KBH - Earnings call transcript Q3 2021

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Operator

Good afternoon. My name is Alex and I will be your conference operator today. I'd like to welcome everyone to the KB Home 2021 Third 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 line for questions. being company's will XXnd. website, is replay available call the at kbhome.com conference recorded be and for Today's through October

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

Jill Peters

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

Kaminski, Mezger, McGibney, Executive and Executive Officer; Operating and Rob Executive On Financial Presidents Hollinger, Chief Officers; President Officer; the Officer; Vice Matt Senior and Vice and Thad Jeff call and Chief Vice President Chairman, President Johnson, Senior are Chief Co-Chief Vice Jeff and and Bill Treasurer. Mandino Accounting President

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

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

Jeff Mezger

afternoon. and you, Thank good Jill,

results generating drive completed challenges significant quarter demand, we homes expand growth housing on the great metrics in continue performance equity. market returns-focused while across and getting a in industry-wide scale delivered. help reflected we in also third increases results our higher as return of facing while a our as solid Our key year-over-year will to majority produced These our experiencing

municipal and fourth into pushed X as in the along build quarter, extending and get our XXXX progressed deliveries the chain the to in and times highlights address about intensified delays, shortfall our and revenues. our by deliveries are sequentially. our similarly many, quarter quarter weeks delay our resulted into want supply into quarter I fourth of to quarter. first This with Before deliveries will in Disruptions many there I some

inventory-related to the produced We taking to delays, $X.XX basis delayed with total base, these an to of steps national nearly expansion aggressive share with profitability simplifying per even products our We excluding points of grew our prior manage suppliers including and we period revenues through build are deliveries. lost XX% partnering diluted year which expanding margin accomplished and We times. XX.X%, from stabilize driving $X.XX. billion, the compared our earnings our a year-over-year, XXX to was as up subcontractor $XX,XXX. of This per charges, achieved leverage XX% nearly operating unit income the our in

related margin are of effectively XX% Our price a we gross highlight pace, to particular starts was managing optimize that and asset. each demonstrates and

land remaining rotate acquisition into a inventory position In to lots allocation, of almost quarter, our to continuing we in We portfolio $XXX lot about the As our communities. or we take invested balanced third top controlled with to and disciplined with capital priority. growth, investments to in a approach million owned our development. expanded higher-quality continue XX,XXX

have ROE. over growth in in a this strategy, we in $XXX scale and XX% our meaningful higher embarked with repurchases further returned of cash dividend million our the and These we $X to stock. projected expansion will of returns-focused stockholders regular on both investments, expected these in through increase beyond level, produced equity of combined quarterly to our operating to return our addition enhance on especially In significant and Since amount our year's XXXX cash gross we billion revenue when repurchase margins. our

industry the the expanded, sustainable. across we recognize improvement have to is equity believe low on rate we in range meaningful, that of a mid-XX% our returns and return is While

of to for increasing announced the is McGibney Matt and Co-COO to objectives Vice role a execution. quarter, Rob our and Central growth and in Southeast our structure We with the mind: created Mandino. During our is enhance on returns accelerate profitable a equity; X business promotion our Southwest order shares to regions, Co-Chief in Rob Coast for of responsible we the regions. he and Executive with Operating President Matt Officer, drive simple West and to responsible

will call specifically questions me this respond chain proven In regional done opened new oversight become in leaders join issues months, on supply many with environment each build in a the our of geographically that the X being more has to the allow of I regions can build will their responsibilities, to quarter, communities municipal leadership. Having enabling mentioned continue third operating as hands-on delays successfully next is improvement compress our more Rob marking that over community and that and count XX over key The We sequential corporate industry complex Rob running each over on to speak the their times. addition have of greater and X earlier division Matt within quarters. to later past what approach times. well. to strategic is and we functions collaboration and a impact and in operations anticipate XX focused, for the start will regional day-to-day more our their as given Matt

year-end driving and the expect that XXXX. to referenced, growing expand count in to new pipeline strong With XXX our community we I communities, lot acceleration roughly by

level. orders accelerated community more in typical Our year-ago remaining a X.X year the quarter elevated reflecting net were quarter. and seasonal orders while X.X a decline strong third sequentially result a prior Net at pattern represented a historically monthly per year-over-year quarter the absorption during in against from X,XXX, to the small

in was moderating our up pace, and our more order with actions year-over-year. However, XX% taking net than price value

homes our X,XXX during started quarter. the releases limiting to to selling compares the quarter of of continue sold. and This to ago backlog. of past We build focus year compressing in these on have our production, our prevent homes with times currently our stage, XXX approximately starts is X,XXX. unsold already getting homes and foundation from deliver to right pace are backlog lot We homes the now X,XXX to XX% over in about Only our production, our overextended manage these

