Core Insights - The article highlights the investment strategies and achievements of Paul Franke, a seasoned investor with 39 years of trading experience, emphasizing his contrarian stock selection style and algorithmic analysis [1] Group 1: Investment Strategies - Paul Franke developed a system called "Victory Formation," which focuses on identifying supply/demand imbalances through specific stock price and volume movements [1] - The "Bottom Fishing Club" articles target deep value stocks or those showing significant upward technical momentum reversals [1] - The "Volume Breakout Report" articles analyze positive trend changes supported by strong price and volume trading actions [1] Group 2: Performance and Recognition - Franke was consistently ranked among the top investment advisors nationally during the 1990s and achieved the 1 position in the Motley Fool® CAPS stock picking contest in 2008 and 2009 out of over 60,000 portfolios [1] - As of September 2025, he was ranked in the Top 4% of bloggers by TipRanks® for 12-month stock picking performance over the last decade [1] Group 3: Risk Management - Franke advises investors to implement stop-loss levels of 10% or 20% on individual stock choices and to maintain a diversified portfolio of at least 50 well-positioned stocks to enhance regular stock market outperformance [1]

Financial Performance - Revenues for fiscal year 2025 increased by 10% to $1,662.4 million compared to $1,509.4 million in fiscal year 2024[150]. - The average sales price per residential lot rose to $108,400 in fiscal 2025 from $96,600 in fiscal 2024, despite a decrease in total lots sold[151]. - The company sold 14,240 residential lots in fiscal 2025, down from 15,068 in fiscal 2024, with sales to D.R. Horton decreasing from 13,267 to 11,751 lots[153]. - Selling, general and administrative (SG&A) expenses increased to $154.4 million in fiscal 2025, representing 9.3% of revenues, up from 7.9% in fiscal 2024[159]. - In fiscal 2025, net cash used in operating activities was $197.7 million, compared to $158.4 million in fiscal 2024[180]. - Net cash provided by financing activities in fiscal 2025 was $92.5 million, significantly higher than $16.3 million in fiscal 2024, primarily due to the issuance of $500 million principal amount of 2033 notes[182]. Debt and Liquidity - The company maintained a strong liquidity position with $379.2 million in cash and cash equivalents and $588.9 million in available borrowing capacity as of September 30, 2025[166]. - The ratio of debt to total capital increased to 31.2% in fiscal 2025 from 30.7% in fiscal 2024, while the ratio of net debt to total capital rose to 19.3% from 12.4%[167]. - Interest incurred increased to $45.5 million in fiscal 2025 from $32.6 million in fiscal 2024, with capitalized interest representing 2.4% of total cost of sales[158]. - As of September 30, 2025, the company had a $640 million senior unsecured revolving credit facility, which was increased to $665 million after exercising the accordion feature[169]. - The company had no outstanding borrowings under the revolving credit facility as of September 30, 2025, with $51.1 million in letters of credit issued, resulting in an available capacity of $588.9 million[169]. - The company recognized a $1.2 million loss on extinguishment of debt related to the repurchase and redemption of its 2026 notes in fiscal 2025[172]. - The company had $300 million principal amount of 5.0% senior notes maturing March 1, 2028, with an annual effective interest rate of 5.2%[174]. - The company issued a note payable of $9.9 million in December 2023 for real estate acquisition, maturing in December 2025[178]. Strategic Focus - The company plans to remain disciplined in land investments and focus on managing lot sales pace and pricing to optimize returns[148]. - The company is positioned to consolidate market share in the lot development industry due to its national footprint and strategic relationship with D.R. Horton[148]. - The strategic relationship with D.R. Horton may impact customer relationships and potential benefits[199]. Compliance and Accounting Standards - The company was in compliance with all financial covenants associated with its revolving credit facility as of September 30, 2025[170]. - The company has an effective shelf registration statement for $750 million of equity securities, with $300 million reserved for sales under its at-the-market equity offering program[179]. - The FASB issued ASU 2023-09, effective for fiscal 2026, requiring disaggregated income tax disclosures[195]. - ASU 2024-03, effective for fiscal 2028 and interim periods in fiscal 2029, mandates expense disaggregation disclosures[196]. - The company is evaluating the impact of new accounting standards on its consolidated financial statements[195][196]. Risk Factors - Interest rate risk is monitored, with fixed rate debt totaling $300 million at 5.0%, $500 million at 6.5%, and $9.9 million at 4.0%[202]. - There is no exposure to foreign currency fluctuations or significant commodity price fluctuations[203][204]. - The company faces various risks including economic conditions, inflation, and supply shortages[199]. - The company is subject to risks from public health issues, natural disasters, and cybersecurity incidents[199]. - Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ significantly[197][198].

