KBH - Earnings call transcript Q4 2019

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Operator

Good afternoon. My name is Devon, and I will be your conference operator today. I would like to welcome everyone to the KB Home 2019 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.

Following the company’s opening remarks, we will open the lines for questions. being Company's will X. website is replay available call the at kbhome.com conference recorded be and for Today's through February

I Investor turn Peters, to begin. would over Now, Jill to the Senior Jill, Relations. call President, you may Vice like

Jill Peters

afternoon, Devon. thank and to Good us fourth quarter you for our results Thank the joining of today everyone you, for review fiscal XXXX.

President and Kaminski, Mezger, Chairman, Hollinger, President Officer; President Financial Executive Johnson, Vice Executive Executive Bill President Matt Jeff Senior Officer; President Chief Jeff and and are Senior Operating me and Chief Officer; With Officer; Chief Vice Vice Chief and Treasurer. Mandino, Vice and Accounting Thad

the to including note filings These and today's of update be be to we are within outside the the the those guarantees considered factors materially are obligation Securities let me different the with release control, call, of Reform undertake Company's actual press this implied statements not Exchange results from discussed and Securities of Act them. results any forward-looking in or that Private Before Commission, could statements of Litigation in XXXX. that detailed Company will items and Due stated those future statements. forward-looking not begin, meaning does in during the

a at our their press addition, release of on during most of and/or can page referenced reconciliation found to In website today's in the Investor directly discussion measures today's measures non-GAAP be comparable GAAP kbhome.com. the Relations

to Mezger. with will And call that, I the Jeff turn over

Jeff Mezger

you, New Year. Good and everyone Happy Thank Jill. afternoon

their home choice reflected products fourth strong demand XXXX that buyers and home for to decisions. as with finished continued We buying prioritize solid personalization in results our quarter

in results, expansion focused produced measurable our the gross our our growth housing addition, most performance under margin. profit returns year-over-year In of plan notably,

there the of of third conclusion plan, several this the to are achievements highlight. year With

solidly on equity roughly helped up nearly we to when over return at range. plan. drive to XXXX relative within launched was level This the the net is income XXXX a doubling by plan’s its million, in to our $XXX our target that First, XXX% XXXX XX.X% point

Next, to as generated and billion capital invest we that repaying $XX the and well through to about debt. as million the million also in enabled $X us years shareholders in in share repurchases significant cash past land development from returned three acquisition operations over in while $XXX dividends

interest down As XX.X%, XX.X% ratio gross also a target we our benefiting our [ph] debt-to-capital considerably [tightened] our result, from our incurred worked margins. achieving goal and to meaningfully reduced

profitable we the our of more less leveraged larger, margin, With success company. plan, higher and are a

will expanding $X.XX. of diluted $X.X continued consistent strategy remain of increasing we on produced quarter, revenues billion a our with focus while total profitably earnings per return. and forward, to Going our Specific scale the share

our ability utilities were to revenues installed. charges. as anticipated of to leveraged our a shutdowns point up operating get income our which revenue percentage XX.X% full was to base area the were to impacted which up despite due expand higher falling year-over-year inventory-related of our some Housing in meaningfully excluding a Bay margin, fires Nonetheless, range the delayed the short XX% bit year-over-year deliveries power and we

per operating our an which driver key robust gross margin The growth XX% over our operating increase margin unit growth during community per profitability count. we to XX%. home. in This translated We to XX,XXX expanded XXX compared in of XX X% of shy was income to opened basis contributing prior in of the points quarter average just our to communities the as year new approximately

with continues to year. average with average our communities The anticipate this community XXXX, of we composition core openings from In in another XX% more portfolio to count our of of step-up count coming all the than communities. expected to higher margin nearly represent continued strengthen core our

by low solid steady continuing perspective, confidence, From interest job high macro and positive conditions growth, remain trends. characterized rates economic demographic support expansion, market a mortgage to consumer favorable

with build supply meet price demand, to While these needs in points home buyers’ operate. declining insufficient to at even continued where to be inventory November we X.X resale affordable and strong lower factors months supply

quarter, orders a our per net our In during pace increasing our than This quarter XX% power. to level accelerated about X.X in decade fourth significant of the absorption in highest a the in monthly was prices spite pace of more pricing communities community. quarter, of seasonally

last community in year’s to Taken by XX% a $X.X billion. $X.X in our quarter absorption billion net to fourth backlog pace, yearend our all as contributed in comparison soft as and growth increased together, producing a fourth XX% Net value count the our gain well a to contributing value expanded quarter, orders. rise order in XX% to

grew over to level In fourth terms a years. number homes, backlog units, in our quarter highest X,XXX our of of

to each for our strategically continue invest land and median attainable income offering in sub-market. We profit be household in position the to

buyers the many time result, this first a to our our well up fourth have the share to In highest As years. of we to time, cater move of deliveries primarily we that in total, generated buyers. first as XX% rose quarter, segment first as

homebuilding. increase at points our and core than a foundation first strength ability the competency profitability lower both our competitive more the to has of that is Our price six decades time been buyer in

of solidly recovery, buyer our sweet and positioned measured been demand, are in continue the market. We’ve we markets housing believe by we consistent their fueled the spot in time approach first as