are With net in growth. order we our billion, margin to the rise value $X for the future foundation laying

for FICO an of XX%, is score our down-payment is $XX,XXX, to level historical our our points above solid, remains the remain Our buyers tells buyer. while at translating profile attainable. is pricing and a that homes for noteworthy strong our of of power us credit our XXX and prices higher The demand pace average almost profile first-time with price which

for monitor addition, customer homes footage the stable. internal purchased changes In in indicators remain of the or spending in square studios that behavior, including our we design

billion. future at over Our XX,XXX $X.X homes representing roughly revenues of stands backlog now

foreseeable our our with This, a in at for and backlog in cohorts together business Gen among These the and been is support in sustainability. third Our received a national to the serving is the attainable, market buyers well and Zs, gears up KB rates of capture drivers together as record industry. most highest future. leader support significantly going moment, XXXX our place in demand value the a from our roughly and another to supply EPA, position which number the build-to-order year-over-year an absorption year and to our healthy of higher I demonstrating which and margins recent in why points backlog. are to achievement exists our model, compelling XX of revenues X insufficient believe first-time demand value ENERGY position Home who in this homebuilder. the quarter, forward. with conditions choice An in our for XX% from of growth energy-efficient nearly us deliveries positioned the awards Homeownership the millennials margins personalization the to for which XXXX. within want market significant has $XXX factor we is consistently finish remains level represent leadership meet further XX% in price excellent have million. experience This in Switching highlight STAR expansion

which total our while of to our the buyers continue are homes. program footprint proud carbon forward, to the We helping to part reduce moving of for lower homeownership is our doing cost environmental our

I for their Before employees through the I shortages wrap efforts and outstanding our up, would recognize and day like of all thank municipal every working of challenges and material delays. to industry-wide

we as margins and We have in on count our anticipate at supported bigger year generated and revenues that team service. XX% by with community margins to is going and focused return share closing, as higher well further growth and are this considerably on In about a repurchase. into business committed We improved equity of operating expansion higher remarkable returns. XXXX recent in meaningfully a a that customer execution double-digit is

return low Jeff the sustainable on is Beyond over in With turn range. financial next to year, equity believe we Jeff? a call to review. I'll for that, the now mid-XX% our

Jeff Kaminski

quarter, earnings quarter, of for Thank you, several nearly in increase highlights drove fourth third in a revenues improvements per XXXX key housing current performance Jeff, XXXX review the everyone. for I our expected will our financial summarize afternoon, now improvements discuss the and quarter good third outlook expansion share. in all metrics. metrics, produced diluted in measurable year-over-year our XX% In including XX% we a the that our and

a and land significant support earnings. continued repurchase development stack, things, substantial enhance among and made land We will share and also future growth completed investments other to per share returns in

XX% $X.XX an price. quarter from in year period. XX% a reflected for revenues number delivered average the increase their for This homes overall Our and grew to of improvement in the housing prior the million billion selling $XXX rise

building our our were We extended As build apply markets. deliveries that and challenges Jeff in tempered labor quarter in outlook. times will our similar most to current shortages our material quarter fourth of constraints have these industry-wide factors and considered anticipate by served discussed,

backlog, billion. of be housing third each $XXX,XXX will market. over our value driven by delivered homes our quarter, expanded approximately range reflecting increases rose from selling end to $X.XX the In of Considering fourth our quarter to $XXX,XXX, under construction the X billion backlog the revenues the expected anticipate cycle price ending our homes strength Our regions. in strong of times, housing average quarter XX% and approximately we of overall in of $X.X the our to construction status billion $X.XX

selling average represent are would For price overall year-over-year an of the projecting we which X%. a quarter, $XXX,XXX, increase approximately of fourth

homebuilding margin third in operating $XX.X margin XX.X% income due million quarter. SG&A $XXX.X and expense both compared gross to basis our to points earlier XXX the profit Operating increased in income year Our as to ratio. million improvements quarter improved to

earlier points basis year-over-year of XXX Excluding current to the million inventory-related $X.X year quarter quarter, was in our $X.X million up XX.X%. margin the in and charges operating

will charges, the approximately For be earlier to expect inventory-related fourth year our the income operating margin, of homebuilding impact quarter, the in quarter. we XX.X% excluding compared any XX.X%

