Good morning, and welcome to Forestar's Fourth Quarter and Fiscal 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode, and we will open for questions following the presentation. Please note, this conference is being recorded. I will now turn the call over to Katie Smith, Vice President of Finance and Investor Relations for Forestar.

Thank you, Jenny. Good morning, and welcome to the call to discuss Forestar's fourth quarter and fiscal year results. Thank you for joining us. Before we get started, today's call includes forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Although Forestar believes any such statements are based on reasonable assumptions, there is no assurance that actual outcomes will not be materially different. All forward-looking statements are based upon information available to Forestar on the date of this conference call, and we do not undertake any obligation to update or revise any forward-looking statements publicly. Additional information about factors that could lead to material changes in performance is contained in Forestar's annual report on Form 10-K and its most recent quarterly report on Form 10-Q, both of which were filed with the Securities and Exchange Commission. Our earnings release is available on our website at investor.forestar.com, and we plan to file our 10-K in the next few weeks. After this call, we will post an updated investor presentation to our Investor Relations site under Events & Presentations for your reference. Now I will turn the call over to Andy Oxley, our President and CEO.

Thanks, Katie. Good morning, everyone. I'm also joined on the call today by Jim Allen, our Chief Financial Officer; and Mark Walker, our Chief Operating Officer. As always, we appreciate your interest in Forestar and taking the time to discuss our fourth quarter and fiscal year results. The Forestar team finished especially strong, delivering over 5,300 lots in the fourth quarter and more than 15,000 lots for the full fiscal year. Fiscal 2024 diluted earnings per share increased 20% to $4 and pretax income increased 22% to $270.1 million. Our return on equity improved 60 basis points to 13.8%, and our book value per share increased 15% from a year ago to $31.47. We improved our profitability and returns in fiscal 2024 despite extended cycle times and investing heavily in building our team and our platform for future growth. Over the last 5 years, Forestar has invested approximately $6.7 billion in land acquisition and development and delivered over 70,000 finished lots to over 60 local, regional, and national homebuilders. Over the same time period, our returns on equity have nearly tripled, and our book value per share increased 87%. These results reflect the strength of our business model and the market-leading teams we have built across our national footprint. Thank you to all of the Forestar team members for your efforts this year. In fiscal 2025, we will continue to execute our strategic plan by investing for future growth, turning our inventory, maximizing returns, and consolidating market share in the highly fragmented lot development industry. Forestar is well-positioned, both financially and operationally to capitalize on builder demand for finished lots. Jim will now discuss our fourth quarter and fiscal 2024 results in more detail.

Thank you, Andy. In the fourth quarter, net income increased 13% to $81.6 million or $1.60 per diluted share. For the year, net income increased 22% to $203.4 million or $4 per diluted share. Revenues for the fourth quarter totaled $551.4 million, flat with the prior year quarter. The current quarter includes $23.4 million in tract sales and other revenues and $4.5 million in revenue from deferred development projects. Revenue totaled $1.5 billion in fiscal 2024, which includes $42 million of tract sales and other revenue and $8.1 million in revenue from deferred development projects. Lots sold during the quarter increased 8% to 5,374 lots, and for the year, lots sold increased 7% to 15,068 lots. Our average lot sales price for the quarter was $97,300 and was $96,600 for the year. We expect continued quarterly fluctuations in our average sales price based on the geographic location and lot size of our deliveries.

Our gross profit margin this quarter was 23.9%, up 290 basis points from a year ago. Our gross profit margin was positively impacted by lot sales from an unusually high margin project. Gross profit margin for the year was 23.8%, up 260 basis points from the prior year. In fiscal 2024, gross margin was positively impacted by nonrecurring revenue items with unusually high margins, including selling excess sewer capacity and land contract assignment fees. During fiscal 2023, we recorded $19.4 million of noncash real estate impairment charges to cost of sales. Excluding the effects of those items, our full-year gross profit margin would have been approximately 23% compared to 22.5% for fiscal 2023. Jim?

Our fourth quarter pretax income increased 14% to $108.5 million compared to $95.4 million in the prior year quarter, and our pretax profit margin improved 230 basis points to 19.7%. Our pretax profit margin this quarter was positively impacted by a gain on sale of assets of $4.5 million. Pretax income for the year totaled $270.1 million compared to $221.6 million in fiscal 2023, and our pretax profit margin for the year improved 250 basis points to 17.9%. Our pretax profit margin this year was positively impacted by a total gain on sale of assets of $9.5 million. Excluding the effects of the nonrecurring revenue items with unusually high margins and the gain on sale of assets, our full-year pretax profit margin would have been approximately 16.5%. Katie?

