Forestar (FOR) - 2024 Q3 - Quarterly Results

Fiscal 2024 Third Quarter and Nine Months Results Forestar Group Inc. reported mixed results for Q3 and the first nine months of fiscal 2024, with Q3 showing declines in net income and revenue, while the nine-month period demonstrated significant growth in both metrics and lots sold Third Quarter Financial Performance Forestar Group Inc. experienced a 17% decrease in Q3 FY2024 net income to $38.7 million and a 14% revenue decline to $318.4 million, despite maintaining a 16.2% pre-tax profit margin and expanding return on equity to 13.8% Q3 Key Financial Metrics Q3 FY2024 vs. Q3 FY2023 Financial Performance: | Metric | Q3 FY2024 | Q3 FY2023 | Change (YoY) | | :-------------------- | :---------- | :---------- | :----------- | | Net Income | $38.7 million | $46.8 million | -17% | | Diluted EPS | $0.76 | $0.93 | -18.3% | | Pre-tax Income | $51.6 million | $62.4 million | -17% | | Pre-tax Profit Margin | 16.2% | - | - | | Consolidated Revenues | $318.4 million | $368.9 million | -14% | | Return on Equity (TTM) | 13.8% | 11.7% | +190 bps | | Book Value per Share | $29.87 | - | +15% | Q3 Operational Metrics Q3 FY2024 Lots Sold: | Category | Q3 FY2024 | Q3 FY2023 | Change (YoY) | | :-------------------------------- | :-------- | :-------- | :----------- | | Total Lots Sold | 3,255 | 3,812 | -15% | | Lots Sold to Other Customers (excl. D.R. Horton) | 352 | 625 | -43.7% | Nine Months Financial Performance For the first nine months of fiscal 2024, Forestar achieved significant growth with net income up 29% to $121.8 million, pre-tax income up 28% to $161.6 million, and revenues increasing 8% to $958.0 million 9M Key Financial Metrics Nine Months Ended June 30, 2024 vs. 2023 Financial Performance: | Metric | 9M FY2024 | 9M FY2023 | Change (YoY) | | :-------------------- | :---------- | :---------- | :----------- | | Net Income | $121.8 million | $94.5 million | +29% | | Diluted EPS | $2.40 | $1.89 | +27% | | Pre-tax Income | $161.6 million | $126.2 million | +28% | | Revenues | $958.0 million | $887.1 million | +8% | 9M Operational Metrics Nine Months Ended June 30, 2024 Lots Sold: | Category | 9M FY2024 | 9M FY2023 | Change (YoY) | | :-------------------------------- | :-------- | :-------- | :----------- | | Total Lots Sold | 9,694 | 9,054 | +7% | | Lots Sold to Other Customers (excl. D.R. Horton) | 852 | 1,107 | -23.1% | Capital Structure and Liquidity Forestar maintained a strong liquidity position of $744.4 million at quarter-end, supported by $359.2 million in unrestricted cash and a healthy 18.7% net debt to total capital ratio, with no senior note maturities until fiscal 2026 Capital Structure and Liquidity (as of June 30, 2024): | Metric | Amount | | :-------------------------------- | :------------- | | Unrestricted Cash | $359.2 million | | Available Borrowing Capacity | $385.2 million | | Total Liquidity | $744.4 million | | Total Debt | $706.1 million | | Net Debt to Total Capital Ratio | 18.7% | | Senior Note Maturities | None until FY2026 | - During the nine months ended June 30, 2024, the Company issued 546,174 shares of common stock under its at-the-market equity offering program for proceeds of $19.7 million, net of commissions and other issuance costs[10] - The Company's lot position at June 30, 2024 increased 40% to 102,100 lots, of which 57,900 were owned and 44,200 were controlled through land and lot purchase contracts[6] - Of the Company's owned lot position at June 30, 2024, 20,400 lots (35%) were under contract to be sold, representing approximately $1.8 billion of future revenue[6] Management Outlook and Strategic Priorities Management expressed confidence in solid demand and profitability, revising fiscal 2024 lot delivery guidance while maintaining revenue targets, and emphasizing strategic growth and market consolidation Management Commentary Chairman Donald J. Tomnitz highlighted solid Q3 FY2024 demand for finished lots, strong profitability with a 16.2% pre-tax profit margin, and the company's unique position to address the constrained supply of affordable vacant developed lots - Demand for finished lots remained solid during the third quarter of fiscal 2024[11] - Forestar maintained strong profitability with a pre-tax profit margin of 16.2% and delivered attractive double-digit returns[11] - The supply of vacant developed lots, particularly at affordable price points, continues to be constrained across most of the country, positioning Forestar uniquely to take advantage of this shortage[12] Fiscal 2024 Guidance Forestar revised its fiscal 2024 lot delivery guidance to 14,600-15,100 lots (from 14,500-15,500) while maintaining revenue guidance of $1.4 billion to $1.5 billion, reflecting current year-to-date results Revised Fiscal 2024 Guidance: | Metric | New Guidance | Prior Guidance | | :---------------- | :------------------- | :------------------- | | Lot Deliveries | 14,600 to 15,100 lots | 14,500 to 15,500 lots | | Revenue | $1.4 billion to $1.5 billion | $1.4 billion to $1.5 billion | Strategic Focus The company remains focused on growing its platform, optimizing inventory turnover, maximizing returns, and consolidating market share, supported by a strong balance sheet, ample liquidity, and a disciplined capital allocation approach - Forestar remains focused on growing its platform, turning inventory, maximizing returns, and consolidating market share in the highly fragmented lot development industry[13] - The company's contracted backlog, strong balance sheet, and ample liquidity position it to continue gaining market share