Forestar Group Inc. (FOR) Earnings

Management highlights

- Overall Financial and Operational Results * Delivered solid Q3 2026 results with revenue growth, expanded margins, and a strengthened balance sheet * Reached the milestone of delivering 100,000 total lots since D.R. Horton's 2017 transformative investment, establishing a proven, scalable national platform * 3,659 lots sold in the quarter, with an average sales price of $108,800; average sales price is expected to fluctuate quarterly based on geographic and lot size mix * Book value per share increased 10% YoY to $36.40, and contracted backlog for future revenue stands at $2.3 billion, providing strong revenue visibility - Capital and Inventory Management * Ended the quarter with $1.1 billion in total liquidity, consisting of $395 million in unrestricted cash and $670 million in available capacity on an undrawn revolving credit facility * Total debt as of quarter-end was $793.8 million, with no senior note maturities in the next 12 months; the net debt to capital ratio was 17.7%, and total stockholders' equity was $1.9 billion * Total lot position was 91,700 lots at quarter-end: 68% (62,200 lots) are owned, and 32% (29,500 lots) are controlled via purchase contracts * 38% (23,500) of owned lots are under contract to sell, secured by $202 million in earnest money deposits; an additional 31% of owned lots have a right of first offer to D.R. Horton per existing agreements * Maintains underwriting criteria requiring a minimum 15% pre-tax return on average inventory and return of initial cash investment within 36 months for all new development projects * Invested $312 million in land and development in Q3 2026: 80% for development, 20% for land acquisition; has moderated land acquisition spend over the past year to improve inventory efficiency * Targets a 3-4 year owned lot supply to maintain capital efficiency, matching finished lot delivery pace to current customer demand - Strategic Positioning * Aims to grow its relationship with D.R. Horton to achieve the mutual goal of one out of every three D.R. Horton sold homes to sit on a Four Star developed lot, with significant remaining growth opportunity with this core customer * Continues expanding customer relationships with other national and regional home builders * The company's strong, low-leverage capital structure is a key competitive advantage, as most competitors rely on more expensive, restrictive project-level floating rate loans that have become less available in recent market conditions; Four Star's structure provides greater operational flexibility to pursue opportunities as they arise

Guidance

- Management maintains its original fiscal 2026 guidance, with no upward or downward revisions: lot delivery guidance remains 14,000 to 14,500 lots, and full year revenue guidance remains $1.6 billion to $1.7 billion - Full year 2026 planned total investment in land acquisition and development remains approximately $1.4 billion, subject to changes in market conditions - Management expects headcount to remain relatively flat for the remainder of fiscal 2026, with planned headcount increases in 2027 to support expanded development capabilities, particularly in western U.S. markets - Management confirms its current lot position and robust project pipeline support potential volume and market share growth in 2027, both with D.R. Horton and third-party builder customers

Segment performance

Four Star operates as a single lot development segment, with no additional product segments reported in this call. For Q3 2026, total revenues were $407 million, a 4% increase year-over-year (YoY). Pre-tax income was $48.7 million, a 12% increase YoY, and net income attributable to Four Star was $35.9 million, a 9% increase YoY. Diluted earnings per share was 70 cents, an 8% increase YoY. Pre-tax profit margin expanded 80 basis points to 12% YoY, and gross profit margin was 20.7%, up 30 basis points YoY. SG&A expense was $38.3 million, a 2% increase YoY, and represented 9.4% of total revenue, down 20 basis points YoY. D.R. Horton is the firm's largest customer; 14% of D.R. Horton's home starts over the prior 12 months used Four Star developed lots. 8% of Q3 2026 lot deliveries were sold to 12 other builder customers.

Risks & headwinds

- Ongoing U.S. home affordability constraints and cautious consumer sentiment are near-term headwinds that impact new home demand and the pace of Four Star's lot sales - Entitlement and permitting delays from municipal governing jurisdictions remain the primary bottleneck to reducing development cycle times - Project-level land financing is less available and more expensive than in prior periods, creating competitive pressure for peer developers, though this does not impact Four Star due to its stronger corporate capital structure - The company faces ongoing price and pacing pressure in a slower absorption environment, which has kept gross margins near the lower end of the company's historical range

Analyst Q&A

• Q: Analyst Ryan Gilbert asked for an update on land market competition, land price trends, and whether slower homebuyer demand has impacted the land market. /

  A: Management reported the land market is relatively stable, with little change in land prices. There has been modest improvement in negotiating favorable terms such as phased takedowns and completed entitlements, allowing Four Star to focus on shovel-ready projects. Overall development activity has moderated across most markets, but finished lots remain slightly undersupplied, creating growth opportunities for Four Star.

• Q: Gilbert asked if Four Star's current lot position supports 2027 market share growth given the decline in controlled lot count, and asked for an update on M&A pipeline activity given the company's strong cash balance. /

  A: Management confirmed owned lot supply is just over the 3-4 year target, which positions the company well to grow share in 2027 with both D.R. Horton and third-party builders, supported by a robust future project pipeline. Management added that M&A opportunities are actively available, and maintaining strong liquidity is specifically intended to let Four Star pursue these opportunities as they arise.

• Q: Analyst Trevor Allenson asked why management is keeping headcount flat in the current weaker market, unlike past downturns when Four Star added headcount to drive share growth. /

  A: Management explained Four Star already had significant headcount growth in 2024 and the first half of 2025, so it intentionally moderated growth in late 2025 and 2026, resulting in a 9% YoY headcount decline. Headcount will be increased in 2027 to expand development capabilities, particularly in the western U.S.

• Q: Allenson asked how development cycle times are trending, if there is relief from municipal permitting bottlenecks, and if rising diesel costs impacted Q3 gross margins that were at the lower end of the historical range. /

  A: Management reported cycle times have fallen ~6 months over the past 3 years and now sit at a normalized 12 months, with improved contractor availability supporting faster timelines. Municipal permitting remains the primary bottleneck to further cycle time reductions. Lower end margins are driven primarily by mixed lot delivery and slower absorption in the current market environment, with no meaningful impact from higher diesel prices.