KBH - Earnings call transcript Q1 2022

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Operator

Good afternoon. My name is Alex and I will be your conference operator today. I would like to welcome everyone to the KB Home 2022 First 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 XX. website, is replay available call the at kbhome.com conference recorded be and for Today's through April

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

Jill Peters

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

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

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

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

Jeff Mezger

and diluted drove solid revenues, margin metrics, growth per key in Thank share. in including Good you, our first We Jill. year-over-year quarter that everyone. results afternoon, delivered operating earnings many

projected diluted and from to achieve to to XX%. homes level increasing which almost its will need With lower-than-expected XX%, We XX% to we our up year-over-year, per overcame momentarily, produced we were expansion, margin revenues. impact $X.X XX significant expanding earnings over billion XX% in we sold in all a in address $X.X our value our highest deliveries the I increase our to backlog the drive operating $X.XX. years, revenues share margin billion, Our have

to focus capabilities our construction aligning to continue We to our on our sales managing starts. by

XX started months, homes. XX,XXX we past the Over roughly have

We scale the to this in least throughout at will have into deeper further And to I year. profitability to their provide are have second prior year. these homes conditions growth production further the foundation in to beginning we shortfall and go the we guidance a cycle at remainder I along hold of our provided with the guidance the growth Rob well-positioned beyond. in would of that assumed January ask count in along relative Market place the for XX% believe we that quarter more in in and in cycle, drive the with we achieve we quarter some then XXXX fourth are community year, believe deliveries, construction strong and our to expected we context our The homes little discussion. want times. being

even the expect to and that across would not the would our workforce We partners, were already challenges, degree companies they from the we on did we chain trade While chain supply Omicron utility counting and worsen. supply constrained own which relief municipalities, underestimated neither exacerbate employees. and variant our

contributing primarily construction X last weeks acknowledge prior a that cycle, significant construction extension times per has when about this The changing and conditions, to while at run the factor. week, responsibility the adapted stages our in finishing expectations, the In was weeks While of two-week first our a build we variant lost in deliveries the segment was the team time, below held for line. in we our same of our XXX approximately take the to being Frame quarter, our fourth resequencing Foundation two At time quarter's deliveries we necessary. rate meaningful.

issues of be impact proactive and the mitigate going to to previous to continue possible the extent to We are forward efficiency time. our committed construction these over regaining

over it share some Rob Rob? me to to Let details. turn

Rob McGibney

Jeff. you, Thank

lack slower to both I most the own our affected experienced In on is in with during found stainless in of progress air couple duct shortages the a quarter, respect We solutions of during the construction and steel in a effective pace will of and trim cannot to as of is be were our in a And labor examples manufacturing. flex until the waiting divisions and to limited teams stuff used of first and quarter. at Flexible a duct base issues which the our there component the strain availability used other employees, albeit primary this begin the supply specific to field addition is conditioning heating flex first by of mechanical for that components sharing our the finished you. product due installed. homes home the of several material work, while with the contractors

our of We quarter area teams current although In relief to due achieve are compounded improvement to see depending were the that notified double hundreds are Duct, their in demand. satisfy This short regulation. a scheduled was delivery for in in a a January, by for the Appliance production were forecast. we the that in not ovens quarter. of to federal retooling increased meet beginning homes to would have on required Flex to delivery by not supplier capacity availability of first manufacturers our first we process be their ovens change shortage this in

to quickly in cabinets, chain. cover ovens event, retooling equipment the be onetime to and the ovens of Our issue windows, sliding appears to were expect within able we to double supply workarounds, Garage a most were the retailers the remain we shortfall. near improve divisions available, from and HVAC This directly doors, and all of including purchasing term. moved supply identify constrained

we well in to product suppliers starting homes items. in of lead extended alternate of mitigate to identified have times are supplement many some items comparable with have needs we delays as significantly. ordering However, advance our cases, And

we emerged, implemented to need daily across improved the homes stage developing and and our rate run each Our of the divisions. each as execute. our ability we achieve of stages build to teams how as practices which are through also quickly creative visibility and cycle are We've plan, our within tracking to in issues these workarounds those forecast our both improves

continue with address will We expect us aggressively year, we to stay new shortages and issues any will that of arise. this throughout materials

this great more to manual of had reliance materials We've of delivered. the years, the predictability to processes taken predictability pride Over in in centralized have to system scheduling lack include build due our system. adjust and our on the we times our getting temporarily

in times Jeff. short supply committed term, those call are back the chain are levels to turn term. With longer we issues While to over us our historical from restoring returning the that, to preventing the build I'll