Our mainly This XX.X%, quarter interest. a XX.X% for healthy profit year market the margin environment points margin from housing of amortization by price the lower basis reflected housing favorable dynamics expansion supported selling gross for was up and period. capitalized XXX prior

margin inventory-related year-over-year points the basis XXX for XX.X%. Excluding quarter charges, was up our to

adjusted for the same amortization margin as Our which the charges well XX.X% was previously compared interest for as XXXX housing of period. inventory-related gross XX.X% third excludes quarter capitalized the profit to

peak charges, forecasted inventory-related deliveries in impact when reflecting quarter we our started. were gross be of profit home fourth quarter no fourth of margin lumber XX.X% believe range to the Assuming housing XX%, will our the prices

XXXX compared quarter increased to general as compensation costs with selling, basis leverage, for growth. higher offset quarter, X.X% XX.X% resources of primarily plans third the XXX to due ratio and to partly operating and expense by associated additional improved support employee performance-based Our points the administrative for by

improvement in that expense quarters fourth business our believe or year for this our This quarter. roughly fourth the same in XXXX housing remain the XXXX SG&A the ratio XX.X% approximately represent position growth and an would third we as XX%. quarter revenues, As second will of we from

effective Our net was tax quarter for reflecting energy income credits. rate million approximately $XX.X of federal tax expense, tax the $XX.X of XX%, of million

to or be net for rate approximately effective million XX% reported quarter $X.XX the for favorable income to year share period. a for of diluted year quarter per our fourth approximately the credits including per Overall, or $XX.X we prior energy small compared from earlier tax third for tax $XXX.X expect $X.XX diluted million impact the compared XX%, the We to

to now count. Turning community

end XX% XXX year communities for of of with quarter average to XXX earlier the We from communities sequential quarter. as up quarter decreased the a ended sales quarter. XXXX the quarter. compared basis, third the communities On as XXX from second opened third anticipated, were the we of the end at XX Our

of our acquisitions. nearly expect to invested new million trend total we invested we fourth and that XXXX. net to XX-year this notes December cash prior We sequential of strong up of portion XX% X% to controlled of a first XX, we average $XXX X resulting $XXX our third ended of community in annualized amortization The the result redemption par redeem the the senior community of used quarter, X% of continued issuance, In third notes of redemption steady quarter count year. loss credit including unsecured in third in in $XXX achieve of as development count community due of XX,XXX our drive At XXXX lots. interest we new in and early remaining our $XX significant savings the $XXX land, acquire billion million under partially over with and lowering by to senior $X million during new approximately $XXX revolving lots compared end, the through openings last count. be our and early from the believe million of debt a to offset community in quarterly tendered billion owned interest to the a with million The at planning decrease will We $X.X gross senior are quarters in total, this million million, week. issued redeemed million our on the X% land land profit $X.X year, nearly margins. the $XXX the the in XX,XXX X% We representing We quarter. were and had quarter facility. quarter quarter increases slightly will of all contributing proceeds a growth the liquidity notes, recognized the count fees single-digit high of continued or number senior We XXXX. housing included available In $XXX of million over notes value June, year-end supply

addition, million we margins. reduce and incurred see notes to maturity X.X% as in the senior In opportunity $XXX gross future XXXX September another interest of enhance

During shares we shares equity million. return of going a cost million outstanding approximately earnings repurchased The forward. quarter, incremental of of an represented shares stock the will X.X at improvement and $XXX.X repurchased total third on common per X% in approximately our provide and total share

of diluted count weighted for the calculating earnings million we quarter full For share, and estimate for fourth purposes of a year. the XX.X share per XXXX average XX million

ongoing XXXX, year-end throughout are supported For forecasting $X housing over count we revenues billion, and next community backlog, of by demand environment our an XXXX year. growth strong anticipated

growth average to expect new we the during XXXX. as with be increases we drive year-over-year be quarters community We XX% forecasted compared ending year full the in double-digit believe count XXXX about XXX our X count. approximately sequential community Consistent XX% X to over next about that discussed past the higher count community year-end quarters, will have up the and openings will

expansion ratio, margin Further, next result gross improvement in year-over-year a increase combined with a increase will operating in the operating expense quarter, along higher a guidance the that in for to our measurable believe SG&A anticipated also fiscal for with the positioned margin margin. We recent in a our both and level above targets expected repurchase, meaningful to In in well return fourth benefit to XX% the XXXX we share XXXX believe drive of year. we on the and improvement are summary, approximately achieve equity quarter for should XXXX. relative the scale,

pace, XXXX our full margin and in scale, improvements operating metrics virtually notable housing margin. key gross results our forecasted significant year Our across with represent increases absorption all

in XXXX. equity and believe year our We will stockholder particularly further future on and return returns model growth on pleased our focus and and larger enhancements the In profitable accelerating forecasted leveraging produce in scale, build-to-order anticipated attractive are full addition, improvement in ongoing our measurable our expansion inventory with our expanding by profile compelling value book periods. uniquely business in both we

lines. Alex, questions. open please now take your will the We

Operator

first the of Our Instructions] Stephen with [Operator ISI. line Evercore comes Kim question from