In the fourth quarter, SG&A expense increased 21% from the prior year quarter to $32 million. SG&A expense as a percentage of revenues was 5.8% compared to 4.8% in the prior year quarter. For the year, SG&A expense was $118.5 million or 7.9% as a percentage of revenues, up 110 basis points from 6.8% in the prior year. Our employee count increased 30% from a year ago, which will support the continued expansion of our platform, including entering new markets and increasing community count. Roughly 80% of new hires in fiscal 2024 are in local market operations. We are pleased with the progress we have made building our team and our ability to attract high-quality talent. We remain focused on efficiently managing our SG&A while investing in our teams to support our continued growth. Mark?

The supply of new and existing homes at affordable price points remains generally limited, and demographic support for housing demand remains favorable despite elevated mortgage interest rates and inflationary pressures. Mortgage rate buydown incentives offered by builders, combined with low resale supply relative to historical norms, continue to drive buyers towards new construction. Our ongoing focus is to develop lots for homes at affordable price points. Availability of contractors and necessary materials has improved over the past several months, but we have not seen overall reductions in the cost of developing land. While we have started to see some improvement in cycle times, governmental delays continue to extend cycle times above historical norms. We utilize best management practices and work with our trade partners to develop lots in the most efficient way possible. Homebuilders are competing to secure land and lot positions, and many are looking to replace current closeout communities to position themselves for future growth. As a result, we have not seen any softening in land prices. However, our team remains disciplined, flexible, and opportunistic when pursuing new land acquisition opportunities. Jim?

D.R. Horton is our largest and most important customer. Sixteen percent of the homes D.R. Horton started this year were on a Forestar-developed lot, with a mutually stated goal of one out of every three homes D.R. Horton sells to be on a lot developed by Forestar. We have a significant opportunity to grow our market share within D.R. Horton. We also continue to work on expanding our relationships with other homebuilders. We sold 1,801 lots or 12% of our deliveries to more than 20 other customers in fiscal 2024. Katie?

Forestar's underwriting criteria for new development projects remains unchanged at a minimum 15% pretax return on average inventory and a return of our initial cash investment within 36 months. During the fourth quarter, we invested approximately $450 million in land and land development, of which $320 million was for land development and $130 million was for land. For the full year, we invested approximately $1.6 billion in land and land development, of which 65% was for land development and 35% was for land. In fiscal 2025, we currently expect to invest approximately $2 billion in land acquisition and development. Mark?

Our lot position at September 30 was 95,100 lots, of which 57,800 or 61% are owned and 37,300 or 39% are controlled through purchase contracts. Six thousand three hundred of our own lots are finished. Consistent with our focus on capital efficiency, we target owning a three to four year supply of land and lots, and manage our development in phases to deliver lots at a pace that matches market demand. Owned lots in our contract to sell increased 40% compared to a year ago to 21,000 lots or 36% of our own lot position. $172 million of hard earnest money deposits secured these contracts, which are expected to generate approximately $1.9 billion of future revenue. Another 30% of our own lots are subject to a right of first offer to D.R. Horton based on executed purchase and sale agreements. Jim?

We have significant liquidity and are using modest leverage to keep our balance sheet strong. We ended the quarter with approximately $860 million of liquidity, including an unrestricted cash balance of $480 million and $380 million of available capacity on our undrawn revolving credit facility. Total debt at September 30 was $706 million, with no senior note maturities until fiscal 2026, and our net debt-to-capital ratio was 12.4%. We ended the quarter with $1.6 billion of stockholders' equity, and our book value per share increased 15% from a year ago to $31.47. Forestar's capital structure is one of our biggest competitive advantages, and it sets us apart from other land developers. Project-level land acquisition and development loans are less available today and have continued to become more expensive, which impacts the majority of our competitors. Other developers generally use project-level development loans, which are typically more restrictive at floating rates and create administrative complexity, particularly in an elevated interest rate environment. Our capital structure provides us with operational flexibility, while our strong liquidity positions us to take advantage of attractive opportunities when they arise. Andy, I'll now turn it back to you for closing remarks.