While a we underlying capitalize efficient continue the more our demand, business. to stronger financial is and progression on metrics in this

fourth were build XXX year-over-year the down an days. X% days times Our to in improvement XX quarter,

large enables production of backlog implementation of flow and synergies highly our efficient even an Our model homes process. from is build-to-order cost working as of a

like We that the built-to-order provides. flexibility also

parts rates We as most model our rotated thereby smaller footage reflect we and cases our available prices to in and and buyers standard changes by ago, the product challenging offering where similar interest lower these livability affordability, homes were square expanding in from count year enhanced home lineup rising product A plans our using to with choices reposition room series. possible.

are with consumers’ built-to-order affordability we the preferences regardless moderated quarter. in believe we feet in about we the the for future down as aligned While were year-over-year our found steps interest well environment. fourth the subsequent footage the homes XXX square on of that took rate positioned Moreover, fall pressures, is we rates

same opted as footage time, for less revenue our the features higher At was compromising buyers value. square home studio the without per they

Our initiative was demand margins. without sacrificing successful gross pool in widening our

quarter In a KBHS mortgage mature addition ending the buyers’ throughout to our full for in XXXX, originated growing XX% continues our in KBHS of sequentially year. the capture fourth homebuilding mortgages home operation, the joint to efficiency our quarter. banking each of with at XX% venture, rate

with the the and increase XX% As in produced JV a satisfaction result, versus higher our income deliveries were a year. predictable prior customer more

our We income. expect XXXX, and result in which to greater rate capture the improve satisfaction increase in in customer an further JV should

comparison a absorption in division. to the demonstrate favorable respect couple producing will pace fourth I market the to with highlight a quarter continued Growth momentum the contributed with increase California the With region conditions orders results net a were regions in the community of as updates, generally count positive every and This in now region’s of West to both across state. market XX% beginning Coast.

more price softness as robust Area Bay in a communities to as affordable particularly our comparison points. intentional Our well shift prior the part quarter, the in reflecting and year’s ongoing delivered

expect XXXX. region its ahead, Looking our Coast West to expand further community we count in

accessible Market at fourth increase than in home a were especially locations our price in key in to growth XX%. Austin by net premier routes lifestyle new fueled the over and X,XXX significant in-migration transportation five of XXXX to job opened more division affordability. its amenities and orders highest in Our central the in quarter response We area. communities second year-over-year in a of produced half employers, decade Austin conditions strong region in

corridor in Trace, product rests North in well One outstanding household company alignment the to order is produced priced to These orders community in division’s Villa results above respect contributed median with its tech the net appealing margin. particular, doubling the strategy. average providing openings success of at area’s near in The net that affordably with of year-over-year. community this our income prime company’s an Austin

$XXX,XXX community our in opening of many becoming With home. continued allow December note, their already products. and the an now sustaining location Austin remain to resale preferred in area competitively them homeowner. of to in our $XXX,XXX, for the the of Of demand we price are January solid well market has in a conditions median early ASP and while of Strong rented relative this positioned buyers

period typically provide this this during on orders we on period due ago. net same market year conditions While update softer a is an comparison industry quarter-to-date the call, during skewed the across our to the

between roughly result, we of XXXX. We will for order net a As net is on instead community our XX% a range count order our and XX% X%. outlook of believe quarter reasonable first growth growth provide

we in this Also, in start backlog on ended XXXX. this an $X.X Year of XXXX are double-digit and and strong community in closing, return equity see for improving year. growth anticipating to we to off grow we poised with we revenue meaningfully are our productive a which mix, further our profitability, for expansion expect opportunity higher a billion New in In

positioning, year to year ahead look health are solid Given forward and unfolds. our and a the favorable we conditions, market we updating anticipating as you

review. over Jeff? call the for I turn financial now that, will Jeff to With the

Jeff Kaminski

Thank you, Jeff, everyone. good afternoon, and

year. financial outlook I as for quarter, XXXX first operational for fourth will our performance and highlights the now XXXX of full provide and well as our cover the quarter

key profitability generated fourth very are significant virtually and increase achieved measures, and strong count solid quarter We We improvements pleased year-over-year community contributed value. with growth, in our performance. backlog absorptions of in to a all which our

maturity. increased facility refinanced During borrowing our the note unsecured revolving quarter, senior successfully and we also capacity of credit our XXXX March the

