Q3 2026 FORESTAR EARNINGS CONFERENCE CALL

Good morning and welcome to 4STAR's third quarter 2026 earnings conference call. At this time, all participants have been placed on a listen-only mode and the floor will be open for questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, Chris Hibbets, Vice President of Finance and Investor Relations for 4STAR.

Thank you, Jenny. Good morning, and welcome to our call to discuss 4STAR's third quarter results. Before we get started, I want to remind everyone that today's call includes forward-looking statements as defined by the Private Security Litigation Reform Act of 1995. Although 4STAR 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 4STAR 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 4STAR's annual report on Form 10-K and its most recent quarterly report on Form 10-Q, both of which are filed with the Securities and Exchange Commission. Our earnings release is on our website at investor.4star.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 included share increase remains strong with visibility towards $2.3 billion of future revenue. Affordability constraints and our inventory investment significant milestone this quarter. Delivering our $100,000, we made its transformative investment in four start in 2017. Four Star has grown inventory efficiently, maximizing returns, and consolidating market share. With a strong balance sheet, operating expertise, and a diverse national plan to navigate market conditions, we now discuss our third quarter financial results in more detail.

In the third quarter, net income attributable to Four Star increased 9% to $35.9 million or $0.70 per diluted share, compared to $32.9 million or $0.65 per diluted share in the prior year quarter. Our pre-tax income increased 12% to $48.7 million compared to $43.6 million in the third quarter of last year, and our pre-tax profit margin increased 80 basis points to 12% prior year quarter. Revenues for the third quarter increased 4% to $407 million compared to $390.5 million in the prior year quarter, marked 1,659 lots in the quarter.

First profit margin for the quarter was 20.7% compared to 20.4%. SG&A expanded $2 million compared to $37.4 million. At the percentage of revenues, SG&A was 9.4%, down from 9.6%. Our headcount declined 9% from a year ago, as we remain focused on efficiently managing SG&A while maintaining strong teams across our national footprint to support. We expect our headcounts to remain relatively flat for the remainder.

DR Horton is our largest and most important customer. 14% of the homes DR Horton started in the past 12 months were on a four-star. It's a mutually stated goal of one out of every three homes DR Horton sells to be on a lot developed by four-star. We have significant opportunity to grow our business with DR Horton. We also continue to expand our relationships with other home builders, selling 289 lots, or 8% of our third quarter deliveries, to 12 other customers this quarter.

Our total opposition on June 30th was 91,700 lots, of which 62,200, or 68%, were owned, and 29,500, or 32%, were controlled through purchase contracts. 9,600 of our own lots are finished at quarter end, and the majority are under contract to sell. Consistent with our focus on capital efficiency, we target owning a three- to four-year supply of land and lots to manage development phases to deliver finished lots at a pace of... At quarter end, 23,500, where 38% of our own lots were under contract to sell. $202 million of part-earned money deposits secure these contracts, which are expected to generate approximately $2.3 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 31% of our own lots are subject to a writer-first offer to D.R. Horton based on executed purchase and sales. Four Star's underwriting criteria for new development projects remains unchanged at a minimum 15% pre-tax return on average inventory and a return of our initial cash investment within 36 months. During the third quarter, we invested $312 million in land and land development. Roughly 80% of our investment was for land development, and we moderated our land acquisition investment of discipline. Our current land and lot position will enable us to return strong volume growth in future periods. We still expect to invest approximately.

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 approximately $1.1 billion of liquidity, including an unrestricted cash balance of $395 million and $670 million of available capacity on our undrawn revolving credit facility. Total debt at June 30th was $793.8 million, with no senior note maturities in the next 12 months, and our net debt-to-capital ratio was 17.7%. We ended the quarter with $1.9 billion of stockholders' equities, and our book value per share increased 10% from a year ago to $36.40. Four Stars 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 have become less available and more expensive in recent years, impacting most of our competitors who generally rely on this type of financing. These loans 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. Four-Star team delivered solid results in the third quarter, including increased revenues and profits while further strengthening our balance sheet. As outlined in our press release, we are maintaining our fiscal 2026 lot delivery guidance of 14,000 to 14,500 lots and our revenue guidance of $1.6 billion to $1.7 billion. Our teams have a proven track record of adjusting quickly to changes in market conditions. We closely monitor each of our markets and balance the pace and price of lot sales to maximize returns across our projects. With more than 200 active projects across our broad national footprint, we have operational flexibility to allocate capital strategically based on local demand and market dynamics. Although home affordability constraints and cautious consumer sentiment are expected to remain near-term headwinds for home demand, we are confident in the long-term demand for finished lots and our ability to gain market share in highly fragmented lot development industry. Consistent execution of our strategic and operational plans, combined with constrained supply of finished lots across many of our markets, positions us well for further success. With a clear strategy, an experienced team, and strong operational and financial foundation, we are optimistic about Four Stars' future. Jenny, at this time, we will open the line for questions.