Core Insights - Forestar Group experienced a significant increase in stock price, gaining over 7% following the release of its fiscal fourth quarter 2025 earnings report, outperforming the S&P 500's 0.2% increase [1] Financial Performance - Forestar reported a revenue increase of nearly 22% year-over-year, exceeding $670 million, while net income rose 7% to $87 million, or $1.70 per share [2][3] - The company's performance surpassed analyst expectations, with consensus estimates for revenue at less than $557 million and earnings per share at $1.26 [3] Sales and Market Position - Despite a 9% year-over-year decline in lots sold, totaling 4,891 for the quarter, Forestar maintained a strong inventory of 99,800 lots as of September 30 [3] Future Outlook - For fiscal 2026, Forestar anticipates revenue between $1.6 billion and $1.7 billion, which is above the average analyst estimate of just under $1.55 billion, driven by strong housing demand [4]

Financial Performance - Net income for Q4 fiscal 2025 increased 7% to $87.0 million, or $1.70 per diluted share, compared to $81.6 million, or $1.60 per diluted share in Q4 fiscal 2024[2] - Revenues for Q4 fiscal 2025 increased 22% to $670.5 million from $551.4 million in Q4 fiscal 2024[2] - Net income for fiscal 2025 decreased 17% to $167.9 million, or $3.29 per diluted share, compared to $203.4 million, or $4.00 per diluted share in fiscal 2024[3] - Revenues for fiscal 2025 increased 10% to $1.7 billion from $1.5 billion in fiscal 2024[3] - Revenues for the three months ended September 30, 2025, increased to $670.5 million, up 21.6% from $551.4 million in the same period of 2024[22] - Net income for the three months ended September 30, 2025, was $87.0 million, representing a 6.6% increase compared to $81.6 million in 2024[22] - Basic net income per common share rose to $1.71 for the three months ended September 30, 2025, compared to $1.61 in 2024, reflecting a 6.2% increase[22] - Total revenues for the year ended September 30, 2025, reached $1,662.4 million, a 10.1% increase from $1,509.4 million in 2024[22] Sales and Lots - Lots sold during Q4 fiscal 2025 decreased 9% to 4,891 lots compared to 5,374 lots in Q4 fiscal 2024[5] - Residential lot sales from development projects amounted to $546.4 million for the three months ended September 30, 2025, up from $496.4 million in 2024, marking a 10.9% increase[24] - The total number of residential lots sold in the three months ended September 30, 2025, was 4,891, down from 5,374 in 2024, reflecting a decrease of 9.0%[24] Lot Ownership and Future Projections - The company owned and controlled 99,800 lots at September 30, 2025, with 23,800 lots under contract to be sold, representing approximately $2.1 billion of future revenue[8] - Lots owned increased to 65,100 as of September 30, 2025, compared to 57,800 in 2024, representing a growth of 12.5%[24] - The total lots owned and controlled as of September 30, 2025, reached 99,800, up from 95,100 in 2024, showing a 4.0% increase[24] - Owned lots under contract to sell to D.R. Horton increased to 22,800 as of September 30, 2025, compared to 20,500 in 2024, reflecting an increase of 11.2%[24] - For fiscal 2026, the company expects to deliver between 14,000 and 15,000 lots, generating $1.6 billion to $1.7 billion in revenue[12] Investment and Liquidity - Over the last five years, the company invested more than $7.3 billion in land acquisition and development, delivering over 75,000 finished lots[11] - Total liquidity at the end of fiscal 2025 was $968.1 million, consisting of $379.2 million in unrestricted cash and $588.9 million in available borrowing capacity[9] - The company's return on equity was 10.1% for fiscal 2025[4] Pricing Trends - The average sales price per lot increased to $115,700 in the three months ended September 30, 2025, compared to $108,400 in 2024, indicating a 6.7% rise[24]

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Financial Data and Key Metrics Changes - In the fourth quarter, net income increased by 7% to $87 million or $1.7 per diluted share [7] - For the full year, net income totaled $167.9 million or $3.29 per diluted share [8] - Revenues for the fourth quarter increased by 22% to $670.5 million, while annual revenues grew by 10% to $1.7 billion [8][4] - Book value per share increased by 11% to $34.78, reflecting a 92% increase over the last five years [5][17] Business Line Data and Key Metrics Changes - In the fourth quarter, the company sold 4,891 lots with an average sales price of $115,700, while for the year, 14,240 lots were sold at an average price of $108,400 [8] - The gross profit margin for the fourth quarter was 22.3%, down 160 basis points from the previous year [9] - The pretax income for the fourth quarter increased by 4% to $113.1 million, with a pretax profit margin of 16.9% [10] Market Data and Key Metrics Changes - The company noted slower new home sales due to affordability constraints and cautious consumer sentiment, but builder incentives are helping to bridge the affordability gap [12] - The availability of contractors and materials remains solid, with stable land development costs [12] Company Strategy and Development Direction - The company plans to continue executing its strategic plan by investing for future growth, maximizing returns, and consolidating market share in the lot development industry [6] - Forestar aims to maintain a minimum 15% pretax return on average inventory and a return of initial cash investment within 36 months [15] - The company expects to invest approximately $1.4 billion in land acquisition and development in fiscal 2026 [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in long-term demand for finished lots despite near-term headwinds from home affordability constraints [21] - The company anticipates delivering between 14,000 to 15,000 lots and generating $1.6 