Good morning, and welcome to Four Star's fourth quarter and fiscal 2026 earnings conference call. At this time, all participants are placed on a listen-only mode. If you have any questions or comments during the presentation, you may press star 1 on your phone to enter the question queue at any time, and we will open the floor for your questions and comments after the presentation. I will now turn the call over to Chris Hibbetts, Vice President of Finance and Investor Relations for Four Star.

Thank you, Matthew. Good morning, and welcome to the call to discuss Four Star'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 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 factors 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. Our earnings release is available on our website at investor.fourstar.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 and presentations for your reference. Now, I will turn the call over to Andy Oxley, our president and CEO.

Thanks, Chris. 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. Before discussing our fourth quarter and fiscal year results, I want to recognize Don Tomnitz. As announced in yesterday's press release, Don will retire as executive chairman of Four Star, effective October 31st. His leadership has played a vital role in shaping the company's strategic direction and driving its significant growth. We are deeply grateful for his dedicated service and many contributions, and we wish him all the best in retirement. Now turning to the results, the Four Star team had a solid finish to the fiscal year. generating over $580 million of revenue in the fourth quarter and $1.6 billion for the full year within our most recent guidance range. Ongoing affordability constraints and cautious consumer sentiment continue to weigh on new home sales and higher mortgage interest rates added further pressure during the quarter. Despite these challenges, we increased our book value per share by 8% to $37.56 at year end and further strengthened our balance sheet, ending the year with $1.3 billion of liquidity while continuing to position us to achieve our long-term objectives. Over the last five years, we have invested more than $7 billion in land acquisition and development and delivered approximately 75,000 finished lots to local, regional and national home builders. During the same period, our book value per share increased 83% These results reflect the strength of our business model and teams that we have built across our national footprint. For fiscal 2027, we will continue to allocate capital prudently, manage inventories efficiently, and focus on generating solid returns to strengthen our market-leading presence in the highly fragmented lot development industry. With a differentiated combination of financial resilience, deep expertise, and a substantial operating platform, we are well equipped to supply home builders with the finished lots they need while successfully navigating current market dynamics. Jim will now discuss our fourth quarter and fiscal 2026 financial returns in more detail.

Thank you, Randy. In the fourth quarter, net income attributable to Four Star was $59.2 million or $1.15 per diluted share on revenue of $580.8 million. Fourth quarter revenue includes $38.7 million in track sales and other revenue. For the year, net income attributable to Four Star was $142.6 million, or $2.78 per diluted share, and $1.6 billion of revenue, which includes $129.1 million of track sales and other revenue. We sold 5,004 lots during the quarter, bringing our total lots sold for the full fiscal year to 13,545. Our average sales price was $108,300 for the quarter and $111,200 for the year. We expect continued quarterly fluctuations in our average sales price based on the geographic location and lot size mix of the lots we sell. Our gross profit margin for the fourth quarter was 17.8% compared to 22.3% for the same quarter of fiscal 2025. This quarter's margin was reduced by higher costs to close out one project due to increased regulatory compliance requirements, as well as $7.6 million of real estate impairment charges related to two projects. Excluding these items, our gross profit margin would have been 20.8%. Our gross profit margin for the year was 19.7%. Including those same items, our full year gross profit margin would have been 20.8%. Our fourth quarter pre-tax income was $78.6 million, and our pre-tax profit margin was 13.5%. Pre-tax income for the year totaled $192.1 million, and our pre-tax profit margin this year was 11.7%. Pre-tax income and profit margin for the quarter and the year were reduced by the items I just mentioned and partially offset by a $10 million gain on sale of assets in the fourth quarter.

Chris? SG&A expense for the fourth quarter decreased 10% to $38.4 million, representing 6.6% of revenue. The decline compared to the same quarter in fiscal 2025 was largely driven by lower headcount and variable compensation. For the year, SG&A expense decreased 2% to $151 million, or 9.2% of revenue. We remain focused on managing SG&A efficiently while maintaining strong teams across our national footprint to support future growth. We expect headcount to remain relatively flat in fiscal 2027.

Mark? Ongoing affordability constraints and cautious consumer sentiment continue to weigh on new home demand. Buy-down incentives offered by builders are helping to bridge the affordability gap. However, recent increases in mortgage rates are further constraining affordability. Meanwhile, home builders remain focused on shortening cycle times and efficiently managing their inventory of homes and finished lots, which is affecting the timing and volume of finished lot purchases. Our primary focus remains developing lots for new homes at prices for entry-level and first-time buyers, which is the largest segment of the new home market. However, we maintain the flexibility to pursue projects targeting other segments of the new home market as well as those offering multiple product types. Availability of contractors and necessary materials remain solid. Land development costs have been stable, which have been helped by our team actively working with trade partners on project costs and taking advantage of less land development activity occurring across the industry. We have also seen stable cycle times despite continued governmental delays. Our teams utilize best management practices and work closely with our trade partners to develop a lot to drive operational efficiency.

