Forestar Group Inc. Q1 FY2026 earnings call

• Revenues for the first quarter were $273 million, a 9% increase from the prior year quarter on 1,944 lots sold. - Book value per share increased 10% to $35.10, and contracted backlog is $2.2 billion. - Affordability constraints and cautious consumer sentiment impact new home sales, but managing with discipline to balance inventory investments with liquidity and flexibility. - 75% of investments this quarter were for land development and 25% for land acquisition. - Focused on turning inventory, maximizing returns, and consolidating market share. - D.R. Horton is the largest customer, with opportunities to grow market share within them. - Total lots under contract at December 31 were 24,100 or 37%, secured by $210 million of hard earnest money deposits expected to generate $2.2 billion of future revenue. - Underwriting criteria for new development projects remain a minimum 15% pretax return on average inventory and return of initial cash investment within thirty-six months. - Liquidity ended the quarter at $820 million, net debt to capital ratio 24.6%, stockholders' equity $1.8 billion.

In the first quarter, Forestar Group Inc. generated revenues of $273 million, a 9% increase from the prior year quarter. Net income was $15.4 million or $0.30 per diluted share, compared to $16.5 million or $0.32 per diluted share in the prior year quarter. Pretax income was $20.8 million compared to $21.9 million in the prior year quarter. Revenues increased 9% to $273 million from $250.4 million in the prior year quarter. Sold 1,944 lots with an average sales price of $121,000. Book value per share increased 10% to $35.10. Contracted backlog is $2.2 billion. 75% of investments this quarter were for land development and 25% for land acquisition. D.R. Horton is the largest customer, with 16% of their started homes and 23% of finished lot purchases from Forestar. 16% of first quarter deliveries were to other customers, including 146 lots to a lot banker for D.R. Horton and lots to six other homebuilders.

• Maintaining fiscal 2026 revenue guidance of $1.6 billion to $1.7 billion. - Maintaining lot delivery guidance of 14,000 to 15,000 lots. - Teams will adjust quickly to market conditions and monitor markets to balance pace and price to maximize returns. - Confident in long-term demand for finished lots and ability to gain market share in the fragmented lot development industry.

• Affordability constraints and cautious consumer sentiment impact the pace of new home sales. - Project-level land acquisition and development loans are less available and more expensive, impacting competitors, but Forestar's capital structure is an advantage.

Q: Just starting on gross margins, I think maybe even excluding the TRAX sale, the 21.5% gross margin might have been down 1Q and 1Q on year over year, maybe versus 4Q. Can you just talk about the puts and takes there and kind of what gross margins might look like over the next few quarters?

A: The biggest impact on margin in the quarter was mix. There's always impact based on mix of projects delivering lots. Looking forward, no reason gross margins wouldn't be in historical range of 21 to 23%, probably lower end given slower demand environment.

Q: When it comes to like D.R. Horton and third-party customers, it sounds like you are getting some maybe pushback on price. I think, you know, last time we saw prices, like, push back on softer demand, there was a lot there was more pushback on maybe takedown schedules and slowing those down. So I am just curious if you could talk about what you are seeing from your customers.

A: Market to market, continuing to meet with all customers. Movement away from large bulk takedowns to structured quarterly takedown, mostly gone through fiscal 2025. Not seen much change on price, sometimes work through things in slower pace communities but largely normal market environment in terms of quarterly lot takedowns.

Q: I think SG&A spend was pretty flat year over year on a dollars basis. Is that just kind of something we should expect for the next few quarters? Or are there any puts and takes to think about there?

A: Headcount is down a little bit from a year ago and last quarter. Expect headcount to remain pretty stable for remainder of year. Headcount and labor costs are majority of SG&A, so expect it to be pretty stable.

Q: You mentioned that your ASP was up due to mix to higher-priced homes. Is that planned? Or is that more a function of market conditions and weak entry level? And then how would your inventory of developed lots or anything you could bring to the market over the next twelve months? How does it break out between entry level and move up?

A: It was planned. Growth in development platform in the West with higher ASPs, will continue over time but not as much in remaining quarters of fiscal year as in Q1. Amplified due to lower volume of lot closings overall. Really not changing strategy for first-time homebuyer and entry level, which is largest market section. Focused on maintaining affordability.

Q: Texas and Florida really have outsized exposure to those two states. Are you looking to maybe rebalance a little bit given higher resale inventory in those two markets? Or two states?

A: Look at it month-to-month and quarter-to-quarter, reallocate due to national platform. Texas and Florida are challenged markets with inventory, being selective and moderating development activities there where appropriate. But fundamentals for those markets long term are solid, will continue to evaluate and invest based on current local market conditions.

Q: I would assume that you are probably pulling back on the size of your phase developments. How does that impact your cost structure? Does that have any meaningful headwind to margin?

A: No real impact on cost structure. Pull back based on meeting demand to meet sales absorptions. Supply material and contractor availability is good. Continue to work with trade and governing jurisdictions to reduce cost and cycle times. Pulling back and reducing phases helps reduce cycle times. Key is continued increase in contract availability alongside cooperating with government jurisdictions to drive lower development costs and cycle times.