billion to $1.7 billion in revenue for fiscal 2026 [20] Other Important Information - The company ended the quarter with $968 million in liquidity, including $379 million in unrestricted cash [17] - Total debt was $803 million with no senior note maturities until fiscal 2028, resulting in a net debt to capital ratio of 19.3% [17] Q&A Session Summary Question: Why is growth expected to be in line with Horton? - Management indicated that growth is tied to the size of Horton and their market entry, with the potential for mid-single-digit growth depending on market conditions [25] Question: What is the outlook for headcount and SG&A leverage? - The company expects headcount to remain flat or slightly decrease in fiscal 2026, following a significant increase in fiscal 2025 [26] Question: Are there any pushbacks on lot prices or extended takedown schedules? - Management confirmed successful renegotiation of terms but noted minimal pushback on lot pricing, managing it project by project [29] Question: What trends are observed in Texas and Florida? - Management noted some pressure in Texas and Florida markets but still sees good absorption at affordable price points [32] Question: What is the expected cadence of deliveries in 2026? - The company projects a similar delivery cadence to 2025, with larger deliveries expected in the second half of the year [33]

Financial Performance - Revenues increased by 22% to $670.5 million in Q4 FY2025[18] and 10% to $1.7 billion for the full fiscal year[21] - Net income reached $87.0 million in Q4 FY2025, resulting in earnings per diluted share of $1.70, a 6% increase[18] - Pre-tax income was $219.3 million for FY2025, with a pre-tax profit margin of 13.2%[21] - The company invested $1.7 billion in land acquisition and development in FY2025, an 8% increase compared to FY2024[22] Lot Position and Sales - The company owned and controlled 99,800 lots as of September 30, 2025[18,56] - The company contracted for sale 23,800 lots in Q4 FY2025, an 13% increase compared to Q4 FY2024[15] - The company has a contracted backlog is a strong indicator of FOR's ability to continue gaining market share in the highly fragmented lot development industry[87] Financial Stability and Liquidity - The company has a strong liquidity position of $968.1 million[18,97] - Net debt to capital was 19.3% as of September 30, 2025[18,97] FY 2026 Outlook - The company expects residential lot sales to be between 14,000 and 15,000 lots in FY 2026[23] - The company anticipates consolidated total revenues to be between $1.6 billion and $1.7 billion in FY 2026[23] - The company plans for a total investment in land and land development of approximately $1.4 billion in FY 2026[23]

[PART I — FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20%E2%80%94%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements of Forestar Group Inc., along with detailed notes explaining various financial aspects [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements, including balance sheets, statements of operations, equity, and cash flows, with detailed explanatory notes [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and equity at specific points in time Consolidated Balance Sheet Highlights (In millions) | Item | June 30, 2025 | September 30, 2024 | Change | % Change | | :-------------------------- | :------------ | :----------------- | :----- | :------- | | Cash and cash equivalents | $189.2 | $481.2 | $(292.0) | -60.7% | | Real estate | $2,823.5 | $2,266.2 | $557.3 | 24.6% | | Total assets | $3,120.4 | $2,840.1 | $280.3 | 9.9% | | Debt | $872.8 | $706.4 | $166.4 | 23.6% | | Total liabilities | $1,440.1 | $1,245.0 | $195.1 | 15.7% | | Total equity | $1,680.3 | $1,595.1 | $85.2 | 5.3% | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net income over specific periods Consolidated Statements of Operations Highlights (In millions, except per share amounts) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenues | $390.5 | $318.4 | $991.9 | $958.0 | | Income before income taxes | $43.6 | $51.6 | $106.2 | $161.6 | | Net income | $32.9 | $38.7 | $81.0 | $121.8 | | Basic net income per common share | $0.65 | $0.76 | $1.59 | $2.42 | | Diluted net income per common share | $0.65 | $0.76 | $1.59 | $2.40 | [Consolidated Statements of Total Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Total%20Equity) This section outlines changes in the company's equity from various sources, including net income and stock-based compensation Consolidated Statements of Total Equity Highlights (In millions) | Item | September 30, 2024 | June 30, 2025 | | :------------------------------------ | :----------------- | :------------ | | Balances at beginning of period | $1,595.1 | $1,595.1 | | Net income (9 months) | $81.0 | $81.0 | | Stock-based compensation expense (9 months) | $5.8 | $5.8 | | Total Equity at June 30, 2025 | - | $1,680.3 | | Total Equity at June 30, 2024 | $1,512.9 | - | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the cash generated and used by the company across its operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (Nine Months Ended June 30, In millions) | Activity | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Net cash used in operating activities | $(454.0) | $(277.6) | | Net cash (used in) provided by investing activities | $(0.6) | $3.7 | | Net cash provided by financing activities | $162.6 | $17.1 | | Decrease in cash and cash equivalents | $(292.0) | $(256.8) | | Cash and cash equivalents at end of period | $189.2 | $359.2 | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the consolidated financial statements [Note 1 — Basis of Presentation](index=9&type=section&id=Note%201%20%E2%80%94%20Basis%20of%20Presentation) The financial statements are unaudited, prepared under GAAP, and include Forestar and its subsidiaries, with D.R. Horton as a related party, and