Stephen Kim

the seen something your is and which saw One interesting we the of you leverage builders do haven't today that it, do. we was your increased the to in things share actually lot a results repurchase, of

And your may a And targeted the to that, us you do of you was sense how if the cycle? is could trend curious in as course where that so leverage going to be I give think then over the term? near for

Jeff Kaminski

I Steve, actually basis we're of the at Sure, can pro you -- leverage the the end at XX forma, down look from points take When quarter. look you our end actually, that. the if second quarter, of at

reflected not results. remaining wasn't So we actual off subsequent the quarter to end, the tendered it in that were paid and notes

and So like now, operate pretty I I time our been we'll repurchase We just year above then business company, appropriate. million] comfortable little down future and the time, range down saw and of points], basis in refinance as quarter help redemption took what shares think, We've leverage some excess feel cash finally, result with a to opportunity, the tremendous the for ratio. said. at we in continue we're and delevered of some bit tender; current XX% about -- and think, out needed to the actually same about new by we the to the grow utilize over a September. [XX the some I the and that's below and in really issuance the and And that through [$XX this a the also, transaction

where now stands it for right So kind of us. that's

Stephen Kim

you where level higher course of range get around be but wanted below that Not that the numerical give a us expecting a a necessarily, that to seeing manage thinking guys sense for simply are -- Is you should been the that saying that's years? what level you I level I we've just to a like builders. you to But from or of than mean for next much are the XX%? just over if XX% you several that we it's of the Jeff, is expect be sort could other business bad a

Jeff Kaminski

But that said, as accreting a of been I high we've to had. we're a down say as long we've And range. did we're the we level the and structure that continuing pretty I excess in with XX% our lot to comfortable to do we capital of this that with result the in at equity XX% quarter. as improvements think XX% I comfortable may just generated Yes. see the and produce the opportunities We're And like we've of a moment, would equity, cash, earnings about what we're years. for for while. over

Stephen Kim

that's Yes, Yes, great. it. I appreciate

that's made conducive product. like the what What another to the And more down? was Mezger of elaborate spec for lumber basically sort the reduction and Okay. bit would more then could not I a us second through. XXXX? question curious the of you meant, but it I in meant. to part to have of that a of that cadence the a make because seen. we BPO, peak then think come bit lumber was performance, assume Jeff to off potentially as you've to work wondering have you magnitude attributed obviously, I Obviously, next more? you comment but regarding it sense -- the lumber your to simplifying doing some how strong lower I on early was how you're expecting sounded relates what that? that for that if your And your if And here versus that you that costs And than XQ guide -- could running to give was the margin. or might could And benefit little little And liked of there

if elaborate So you just that? on curious could

Jeff Mezger

X was -- one. questions me kick Rob. that take one? I'll product Steve, you simplifying passed the let want out that do to to like into Rob,

Rob McGibney

Sure. Thanks, Jeff, and Steve.

in And our our and months the a design on really total simplification. been retaining XX%. studio, driven months, or matching focused trade to we've on Over XX partners we've items of our from our been And last several so, that XX%. national focus customers process take on SKU about that reduction has the product local reduced then we've product structural almost with availability then suppliers we're and about. highest and communicating the options, with rates And

with trades. of across it's leveraging product issue doors. the product So We're regions we're sizes and all our plans, It standard themselves, getting and the simplify variations. design sizes the removing our our the regions is fewer goes series that from country, homes to supply also that even standardizing box just garage window divisions, about across and chain complexity design way for and simplifying and reusing architecture, and us cabinet across the and to our

can. really it for So readily simplifying the keying customer, trades our just our available on chain those items that in in and where for for us, supply are we

Operator

comes line from of next Research. Wolfe question with Truman Our the Patterson

Truman Patterson

hoping you're construction testament further a simplifying outside stabilize? but I'm of my those to partnering I the Sorry, but on this of at you question. base. you on one And are Look, chain think you all little prepared expanding industry, point, took can time subcontractor and the might this realize cycle actions on just kind all when crapshoot the But No. Steve of up mentioned start issues comments, entire supply any clearly, is impacting elaborate a following you see Steve's offerings. taking your kind with bit questions. national just of suppliers part

