that seems any share. the to love you've how that Andy, growth initiative land the officially in about from on like Look But realize seat, just Forestar any officially of builder largely to picture shifts now the I'd coming unchanged. largest business hear thinking It seems the out healthy It like previously are company? there. laid largest you're initiatives doubling the now thoughts those the

would be there commentary any So helpful.

Anthony Oxley

I Thank here. the be you very much. opportunity to appreciate

exactly Our said, efficiently X% goal share as achieve does you which as as a our is change, not goal can. we it's, quickly market to and

the looking we're grow So business. to

Truman Patterson

your can was there of excluding understand you margins, And is Or, et quarter any said items of this XX.X%, smaller capital, be all gross I peers more help might items sustainable ] versus conditions, community, this you end your advantages kind at with where history. the Perfect. Could quarter-to-quarter. cost during which where us of current closeout the cost relatively level? repeatable [ not whether be a is cetera? of onetime lumpy there's higher elevated I bit it all other given higher quarter believe they little lending a or all realize about tighter were kind then

James Allen

guidance you with respect we Truman, don't margins. returns, underwrite we know, margins. provide And to not as

quarter, projects because lots on mix the have some it So quarter-to-quarter higher we a projects does margins. of variability in delivers or with margins create lower depending within from which

you the mean, last been lot the quarters, fluctuated sales, last X historical impairments last legacy for can our XX% XX% XX% context, maybe XX%. it's However, I or unusually high of kind to at have quarters. In adjusted provide and X quarters, between and some we margins if X look for the land to

would that year to have been year's fiscal the we if look at we in quarter. last fiscal XX.X%. our that you exclude this But impairments for reported year, compared recognized XX.X% XX.X% If the last you

you range. that been have couple of see of years, that the low last margins for can XXs% So our actually fairly in consistent kind

Katie Smith

Yes. this the There anything call else that in quarter Katie. was is significant wasn't enough out. Truman, to

Truman Patterson

of if you or doing and is the XQ enterprise at Okay. returns of bit kind And understand right. math will, all you over perhaps That's It forward a implies sneak of side, sales the seems very takes guidance have a might level, just puts lot if that guidance? the the like gap, some lot you little on next but a in I is, of another given flattish industry perhaps the your a the in or of into some developed kind growth if helpful. the if if year-over-year, few delivery hoping reality other now to flip sides of shortage, you will, one the and will, quarters I'm on could of kind you if pull

James Allen

we we, early positions, was good market time but Well, the XX,XXX a first development quarter it's still range. realistic on that our quarter, XX,XXX conditions, our current is to lines year. believe still the Based a current in lot

Mark Walker

Yes. Mark. it's Truman,

align also We home to expect home new new with starts sales.

to any to a and market of home season, range. [ be to spring bottleneck ] be saying monitor flexible accelerated, sales related selling achieving we're delays. could But deliveries, lot end higher be that related upside. the there could going to I capitalize So that our that was approval finished if remain the at particularly dollar government upside on we could

Katie Smith

delays our Yes. to it We command see we've remarks, development. municipalities, alluded to continued in but from scripted

the could that be So bottleneck. definitely

Operator

The next with BTIG. is Reichardt question Carl from

Carl Reichardt

terms? prior? normal good contract Katie, Andy. Can something sort And expand everybody, Thanks, of that back contract bit direction. a about Mark to by too. have abnormal Can on back go and really was you you that back movement by mentioned I what to mean normal what terms you little a

Mark Walker

Yes.

So more schedules seeing closings, seeing we're things takedown that than less before bulk of were we nature.

today, case I kind was increasingly would terms that historically gone a what tell the contract decade. although has to there's was you, back of normal So difficult for,

getting more And so are getting an that we're you bit little land a sellers realistic. I'll example. give

had between your That's So contract purchase and time project you one were land big if bulk time to normalizations takedowns giving take project. over going probably to a versus in you that the having you project, that down terms. you're large big of a go bulk now to

Katie Smith

due We've also seen of getting XX you're diligence more XX frame or normalized time days? days, XX instead

Carl Reichardt

Okay.

for lumpier? a think So easier if year. way for to then you receipted to terms it capital can And on the but I the treatments way in capital? to guide question to and more it that efficient the and of get efficient, different takes longer all more Is opposed deployment manage as about

right So be sale yet? do available next a quarters that in number? finishing a you'd have the that that now, think that you what's so, for buyer contract anticipate And you would if have X or don't lots

Katie Smith

I but that don't contract under that I aren't do under check, project, that's months have for to been those number under probably we from have the be delivery. that lots now. stuff development not aim can have yet. specific you. are I before source Forestar X get right finished going to anywhere contract of to have X under put that's definitely contract In to we

back close And of still under year. put stuff opportunity in definitely so there's the that's contract going the to to half

