Forestar Group Inc.

Good afternoon and welcome to Four Star's second quarter 2022 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. I will now turn the call over to Katie Smith, Director of Finance and Investor Relations for Four Star.

Thank you, John. Good afternoon, everyone, and welcome to the call to discuss Four Star's second quarter 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 Four Star 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 Four Star 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 issues that could lead to material changes in performance is contained in Four Star'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. This afternoon's earnings release is on our website at investor.fourstar.com, and we plan to file the 10-Q tomorrow. 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 Dan Bartok, our CEO.

Thank you, Katie. And good afternoon, everyone. In addition to Katie, I am pleased to be joined on the call today by Jim Allen, our chief financial officer. The four-star team delivered a strong second quarter with net income increasing 68% from the prior year to $47.8 million, or 96 cents per diluted share. We also achieved a 68% increase in pre-tax income to $63.2 million, and our pre-tax profit margin expanded 190 basis points year over year to 15%. Revenue increased 47% to $421.6 million, primarily driven by a 61% increase in lot deliveries to 5,788 lots sold. We continue to make progress expanding our customer base. To that point, I'm excited to announce that during the quarter, Four Star sold a package of 787 undeveloped and partially developed lots from seven projects located across Texas for a total purchase price of $54.7 million. The lots were marketed to the purpose-built single-family rental segment of the market. As part of the sale, Four Star will complete development of those lots. However, the buyer is funding the remaining development costs. Despite the lots not being finished, we transacted at very favorable terms. Additionally, we will recognize the revenue and development profit over time without committing the additional capital required to complete the infrastructure. We refer to this as a deferred development project in our financial statements. This quarter, Four Star recognized all 787 lots in our delivery numbers and $12.5 million of their revenue. We significantly improved our capital efficiency in these communities with this type of structure. We are pleased with our ability to monetize a portion of each project earlier than if it had been sold when the lots were fully developed. Four Star has built an excellent land position in some of the most attractive areas in the country, and we will continue to pursue and capitalize on compelling opportunities. Our increasing profitability and focus on capital efficiency is translating into higher returns for our shareholders. Four Star achieved a 14.5% return on equity for the trailing 12 months ended March 31st, 2022. This was a 490 basis point improvement from the same period a year ago in our eighth consecutive quarter of ROE improvement. This continued improvement further demonstrates that our high turnover, low risk manufacturing strategy is fundamentally stronger than that of a traditional land developer. We expect our platform will gain additional maturity and scale as our teams continue to capture market share in their respective markets, driving further improvements to our returns on equity and inventory. People are key to our business, and our outstanding second quarter results are a direct result of the team's capabilities and commitment to Four Star. The operating environment was more challenging this quarter due to continued supply chain constraints combined with rising material costs. I want to thank everyone, especially our development teams and our contractor base, for their strong execution over the last several months. They made these results possible. We'll now discuss our second quarter financial results in more detail. Jim?