Jim? DR Horton is our largest and most important customer. In fiscal 2026, 14% of the homes DR Horton started were on a four-star developed lot. With 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 a significant opportunity to grow our share of their business. We also continue to expand our relationships with other home builders. In fiscal 2026, we sold 1,916 lots, or 14% of our total, to customers other than D.R. Horton. This includes 146 lots sold to a lot banker who expects to sell those lots to D.R. Horton at a future date. Excluding those lots, sales to other home builders were the highest percentage of our annual lot sales since 2018. We sold lots to more than 25 different home builders this year, including eight new customers. Chris?

Our underwriting criteria for new development projects remains unchanged at a minimum of 15% pre-tax return on average inventory and a return of our initial cash investment within 36 months. During the fourth quarter, we invested $299 million in land acquisition and development, and for the full year, we invested $1.3 billion. For both the fourth quarter and full year, approximately 80% of our investment was for development and 20% was for land. In fiscal 2027, we currently expect to invest approximately $1.3 billion in land acquisition and development. For new investments, we are prioritizing projects that are in undersupplied markets, smaller and faster turning, or offer multiple product types. For land development, we are aligning our investment pace with current demand to discipline project phasing and sub-phasing. as industry-wide development activity slows and higher rates pressure home builders and developers, our ongoing commitment to both new and existing projects keeps us well-positioned to deliver finished lots to the market.

Mark? Our lot position at September 30th was 84,400 lots, which 58,200, or 69%, are owned, and 26,200, or 31%, are controlled through purchase contracts. Of our owned lots, 8,100 are finished, down 16% from the third quarter. Majority of our finished lots are under contract to be sold. Consistent with our focus on capital efficiency, we target owning a three to four year supply of land and lots and manage our development phases to deliver finished lots at a pace that matches market demand. At year end, 21,500, or 37% of our own lots, were under contract to sell. Approximately $200 million of hard earners' money deposits secure these contracts. which are expected to generate $2.2 billion of future revenue. Our contracted backlog supports our ability to continue gaining market share. Another 18,600 lots or 32% of our own lots are subject to a right of first offer to DR 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 year with $1.3 billion of liquidity including $657 million of unrestricted cash and $658 million of available capacity on our undrawn revolving credit facility. Total debt at September 30th was $794 million with no senior note maturities until fiscal 2028 and our net debt to capital ratio was 6.7%. Stockholders' equity at year-end was $1.9 billion, and our book value per share increased 8% from a year ago to $37.56. Four Star's capital structure is one of our biggest competitive advantages and sets us apart from other land developers. Project-level land acquisition and development loans are less available today and continue to be more expensive, which affects the majority of our competitors. Those loans are generally more restrictive, carry floating rates, and create administrative complexity, particularly in higher interest rate environments. Our capital structure provides us with financial and operational flexibility, and our strong liquidity positions us to take advantage of attractive opportunities when they arise. Andy, I will now turn it back to you for closing remarks. Thanks, Jim.

Fiscal 2026 was a solid year for Four Star. We generated $1.6 billion of revenue and grew book value per share by 8%. We continue to execute our strategy by investing in land acquisition and development across our broad operating platform. We also strengthened our balance sheet, ending the year with $1.3 billion of liquidity. Thank you to all of the four-star team members for your continued efforts this year. As we look forward to fiscal 2027, based on current market conditions, we expect to deliver between 12,000 and 13,000 lots and to generate $1.4 to $1.5 billion of revenue. Similar to fiscal 2026, we currently expect our first quarter will be our lowest lot delivery and revenue quarter of the year, and we expect our lot deliveries and revenues in the second half of fiscal 2027 to be higher than the first half. We are closely monitoring each market as we strive to balance pace and price, maximize returns for each project. Four Star has consistently demonstrated its ability to navigate changing market conditions. While we expect home affordability constraints and cautious home buyers to remain near-term headwind for new home demand, we are confident in the long-term demand for finished lots and our ability to gain market share in the highly fragmented lot development industry. We are well positioned for continued success with our portfolio across our diverse national footprint, operating expertise, and strong balance sheet. Matthew, at this time we'll open the line for questions.

Certainly. Everyone at this time will be conducting a question and answer session. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset if you're listening on speakerphone to provide optimum sound quality. And once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Thank you. Our first question is coming from Ryan Gilbert from BTIG. Your line is live.

Hi, thanks. Good morning, guys. I'm wondering if you could talk in a little more detail about how you plan to achieve the mutually stated goal of one-third of DR Horton's deliveries on four-star lots and maybe some specific levers that you can pull in 27 or 28 to make progress towards that goal. It just seems like if you're going to do 12,000 to 13,000 lot sales in 27, that's a deeper year-over-year decline than what Horton is guiding to currently.