the Company is evaluating new accounting standards - D.R. Horton owned approximately **62%** of the Company's outstanding common stock as of June 30, 2025, making it a related party[23](index=23&type=chunk) - The Company's business is seasonal, generally delivering more lots and generating greater revenues and pre-tax income in the fourth quarter of its fiscal year[25](index=25&type=chunk) - The Company is evaluating new FASB ASUs (2023-07, 2023-09, 2024-03) on segment reporting, income tax disclosures, and expense disaggregation, with impacts primarily expected on disclosures[26](index=26&type=chunk)[27](index=27&type=chunk)[28](index=28&type=chunk) [Note 2 — Segment Information](index=10&type=section&id=Note%202%20%E2%80%94%20Segment%20Information) Forestar manages its operations through a single real estate segment, which is its core business, primarily focused on acquiring land and developing single-family residential lots for sale to homebuilders - The Company operates through a single real estate segment, which is its core business and generates substantially all revenues from selling residential single-family finished lots[29](index=29&type=chunk) [Note 3 — Real Estate](index=10&type=section&id=Note%203%20%E2%80%94%20Real%20Estate) Real estate assets increased significantly, with substantial investments in acquisition and development, and no impairment charges were recorded Real Estate Composition (In millions) | Item | June 30, 2025 | September 30, 2024 | | :------------------------------ | :------------ | :----------------- | | Developed and under development projects | $2,574.6 | $2,126.1 | | Land held for future development | $248.9 | $140.1 | | **Total Real Estate** | **$2,823.5** | **$2,266.2** | - In the nine months ended June 30, 2025, the Company invested **$532.6 million** for residential real estate acquisition and **$864.3 million** for development[30](index=30&type=chunk) - Land purchase contract deposit and pre-acquisition cost write-offs were **$3.9 million** for the nine months ended June 30, 2025, compared to **$1.0 million** in the prior year period[32](index=32&type=chunk) [Note 4 — Revenues](index=12&type=section&id=Note%204%20%E2%80%94%20Revenues) Residential lot sales are the primary revenue source, showing an increase for both the three and nine months ended June 30, 2025 Revenues by Type (In millions) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Residential lot sales | $383.0 | $305.8 | $977.3 | $935.9 | | Tract sales and other | $7.5 | $12.1 | $14.6 | $18.6 | | **Total Revenues** | **$390.5** | **$318.4** | **$991.9** | **$958.0** | [Note 5 — Capitalized Interest](index=12&type=section&id=Note%205%20%E2%80%94%20Capitalized%20Interest) The Company capitalizes all incurred interest costs to real estate during development, which are later expensed to cost of sales upon property sale Interest Costs (In millions) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Interest incurred | $13.4 | $8.2 | $32.3 | $24.5 | | Interest charged to cost of sales | $(7.0) | $(5.8) | $(17.0) | $(18.4) | | Capitalized interest, end of period | $78.3 | $64.5 | $78.3 | $64.5 | [Note 6 — Other Assets, Accrued Expenses and Other Liabilities](index=12&type=section&id=Note%206%20%E2%80%94%20Other%20Assets%2C%20Accrued%20Expenses%20and%20Other%20Liabilities) Other assets increased due to higher deposits and prepaid expenses, while accrued expenses and other liabilities decreased, mainly from employee compensation and interest Other Assets (In millions) | Item | June 30, 2025 | September 30, 2024 | | :-------------------------- | :------------ | :----------------- | | Receivables, net | $24.2 | $28.4 | | Land purchase contract deposits | $32.8 | $23.4 | | **Total Other Assets** | **$100.1** | **$85.3** | Accrued Expenses and Other Liabilities (In millions) | Item | June 30, 2025 | September 30, 2024 | | :---------------------------------- | :------------ | :----------------- | | Accrued employee compensation and benefits | $8.4 | $13.5 | | Accrued interest | $14.9 | $7.3 | | Income taxes payable | $1.2 | $8.6 | | **Total Accrued Expenses and Other Liabilities** | **$63.5** | **$68.3** | [Note 7 — Debt](index=13&type=section&id=Note%207%20%E2%80%94%20Debt) Total debt increased significantly due to new 6.5% senior notes issuance, partially offset by repurchases of 3.85% senior notes, with substantial available credit and covenant compliance Notes Payable (In millions) | Item | June 30, 2025 | September 30, 2024 | | :------------------------ | :------------ | :----------------- | | 3.85% senior notes due 2026 | $70.4 | $398.4 | | 5.0% senior notes due 2028 | $298.5 | $298.1 | | 6.5% senior notes due 2033 | $494.0 | — | | Other note payable | $9.9 | $9.9 | | **Total Debt** | **$872.8** | **$706.4** | - In March 2025, the Company issued **$500 million** principal amount of **6.5% senior notes due March 15, 2033**, with an effective interest rate of **6.7%**[44](index=44&type=chunk) - Net proceeds from the 2033 notes issuance were primarily used to fund a tender offer for the **3.85% senior notes due 2026**, repurchasing **$329.4 million** and recognizing a **$1.1 million** loss on extinguishment of debt[44](index=44&type=chunk) - At June 30, 2025, the Company had **$602.8 million** of available capacity under its **$640 million** senior unsecured revolving credit facility and was in compliance with all debt covenants[40](index=40&type=chunk)[42](index=42&type=chunk)[49](index=49&type=chunk) [Note 8 — Earnings per Share](index=15&type=section&id=Note%208%20%E2%80%94%20Earnings%20per%20Share) Basic and diluted net income per common share decreased for both the three and nine months ended June 30, 2025 Earnings per Share (In millions, except per share amounts) | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Net income | $32.9 | $38.7 | $81.0 | $121.8 | | Basic net income