Jeff Kaminski

Rob. Thanks,

not nearing biggest continues Zs of of completing for homes, selling as years. is home-buying peak the tailwind first-time be provide today the them demographics largest their homeownership to millennials Our robust. subset Favorable are Gen the challenge and important oldest age entering is demand as an the

continued supporting wage addition to In employment from working another and demand. the and factor shift demographics, growth is to have both improve, home to

of healthy challenges very first to both months in On the of community, industry's orders began in communities, A in catch coast. limited seasonally new X.X rise. along growth up A at our our continued and to to was quarter, is even chain business monthly supply inland vast and in supply remains increase per California, first the note and interest net side, last hampered homes. the in rates Coast where of majority and value up efforts pace rate we have absorption illustrate from the strength inventory a production year's implement the our net across X.X very X.X% our as order our West strong price retail the performance, on increases quarter, particular our highest region the the

Our strong, toward solid, while pace is each to asset. optimizing pricing we power and work is continue our

signals of to rates points the our magnitude are still price demand speak and also that order Our attainable.

together, Net quarter studio X,XXX, revenues slightly to in XX% which in year. we order taken $X.X first lot to versus addition orders are higher capturing were base our price a down premiums to In prior increases, contributed the billion. value the and net rise

We comparison outperforming year that the to quarter projection and outcome ago this with the an difficult pleased January. given the we are shared in

exited market of a more net each we month view Our underlying spring selling the and are out. strong, to community ongoing In quarter the strength continuing increased be will this environment pace robust. orders experience conditions, we rapid that our sequentially season selling of and

community an our replace expect we what have consistent lot ability assuming household higher targeting position drive underwriting income a XXXX. additional communities lots an we Our in adhere and and and count median process. control over XX,XXX to that of supply ongoing we where to community these We then of criteria, of owned specifics With through absorption an to grow disciplined need XX,XXX per that X for the construction year homes prices three key historical focusing costs, levels. on remains per a utilizing month, track the as XXXX investment volumes pace the the and two requires lots, currently we depending to and X that the measures reasonable lab Affordability between communities we staying affordability remain and of on to signs and of geographically current pressures, close operate. with consistent selling investment, our provide for

of profile for buyers. most to stable One two-thirds XX%, of of qualified our translates buyers which conventional of is average credit at About loan-to-value $XX,XXX. down the payment a over of important mortgage, our ratios are the these an

of FICO score highs In buyers the at addition, average quarter XXX. all-time held our in

our well to selections mortgage buyers choose, of in need room type are they Given model. in if in our to, personalization they build-to-order or their that the they qualified, have product adjust

We smaller of at quarter if And nearly of a XX%. choice $X.X up affordability a which to of footage added provides billion, XX,XXX a home flexibility homes lower rotate price. the this becomes an value ended layer can buyers stretched. backlog at Our is, with square a key

expectations As I our all remains year well and of we in and already to after noted the and need earlier, delivery our backlog homes historical margin for levels. rate X% start are almost that below achieve cancellation the

committed are buyers they their upon completion. closing approvals reflects homes with backlog, Our generally loan on personalized

for for like I Mandino many KB dedication leadership on his Home Before for I thank their tireless conclude his thank contributions Matt him my recognize and years to and efforts our congratulate as comments, the as I and retirement. of like to would to team, would also serving entire well homebuyers.

a rising fluid operating Although pressures, market. recognize we acknowledge the and of time COVID-XX, we we given also health geopolitical resilience issues, dynamics, the of at inflationary interest and of rates changing are the housing nature

with the operating our margin billion, as increasing We Jeff you expanding above are scale equity our of growth I'll financial progresses. on and call and meaningful focused $X.X year would We look return expectation an forward of updating review. over a XX%. XXXX, for XX% the to to drive turn With returns deliver in over the primed that, which to to now Jeff?

