Good morning, and welcome to Forestar's First Quarter 2025 Earnings Conference Call. Please note this conference is being recorded. I will now turn the call over to Chris Hibbetts, Vice President of Finance & Investor Relations for Forestar. Chris.

Thank you, Jenny. Good morning, and welcome to the call to discuss Forestar's first quarter results. Before we get started, I want to remind everyone that 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 are or will be filed with the Securities and Exchange Commission. Our earnings release is on our website at investor.forestar.com and we plan to file our 10-Q later this week. After this call, we will post an updated investor presentation to our Investor Relations site under Events and Presentations for your reference. Now, I will turn the call over to Andy Oxley, our President and CEO.

Thanks, Chris, and welcome to the team. For those who haven't met Chris yet, he joined our team in December as part of a planned transition with Katie Smith joining D.R. Horton on January 1. I'm also joined on the call today by Jim Allen, our Chief Financial Officer; and Mark Walker, our Chief Operating Officer. The Forestar team delivered 2,333 lots generating revenues of $250.4 million during the quarter and earnings per diluted share of $0.32. Demand for finished lots remains solid and our owned lots under contract have doubled from a year ago, and the percentage of our owned lots under contract is at the highest level since June of 2020. The Forestar team continues to expand our operating platform, including making significant investments in land acquisition and development and adding key personnel in our local markets and entering new markets. Our owned lot position has increased 23% compared to a year ago, and our community count has increased 25% over the same period. We remain focused on investing in compelling land parcels, turning our inventory, maximizing returns, and consolidating market share in the highly fragmented lot development industry. Forestar's unique blend of financial strength, operating expertise, and geographic reach is a significant competitive advantage, enabling us to be a leading supplier of finished lots. Jim will now discuss our first quarter results in more detail.

Thank you, Andy. In the first quarter, net income was $16.5 million or $0.32 per diluted share compared to $38.2 million or $0.76 per diluted share in the prior year quarter. Our pretax income was $21.9 million compared to $51.2 million in the first quarter of last year, and our pretax profit margin this quarter was 8.7% compared to 16.7% in the prior year quarter as a result of reduced operating leverage. Revenues for the quarter totaled $250.4 million compared to $305.9 million in the prior year quarter. We sold 2,333 lots in the quarter with an average sales price of $15,500. We expect continued quarterly fluctuations in our average sales price based on the geographic and lot size mix of our deliveries. We continue to expect that the first quarter will be our lowest delivery quarter of the fiscal year. Our gross profit margin for the quarter was 22% compared to 23.8% for the same quarter last year. The prior year quarter was positively impacted by an unusually high margin lot sales related to the closeout of a legacy community. Excluding the high-margin lot sales from that legacy community, our prior year first quarter gross profit margin was approximately 22.8%.

In the first quarter, SG&A expense increased 29% from the prior year quarter to $36 million, primarily due to a 30% increase in employee count to 427 employees compared to 329 employees a year ago. We have increased our employee count to support the expansion of our operating platform, including entering new markets and increasing community count. SG&A as a percentage of revenues was 14.4% compared to 9.2% in the prior year quarter, primarily as a result of the year-over-year decrease in lot deliveries. We are pleased with the progress we have made building our team, and we continue to attract high-quality talent. We remain focused on efficiently managing our SG&A while investing in our teams to support continued growth. Mark?

Although the level of new and existing home inventories has increased from historically low levels, the supply of homes at affordable price points generally remains limited and demographic support for housing demand remains favorable, despite continued affordability challenges. Mortgage rate buydown incentives offered by builders have helped to address affordability and spur demand. Our ongoing focus remains to develop lots primarily for homes at affordable price points. Availability of contractors and necessary materials has improved, and the cost of developing land has stabilized. While we continue to see modest improvement in cycle times, government 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. 15% of the homes D.R. Horton started in the past 12 months were on 4-star developed lots. 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 significant opportunity to grow our market share within D.R. Horton. We also continue to work on expanding our relationships with other homebuilders, with 9% of our first quarter deliveries being 221 lots sold to other homebuilders, including 2 new customers. Chris?

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. We are positioning to return to strong volume growth in future periods, supported by our increased investments in land acquisition and development over the last several quarters. During the first quarter, we invested approximately $685 million in land and land development, which was a 50% increase from the prior year quarter. 57% of our investment was for land acquisition and 43% was for land development. Our land acquisition pipeline is front-end loaded this fiscal year, and we expect the pace of our investment in land acquisition to moderate for the remainder of the year. We still expect to invest approximately $2 billion in land acquisition and development in fiscal 2025, subject to market conditions. Mark?