per common share | $0.65 | $0.76 | $1.59 | $2.42 | | Diluted net income per common share | $0.65 | $0.76 | $1.59 | $2.40 | | Weighted average common shares outstanding — basic | 50,931,777 | 50,755,276 | 50,849,223 | 50,322,916 | [Note 9 — Income Taxes](index=15&type=section&id=Note%209%20%E2%80%94%20Income%20Taxes) Income tax expense and effective tax rates decreased, with a net deferred tax liability partially offset by a valuation allowance, and a new tax law is being evaluated Income Tax Expense and Effective Tax Rate | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Income tax expense | $10.7 million | $12.9 million | $25.2 million | $39.8 million | | Effective tax rate | 24.5% | 25.0% | 23.7% | 24.6% | - At June 30, 2025, the Company had net deferred tax liabilities of **$77.9 million**, partially offset by a **$0.7 million** valuation allowance for state deferred tax assets[54](index=54&type=chunk) - The Company is evaluating the impact of the 'One Big Beautiful Bill Act' signed on July 4, 2025, but none of its tax provisions are expected to have a significant impact[55](index=55&type=chunk) [Note 10 — Stockholders' Equity and Stock-Based Compensation](index=16&type=section&id=Note%2010%20%E2%80%94%20Stockholders%27%20Equity%20and%20Stock-Based%20Compensation) The Company has a $750 million shelf registration for equity securities, with no shares issued under its ATM program, and stock-based compensation expense increased due to PSU and RSU grants - A **$750 million** shelf registration statement for equity securities is effective, with **$300 million** reserved for an at-the-market equity offering program; no shares were issued under this program in the nine months ended June 30, 2025[56](index=56&type=chunk) Stock-Based Compensation Expense (In millions) | Period | 2025 | 2024 | | :-------------------------------- | :----- | :----- | | Three Months Ended June 30 | $1.5 | $1.4 | | Nine Months Ended June 30 | $5.8 | $4.1 | - In the nine months ended June 30, 2025, the Company granted **99,097 Performance Stock Units (PSUs)** to executive officers and **306,300 Restricted Stock Units (RSUs)**[58](index=58&type=chunk)[59](index=59&type=chunk) [Note 11 — Commitments and Contingencies](index=17&type=section&id=Note%2011%20%E2%80%94%20Commitments%20and%20Contingencies) The Company has significant off-balance sheet arrangements, including letters of credit and surety bonds, and is involved in legal proceedings and substantial land purchase contracts Contractual Obligations and Off-Balance Sheet Arrangements (June 30, 2025, In millions) | Item | Amount | | :-------------------- | :----- | | Outstanding letters of credit | $37.2 | | Surety bonds issued by third parties | $808.5 | | Land purchase contracts (remaining purchase price) | $854.6 | | Land purchase contract deposits | $32.8 | - A stockholder derivative complaint was filed on April 29, 2025, against D.R. Horton and certain Company directors, alleging breach of fiduciary duty related to lot sale transactions; the outcome is uncertain, and a possible loss cannot be estimated[62](index=62&type=chunk)[63](index=63&type=chunk) - The Maryland Department of Environment filed a suit on September 6, 2024, regarding stormwater compliance issues, which the Company does not believe will have a material effect on its financial position[64](index=64&type=chunk) [Note 12 — Related Party Transactions](index=18&type=section&id=Note%2012%20%E2%80%94%20Related%20Party%20Transactions) The Company engages in ongoing related party transactions with D.R. Horton, its majority owner, including shared services, land development, and significant residential lot sales - D.R. Horton provides administrative, compliance, operational, and procurement services under a Shared Services Agreement[68](index=68&type=chunk) Residential Lots and Sales to D.R. Horton (In millions, except lot count) | Item | June 30, 2025 | September 30, 2024 | | :---------------------------------------------------------------- | :------------ | :----------------- | | Residential lots under contract to sell to D.R. Horton | 24,200 | 20,500 | | Owned lots subject to right of first offer with D.R. Horton | 18,500 | 17,200 | | Earnest money deposits from D.R. Horton for lots under contract | $225.2 | $168.4 | | Remaining sales price of lots under contract with D.R. Horton | $2,172.5 | $1,840.5 | Residential Lot Sales Revenues from D.R. Horton (In millions) | Period | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------------------- | :------------------------------ | :------------------------------ | | Residential lots sold to D.R. Horton | 7,688 | 8,842 | | Residential lot sales revenues from sales to D.R. Horton | $810.2 | $846.6 | [Note 13 — Fair Value Measurements](index=19&type=section&id=Note%2013%20%E2%80%94%20Fair%20Value%20Measurements) The Company uses a three-level fair value hierarchy, classifying cash as Level 1, senior notes as Level 2, and other notes payable as Level 3 - Fair value hierarchy: Level 1 for cash and cash equivalents, Level 2 for senior notes, and Level 3 for the other note payable[76](index=76&type=chunk)[77](index=77&type=chunk)[78](index=78&type=chunk) Fair Value of Debt (June 30, 2025, In millions) | Item | Carrying Value | Fair Value | | :--- | :------------- | :--------- | | Debt | $872.8 | $880.3 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=20&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial condition and operational performance, discussing business operations, key financial results, liquidity, capital resources, and critical accounting policies [Our Operations](index=20&type=section&id=Our%20Operations) Forestar Group Inc. is a national residential lot development company, majority-owned by D.R. Horton, focusing on land acquisition and development for single-family residential lots across diverse markets - Forestar is