Jeff Mezger

talk you do Matt, base? labor about to the want

Matt Mandino

said, trying get And new in I added so year-to-date, do versus be Sure. an we're really it. capacity is and more now, I we've coming already the partners. chain But is, trade various primary and we the XXX tools And of over And then, example coming analyze constraint I from. got out little we right to where front processes is this, of Truman, next it. labor. would our and And Truman, front identify in have place in where a can base. get what trade bottleneck is the say issues from of far as out supply proactive of

to all are the have. coming on expansion stay X tools but And of best the with front trade of that's we visibility the of clear to it's in difficult trying is we it. when base, our assess, think is So we

Truman Patterson

go ahead. Okay, And then -- okay. sorry,

Jeff Mezger

what stabilized to going the that where base, we're cabinets, deal yet I have covered. mechanicals, third we windows, and what holding compress we we what back and on to whatnot. is what in and basis, had expanded city. Matt Truman, we think even from about right we the second We quarter of the as second the that working cycle got half know popping it's we on talking first And don't our trying and varied in because we've where feel is weekly frames look And the would are to is at the call was think half we But we're addressing with so production was add things things still and haven't production, in to up to caught a the these of half I today. actually moving in and we've now. build the city where stabilized that's addressed into times we've parts, we've foundations all

Truman Patterson

in both? remarks. in Okay, I hear gross in release, that margin margins then okay. the to 'XX. or of you didn't op press continued expansion margin mentioned or it all alluding Was the And prepared

Jeff Kaminski

GMs little both fourth do bit And basis trajectory, lower impact yes, shifts. our back, gross just while both. as on as we're and then to we having in did at return moment, lumber guidance margins prepared a think so year Steve's And providing a our not some fourth certainly in in quarter clearly looking mix loss selling margin see margin impacting our favorable little also in I specific excess due very we're seeing and next peak the backlog. guide, what a expectation it, and move We nice quarter that. XXXX. as at we're inclusive see But the the in volume and into reference to to really operating our previous very And on year. actually strong fourth remarks on in in clearly quarter we seeing equity the and trajectory a It's week-to-week on selling leverage our margin, gross of see and in the pre-our we'll improving we're of did well bit way next our that in we question a guess, cadence with I a margins coming margin

Operator

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

Matthew Bouley

Jeff, up to second just you cycle? start I made challenges want of the in half the the about ask pick Can with the first of other comment, pace the prior I guess. that, about I back on production the a half, side

are your your challenges put is your the open start in is that the know, ground? communities to other that country, that presumably assume ability the and less I times start closings relative don't relative Or So across getting therefore, sales, given starts to model, in the driving driving challenges business impacted simply And cycle to your longer? should we

Jeff Mezger

a good the XX And XX starts pulled the within or XX,XXX first of pretty homes, couple of months I hundred getting what environment over then which sold. getting and is think done back getting you the we navigating Matt, and if about a started on look and rolling job we've last permits starts. Yes, we've -- basis, a the

now. continuing we're starts think those, our addressed sales, it issues. as January, in well So and push we're through And pacing our we've aligned it, framer March, are foundation we're to and it working We've was pretty we issues. addressed along. right February, the Back

hit on on top the So of did quarter We the the as openings. increased community projected quarter. we also right the well expect I any we think we relative beginning very in third to don't number And the at starts. and the of

great count in have our as had the and result we over community we the a part was going So openings XX confidence forward. of guide

Matthew Bouley

your in perfect challenges I number have to peer wanted just effect communities but a Thank just just that, that ask and gave chain at think as just given because Jeff. certain the of to this speaking actually that I'm challenges come. the cascading getting that, communities on week about openings out? about point, in the you if the there's and around regional up top municipalities part it guess segue. communities confidence it's for any the the around And I curious model following last of second X I of supply you opening. that XXX sort we That's did And you really for bias getting XXX the open.

Jeff Mezger

Yes. target and more as part any I than being The broad-based, of country openings difficult are wouldn't community the others. X

comment simple I openings think unfolded. delays the is a our we've the this community hits already taken towards for as in it year

strategically, the for guide of our we we've lot out actual confidence the number number XX% to with next a this is year. next don't group But observed where it's minimum that past we're community wanted much into make and allow I delays, year. blocking influenced count XX% and the tackling, year, throw And because we're to our wanted year. it it's this So headed than and that that more ending understood to a we the a grow of sure where and

XX%. looking we're In fact, at

Operator

Our comes from Alan Ratner next Associates. question the of Zelman line with &

Alan Ratner

hear congratulations on first Jeff, on promotion. questions the to margin comments. maybe clarify taking for Thanks and, question, Rob, just the you on call. the the my Nice to

guidance that your some that for accounting remind on XQ. your And I 'XX in COGS you what the dollar those goods Can of that cost just guys of growth? line think of sold expect you through to explain nuance that just because expenses community amount is expected fixed would think us everybody every does in flow the based maybe -- it's count quarter? rough remind your increase that the I some flows for shift with through helpful to you