Thanks, Ryan. You know, we have made significant progress on that one third of their in a lot of markets. It's just that they're in so many more markets than we are. We're in 65 markets and they're in around 130. So, you know, as overall, we have to grow at a faster pace than they grow, which has has been a challenge. but as we've scaled up the organization, particularly with our growth out west, we think we can make meaningful progress in 27 and into 28.

Okay, got it. And then just on the cash balance, you know, 650 million, can you talk about deploying that into, you know, how you're thinking about deploying that into land versus potentially strategic opportunities or even buying back the stock given where it's trading?

Yeah, hi, Ryan. So we're still planning to invest $1.3 billion in land and development. The majority of that will be in development for fiscal 27. As far as stock buybacks, it's not that the current stock price isn't compelling. We just believe that the highest priority for our cash is to reinvest in the business and the long-term growth opportunity that this company has.

Okay, understood. And then last one for me, just given the weakening in the end market, the housing market over the last few months, are you seeing any distressed opportunities start to emerge in any of the markets that you're operating in that could be a potential opportunity to deploy that cash? When we had talked, I think probably coming up on five or six months ago now, it seemed like there was pretty limited opportunities on the distressed front.

We are seeing more opportunities pick up, particularly in the back half of the quarter. We're reviewing each of those opportunities as they present themselves, and we think that there will be more opportunities as the year persists.

Any detail that you could provide there? I'm wondering if maybe you're seeing some opportunities come out of the land banking competition.

haven't really seen it out of the land banking competition. I think it's more around private builder developers that are looking at what happened in 26 and what the forecast is for 27. And they're looking for ways to unlock the value of their organizations that they've built, understanding that the next year or longer may be a rougher environment.

Okay, got it. Thanks so much, guys.

Thank you.

Thank you. And once again, everyone, if you have any questions or comments, please press star then 1 on your phone. Your next question is coming from Paul Przybylski from Wolf Research. Your line is live.

Good morning. To start off, I was wondering, could you frame the gross margin degradation between maybe higher input costs or some better pricing you may have to offer your customers?

The lower gross margin in the quarter was really caused by a couple of unusual factors. We had two impairments in the quarter for $7.6 million, and then the closeout of another project that had additional costs for legal and regulatory requirements around onsite stormwater remediation and maintenance. Those two things together, really, if you exclude those, our gross profit would be 20.8% and really within kind of our normalized gross margin that we've seen for the last several years between 20 and 23%. Okay.

We really haven't seen increases in costs. Earlier in the year, we actually had started to see some decreases in certain components. I think those in the second half of the year were largely offset by some other increases, particularly related to fuel. But really, pricing has been pretty stabilized, and contractor availability definitely has improved.

And couple that with a reduced land development activity. I think that there will be some opportunities if the inflationary pressures can be reduced to decrease our cost structures, direct costs.

One other point, too, if you just look at our core lot sales margin, which excludes track sales and impairments, for the year was at 21% compared to 21.3% last year. We really haven't seen a significant decrease in that core lot sales margin.

Okay. You mentioned the West being an opportunity to increase your your share with Horton to get closer to that one-third goal, but that has kind of been one of the weaker demand regions. Do you go ahead and purchase lots now or do you kind of sit on the sidelines and wait until that market stabilizes so you can get a better understanding on your underwriting?

So, you know, we're focused on our smaller, quicker turning deals. You know, we're not looking to do really large projects. And we're the, you know, particularly where the Horton team has a great pipeline, we're able to open up and very efficiently start to expand in those markets. And we've seen that have Good success over the last couple of years. We'll continue with that program.

The other thing, too, is we have a very robust pipeline, so it's allowing us to select investments that really fit our model. That's something that we're seeing as well.

Okay. And just my last one to follow back up on the cost. You really hadn't seen oil, I guess, pricing flow through much in 2026. but are you getting surcharges or any increases in 27 that might be a headwind for your margin?

We are not seeing today any material impact of that. A lot of that's due to, again, reduced land developer activity and we're seeing more contractor availability. The more contractors we have that bid our projects, we're really pushing back on that to the extent that we can. Our teams are working with our trade partners day in, day out to find ways to reduce costs. If that was to come through. It's going to take, you know, it takes us 12 months to put a lot on the ground, so it's going to take some time for those higher costs to work their way through.

Okay. Thank you very much.

Thank you. That concludes our Q&A session. I'll now hand the conference back to Andy for closing remarks. Please go ahead.

Thank you, Matthew, and thank you to everyone on the four-star team for your focus and hard work. As we enter fiscal 2027, 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. Everyone, this concludes today's event. You may disconnect at this time and have a wonderful day. Thank you for your participation.