Thank you. The floor is now open for questions. If you have any questions, please press star 1 on your phone keypad now. We ask that while you're posing your question, you please pick up your handset, if you're listening on a speakerphone, to provide optimum sound quality. So star 1, if you would like to ask a question. Please wait a moment whilst we poll for the questions. Thank you. Our first question is coming from Ryan Gilbert of BTIG. Ryan, your line is live.

Hi, thanks. Good morning, everyone. I was hoping you could give us an update on the competition that you're seeing in the land market from other land developers and land bankers as well. Horton talked to maybe a slower than expected home buyer market in the quarter, and I'm wondering if that translated into the land market as well.

Land market's been relatively stable. Haven't seen much change in land price. We have seen a little bit of improvement on being able to negotiate terms, for example, getting land on takedowns, getting through full entitlement and permitting. So we're able to focus on shovel-ready deals. Overall, I would say we'd see a somewhat less development activity across the board in quite a few markets. But, you know, most markets are still slightly undersupplied. So we think that gives us opportunity for future growth.

Got it. Sorry, slightly undersupplied from a finished lot perspective.

That's correct.

Okay, got it. I'd appreciate any directional thoughts on 2027, just given the decline in your controlled lot count. Do you think that the land position puts you in a position to grow market share in 2027?

Yeah, our own lot supply, we want to target that to be around three to four months of supply today. I'm sorry, year's supply. Today it's a little bit over, just north of four, so we feel good about our own lot supply. We have to finish lots on the ground. this year to execute, and moving on to next year, in terms of consolidating market share, we feel really good about our opportunity to grow our market share, not just within DR Horton, but with other builders.

And we have a very robust pipeline of future projects, so we think we can expand in the Horton footprint as well as with some third parties.

Okay, great. Then any change in the M&A pipeline or opportunities for growth via M&A? I'm just kind of looking at the cash balance building over the course of the year.

Yeah, I think there are opportunities. We continue to see opportunities. So that's part of the reason we want to have strong liquidity is to be able to take advantage of opportunities when they arise.

Okay, great. Thank you.

Thank you very much. Just a reminder there, you can still join the queue by pressing star one on your phone keypad. Our next question is coming from Trevor Allenson of Wolf Research. Trevor, your line is live.

Hi, good morning. Thank you for taking my questions. At times in the past when the market's been weaker, you guys have used that as an opportunity to pick up headcount to try to help grow your share. I think here recently, including in the preparator markets, you've continued to talk about keeping your head count flat. So I guess I'd ask, you know, what's different this time with weaker conditions? You know, why are you not, you know, being more aggressive to pick up head count like you have in past periods?

So we had pretty significant head count growth in 24 in the first half of 25. We intentionally moderated that in the second half of 25 and have been relatively flat, slightly down this year. We'll see an increase in headcount as we go into 27 as we develop out more land capabilities, particularly out west.

Okay, gotcha. Makes sense. Second, then on cycle times, can you update us on how those are trending, maybe where those stand versus a year ago or what you would consider a normalized cycle time for you guys? And then historically, the municipalities have been frequently cited as the biggest bottleneck. Are you seeing any release there?

Okay, I'll talk about cycle times first. Contractor availability continues to free up, not just free up, but also we're seeing what we would say are A-rated contractors we'll be able to utilize. We do manage our developments in phases. Cycle times, they settled in around 12 months. We're currently operating in the 12-month cycle time. We do think there's further opportunities for efficiencies. And you hit the nail on the head, I think, basically are complete to close in terms of governing jurisdictions, that's kind of been our bottleneck to reduce our cycle times further. But I do believe there's opportunities to reduce our cycle times as we go into the future.

Great, definitely encouraging. And maybe one more if I can. Gross margins in the quarter were at the lower end of your 21 to 23 percent historical range. I know there's always mixed impacts, but we've also seen diesel costs come up here. Were there any impacts in the quarter from Dethil as well, or is that primarily a mixed impact?

Not really. It's primarily mixed and just the environment, just a slower absorption environment. As we manage price and pace on a project-by-project basis, our margins have been kind of the lower end of our historic range over the last three or four years.

Okay, makes sense.

Thank you for all the color. Good luck moving forward.

Thank you very much. and our next question is coming from Ryan Gilbert of BTIG. Ryan, your line is live.

Hi, thanks. Just a quick follow-up from me. I think Horton mentioned some relief on horizontal construction costs on the call, and I'm wondering if that's something that you're seeing as well and to the extent you are seeing some cost relief when you would expect that to flow through the income statement.

Our costs have stabilized, I would tell you, over the past 12 months. I mean, we're seeing some reductions in some categories, and we're seeing some increases in others, but I would say relative to direct costs, they're pretty stable. We haven't seen a big decrease.

Okay, got it. Thanks, guys.

Thank you very much. Well, we appear to have reached the end of our question and answer session. I will now hand back over to Andy for any closing comments.

Thank you, Jenny. and thank you to everyone on the four-star team for your dedication and commitment. Let's stay focused, flexible, and opportunistic as we continue to strengthen our market position. We appreciate everyone's time on the call today and look forward to speaking with you again to share our fourth quarter and full year results on Thursday, October 29th.

Thank you very much. This does conclude today's event. You may disconnect at this time and have a wonderful day. We thank you for your participation.