Jeff Kaminski

fixed the has in a It more we've Right. some put resources of 'XX that functions towards as increased cost. within bit

with leverage in point, around lower the mentioned lose goods a $XX you million. was think sold. take as third revenues revenues, containing to your I that's leverage lower -- hit that yes, it as And on I bit a earlier, cost of quarter, fixed cost you of the right you on

Alan Ratner

Got it. Jeff. That's helpful,

consideration is pace it Does this like billion a elongation pace the first times? add order demand the that a X down maybe it, for assume seeing year, that on peers obviously, that throughout for to $X from And is sales recently. But the to strong, have and more extended sales sounds a been significantly the Second, assume keeping does your guide but lot little challenges orders. X bit off, with community is plus what there you're per it to current of forceful chain up here? incredibly the level if I'm given activity? curious, pace the I there that can. more next slowing there. start cycle maybe for bringing one, revenue that Is just supply and any of stability in Obviously, that's bit

to that consideration to of So if curious bit? allow to there's just up a kind I'm things little catch any

Jeff Mezger

down we're further frame, of selling we nice times, If lot it in right now baked so price. and in rhythm the a them backlog, blockage we in into heading slow saw It's into for would good But now as get balance. And on half of we from now, today, planning the We many longer see. our we're But here homes, things it a down. we'll where look now think did signs the some we assumptions. second time. at fact, slow getting right And homes, it. where we we're for pretty starting build projections opted It's we in build extended. have and through foundation we a pretty we're our communities and a

along backlog with sensitive buyers your because have can't that too. that, irritated to get want don't way. built get you the very to the we're And You customer

to our So that. at do we're going if we not putting customer we're feel risk,

Operator

line question of Sachs. comes the Our Susan from Goldman with next Maklari

Susan Maklari

to question things through following mentioned know I expect fiscal that that fourth quarter. fiscal expect the But you quarter. just of the could to you you in lumber somewhat offset you cost first peak start deflation you're But through? roll fourth about can can My that? the how inflation lumber to the and on product categories come in other through building in in is And side up potentially inflation. thinking

Jeff Mezger

various cost deliver are future any cost future of in example, year. affecting the Right. starts, really more out, Well, the categories in backlog way we what the or to we on seeing opposed next may for inflation second as sales first and lock our quarter we're

going first seen us, I input bit going. labor the power, But pricing backlog that pretty exactly if with we not lumber our leading first improvement are we've margins balance, even year, given off the more lot in it's as given and holds. on second into are is trend directionally been news, forward feeling is for a quarter or ball, next progresses, a on good been some half a crystal category cost in significant of that very on That just some sure able gross lumber And future where that our so out we those And for of basis. to, got side year. pretty I'm what industry, we've be good offset next is of costs trends I margins have any seeing increases costs a think for costs higher margin the we're significant the a that tapering where don't headed. the again, locked of to just obviously, for was than things, has the So go in I we've or about pricing the in side a really think, deliveries we'll even cost assumption peers. whole maintain the favorable see, for

Susan Maklari

pricing. follow-up question is my And then around

changing for You to score. guided around versus ability that's ground with FICO last the they're Can think, financial fourth It know X% kind continue And higher buyer the to the quarter, like, is a you of thinking that just receptivity sounds I buyer's talk mentioned to a I about about so price you're seeing year. you position. which to on in comments that XXX,XXX anything your markets? your up, overall, how to get or in the various you're better in pricing? about

Jeff Mezger

community a whatnot. there Yes. little Susan, growth ground, any have job story on isn't every inventory in know, population and really you will growth and city and as every and bit relative to different the

supply buyer a thing we buying in and buyer pushed to would anything have we're seen power the home you if ever business. down they you $XX,XXX like If we on the first-time there, their They I profile is will. if a a here come I'll it's high I we're here, in buy if want that now, or that may having won't that that yet yet, our strongest be profile, built and that's seeing better. for the home the making buyer far, not the it and worse our still putting bit neighborhood, first-time situation all. the that strong want they're really predominantly, of buyer say anything down Very little And to think come at FICO buyer down score I've But XXX, not home. you X-bedroom, of the like seen too size we're to would inventory still and on of And out the want about chain price mind, blockage, keep all think it don't if would too and today. order, consumer, they they shift see we discussion so haven't smaller first

now would of have restriction Our on industry chain built we've the demand way blockage. and homes versus this and number the behind in you built homes because demographics being supply support, of is what

see supply. while to going that. We're customer We we limited afford think don't seeing you're you're can no says, for -- demand much there's we think don't a that to signs So for today. the a so going

strong out very environment there. a So

Operator

the JPMorgan. Rehaut Our line Michael question next with of

Margaret Wellborn

is Mike. on for This Maggie

hasn't the buyer in strong, to saying remain you been this that shift and Have Following kind preferences seen the result home, really you any that buyers curious you're if price there's [depreciation]? you of the of profiles the question. up credit buyers' last on I an point. adjusting last think as I'm I but any any there? said affordability issue update mean, obviously, hadn't a quarter, the really of recent size seen

