James Allen

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 totalled $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 totalled $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 seismic of our deliveries.
Mark?

Mark Walker

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.

James Allen

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 totalled $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 Smith

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 Walker

The supply of new and existing homes at affordable price points remains generally limited and demographic supporting housing demand remained favourable despite elevated mortgage interest rates and inflationary pressures. Mortgage rate buydown incentives offered by builders combined with low resale supply relative to the historical norms continue to be a driver of buyers choosing 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?

James Allen

D.R. Horton is our largest and most important customer, 16% 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 Smith

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 with (technical difficulty) 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?

Mark Walker

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. 6,300 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 (technical difficulty) 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?

James Allen

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.

Anthony Oxley

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 re-entering 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 time lines.
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.

Question and Answer Session

Operator

(Operator Instructions) Carl Reichardt, BTIG.

Carl Reichardt

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?

Katie Smith

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.

Carl Reichardt

Okay. Great. 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?

Mark Walker

Yes, Carl, I'll give you a couple of those questions. So from rating, basically, that typically takes about 120 days. And that depends again on the project in the market. That can change with geography up north, not west. But typically, I'd say it's 120 days.
A historical cycle time has been about 12 months, I would say four or five years ago, it could have even been maybe nine months, but that has grown over the years. (technical difficulty) get challenged today is really just government approvals and that time line has elongated.
It would typically take you about 30 days to get a final(technical difficulty) reported for the lot basically substantially complete and approved by jurisdiction. Today, that's ranging anywhere from 30 to 180 days depending on geography.
So that's our biggest challenge. I can say our cycle times were reduced over the past 60 days by -- I'm sorry, over the past quarter by 60 days. So that's a lot of progress we're making. And then they're off or they're down about 90 days off of our peak. So 60 days improvement over the quarter and 90-day improvement over the peak.

Carl Reichardt

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? .

Mark Walker

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

Katie Smith

Carl, did you mean on the development cost side or on the (technical difficulty)

Carl Reichardt

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.

Mark Walker

Yes. Our relative price in terms of our lot price to unbilled 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 lot of home ratio is somewhere in the mid to high 20s. Historically, it used to be in the low to mid-20s.

Operator

Anthony Pettinari, Citigroup.

Asher Sohnen

This is Asher Sohnen on for Anthony. 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.

Mark Walker

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 -- in the 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.

Asher Sohnen

Yes. And then switching gears, do you kind of have a sense of an updated time line for maybe for deconsolidation. I think I noticed you guys had a shelf filings. 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?

James Allen

As far as deconsolidation, that's really a question for D.R. Horton. That's not really something that is under our control. As far as our ability to continue to grow, absolutely, and that's our plan. We do have the ability to continue to grow with our existing balance sheet. However, we do plan to continue to add debt to our capital stack as our equity balance allows that and allows us to continue to manage our debt to -- our net debt to total capital at a ratio of 40% or less.
So we would continue to look to finance growth. Fortunately, our liquidity position allows us to be opportunistic when we do access the capital markets. We ended the year with $860 million of total liquidity. So obviously, that will go a long way to help finance our growth into fiscal 25 and beyond.

Katie Smith

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.

Operator

Trevor Allinson, Wolfe Research.

Trevor Allinson

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 favourable terms?

Mark Walker

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.

Trevor Allinson

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?

Katie Smith

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 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.

Mark Walker

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 third as well as other builders as getting 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.

Trevor Allinson

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 to gross margin in the quarter?

Katie Smith

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

James Allen

Yes. We -- what we can say, though, 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] over the last 8 to 10 quarters or so, we've seen our normalized margin, and we adjust for onetime 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.

Operator

Alex Barron, Housing Research Center

Alex Barron,

I guess my main question was, what's the general constraint to growth? Because as I look at the -- for example, the number of lots under contract with D.R. Horton has gone from 14,400 to 20,500 this year or year-over-year, yet the -- I guess the guidance is going up from 15,000 last year to about 16,000 this year. So what's the kind of constraint to growing faster in general terms?

Anthony Oxley

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 track, get it under contract, get it entitled and then take it through the approval process and finally get it developed and finished. So o 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.

Alex Barron,

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?

Mark Walker

Yes, very is market to market, but it can range anywhere from six months up to 24 months. It really depends on the actual projects specific site conditions as well as that government jurisdiction. A lot of it has to do with the landscape and geographies, (technical difficulty) conditions, but it varies from market to market and geographies.

Operator

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. .

Anthony Oxley

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.

Operator

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.