Forestar (US:FOR)2021-07-21 03:10Financial Data and Key Metrics Changes - Forestar's net income increased by 56% to $15.8 million or $0.32 per diluted share compared to $10.1 million or $0.21 per diluted share in the prior year quarter [11] - Revenues increased by 76% from the prior year to $312.9 million [11] - Gross profit margin increased by 610 basis points year-over-year to 17.8% from 11.7% in the prior year quarter [14] - Return on equity (ROE) improved by 390 basis points year-over-year to 10% for the trailing 12 months ended June 30, 2021 [10] Business Line Data and Key Metrics Changes - Sold 3,858 residential lots during the quarter, an increase of 91% year-over-year [11] - Average lot sales price for the quarter was $80,700, with 86% of lots sold from development projects, up from 77% in the same quarter in 2020 [12] - Lots sold to D.R. Horton represented 96% of total lots sold, down from 98% in the third quarter of fiscal 2020 [12] Market Data and Key Metrics Changes - Forestar's lot position at June 30th increased by 91% from a year ago to 96,600 lots [17] - 51% of the company's owned lot position at June 30th were sourced by Forestar, up from 34% a year ago [18] Company Strategy and Development Direction - Forestar is focused on developing lots for the affordably priced housing market and has a unique lot manufacturing business model [22] - The company aims to maintain a strong balance sheet with ample liquidity and modest leverage, ending the quarter with $470 million of liquidity [18] - The strategic relationship with D.R. Horton allows Forestar to expand its platform nationally while minimizing risk [24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the outlook for the business, citing favorable market conditions and strong demand for finished lots [19] - The company expects to deliver between 15,500 and 16,000 lots, generating approximately $1.3 billion of revenue in fiscal 2021 [20] - Management noted that they are not seeing a lack of demand from homebuilders and expect a record-breaking fourth quarter [28] Other Important Information - Investments in lots, land, and development totaled $400 million for the quarter, with expectations to invest at least $1.6 billion for the full year of fiscal 2021 [16] - The company refinanced its senior notes, resulting in substantial interest savings despite recognizing a loss on extinguishment of debt of $18.1 million [13] Q&A Session Summary Question: Demand from homebuilders - Management indicated that there is strong demand from homebuilders for lots, with no signs of demand leveling off [27][28] Question: Growth expectations for 2022 - Management maintained a 20% sustainable growth rate expectation for 2022, based on current development projects [30] Question: Lot pricing and market conditions - Management noted that pricing power is present, and they are carefully managing pricing to maintain affordability [33][54] Question: Challenges in operations - Management reported that they have been staffing up to manage growth and are not currently experiencing significant delays in project completion [45][47] Question: Balance sheet and investment strategy - Management is comfortable managing net debt to total capital around 40% and will be selective in lot acquisitions [61] Question: Market dynamics and investment allocation - Management indicated a shift in investment focus away from the Pacific Northwest towards markets with stronger demand and less regulatory burden [70]