Jeff Mezger

all studio up a the unit, was in the behave the $X,XXX. of quarter size actually the way and per at quarter home, spend in the buyers But in the went bit and they no last movement same before. the Yes. little There incrementally were

Margaret Wellborn

asking bit in a kind an a maybe of of question different little earlier And way.

repurchase talked on a regular become you But potential about share you're quarter, the comfortable leverage used? talked kind tool share a for more the to and about that's going can You of this from perspective. elaborate little forward repurchase where a you

Jeff Mezger

Yes. share on what question, Well, you land if over we to a and did back it repurchases. that million apply to go previous $XXX was cash spent acq the we and quarter had comments some We excess take in Jeff's to development.

grow own. will continue to foremost, to improve on returns. its And get that ahead, we our the ratio we're we and will be trajectory reinforce about our first continue the And better profitable would will know profits, also and growth. all that as support priority So top ratio leverage and we your look to as our growth lower

time. evaluate first So If growing to do determine again with looking cash, at some it we and be the we'll have at at we company. point, foremost, we'll excess that what

Operator

next Wells from Fargo Raghavan Our of with line Deepa question comes the Securities.

Deepa Raghavan

chain of about i.e., see XXXX most? if asking would you're pretty the supply I strong calling challenges when early if think for your issues for QX impact thought so known the part XX% also you I this. much the lower headwinds you Or delivery some the in know QX, talk pace heard apologize of you chain think don't this, your do there? good. supply was I order I do that. I'm stabilized, Thanks But

Jeff Mezger

variables shared timeframe. as finish parts the cycle. Deepa, early an in comments, we we stabilized while the we Well, unknowns we've Yes. it the still think side, it, extended construction on There's stabilize at a and of is our of lot

to assuming take But projections own we times through how going through So it used we're work where we on now worse crystal navigating. don't we ball but to get We're and guide to it's be. I their that to will also don't and work better. back our some everybody it. think get time will our And build get have

Deepa Raghavan

That's Okay. fair.

should cabinets. quarter? year? would Or talked most worse and start next think about brought some ease past You think before -- of you any face talked Are windows they of you mid through product sometime to you get we and challenges get this you issues them better there

Jeff Mezger

It's hard to answer.

to from because extended it signs asked its in you'd have more of said that whether And our pretty a weeks? couple there's already good we'd QX would some thought a lot areas, I significant If QX. me last have on we're no unknowns. lose but seeing still we thought call, I

we're right see we'll taken over we've hopeful the that stabilize, and to it going know goes of don't prepared and get to quarters. things I better are how So couple say away, to next steps we're

Operator

Dahl the question Capital of next Markets. Mike RBC from line with Our comes

Michael Dahl

for I circle of your up of you're that impact the at to of taking margin. kind fourth -- If ASP, just similar that beat guide we to look on at horse a Q-on-Q, lumber and much basis, on little to the I a sorry on maybe foot But pretty the least First, is square quarter sequential again the and just Q-on-Q. wanted back approach. asking X% most a guess up probably about

revenues? mean, and the So with revenue fixed per offsetting that much I again, it square as sequential lumber driver, foot impacting cost way if you really you up is but of can of a understand, just I is, sequentially, guys help know the don't impact the us exact improvement in just that's

Jeff Kaminski

product, a particularly quarter quarter mix are coming number, beyond quarters, it we we we increases fourth an the lot and really, a guided huge in the We period, know when that bit it's And as And homes we And part as I about are well. everyone up. pricing. those there those next in due was in a look, not early we Mike, much roll deliver the where fourth short third. margins and there as we're started and out was the quarter-over-quarter. complete When fourth the wanted selling we the shift the is what you that expect chain to deliveries things we saw the a that homes, delivery we indication an guide. the impact delivery. difficult. between lot delays bit Well, obviously, construction The up a to range There's in lumber not a lumber have to exact did -- in little heading change for lost fourth point do fourth give from bottom and of price it's to that is as of feel we by has between us been that we back peak quarters, same what we actually that we about mix we X the quarter much challenges. And quarters. of related believe to wanted in the there anything to quarter, specifically We lost give as year. guide a in of quarter supply to mean to