housing overall decline a a were increase due selling price. in delivered $X.X In that XX% in revenues our slight the ago partially up from by billion offset was fourth to to quarter, their homes average XX% year

the the range period Looking quarter, revenues million up million, XXXX. over we to housing of a in generate first to XX% $XXX of midpoint expect at to the $XXX XXXX same

value anticipate achieve in of XXXX Having from to expectations. billion. a year housing the with $X.X up we range billion, a our full well $X.X year positioned XX% approximately $X.X fiscal backlog still to ended these XXXX ago, are year, revenues a billion believe For of we we

towards overall fourth our primarily to price mix Bay to average Coast area within due selling communities in operation. region homes slightly the delivered our quarter, price lower a in XXX,XXX, of In our West declined shift

average $XXX,XXX. first approximately XXXX quarter, projecting selling of overall the we price an For are

for XX% price will selling to overall We the compared a for ago. $X.X to year XXXX for the average inventory-related in XXXX $XXX,XXX in the charges fourth quarter including the $XXX.X Homebuilding $X.X a quarter $XXX,XXX. operating believe million to income full of $XXX.X million be and earlier of million range quarter our million, total year year increased

up income fourth points operating homebuilding basis margin XXX XX.X%, quarter. Our was XXXX the from

periods, for operating was for for X.X% year our and both charges margin quarter. quarter inventory-related earlier XX.X% Excluding current the the

homebuilding operating impact the of a margin be our range anticipate For midpoint in points basis of the we income excluding X.X% XXXX charges the will XX period first to quarter, of at any over prior inventory-related year. the up X.X%, same the

full we to range prior the XXXX to X.X%, expect of year. the at For this the XX year, over the be metric basis points X.X% an midpoint improvement of in

quarter Our charges. including housing basis XXXX points XX.X% to margin fourth improved gross inventory-related profit XXX

of XX.X% quarter to compared Excluding XXX prior the increased gross by XX.X%, quarter. impact the basis these for margin year our for the charges, points to

the improvement This quarter with interest our further incurred under the housing deliveries of in along in reduction unit outstanding reflected to our fourth growth in per revenues. lower enabling delivery X% to continued our us debt

have inventory higher previously the fourth interest, our favorably levels basis and active and of XX profit reduced lower impacted period interest our measurably the incurred housing amortization the XXXX quarter. we of margin by capitalized our values widening total which in gross debt, With points between

shift delivered our favorably headwind gross year-over-year prices to interest, with reactivated from In deliveries housing offset Coast our West from selling of from certain region lower high both and relatively XXX the was average adoption impacted homes communities, a the generated the mix margins. by reduced improvement ASC partially margin gross amortization addition and by communities of of of

midpoint period the margin Assuming basis of of over a first no the the quarter points year. inventory-related prior XX charges, range XX.X%, for in gross up profit to same XX.X% housing forecasting XXXX a we are the at

fourth reflects seasonal operating range our this leverage from to results, anticipated quarter revenues. quarter lower decrease Compared first in the

to over the points charges prior XX.X%, We range expect excluding XX.X% of XX midpoint improvement in of to our full XXXX basis a inventory-related year gross year. the at margin an be

ratio, mainly for Our was XX from year’s result ASC operating selling, X.X% up of of the basis of the ratio improved general last leverage fourth XXX, adoption administrative quarter a of and partly impact higher revenues. unfavorable points offset quarter from fourth by expense housing as the

leverage range a housing first prioritize favorable to and period. XX.X% current expect we in of SG&A from the XXXX be continue higher to containment our revenues ratio overhead We forecasting realize are expense quarter year to in of impacts XX.X% to cost as

We a SG&A year also XX.X% in anticipate of to full be that range our ratio expense XXXX will XX.X%.

tax expense due for XX%. represented quarter a effective an to of the deferred rate tax Our was income our fourth essentially tax million non-cash $XX.X approximately of and assets expense

deferred tax prior balance than year. Our was end $XXX at from million more $XX the million asset of year down

We that first quarter rate non-cash expense. for this the for for XXXX tax to to Due will full our approximately XX%. currently approximately expect our assets, year tax to and effective remaining XX% represent be we periods, continue both anticipate be a the to deferred

industry of tax enacted tax which for energy Federal of the December, impact things homes and credits December sustainable extension will the XXXX our the and homebuilding of through efficiency, reflective XXXX availability energy favorably building rate. was credits our effective energy-efficient other tax In legislation among leadership expanded XX,

favorable recently tax income estimated included to earnings a increased for in this million $X.XX, from the first up XX% XX% quarter as impacts the for up debt, year full the legislation $XXX is charge quarter. estimate. compared was of to rate diluted as and earlier share enacted per quarter Including The our net to year-over-year early the extinguishment year

