Forestar Group Inc. Q2 FY2026 earnings call

• The four-star team achieved solid second quarter results with revenues up, pre-tax income up, and book value per share up.
• Persistent affordability constraints and cautious consumer sentiment impact new home sales, but the company is managing inventory investments with discipline and flexibility, maintaining over $1 billion liquidity.
• Focused on turning inventory, maximizing returns, and consolidating market share in the lot development industry.
• Unique combination of financial strength, operating expertise, and national footprint enables effective navigation of current market conditions.
• DR Horton is the largest customer with significant growth opportunity, and relationships with other home builders are expanding.
• Four Star's underwriting criteria for new development projects remain unchanged, focusing on capital efficiency.
• Maintains strong liquidity and modest leverage, with capital structure as a competitive advantage

In the second quarter, Four Star generated revenues of $374.3 million, a 7% increase from the prior year quarter. Pre-tax income increased 8% to $43.9 million. Net income attributable to Four Star increased 2% to $32.1 million, or 63 cents per diluted share. Book value per share increased 10% to $35.66. Revenues were $374.3 million, with $42.9 million in track sales and other revenue. Sold 2,938 lots with an average sale price of $112,800. Gross profit margin was 21.4% (excluding net change in write-offs, it would have been approximately 22.9%). SG&A expense declined 1% to $37.9 million, or 10.1% of revenues. DR Horton is the largest customer, with 14% of DR Horton's homes started in the past 12 months on Four Star developed lots. 17% of second quarter deliveries were 488 lots sold to other customers, including 3 new customers. Lot position at March 31st was 94,400 lots, with 67% owned and 33% controlled through purchase contracts. 9,300 of own lots were finished at quarter end, 24,100 (38%) of own lots under contract to sell with $209 million in earnest money deposits securing them, expected to generate $2.2 billion future revenue. Invested approximately $279 million in land and land development in the second quarter, 80% for land development, 20% for land acquisition. Ended the quarter with more than $1 billion of liquidity, including an unrestricted cash balance of $362 million and $672 million available capacity on undrawn revolving credit facility. Total debt at March 31st was $793.5 million, net debt to capital ratio 19.2%, book value per share $35.66

• Updated fiscal 2026 lot delivery guidance to 14,000 to 14,500 lots while maintaining revenue guidance of $1.6 billion to $1.7 billion.
• Closely monitoring markets to balance pace and price, maximize returns for each project.
• National footprint and over 200 active projects provide strategic advantage.
• Confident in long-term demand for finished lots and ability to gain market share in the fragmented industry, with solid operational and financial foundation

• Persistent affordability constraints and cautious consumer sentiment impact pace of new home sales.
• Land acquisition projects may fall outside underwriting standards.
• Fuel price increases could affect development costs, but currently not seeing cost increases due to fuel charges, need to closely monitor.
• Project-level land acquisition and development loans less available and more expensive, affecting competitors, but Four Star's capital structure provides operational flexibility

Q: Ryan Gilbert asked about goals for market share in context of reduced controlled lots, land option charges concentration and community, and share repurchases.

A: Anticipate more robust lot closing pattern in second half of fiscal 26; land option charges in handful of communities, team remains disciplined in land acquisition; best use of cash is investing for future growth, but strong liquidity provides flexibility.

Q: Trevor Allenson asked about demand trends from other builders than DR Horton and fuel prices impact on development costs.

A: Still seeing strong demand from other customer base, influenced by cadence of communities coming online; currently not seeing cost increases due to fuel charges, closely monitoring, contractor availability freeing up contributing to cost and time improvements