a national residential lot development company, primarily focused on acquiring land and developing finished single-family residential lots for homebuilders[80](index=80&type=chunk)[82](index=82&type=chunk) - D.R. Horton, Inc. owned approximately **62%** of the Company's outstanding common stock as of June 30, 2025, exerting significant influence on strategic direction[81](index=81&type=chunk) Land and Lot Position (June 30, 2025) | Item | Count | | :---------------------------------------- | :------ | | Total lots owned and controlled | 102,300 | | Owned lots | 68,300 | | Lots controlled through purchase contracts | 34,000 | | Owned lots under contract to be sold | 25,700 | - The Company has expanded its operations across **64 markets** in **23 states**, focusing on affordable price points for entry-level, first-time move-up, and active adult homes[84](index=84&type=chunk)[85](index=85&type=chunk) [Results of Operations](index=21&type=section&id=Results%20of%20Operations) For the nine months ended June 30, 2025, total residential lots sold decreased, but average sales price increased, leading to higher revenues but lower pre-tax income, net income, and diluted EPS due to increased costs and a debt extinguishment loss Key Operating and Financial Data (Nine Months Ended June 30, In millions, except per share amounts) | Item | 2025 | 2024 | Change | % Change | | :---------------------------------- | :----- | :----- | :----- | :------- | | Consolidated Revenues | $991.9 | $958.0 | $33.9 | 3.5% | | Pre-tax income | $106.2 | $161.6 | $(55.4) | -34.3% | | Pre-tax operating margin | 10.7% | 16.9% | -6.2% | -36.7% | | Net income | $81.0 | $121.8 | $(40.8) | -33.5% | | Diluted earnings per share | $1.59 | $2.40 | $(0.81) | -33.8% | Residential Lot Sales Performance | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :---------------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Total residential lots sold | 3,605 | 3,255 | 9,349 | 9,694 | | Average sales price per lot | $106,600 | $94,000 | $104,500 | $96,300 | | Residential lot sales revenues | $383.0 million | $305.8 million | $977.3 million | $935.9 million | - Selling, general and administrative (SG&A) expense as a percentage of revenues increased to **11.3%** for the nine months ended June 30, 2025, from **9.0%** in the prior year period[99](index=99&type=chunk) - A **$1.1 million** loss on extinguishment of debt was recognized in the nine months ended June 30, 2025, due to the partial repurchase of senior notes[100](index=100&type=chunk) [Income Taxes](index=24&type=section&id=Income%20Taxes_MD%26A) Income tax expense and effective tax rates decreased for the three and nine months ended June 30, 2025, with a net deferred tax liability and ongoing evaluation of a new tax law Income Tax Expense and Effective Tax Rate | Item | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Income tax expense | $10.7 million | $12.9 million | $25.2 million | $39.8 million | | Effective tax rate | 24.5% | 25.0% | 23.7% | 24.6% | - At June 30, 2025, the Company had net deferred tax liabilities of **$77.9 million**, partially offset by a **$0.7 million** valuation allowance[103](index=103&type=chunk) - The 'One Big Beautiful Bill Act' signed on July 4, 2025, is being evaluated, but its tax provisions are not expected to significantly impact financial statements[104](index=104&type=chunk) [Land and Lot Position](index=24&type=section&id=Land%20and%20Lot%20Position) The Company's total land and lot position increased, with a notable increase in owned lots and lots under contract to sell to D.R. Horton Land and Lot Position | Item | June 30, 2025 | September 30, 2024 | | :---------------------------------------- | :------------ | :----------------- | | Lots owned | 68,300 | 57,800 | | Lots controlled through purchase contracts | 34,000 | 37,300 | | **Total lots owned and controlled** | **102,300** | **95,100** | | Owned lots under contract to sell to D.R. Horton | 24,200 | 20,500 | | Owned lots fully developed | 10,000 | 6,300 | [Liquidity and Capital Resources](index=24&type=section&id=Liquidity%20and%20Capital%20Resources) The Company maintains strong liquidity with cash and available credit, despite decreased cash and increased debt, aiming for a net debt to total capital ratio of approximately 40% or less Liquidity and Capital Ratios (In millions, except ratios) | Item | June 30, 2025 | September 30, 2024 | | :---------------------------------------- | :------------ | :----------------- | | Cash and cash equivalents | $189.2 | $481.2 | | Available borrowing capacity (revolving credit facility) | $602.8 | - | | Ratio of debt to total capital | 34.2% | 30.7% | | Ratio of net debt to total capital | 28.9% | 12.4% | - Net cash used in operating activities was **$454.0 million** for the nine months ended June 30, 2025, primarily due to increases in real estate and other assets[121](index=121&type=chunk) - Net cash provided by financing activities was **$162.6 million** for the nine months ended June 30, 2025, driven by the issuance of **$500 million** in 2033 notes and **$280 million** in revolving credit facility borrowings, partially offset by debt repurchases and repayments[123](index=123&type=chunk) - The Company has **$70.6 million** principal amount of senior note maturities in the next twelve months[106](index=106&type=chunk) [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) There have been no material changes in the Company's critical accounting policies or estimates from those disclosed in its 2024 Annual Report on Form 10-K - No material changes in critical accounting policies or estimates from the 2024 Annual Report on Form 10-K[124](index=124&type=chunk) [New and Pending Accounting Pronouncements](index=28&type=section&id=New%20and%20Pending%20Accounting%20Pronouncements_MD%26A) This section refers readers to Note 1—Basis of