This a full for year. equity to quarter of XX.X% on strong income fourth return the contributed level net

prior $X.XX end our We realize metric $XX.XX. compared by year equity the points expect an of in value with of at to $X.XX the We of and excess XXXX. ended XXX year the increased per in in to this share book billion to stockholders’ as XX% improvement billion basis

land ago. XX% to now up XXXX of communities, region. XXXX. our West to from or community up anticipate quarter in corresponding was count, held XX basis, the quarter increase mid-single-digit be of average the Coast XXX development, in our On first XXX Turning fourth XXXX will with a our as in year range. the future XX% a were X% year-over-year ended We XX% XXX for primarily XXX communities, communities from average the or a previously X% classified XX compared reflecting the end at count community we quarter, up Of year

growth to our average XXXX low we count the full in year, For range. expect community mid-single-digit in the

More quality in this in importantly, to the we our trajectory, anticipate continued improvement portfolio addition XXXX. of positive in community

a mix development, previously tailwind lower our land of a community count in improvement. gross held core will as growth to expect We drive for believe future provide future we communities margins percentage which classified for

in During or total openings, million future the fourth land land quarter, $XXX to acquisitions. drive representing and community with of the we invested $XXX land XX% million development

facility. meaningfully and balance several our efficiency and deleveraging and returns reflect measurably that while capital of our growth successful under structure the plan growing total expanding onto reducing areas our Moving revolving of our clearly continued borrowing investment our These improvement sheet, our there capacity achieving allocation objectives. focused substantially credit implementation inventory inventory include capital inactive are the our

achievements million in billion net these and acquisitions detail. of development $XXX in land cash invested and now $X.X more we flow. I generated cover will operating In XXXX,

reduced also have quarter, to of million inventory $XXX end inactive deposits our with elected under contract lot or include Starting our X% lots We total just year our refundable this to inventory. in we total count. at

refundable with As under about were XX% yearend, lots were including owned XXXX lots in our contract deposits. contract the XX,XXX XX% of under approximately and pipeline of

supply Our year in of on own the lots delivered XXXX. X.X at represented based a the year about end homes

a cash XX, were quarter, X% XXXX. the along notes and offering of million use mature of to with approximately we on scheduled million maturing net $XXX proceeds to X.X% retire that $XXX the notes in March senior senior During available our raised from all public XXXX

extinguishment of completion resulted early impacts quarter of $XX successful incurred in $X.X outstanding, Due the fourth rate will interest these a the of million. lower transactions charge by in quarter interest the debt This of and to amount debt of lower nearly fourth million. XXXX decreased

reduction notes and diluted end life convertible February in to prior all In years. compared more outstanding year count $XXX million from resulting year, reduction than senior the our the repaid addition, our in of weighted transactions total average we debt the in a as senior contributing to share X.X million year. X.X at $XXX at and extended notes our million in X.X the an of maturity these of Earlier to

activities increase XX deleveraging combined Our the end with in in past months, XX.X%. XXXX over the XXX equities from to basis strong debt-to-capital our point drove ratio year a improvement earnings our

debt-to-capital XXXX forecast from XX% be resulting in improvement accretion below our further to expect by the and end We stockholders’ the of ratio year. equity

efforts facility, improve completed more capacity by as its quarter, our maturity to we $XXX credit million unsecured the $XXX October an and During to its to liquidity, of amendment XXXX. capital enhanced and years our borrowing from to efficiency million our part than increasing two extending revolving

and year credit million unsecured availability our had with over of including We at outstanding liquidity the $X.X the revolving of ended the under year. of total $XXX cash no facility. end billion revolver borrowings under We our

execute on In the XXXX, strategy. to we our focused further principles of growth plan returns

expanding remain our improving markets, margin, priorities assets, our reducing our long-term returns, within Our tax monetizing our served our value. operating and leverage, enhancing deferred stockholder increasing revenues

take questions. now will lines. open the your We Please

Operator

Alan your comes Ratner questions. [Operator Associates. Our line proceed first with question with Zelman the Instructions] from Please of &

Alan Ratner

good to another good Congrats strong the very and quarter on Hey afternoon. guys, end year.

head was the season, number am very I I supply think, And here how curious of the the some selling does into the other been obviously well. right now? as impressive, we out of numbers the business seem big we’ve seeing spring just order builders recently as side

But just and strong curious is and there out ability on various of to in as guys much that are labor, the I XXXX. an the too as get seeing to cycle, been the am maintain ground like points seem various it what delivered far all pace all various absorption kind of these constrained related about to thinking you built there doesn’t have Just for those inputs? land, things a concern homes

Jeff Mezger

Alan, a working We lots all and for that. XXXX very into things. the on few already we and and deep own XXXX are control

just year. guided, growth As Jeff expect we this revenue

the lots on that support working growth own we in we nice So are trajectory XXXX. a and XXXX

In the it’s goal. there we we cost, able the rational our support in invest like is just input did to and tight to but land out fourth quarter terms are of

Labor down. came On for the direct flat us, it’s pretty rational. now right side, way fairly is lumber

our growing all on working the are partners have to We in we our trade on with ground. great retain relationships markets the scale our

tight cost finding and we direct So, flat. support goals. being are Land is able to are growth we but comfortable it pretty our with

Alan Ratner

Great.