and invest in land opportunities for future growth[13] - Forestar will maintain a disciplined approach to capital allocation to enhance long-term value[13] Company Information and Disclosures This section provides an overview of Forestar Group Inc. as a leading residential lot developer and a D.R. Horton subsidiary, alongside important forward-looking statements and associated risk factors About Forestar Group Inc. Forestar Group Inc. is a leading national residential lot development company operating in 60 markets across 24 states, a majority-owned subsidiary of D.R. Horton, having delivered over 14,600 residential lots in the trailing twelve months - Forestar Group Inc. is a residential lot development company with operations in 60 markets and 24 states[14] - The Company delivered more than 14,600 residential lots during the twelve-month period ended June 30, 2024[14] - Forestar is a majority-owned subsidiary of D.R. Horton, the largest homebuilder by volume in the United States since 2002[14] Forward-Looking Statements and Risk Factors This section addresses forward-looking statements, highlighting key risks such as D.R. Horton's ownership, cyclical industry conditions, economic factors like inflation and interest rates, supply chain issues, and governmental policies - Portions of this document may constitute 'forward-looking statements' as defined by the Private Securities Litigation Reform Act of 1995, and actual outcomes may be materially different[15] - Key risk factors include the effect of D.R. Horton's controlling ownership, cyclical nature of the homebuilding and lot development industries, impact of inflation and higher interest rates, supply shortages, and governmental policies[16] - Other factors include the cost and availability of property, dependence on relationships with homebuilders, competitive conditions, and the ability to manage debt and retain key personnel[16] Detailed Financial Statements and Operational Data This section provides comprehensive financial statements, including balance sheets and statements of operations, along with detailed operational data on revenues, residential lots sold, and the company's overall lot position Consolidated Balance Sheets As of June 30, 2024, Forestar's total assets increased to $2,675.0 million, driven by real estate assets, with total liabilities rising to $1,162.1 million and stockholders' equity growing to $1,511.9 million Consolidated Balance Sheets (in millions): | Item | June 30, 2024 | September 30, 2023 | | :-------------------------------- | :-------------- | :----------------- | | ASSETS | | | | Cash and cash equivalents | $359.2 | $616.0 | | Real estate | $2,238.7 | $1,790.3 | | Total assets | $2,675.0 | $2,470.7 | | LIABILITIES | | | | Debt | $706.1 | $695.0 | | Total liabilities | $1,162.1 | $1,100.8 | | EQUITY | | | | Stockholders' equity | $1,511.9 | $1,368.9 | | Total liabilities and equity | $2,675.0 | $2,470.7 | Consolidated Statements of Operations For Q3 FY2024, revenues were $318.4 million with net income of $38.7 million, while for the nine months, revenues reached $958.0 million and net income was $121.8 million, detailing key operational expenses Consolidated Statements of Operations (in millions, except per share amounts): | Item | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :------------------------------------ | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Revenues | $318.4 | $368.9 | $958.0 | $887.1 | | Cost of sales | $246.9 | $283.9 | $730.6 | $698.7 | | Selling, general and administrative expense | $29.3 | $26.4 | $86.5 | $71.3 | | Income before income taxes | $51.6 | $62.4 | $161.6 | $126.2 | | Income tax expense | $12.9 | $15.6 | $39.8 | $31.7 | | Net income | $38.7 | $46.8 | $121.8 | $94.5 | | Diluted net income per common share | $0.76 | $0.93 | $2.40 | $1.89 | Revenues, Residential Lots Sold and Lot Position This section details revenues by project type and residential lots sold for both the three and nine months, alongside a comprehensive overview of the company's lot position, distinguishing between owned, controlled, and contracted lots Revenues by Type (in millions): | Revenue Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Development projects | $295.7 | $334.2 | $922.3 | $790.3 | | Lot banking projects | $10.3 | — | $11.0 | — | | Tract sales and other | $12.1 | $23.8 | $18.6 | $68.2 | | Total revenues | $318.4 | $368.9 | $958.0 | $887.1 | Residential Lots Sold: | Lot Type | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Nine Months Ended June 30, 2024 | Nine Months Ended June 30, 2023 | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------ | :------------------------------ | | Development projects | 3,163 | 3,812 | 9,593 | 9,054 | | Lot banking projects | 92 | — | 101 | — | | Total lots sold | 3,255 | 3,812 | 9,694 | 9,054 | | Average sales price per lot | $94,000 | $87,700 | $96,300 | $87,300 | Lot Position (as of June 30, 2024 vs. September 30, 2023): | Lot Category | June 30, 2024 | September 30, 2023 | | :-------------------------------------------------- | :-------------- | :----------------- | | Lots owned | 57,900 | 52,400 | | Lots controlled under land and lot purchase contracts | 44,200 | 26,800 | | Total lots owned and controlled | 102,100 | 79,200 | | Owned lots under contract to sell to D.R. Horton | 19,500 | 14,400 | | Owned lots under contract to other customers | 900 | 600 | | Total owned lots under contract | 20,400 | 15,000 | | Owned lots subject to right of first offer with D.R. Horton | 16,700 | 17,000 | | Owned lots fully developed | 5,900 | 6,400 |