Presentation for details on new and pending accounting pronouncements - Refer to Note 1—Basis of Presentation for information on new and pending accounting pronouncements[125](index=125&type=chunk) [Forward-Looking Statements](index=29&type=section&id=Forward-Looking%20Statements) This section contains a cautionary statement regarding forward-looking statements, identifying various factors and uncertainties that could cause actual results to differ materially from projections - Forward-looking statements are subject to risks and uncertainties, including the effect of D.R. Horton's controlling ownership, cyclical industry conditions, inflation, interest rates, supply shortages, and governmental policies[126](index=126&type=chunk) - The Company disclaims any obligation to update or revise forward-looking statements to reflect events or circumstances after the statement date[128](index=128&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the Company's exposure to market risks, specifically focusing on interest rate risk and its potential impact on financial position and cash flows [Interest Rate Risk](index=31&type=section&id=Interest%20Rate%20Risk) The Company is exposed to interest rate risk from its senior debt, revolving credit facility, and other note payable, utilizing both fixed and variable rate debt - The Company is subject to interest rate risk on its senior debt, revolving credit facility, and other note payable, managing exposure through a mix of fixed and variable rate debt[129](index=129&type=chunk) - At June 30, 2025, fixed rate debt included **$70.6 million** of **3.85% senior notes (2026)**, **$300 million** of **5.0% senior notes (2028)**, **$500 million** of **6.5% senior notes (2033)**, and **$9.9 million** of **4.0% other note payable (2025)**; there were no outstanding borrowings on the variable rate revolving credit facility[130](index=130&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the Company's disclosure controls and procedures and confirms no material changes in internal control over financial reporting during the quarter [Disclosure controls and procedures](index=31&type=section&id=Disclosure%20controls%20and%20procedures) Management, with the participation of the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025 - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of June 30, 2025[131](index=131&type=chunk) [Changes in internal control over financial reporting](index=31&type=section&id=Changes%20in%20internal%20control%20over%20financial%20reporting) There have been no material changes in the Company's internal control over financial reporting during the quarter ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025[132](index=132&type=chunk) [PART II — OTHER INFORMATION](index=32&type=section&id=PART%20II%20%E2%80%94%20OTHER%20INFORMATION) This section covers additional information not included in the financial statements, such as legal proceedings, other disclosures, and exhibits [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in various legal proceedings, including a stockholder derivative complaint and an environmental suit, with varying assessments of potential financial impact - A stockholder derivative complaint was filed on April 29, 2025, against D.R. Horton and certain Company directors, alleging breach of fiduciary duty related to lot sale transactions; the outcome is uncertain, and a possible loss cannot be estimated[136](index=136&type=chunk)[137](index=137&type=chunk) - The Maryland Department of Environment filed a suit on September 6, 2024, regarding stormwater compliance issues, which the Company does not believe will have a material effect on its financial position[138](index=138&type=chunk) - The Company believes adequate reserves have been established for any probable losses from various other legal proceedings and does not anticipate a significant adverse effect on its financial position or long-term results[134](index=134&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) This section provides other relevant information, specifically noting that no director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the quarter [Trading Plans](index=32&type=section&id=Trading%20Plans) During the three months ended June 30, 2025, no director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the three months ended June 30, 2025[139](index=139&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications from the CEO and CFO and XBRL-related documents - Exhibits include certifications of the Chief Executive Officer and Chief Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, along with XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[140](index=140&type=chunk) [SIGNATURE](index=34&type=section&id=SIGNATURE) This section contains the formal signature block, confirming the report's official submission [SIGNATURE](index=34&type=section&id=SIGNATURE_Details) This section contains the formal signature block, confirming that the report has been duly caused to be signed on behalf of Forestar Group Inc. by its Executive Vice President and Chief Financial Officer - The report was signed on July 23, 2025, by James D. Allen, Executive Vice President and Chief Financial Officer (Principal Financial and Principal Accounting Officer) of Forestar Group Inc[146](index=146&type=chunk)