Now that’s really good to hear helpful. and

The second – with the comp thank period helps a that for guide Obviously, modeling the providing a order off of year you for ago. XQ. tough from

cylinders. the move you community now, interplay first on of the kind between all past and it count is right right clicking about just now like As thinking quarter everything seems absorption and

You’ve lift. got margin

got the right growth, to here ability how is industry absolute You’ve in highest higher? your I probably but drive absorption from the now, expect to guys it you standpoint. from absorption are much reasonable an mean,

is even might a line flat where on little think past stays and upside more from get bit the should strong? come of might and be in the absorptions or terms price you the market once of that So, if maybe that maybe upside expectation about margin there that I more comps easy

Jeff Mezger

in we here, Alan. every time Good it’s on question. week And spend one

quarter decade. comments, our quarter we’ve fourth for highest seen As in a the pace in over our shared was we fourth

demand strong is strong. pace is and sales So,

on We continue highest we every return to versus pace get the in the it are toggle community where price every optimizing assets. the to week

up margin goals you’d focus now, it’d and pushing our on back goal. see up short if get for pace the more strong incrementally opposed rates our to but me conditions, We margin a our surprise maybe focus margin. our in more get pace. go because and [hold] us going wouldn’t run, [ph] ticks sales margin on of market pull higher little we a It getting as more to so be sales lifting to for is be to But the to

Operator

questions. Our Fargo. next Truman Patterson line with of proceed question with comes your the Please from Wells

Truman Patterson

guys. results. evening good Nice Hi,

potential First, your to capital talk just the tailwinds interest expense. of about lower structure wanted the and

debt-to-total in chance years. into structure below the of your think XX%. going correct kind about has that XXXX, net of work capital XXXX? kind Your couple past that Any declined of do capital down you nicely It’s that actually XX%? kind How you

Jeff Kaminski

to at this quarter of for What would third that gross I our we XX% we out end us we year the focused forecasted and remains the accomplished. which the debt-to-capital to that these have have got of by range a XX% relevant within of the down target We on. there target say that we are and end relating something had

as of in We able only have say priorities to do debt of believe leverage by within they slight our that comfortably ratio from that on more remain and range and comes been XX% as below we’ll that differences reduction. end believe XXXX we the the to see be XXXX opposed improvement to I’d with capital the accretion same the equity

focused continue the we and of We leverage higher dividend work are will opportunistically and that do we’ll level primary business on growing as so. ratio a that of our now to as reinvesting the maintain have really capital in to chances use business

Truman Patterson

Anything the okay. potential And eat or really price that improve you then, really California’s you solar Okay, California. see a some start heal this an Do possibly areas to cycle Very impacts whether the at the you’ll mandate, seen possibly actually cost demand, could can installation the stalling but and have strong all? give us point XXXX labor margins. it discuss update constraints? higher then on on coastal about questions couple you given you of solar initiative. And construction

Jeff Mezger

better The coast. say gets, it fall. you up in the showing on it’s price we higher was the higher Truman, the seeing the strong points improvement, Sure. I demand, along get than in first price it minor are lower price points markets are would the at softer

- the the positioning we it’s strong our now points very part at state affordable it’s go cater if to which $X is in the still OC there. back, in demand the rotated why to But in price little is overall, product to demand out down again million still right you houses in is. more not the aren’t But $X.X soft million, where

it’s question solar, still out is trying industry arms to and Relative a to its it’s around and get it. good playing the

this the now sure not company, in over but solar a solar We’ve homes is it, of state. aware As group if delivered largest been we’ve XX,XXX the of homes. provider

we So communities how different we and get other and grandfather it know it a in story community. is some there communities. to every In we’re do to

We have permits.

place mandates. we have nuances to have lease We in the you can already it it Order Where avoid the consumer in of not they include a either XX solar lease or the is get the past month. choice That’s a around payment those a the of you if crazy though can types number. price. has bucks magnitude system

say not way bucks. is affect XX demand going because in certainty You some it’s with can’t it

out shift could house ability in put or No toward we’ve some You get great thing demand significant doing But an have concerns so our otherwise on than there. long supply to of around, we right install payment. it been solar, for it’s as incremental more we because a we our and out now there. arms think partners the

Operator

your question next proceed of Kim ISI. Our Stephen the questions. Please from comes Evercore with line with