Thanks, Jim. Thank you to the Forestar team for delivering a record year of profitability. Fiscal 2024 was also a year of building for the future. We grew the size of our team by 30% and deepened our bench of local market leaders. We are pleased that over 50% of those leaders were internal promotions. We increased our investment in land acquisition and development by 65% year-over-year, and we further diversified our geographic footprint by entering Virginia and reentering Washington, Oregon, and Utah. These investments in our people and platform have positioned Forestar to grow faster than the market. However, there are still challenges in the entitlement and permitting processes, resulting in lengthening development timelines. As we look forward to fiscal 2025, based on current market conditions, we expect to deliver between 16,000 and 16,500 lots and to generate $1.6 billion to $1.65 billion of revenue. We currently expect our first quarter will be our lowest delivery quarter of the year, and we expect our revenues in the second half of the year of fiscal '25 to be higher than the first half. The variability we experienced throughout fiscal '24 illustrates the quarter-to-quarter fluctuations that can occur in the delivery of finished lots. We are closely monitoring each market as we strive to balance pace and price to maximize returns for each project. We are the market leader in a highly fragmented and undercapitalized industry and are uniquely positioned to take advantage of builder demand for finished lots. Our goal remains the same, to double our market share to 5% over the intermediate term. We expect to aggregate significant market share over the next few years while maintaining our disciplined approach with investing capital to enhance the long-term value of Forestar. With a clear strategic direction, a dedicated team, and a strong operational and financial foundation in place, I'm excited about Forestar's future. Jenny, at this time, we'll open the line for questions.

Your first question is coming from Carl Reichardt of BTIG. Carl, your line is live.

Thanks, everybody. Nice to talk to you. Thank you for the time. I have a couple here. One is, as you look at your '25 guide, is your expectation that the percentage of lots you actually deliver to customers other than D.R. Horton going to grow in '25?

Not really. We really do expect to stay at around 85% to 90% of our lots going to Horton over the near term as we look to increase our market share within D.R. Horton. Until we get closer to delivering about 30% of their lot needs, I think that will stay in that 85% to 90% range.

Okay. Great. Thank you, Katie. And then, Mark, if you or anyone wants to put a few numbers around this idea of cycle times. So I sort of understand them for the vertical side of home construction. But for land development, if we break it out into, say, the beginning of lot acquisition to starting grading and then grading to finished lot, and I know it varies a lot. How long is it taking to do both of those elements on average? And then what is the difference today versus, say, what it was four or five years ago as the market has changed?

Yes, Carl, I’ll address a couple of your questions. Grading typically takes about 120 days, but this can vary based on the project and location. Generally, that’s the timeframe, though it has increased over the years from around nine months four or five years ago to a historical cycle time of about 12 months. The main challenge we face now is obtaining government approvals, which have extended that timeline. It usually takes about 30 days to receive final approval for a lot, but currently, this can take anywhere from 30 to 180 days depending on the location. This is our biggest hurdle. I’m pleased to report that our cycle times have improved by 60 days over the past quarter and are down 90 days from our peak, reflecting significant progress.

Great. That is very helpful, those specifics. And then last if I can ask just one more. When you think about your relative pricing power now today, compared to right after COVID, do you think it's changed meaningfully one way or the other?

I would say that we have seen improvement, not necessarily on the hard costs, but on vendor availability, trades looking for work.

Carl, did you mean on the development cost side or on the finished cost side?

Well, actually, I meant pricing to customers really as you sort of think about it, but sure, the cost side too would be helpful. Then I guess at the end of the day, it really comes down to net.

Yes. Our relative price in terms of our lot price to home builders ASP has remained pretty constant, I would say, over the past several years. That range is somewhere around, let's call it, 25% that can fluctuate up or down based off a geography. But typically, that lots to home ratio is somewhere in the mid to high 20s. Historically, it used to be in the low to mid-20s.

Yes, okay. I really appreciate the help guys. Thank you so much.

Your next question is coming from Anthony Pettinari of Citigroup. Anthony, your line is live.

This is Asher Sohnen on for Anthony. Thanks for taking my question. Just maybe as you think about your development pipeline for 2025, are there any markets you would call out as maybe a little bit oversupplied right now or any other markets where you may be pulling back from in terms of new land acquisition. I think there's a lot of attention on Florida and Texas right now.

Not really. I mean, in affordable price points, we're not seeing any buildup in inventory. Our customer demand is pretty robust across the whole country. So we're not really calling out any caution in any parts of the country right now. Obviously, the hurricanes had a little bit of impact. We were fortunate that we didn't have any of our family members affected, but certainly, our hearts go out to those communities that were affected.

Yes. And then switching gears, do you kind of have a sense of an updated timeline for maybe for deconsolidation? I think I noticed you guys had a shelf filing. I don't know if that kind of accelerates it at all. And last, I think you previously talked about like the ability to continue growing the business pretty significantly without having to dip into the capital markets. I'm just wondering if that's still the case.

Regarding deconsolidation, that question is primarily for D.R. Horton and is not something we directly control. However, we are definitely focused on our growth plan. We are capable of continuing to grow with our current balance sheet. Nonetheless, we do intend to increase our debt as our equity allows, ensuring we manage our net debt to total capital ratio at 40% or below. Therefore, we will look for ways to finance our growth. Fortunately, our liquidity position enables us to seize opportunities in the capital markets. We concluded the year with $860 million in total liquidity, which will significantly aid in financing our growth into fiscal '25 and beyond.