Financial Performance - Net income for Q3 fiscal 2025 decreased 15% to $32.9 million, or $0.65 per diluted share, compared to $38.7 million, or $0.76 per diluted share, in Q3 fiscal 2024[3] - For the nine months ended June 30, 2025, net income decreased 33% to $81.0 million, or $1.59 per diluted share, compared to $121.8 million, or $2.40 per diluted share, in the same period of fiscal 2024[4] - The company maintained its previous revenue guidance of $1.50 billion to $1.55 billion for fiscal 2025[12] Revenue and Sales - Revenues for Q3 fiscal 2025 increased 23% to $390.5 million from $318.4 million in the same quarter of fiscal 2024[3] - Total revenues for Q3 2025 reached $390.5 million, a 22.6% increase from $318.4 million in Q3 2024[25] - Total revenues for the nine months ended June 30, 2025, were $991.9 million, a 3.5% increase from $958.0 million in the same period of 2024[25] Lot Sales and Position - Lots sold during Q3 fiscal 2025 increased 11% to 3,605 lots compared to 3,255 lots in the same quarter of fiscal 2024[6] - Residential lots sold in Q3 2025 totaled 3,605, up from 3,255 in Q3 2024, representing a 10.7% increase[25] - The company's lot position at June 30, 2025 was 102,300 lots, with 25,700 lots, or 38%, under contract to be sold, representing approximately $2.3 billion of future revenue[8] Liquidity and Financial Health - Total liquidity at the end of the quarter was $792.0 million, consisting of $189.2 million in unrestricted cash and $602.8 million of available borrowing capacity[10] - The company's return on equity was 10.1% for the trailing twelve months ended June 30, 2025[5] - Book value per share increased 11% to $33.04[9] Lot Ownership and Development - Lots owned as of June 30, 2025, increased to 68,300 from 57,800 on September 30, 2024, reflecting an 18.1% growth[26] - Total lots owned and controlled rose to 102,300 as of June 30, 2025, compared to 95,100 on September 30, 2024, indicating a 7.3% increase[26] - Owned lots under contract to sell to D.R. Horton increased to 24,200 from 20,500 year-over-year[26] - Owned lots fully developed reached 10,000 as of June 30, 2025, up from 6,300 on September 30, 2024, a significant increase of 58.7%[26] Contract Liabilities - The company reported a decrease in contract liabilities by $1.3 million in Q3 2025 compared to a decrease of $0.2 million in Q3 2024[25] - The company has 34,000 lots controlled under land and lot purchase contracts as of June 30, 2025, down from 37,300 on September 30, 2024[26] Guidance and Expectations - The company expects to deliver between 14,500 and 15,000 lots for fiscal 2025, down from previous guidance of 15,000 to 15,500 lots[12] - Average sales price per lot increased to $106,600 in Q3 2025, compared to $94,000 in Q3 2024, marking a 13.4% rise[25]

Financial Data and Key Metrics Changes - In the third quarter, net income was $32.9 million or $0.65 per diluted share, compared to $38.7 million or $0.76 per diluted share in the prior year quarter [4][7] - Revenues for the third quarter increased 23% to $390.5 million compared to $318.4 million in the prior year quarter [7] - Gross profit margin for the quarter was 20.4%, down from 22.5% in the same quarter last year; excluding the impact of a low-margin community closeout, the gross margin would have been approximately 21.1% [7][8] Business Line Data and Key Metrics Changes - Lots sold increased 11% year over year and 6% sequentially to 3,605 lots, with an average sales price of $106,600 [4][9] - Lots under contract to sell increased 26% from a year ago to 25,700 lots, representing 38% of the owned lot position and $2.3 billion of future revenue, marking the highest contracted backlog in five years [5][13] Market Data and Key Metrics Changes - The company noted that new home sales have been slower than last year due to affordability constraints and weaker consumer confidence, but mortgage rate buy-down incentives are helping to spur demand [11] - The availability of contractors and necessary materials remains solid, and land development costs have stabilized [11] Company Strategy and Development Direction - The company is focused on turning inventory, maximizing returns, and consolidating market share in a highly fragmented industry [5] - The strategic goal includes increasing market share within D.R. Horton, which currently accounts for 15% of their lots, with a target to double that in the intermediate term [12][42] Management's Comments on Operating Environment and Future Outlook - Management expects home affordability constraints and cautious home buyers to continue to be a near-term headwind for new home demand, but remains confident in long-term demand for finished lots [17] - The company is maintaining its fiscal 2025 revenue guidance of $1.5 billion to $1.55 billion while lowering lot delivery guidance to 14,500 to 15,000 lots [17] Other Important Information - The company ended the quarter with $792 million of liquidity, including an unrestricted cash balance of $189 million [15] - Total debt at June 30 was $873 million, with a net debt to capital ratio of 28.9% [15] Q&A Session Summary Question: Regarding gross margins and their future outlook - Management indicated that the gross margin for the quarter was at the lower end of the historical range of 21% to 23%, but sees no indication of significantly lower margins going forward [20][25] Question: On development costs and their stability - Development costs have stabilized and are classified as flattish quarter over quarter, with no significant declines observed [26] Question: Clarification on revenue guidance and pricing - The company reiterated revenue guidance while trimming volume guidance, attributing this to a higher average selling price driven by lot price increases and community mix [31][32] Question: Insights on new market entries - The company has entered new markets in the Pacific Northwest, Northern California, Salt Lake, and Reno, with teams actively building support in these regions [35] Question: Consideration of conversion to a REIT structure - Management clarified that there is no consideration for conversion to a REIT, as the focus remains on being a developer rather than a land banker [37] Question: Impact of D.R. Horton's slower growth on future plans - The company sees significant growth opportunities within D.R. Horton and is also expanding its customer base with other builders [42]