Stephen Kim

spend in about I very I could. my much land me for again, let quarter the wanted congratulations ask and thanks to if you the Yes, the guys add quarter.

basis. year-over-year This was spend modest pretty your and a spend quarter on your believe declined, land yearly I

for spend we to, of I think land laid kind outlook what was growth you do XXXX, that the as should curious expect you’ve And given in so out XXXX?

in that yet dollars? going to you that see could another spend land up here you decline? to think to sort you see need in do you you’ve outlined your are you of pick Or see maintain order to are going Do the growth think

Jeff Mezger

Stephen, we a versus if California. news a into XXXX. But or to down can as little deals we pursue two the the in one were the do numbers, whatever We XXXX down bit you be dry our in powder good get have to want growth.

some of of a structure. spend it’s some decline and it’s not land It’s timing, in base broad

working we to are number XXXX, now. more controlling influenced spend plan fuel and plan is did for in less But is that’s We owning laid we’d right the out growth hope bit. want the more, a way toward our we now than XXXX that little right our our that because trajectory. And our

Stephen Kim

it. Got

or helpful. whether quarter thoughts changed And the changed things I if and looks things in last communities. last of Okay. That’s or quarter, your this quarter? I that sort at I wanted see to prices Last do raised said you all you three believe two in your believe XX% not have months. said of have How your

And think that’s model built the lot to you mentioned be in weren’t really that interested you of to I rent track then also and folks. to a themes one continuing those that seems of

not see to thoughts have curious So, there? your evolved whether or

Jeff Mezger

in is comments the shared I Stephen, quarter prices fourth a pretty good. we our that prepared raised about XX% of communities which, for

Stephen Kim

Yes.

Jeff Mezger

was quarter, in So, the X.X. power purchasing there

Stephen Kim

it. Got Okay.

Jeff Mezger

stay are until rent, get growth better we for we’ll anytime struggling we on with, focused we right we on what do than the return I now as think And our homebuilders analyze the on well. landlord. homebuilders, a we’d are then, we get as a we view a a would this that And trajectory to assets

it to there mean us initiative time. have we’d opportunity we an a look not doesn’t if if rent primary out. at acquire a It asset, and this it’s for and we’ll portion be at we But figure multi-product to could of where be it it want lease, a for

Operator

questions. of Capital your next with comes the Please Our question from RBC Markets. proceed with Dahl Mike line

Mike Dahl

expected how at question had my in an a of gross K the first you those two-part communities margins XXXX to respect metrics as Jeff percentage looking related two the reactivated are us and numbers? from provide versus you for to thanks questions. just Hi, the amortized with on XXXX I taking interest could XXXX, deliveries also update and on

Jeff Kaminski

next reduced as by year-over-year slightly will gross reactivated as of I should level, do it our Same less been from the thing We much XXXX, with had in quarter, I interest XX amortization example remain we’ve reactivated. were be we the Sure, in points down – mean, that. basis it fourth basis is margin Mike. believe coming to year. seeing those tailwinds believe both reduce, points Perhaps improvement and headwinds will of the the in we not that probably than but for what XX in

But that. of there kind the we story getting to the on were of – end

saw and from is less next those I nice news change gross continuing close margin those to more opportunity. probably good our I us addition our think in both included mix communities. we on to both there cetera in upside But community for coming sell-out come the still from at in guidance But are year. tailwinds areas. some et Both metrics portfolio think year all and next to for out

Mike Dahl

Okay. as margin. Thank a you tailwinds question number be then basis up as is, points. conditions are the at to midpoint those is those well, is to you it your With related basis guidance, tailwinds to, of which XX That’s that’s be up margin like helpful. and that seem XX the the second points gross market seems midpoint speaking on kind on conservative and

give helpful. labor of you other whether about and will directs. inflation or it’s puts Thanks. Any or color So, maybe that could takes thinking the you are be us some mix-related additional

Jeff Kaminski

XXX change. our us a for it In The of community this XX% count. Sure. largest was We will XXXX, XXXX impact communities over factor community mix out. just and be over in largest beginning closed

So, bit the community quite a is portfolio different.

those opened As are to trying gross have we coming of margins many not yet. we year, communities, into forecast off which go been next

of half will of and generate the back first of lot in revenues to year. a half still we openings occur that margins in XXXX So have the the

best the we margins do to where anticipating trying are and job forecasting those will we be. can So,

most year expectations of good we’ll season At and half people our large are to where be the visibility selling the first with this point, estimates pretty refining full year. the have we spring think up very coming our critical that’s backlog I as, aware for and

quarter. like metrics we strong In do margin always and optimistic positioned be market I are and the expectations with speaking spring, as combined the through about the now, We positioned about go are to quite it. very relative time mean, we market conditions those in we’ll Probably well company. updating spring are gross year really a excited and we’ve as every we we really right we the to some been think pretty best

for we about But operating a XX margin margins basis midpoint year-over-year are our up right year the points at our of midpoint, the guidance. the right at about up now, and at operating were XX%

top-line of $X a base revenue. billion improvement right nice pretty of around So, on