Our total lot position at December 31 increased 29% from a year ago to 106,000 lots, of which 68,300 or 64% was owned and 37,700 or 36% were controlled through purchase contracts. 8,100 of our own lots were finished at quarter end. Consistent with our focus on capital efficiency, we target owning a 3- to 4-year supply of land and lots and manage our development phases to deliver finished lots at the pace that matches market demand. Owned lots under contract to sell increased 51% from a year ago to 25,200 lots, or 37% of our own lot position. $207 million of hard earnest money deposits secured these contracts, which were expected to generate approximately $2.2 billion of future revenue. Our contracted backlog is a strong indicator of our ability to continue gaining market share in the highly fragmented lot development industry. Another 28% 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 and support our growth objectives. We ended the quarter with $645 million of liquidity, including an unrestricted cash balance of $132 million and $513 million of available capacity on our revolving credit facility. In December, the company amended its credit facility, which, among other things, extended the maturity date from October 2026 to December 2029, reduced pricing, and increased the aggregate lender commitments from $410 million to $640 million. We were also pleased to receive an upgrade to our corporate credit rating from S&P earlier this month, taking us from a B+ to BB-. Total debt at December 31 was $807 million, with no senior note maturities until May 2026, and our net debt-to-capital ratio was 29.5%. We ended the quarter with $1.6 billion of stockholders' equity and our book value per share increased 13% from a year ago to $31.84. 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 and have become more expensive in recent years, impacting most of our competitors. Other developers generally use project-level development loans, which are typically more restrictive, have floating rates, and create administrative complexity, especially in a volatile rate environment. Our capital structure provides us with operational flexibility, while our strong liquidity positions us to take advantage of attractive opportunities as they arise. Andy, I will hand it back to you for closing remarks.

Thanks, Jim. We are pleased with the continued expansion of our operating platform. We have made significant investments in land and land development, growing our team with best-in-class talent, entering new markets alongside D.R. Horton's footprint, and have a breadth of new opportunities being evaluated by our team. I believe there's tremendous opportunity ahead. Forestar is uniquely positioned to gain market share in the highly fragmented lot development industry. Continued execution of our strategic and operational plans, combined with constrained finished lot supply across the majority of our diverse national footprint, positions us for further success. Our guidance for fiscal 2025 remains unchanged. 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 expect our first quarter to be our lowest delivery quarter of the year, and we still expect our revenues in the second half of fiscal 2025 to be higher than the first half. The variability we experienced throughout fiscal 2024 illustrates the quarter-to-quarter fluctuations that can occur in the delivery of finished lots. We are closely monitoring each of our markets 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 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 when 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. Jen, at this time, we'll open the line for questions.

Your first question is coming from Carl Reichardt of BTIG.

I wanted a little more detail on the stabilization of costs and land development. Andy, can you expand on that a little bit, the particular aspects of horizontal development where you're starting to see that kind of stabilization? And just as a follow-on, I'm assuming the cycle time issue, as we discussed before, is really related to the entitlement and approval process and not other dynamics.

Carl, it's Mark. In terms of the cost stabilization, we've seen that really over the past trailing 12 months, our development costs have been stable. Our team has done a great job making sure the budgets are updated throughout the life of the project. We're not really seeing price increases come across our desks like we were maybe 12 months ago. So that's a very positive sign for costs. In terms of cycle times, we decreased our cycle times again, by 30 days this quarter. So it's about 120 days off the peak. And so the cycle times, we continue to see come down, but we still are seeing the entitlement hang-ups, particularly at substantial completion with the government jurisdictions. That's something we're going to continue to work on this fiscal year, with the hope that we can get down to a normalized cycle time by the end of the fiscal year.

And then on the cost leverage, obviously, recognizing the negative leverage this quarter, with a 30% increase in employee count and new market setup. How are you thinking about the growth in that employee count in new markets as you look to next year or two? Should we expect an improvement in that leverage that's more substantial, especially in the back half of this year as you build out that pool of lots you have coming? Or is that something we'd expect to see in the next couple of years? And then I have one more after that.

Yes, we anticipate that our SG&A expenses will moderate for the rest of the year. Based on our revenue guidance, we still expect it to be in the high-single digits for the year.

And then last, just on dollars, but we modeled revenue per lot versus pricing, just because it's a little easier. But this seems like particularly high relative to last year's revenue per lot. Was there something in particular this quarter that drove that higher? I think Horton talked about a 3% increase in lot supply, although obviously, it's a lag to you. What are you seeing or what can we expect in terms of revenue per lot as we go through the year, recognizing there might be some volatility depending on the particular land that you sell?

It was really just mix for this quarter. We had one particular infill project with pretty significant lot prices that skewed that ASP up for the quarter.

And we're pretty much predicting that low to mid-single-digit escalations in lot price.

And your next question is coming from Anthony Pettinari of Citigroup.

This is Asher Sohnen on for Anthony. I just wanted to ask, how has builder demand been trending year-to-date? And then have you seen Horton or any of your other customers delay or otherwise alter their scheduled lot takedowns?

The builder demand remains strong, particularly where we can get new communities open and onboard. Builders are lining up at the door essentially to get into new communities. And in existing communities, we're seeing the same. There are on occasion, when we deal with some inventory build-up, and that's project by project. If there's the ability to bring in a new builder, we will do that. We have been doing that in the past. But our builder demand is strong overall. Demand for finished lots remains solid.

Great. That's good. Could you provide more details about the delivery schedule for the rest of the year, especially considering the softness we experienced in the first quarter?

We had a very strong fourth quarter. October was a bit slow, but it improved in November, and December returned to nearly normal levels. Historically, our first quarter has been our weakest, with most of our deliveries taking place in the second half of the year. We expect to see a similar pattern to what we experienced in 2024.

Okay. I'm not seeing anyone else come into the queue for questions. I will now turn the call back over to Andy for any closing remarks.

Thank you, Jenny, and thank you to everyone on the Forestar team for your focus and hard work. Stay disciplined, flexible, and opportunistic as we continue to consolidate market share. We appreciate everyone's time on the call today and look forward to speaking with you again in April to share our second quarter fiscal 2025 results.

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