but So we're operating go-forward and guide revenue basis next margin very optimistic expansion a not only on year. expansion about well margin gross margin a as higher for with

revenues, back to get normally we But in because this during we even fourth example, our I quarter limited sequentially into kind for out we reporting normally don't on bubble count but numbers into seeing that, quarter-by-quarter to of detail want really what to lot that we're in up type XXXX. wanted We'll range. or backlog January We selling our beyond that to The touch to So in are 'XX and community any within don't on so give guys margins gross strong our when give indicate details that within you and a the wanted the an margins, Street. we're of of indication call.

Michael Dahl

look should about it strong revenues, -- in that. at already sort in which next Yes. terms XX% we’re margin appreciate the into go in to already looking And of side. I year pretty what makes sense with of on just backlog, you're of projecting

think coming any the what terms Or pace you'd makes for the communities opening mix? -- got as Anything like you what roughly in in terms of openings sort year for next can all you've second to us you're turning you're of and online? terms -- in equation, over, expectations share XXX just XX, whether of ending direct year new look turning the I at you got in community the out difference I side if pace and are there you've you're sense. at you're next the of XX% So when pace similar question, that getting over looking turnover. guess community still is to towards of

Jeff Mezger

not is XXX the X Mike, quarters, X. over

little 'XX. than the count about talking we more positioning So prepared 'XX. it's our that term. X-year It's to were just the we'll continue beyond to we be not in not grow end But community comments, into We're business of at is what where a think a that. the

'XX, everything have of 'XX. owned owned all for and we So controlled most for everything

we're So guide community the and count with like finally we positioned with comfortable trajectory. our how we're

Jeff Kaminski

the we've lot seen and Right. that, And communities. to new a happening. over look last a the you Mike. current just and there's lot what When X our of pace we're of year One, obviously, projecting as things replenished I'd just communities, forward, at add we've

base just the not assumptions year. more year. projecting into we being us had lots going we left have because next mention a to And count. So function in The that lot had we're forward. XXXX, we much. to not it's very large And actually is It's are than in of new still of next projecting how year have absorption XXXX, strong pace we're that going we lots helping in that fewer into next which grow going year a the many off and the number openings openings closeouts

pretty year aligned. by I surprise. well This caught think we're us So

lot caught of with lot a I and of by more think pace closeouts it surprise news. that's accelerated the but than us any people anticipated, a good

backlog, units delivery next lot that and takes our -- a think available numbers. going are and of line lots that's those I communities the you're in top if And and off into risk me, it closing to year and great. supports For communities the out those from some

While pressure I'd the sell see as count that, on on to rather of pressure there having to some expectations. you than fill pressure result a have community the revenue that

XXXX. not but great for in into quarter into we're It's shape pretty particularly a heading So fourth the exciting fact us. only

Operator

Our line with Jay Wedbush. of the next McCanless question comes from

Jay McCanless

decline one, in first The impressive rate. the pretty cancellation

with you reasoning that the are getting, behind cancels Just what's the wondering, that?

Jeff Mezger

Yes. somebody seeing sale. get Jay, pretty It's by got buyer that too We we're a report much bag. we do that. gets Occasionally, the remorse, not screening it's a divorced. of We somebody before mixed prequal. a transferred, good of the job

issues loan little very well. having we're as So

end the mixed small of a the bag day. that's number at a it's So

Jay McCanless

cycle you the half the now on call earlier the of about the back half. question, and And in second completed, you're front build talked then the working having

issues versus cetera? Just if earlier are those inspections of et includes municipal this they seeing wondering [COs], are side? type that What issues you getting also where were or improving the year? And on your final

Jeff Mezger

want and Yes. we're Rob, to inspection to do what the side you talk seeing?

Rob McGibney

Yes, municipalities, that's we're where some XX strong It's from we're navigate they Delta relationships surprises, issues not side our inspector Jay, we That's sure, the -- necessarily the seeing the when even smoothly, inspectors hiccups or in fighting and pretty sent to group volume there. but what home we're and of single have an or But that get see a may a for COVID. out able inspection days. COVID the we're the impacts through and of the fairly is with one variant. back on biggest it's people divisions on Without and where smooth surprises. it's have Jeff. end the getting of most just running the those exposure

Operator

this gentlemen, teleconference. your Thank and today's Ladies you you. Thank concludes for participation.

You disconnect lines. may your now

KB Home (KBH) 23 Sep 212021 Q3 Earnings call transcript