So, we bottom-line. about excited will the that what to do are

Operator

of next Barclays. proceed question comes Please your question. Matthew line from Our the Bouley with with

Christina Chiu

My Hi, there for is your question or markets Are this you price Matt. XXXX? geographically. actually for any Christina community first XXXX, specifically count expectations is points are on on focused on growth that specifically, Chiu in just

Matt Mandino

land. do is, try count divisions. don’t to business our throughout. with We only try to deals community our and at and how that’s the with what don’t land budgets are grow are We forward we our If Well, so saying hitting table, the you to they much we on go we all hurdles, constrain can it. regions spend good constrain bringing they with

for in actually their West in our been for we saw XXXX, more in Southwest flattish as strong modest Coast since outsize growth, improvement, we region, little well region increase little in and as an us, modest more XXXX a community central, our market improvement very has count Southeast. saw What impact which which will revenues

with we to rates. will a XXXX on communities So they as hurdle that are factors But always, we’ll focus we opening do our as the top-line more lot as impact can hitting count. what than those many try XXXX

disciplined hurdle staying are rate We the side. very on

a first We to strength in quite focus a of that happen will move the now. really the right time bit continue company’s area in and with market on also buyers of strategy first of and be

the sweet the continue we are and in to in manage that intend fashion. to business spot right So

Christina Chiu

timing and SG&A in Okay, quantify revenue a accelerating of how are leverage growth? give XXXX of in you can got expecting light update you And growth coupled community it. maybe moderating or then, with count

Matt Mandino

Right. same through as the the on out of a year kind years trend high SG&A a see I in fourth SG&A the negative, go first ratio is, low quarter hitting revenues and we point XXXX. that in but quarter the Basically, mean, in we we usually as quarter the a lowest much always the in point it’s a and progresses expect pretty typically our we prior in it the high are at hit side, first

Christina Chiu

Thank you. Great.

Operator

line comes Please Michael of question your with proceed JPMorgan. Rehaut next from Our questions. the with

Michael Rehaut

question the margin. Yes, gross to first hi. Thanks much. spend I just wanted very the on

around Mike’s of Just trying in to some maybe rephrase questions ask of dig and in guidance. of earlier or a little terms fiscal better kind XXXX

XX XXXX. you improvement You amortization as said, had, expense in interest BPS of

improvement in expect further You rate. XXXX although a at lesser

even little it still a gross bit. a interest excluding down that’s your if core to So be margins looking half amount, of that could flat you at

I of your margin mix if improvement back earlier you the you’d are a actually an of higher to of why at a in XXXX. half easier coming least want incentives that you marketplace of just continuing perhaps save from pointed the community standpoint, understand from from, comp the think towards kind half off first of So, gross in

by least level you on And am margins given conservatism baking XX, XX, is gross just people to you are mean, than I estimates BPS averaging of you’ve to you’ve I cushion street – able are now trying what our or sure at there terms a understand that also I are beat. in basic think four contrast, quarters XX is, in, what many the been higher just and

So next to drivers the or connect after just also trying the dots and year. reconcile

Jeff Kaminski

region to The really is community from the the basis the level division to guidance rollup company. the a our the region from right division level and level, to of

So, it’s impact forecast. The a mix very much detailed huge. is

parcels what year-over-year forecast cost dealing same on land basically XX% Like are to have of that your new and basis communities inflation of, that the of you are trying you communities we are and earlier, land today. changing we I things don’t some with out based know mentioned a with selling over you our like on offset

as well the So, margins, margins buying would forecast our be gross later gross year. in we what selling as in gross base anticipating our our those margins on backlog

As I mentioned yet. selling earlier, this we even spring critical are not to season

don’t books the the and for third anything fourth really quarters. on So have we

estimate impact estimates underappreciated And I’d outside not folks I So trying you up, generally best like for cost math it’s or guidance mix paper certainly your what’s say the guys price to it’s and the your now see other. impact with own there numbers up on changeover and how of down come is, by can that and right companies it. of all as that folks just we the think our industry community or – much have simple can there, own is trying

it’s it’s it. count, of different piece store has different a different stores, big It’s markets and the mix

So, the do that spring right time, at do than in potentially the in market are is We better could this midpoint guidance number we are that of we point believe what XX% of with conditions – kind seeing. that. we

have with go the through why a That’s we year. and the numbers guidance we right around and now range stick as will you we update

Michael Rehaut

variation. that in appreciate understand Thanks, a of said be Jeff. your you better and as maybe mix point, driver versus quarter past effort just fourth pretty this actual to flipping guidance to results. I terms can to big obviously, in Maybe an

