Forestar Group Inc. Q1 FY2025 earnings call

• The Forestar team delivered 2,333 lots generating $250.4 million in revenue. Owned lots under contract have doubled from the previous year, and the percentage of owned lots under contract is at the highest level since June 2020. - The team has expanded its operating platform through significant investments in land acquisition and development, and has added key personnel. Owned lot position increased 23% and community count rose 25% compared to the prior year. - D.R. Horton is the largest customer, with 15% of the homes D.R. Horton started in the past 12 months on Forestar's 4-star developed lots. 9% of first quarter deliveries were to other homebuilders, including 2 new customers. - Cost of developing land has stabilized, availability of contractors and materials has improved, but government delays continue to extend cycle times. - The company's capital structure is a competitive advantage, with $645 million liquidity, an upgraded credit rating from S&P, and a net debt-to-capital ratio of 29.5%.

In the first quarter, Forestar generated revenues of $250.4 million from selling 2,333 lots, with an average sales price of $15,500. Net income was $16.5 million or $0.32 per diluted share, compared to $38.2 million or $0.76 per diluted share in the prior year quarter. Revenues for the quarter totaled $250.4 million versus $305.9 million in the prior year quarter. Gross profit margin was 22% compared to 23.8% in the prior year quarter; excluding a high-margin lot sale from a legacy community, the prior year first quarter gross profit margin was approximately 22.8%. SG&A expense increased 29% to $36 million due to a 30% rise in employee count to 427.

• Guidance for fiscal 2025 remains unchanged, expecting to deliver between 16,000 and 16,500 lots and generate $1.6 billion to $1.65 billion in revenue. - The first quarter is expected to be the lowest delivery quarter of the fiscal year, and revenues in the second half of fiscal 2025 are anticipated to be higher than the first half. - Low to mid-single-digit escalate grades in lot price are predicted.

• Government delays continue to push cycle times above historical norms. - Market volatility and potential softening in land prices are monitored, though not yet seen.

Q: A little more detail on the stabilization of costs and land development, and cycle time issue.

A: Mark Walker stated that development costs have been stable over the past 12 months, cycle times decreased by 30 days this quarter but there are still entitlement hang-ups with government jurisdictions.

Q: On cost leverage, growth in employee count in new markets.

A: Jim Allen said SG&A expense is expected to moderate for the remainder of the year, still expected to be in the high-single-digits for the year.

Q: Revenue per lot trend.

A: Jim Allen said it was due to mix for the quarter with a particular infill project skewing the average sales price up, and Andy Oxley predicted low to mid-single-digit escalate grades in lot price.

Q: How has builder demand trended year-to-date and lock takedowns.

A: Mark Walker said builder demand remains strong, with builders lining up for new and existing communities.

Q: Cadence of deliveries over the balance of the year.

A: Andy Oxley said the first quarter is seasonally the lowest, and the majority of deliveries occur in the second half similar to 2024.