The shelf too, that was just more of a housekeeping item. Our old shelf expired early October. And so we just renewed the shelf with exactly what we had filed previously.

Got it. Thank you. That’s very helpful. I’ll turn it over.

Your next question is coming from Trevor Allinson of Wolfe Research. Trevor, your line is live.

Hi, good morning. Thank you for taking my questions. First one is on land prices. You mentioned in your prepared remarks, you're not really seeing a softening on pricing. From a new home demand perspective, there's been a few geographies consistently noted as weaker. Colorado comes to mind, also some markets in Texas and Florida. In those markets specifically, the ones that have been softer, have you seen a flattening out of land prices in those markets? Or are you seeing any more favorable terms?

No. Land prices continue to grow low to mid-single digits year-over-year, similar to the development cost from a land pricing perspective. So specifically across the United States and specifically in those markets is consistent.

Okay. Got you. And then, Katie, I think you mentioned still focusing on being the key supplier to Horton until you guys approach your 30% target you guys have talked about for a while before you start expanding more with other builders. As you think about your long-term plans, what's a reasonable amount of time for you guys to get to 30% of their lot needs?

Well, I mean there's a couple of different puts and takes in that. One of them is the rate of growth that Horton chooses to grow at. They're obviously growing off of a much larger number. And so us growing more than 10% is really just us trying to keep up with their lot needs. So it's hard to say. We would hope that we'd be able to five years or so, we think that, that would be a good target for us to be able to sell 30% of our lots to other customers. And it will be a stair-step approach. It's not going to be something that happens overnight. But I do think that it's important that the number of lots that we sell to other builders is going to continue to increase year-over-year. We sold to eight new customers this year that we had not sold to in the past. And so we really are focused on growing and expanding those relationships with other customers.

And we're also focused on expanding and growing our market share in our current markets as well. So there's significant opportunity to aggregate market share, not only within Horton. I think today, we're at 16% trying to get to the 30% as well as other builders as Katie said. I think we added a good number of builders this fiscal year as well. We continue to work on these relationships a year in and year out. It takes a little bit of time to continue to grow those, which we have.

Yes, makes sense. That's very helpful color. And then just maybe a quick housekeeping question. You mentioned the 4Q margin benefited from some unusually high-margin projects. Any help on what kind of impact that had on gross margin in the quarter?

We're not going to disclose the exact amount. I would say that margin would have been approximately 20%, 22%.

Yes. What we can say, though, is we underwrite to return. So margin is going to fluctuate or vary from quarter-to-quarter, and we do see that. But over the long term, and now over the last 8 to 10 quarters or so, we've seen our normalized margin, and we adjust for one-time items or kind of unusually high margin projects. But we've seen that kind of between the 21.5% and 23% range very consistently. And I think that's kind of more where we feel like our normalized margin is.

Yes, it's very stable there. Okay, thank you for all the color. It was very helpful and good luck moving forward.

And our next question is coming from Alex Barron of the Housing Research Center. Alex, your line is live.

Yes, thank you. Good morning. My main question is about the general constraints to growth. For instance, the number of lots under contract with D.R. Horton has increased from 14,400 to 20,500 this year compared to last year, yet the guidance is rising from 15,000 last year to about 16,000 this year. What is limiting faster growth in general terms?

It's just hard to put a lot on the ground. I mean it takes a long time from the time that you identify the tract, get it under contract, get it entitled, and then take it through the approval process and finally get it developed and finished. So our investment was less a couple of years ago. And so that caused our overall number of available lots to go down. We reversed that and have been growing that throughout '24, and we'll continue in '25 but you really won't see the results of that until late '25 and going into '26. So it's a quarter-over-quarter building process, and you just have to stay very disciplined and focus on what you can affect that quarter in building the business.

What is the range of time frames in developing lots from the time you guys acquired them in different markets? Like what's the shortest time frame and what's the longest in market?

Yes, it varies market to market, but it can range anywhere from six months up to 24 months. It really depends on the actual project's specific site conditions as well as that government jurisdiction. A lot of it has to do with the landscape and geographies, soil conditions, but it varies from market to market and geographies.

Got it. Okay, thanks and good luck.

Thank you very much. Well, we appear to have reached the end of our question-and-answer session. I will now turn the call over to Andy Oxley, the CEO for Forestar for closing remarks.

Thank you, Jenny, and thank you to everyone on the Forestar team for your focus and hard work. As we enter fiscal 2025, continue to stay disciplined, flexible, and opportunistic, while focusing on consolidating market share. We appreciate everyone's time on the call today and look forward to speaking with you again in January to share our first quarter results.

Thank you very much. This does conclude today's conference. You may now disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.