Carl Reichardt

right. Great. last then question. All And Okay.

not? lot talked working with to about I'm deploy a who's that's potential a or curious growth largest with whether would banker Horton you, be working might plenty looks also for capital that area business still if your [indiscernible] deal or not another always be? opportunity are then for who We And more banker one-off? did customer. You looks lot talk whether and opportunities. about certainly trying a a with because I what you Can all? at I single-family that rental on Or is it that ask that should looking And about how to and of sort interesting to

Katie Smith

bankers. mean, and We're start, in chime with else decision. to. if I'll But to I'll really loss let land It's the marketing far completely balance get step our capital with sheet. in of our as that. banker wants land just opportunity land not our to need as as they of one an if intermediary, customers we're somebody off not It use bankers. inventory the I But enhances to our and that fine our efficiency

of there's if behalf land in place. banker indifferent pretty we're a long So that's stepping as builder as all in the have we balances on suggesting

Unknown Executive

we it something we which that rent, as on components, has is a have a our rent through that business. or customer that community, would think of your portions larger build components selling pace question of part the improve built relates of that's yes, we If absolutely part that, to do multifamily we our a for entertain. for could to And can sustainable

Operator

question Pettinari with comes Anthony next Citigroup. from The

Asher Sohnen

Asher is on Anthony. Sohnen for This

in the past land structure longer? of capital concrete have in But or a wondering, come that about bit evidence, that like talked sort of about? the will kind advantage. I'm any offering friction any to you take you the competitive Or market little just in concrete seen maybe come like of think sort maybe does I opportunities

James Allen

they're smaller do their look will rather other another that give home keep, the They local develop know call the competitive a we if been developer. to we to it, on following and the is a that at a other, and much phase and are see gapping or purchase liquidity constraint developer times developer. concrete on the us sales. we us. bit can And us that versus times to to so lots more using phase step builders liquidity regional see prevent us where against little from the builders in maybe fashion that look some them additional has than at they'd using capital to of have to the What a in let's We're seeing any developer competing There having into really not to evidence. it gets hand, does advantage,

Asher Sohnen

then think of not maybe of the driving just for you headwind. rather, margin lots seeing to XXXX separately, wondering, kind obviously, gross Forestar that kind guiding you tailwind that more gross story? seeing a And previously that I source materialize of you're sort Great. just XXXX? I'm about talked margins a Is Are But increased drive, tailwind sorry, year. are in of

James Allen

could definitely, more 'XX, I have in development costs we that guess, seen X-star see. don't know increases mean as in give the with project. I does that, we're, optionality, Well, we'll significant sourced know the see don't I I well. we lots us

know a trying always to returns. I to match increased going we're that result trying and as pace to price of So price or pace see don't we're margins to balance our because to that continue and improve

really margin. So sales it's price just It's not really about more returns. about our or the

Operator

Instructions] with comes from JPMorgan. Next Mike Rehaut [Operator question

Douglas Samuel Wardlaw

Mike. you Wardlaw the particular you've regions with any trends speak for strength especially of volatility could particular Douglas was there's potential if kind weakness? regional of on we've kind seen wondering rate that any the I seen recent where months, experienced? over been If or you've to

Mark Walker

seen that us. strong and It's particular hold weakness. been a a remains Not for strong Texas Florida long for we've time. in

Douglas Samuel Wardlaw

defculty then is that of see that where guess, I be future forward, kind for in And terms XXXX? you in to approval vision Great. Or the there. municipalities moving that problem expect there on something and guys business up a you for forward with moving of, you foreseeable easing touched Is any at? the getting

Mark Walker

months, in departments further, themselves. That's turnover the been lot challenge. always question. it's XX Historically, even past great a it's those XX to of a It's a delayed within been

anytime I versus daily more that it's But some, feel we anyway, again, It's are foreseeable we don't. we're You some it, [indiscernible] I seeing don't market-to-market it's, think saying know role with I that. help our see battle. in experience. like, refrain that But fosiseason in up a get folks but now the future. experience from that's those going I'll to the of governmental delays, where areas, some ease terms in

the fluctuation it So States. really across United

Katie Smith

And for those in accounting our delays underwriting. we've been

the time going make returns. we're looking able sure be been to our achieve to extended underwriting in we've lines still that at So to

Operator

Oxley the the the We to Andy have will her for turn remarks. call session. of end I closing over reached question-and-answer now

Anthony Oxley

you, Thank everyone for the and Forestar your John, hard focus thank team and work. you to on

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

Operator

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

Forestar (FOR) 23 Jan 242024 Q1 Earnings call transcript