Your gross above BPS margin above your for BPS XX quarter guidance midpoint. the came the XX range, fourth of high-end in the

to So, just guidance range? had I the difference drove what of to was relative you relative curious sense if that expectations your a

Jeff Kaminski

third we were something the items did largest amortization more a two we We to expecting quarter. – thought. are the similar really bit The better in right. All little than

our XX the one much for was much of amortization headwind the have lower largest than years. really and was quarter pretty in will third basis ahead drivers in of reactivated it’s the been We

the of XX I think also was quarter to quarter were importantly, a strong from communities two margin. reactivated basis picked of pretty actually things. our the gross reactivated third a think, headwind had and but in communities lower a percentage that we the One, lifted relative revenues points the the I and function up gross margin and performance total, reduced

don’t that’s guidance increased had sales and have prices quarter spec and a we percentage other two-thirds also that forecasting spec take the quarter discount extent the those certain deliveries start up to about to was obviously the in our communities in take the within quarter we which you Jeff positive. our thing our price on usually the we have off is a could our As and we and backlog in of end less sales, mentioned, and a of during outside of of

on factors margin three are probably those the behind things beat. So main the

Operator

Please Sachs. with questions. Our Maklari your next Susan question from of Goldman with line comes proceed the

Susan Maklari

in And margin Thank seeing you. I home we as Good increase that mix can about you in are buyers the maybe down design your commentary the is about of just the modestly. just size us what And maybe you've in afternoon. first especially in – a that you there? you little give some of how even come seen as My question on more centers has are you through? guess, XXXX? on their spend the color coming and noted thinking think that

Jeff Mezger

den no Susan, option the different buyer reinforces at upgrade personalized option up that data, buyer level higher that understand same. It structural more are how picking. each there are of a will what the option. to really One buyer look – you’d look a or two pick asked are we cabinet, is really it pick produce, you because to when will or the homes cabinet and some

spend of the cost studio studio tied the goes of a size the is in while me for interesting to the What’s the home. up and goes lot the home down are

even house a little the buyer with So put it a to larger put not to ability and things in chose and they the are buying the you that – smaller had the in apparently to home was their bit tells more choosing studio. home

in accretive studio, to margin. more most priced at a margin to It’s the our margin So, not just degree. it’s to big for we normalized It’s revenue lift the part. a

as we city. or that with at that experience a per model, that community studio community our point price in based we margin So, have analysis revenue on includes that

as It’s revenue for into another don’t the We that year. baked ASP look the and guided. the to right of we our all upside the guidance. studio just part it’s now So,

Susan Maklari

of and continue know, shrunk, as this – I was more of trying to homes? the seeing is you get house more move smaller should sense lift the has as kind that you could just sure. generally I something a of Yes, a are of, get to that size

Jeff Mezger

in everybody. amenities between want Literally, everything bet. to sell everything load as is cater could, it It big different that’s studios. we we and and and home I part been and you’ve in can others it some a and could, well, of and a why home to Every smaller with buyer because so want our less

Operator

question proceed KBW. line with Our Rahmani Please questions. Jade your comes next of from the with

final be Wedbush. he will McCanless Please the question from from question. Our comes next your of question with our line Jay and proceed

Jay McCanless

Hey, Thank on. me good for you afternoon. fitting

orders Hello? run in was had, decline a the going past the had few in talk southeast that what growth? good of quarters the in quarter. I in order small terms world has part you a this because of there, question pretty about Could First on

Jeff Mezger

are at we the No, no, looking notes, Jay.

that things fourth acquired builder quarter, had bunch had and inventory of happened through. sold a in the we of One the Jacksonville that we that Landon year in last

didn’t we out was spike in of that this getting in going a there Jacksonville replicate weren’t is sales with. old because forward So product that

that So that’s The probably the big. not sum is of number it.

major in Raleigh, them. are the Orlando, is demand good. and we Tampa, business very in all Jacks, of seeing Our cities The good

So I think timing that it acquisition. was just the of

Jay McCanless

am I the closings on and that other were had, by pushed And pushed I having all XQ assumptions hear were pushed those closings of XXXX quantify any impact many your for but margins? fire, you are question how because many to the how gross were the you then affected closings could fire? the sorry

Jeff Mezger

it’s they pretty under hundred well It high a a modest impact. are but was ASPs. units, No,

significant same range So more full of quarters. end it on and had the were in last a impact about it terribly wasn’t bit the the held revenues as year we of an our at but it revenues,

not huge a So effect.

Operator

concludes session, today's this call. the and as gentlemen, Ladies question-and-answer as well

you You your may have time. this Thank now a disconnect your participation lines day. at and for wonderful

KB Home (KBH) 9 Jan 202019 Q4 Earnings call transcript