Jeff Kaminski

will Thank and second our quarter as Jeff, cover financial good afternoon, outlook. quarter everyone. year and I now XXXX well full highlights first you, as our provide performance of

despite pleased XX% which, during supply the We prior share first increasing quarter. per generated challenges housing increase our that combined diluted to year compared a margin are drove our with we an meaningful the half revenues, back chain growth quarter, in earnings in the operating of improved

revenues ranging in first driven quarter. was strength of In year-over-year our the XX% even our the average our delivered substantial beginning homes and sustained as overall homes revenue a Reflecting along entirely in during quarter, $X.XX to our ago, price outlook the the XX% year region housing absorption number our the supporting strong Southwest addition, delivered, and XX% quarter backlog, a the housing a significantly all end earlier overall produced with margin XX% from with year net four with revenues our increases the regions operations XXXX. up were housing broad rise the across billion quarter, order rose in in and about Southeast. by for In of of of XX% increase of selling backlog the market, from

housing of generate in $X.XX XXXX Looking quarter, to billion revenues the to billion. ahead the we to $X.XX second range expect

remaining year, housing West of ending top backlog we billion, our quarters full reaffirming assuming We no quarter to the are first year. range we performance, by in line billion supported achieve the the well change supply of positioned value our believe to For are quarter, this $X.X during region Coast $X.X chain conditions. expectation $X.X ranging revenue conditions reflecting region. Southwest our expanded housing our approximately our in average price year-over-year delivered and of increases of business, continued XX% our favorable selling across XX% to the billion XX% first market from approximately of homes In in $XXX,XXX to and the overall

price our projecting the second $XXX,XXX selling full approximately XXXX average the the are We and a for will the year XX% price earlier year The for quarter For million quarter, $X.X in million $XXX,XXX. from grew current for to Homebuilding million range quarter. average be nominal operating year included of the quarter ago. selling versus overall believe of income $XXX,XXX. we an first to $XXX.X inventory-related $XXX.X charges

homebuilding compared XXXX to to XX.X% Our income first improved for quarter. operating margin the XX.X%

in our operating which XXX basis charges, SG&A expense reflecting for current moment. our in improvements detail I margin inventory-related the more a in gross quarter increased will and points both Excluding cover year-over-year, ratio margin

the range any charges, For margin, the of income XXXX we be to anticipate second impact of excluding XX.X% XX.X%. our quarter, homebuilding the in operating inventory-related will

prior the an in increase the XXX at quarter of represents improvement slight the the as expect compared improved strategy our year points to gross For which returns, balancing and year, our to full of guidance. a margin be to metric of to points price XX.X%, profit range Reflecting drive midpoint basis housing to prior XX.X% our XXXX we from and this XXX XX.X%. higher pace first basis

our from greater charges, amortization cost interest, and higher by inventory-related favorable expenses previously the particularly current year and quarter. improvement This lower gross the of lumber XX.X% to prior XXX elevated partially for growth. construction reflected basis prices of our by outpacing Excluding offset inflation, margin impact support points capitalized operations expected prices selling expanded

an housing range we mainly XXXX, in XX.X% second the sequential margin to previously margin gross amortization expansion driven in We are in reduction margins pressures no by of for XXXX that expected XX.X%. outpaced the of Assuming inventory-related in price cost significant a quarter gross during increases and quarterly anticipate in charges, forecasting strong interest. capitalized communities, profit opened established have selling our communities recently

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

from of ratio general higher resources first associated growth. and improved due selling, leverage quarter ago, administrative year housing partially Our revenues higher XX mainly from by costs the support basis points expense to XX.X% offset operating for with a to

second XX.X% our to the at SG&A to XX of SG&A an We midpoint that of basis be ratio and forecasting are XXXX will the prior improvement our approximately year to X.X%, X.X% range XX.X% points compared expense the in full represents be quarter ratio expect which to year.

tax of $XX.X first federal which of Our largely quarter expiration represented of increased income for the rate XX% homes. tax effective approximately for from due XX%, expense tax to the quarter, building an in million energy-efficient roughly the credits year earlier

or per to tax full XXXX and period. to the credit is we to for diluted reported tax prior for or $X.XX income second be continue $XXX.X share the rate We quarter both assuming expect Overall, approximately compared net extended. the the quarter of our per effective year diluted XX%, million $X.XX share year first million $XX.X not for

count. community now to Turning

was sell-off XXX our ago. quarter -- each remaining year primarily believe communities XXXX believe first net essentially represents XX the outpace point we communities, strong are to quarter a quarters. year community quarter our as low from quarter the months. during to ended order with accelerated due to grand sellouts end the count X% activity expected openings We of We of from quarter average for past a first first driving XXX down the corresponding over Our the even

count. result spring low average in current prior additional drive attractive We we are small second favorable season continued with We mid-single-digit across a sellouts backlog of market communities well-positioned quarter year-end year-over-year growth the for and We the the the a expect expect to the second in this now percentage year. to net selling dynamic to in orders believe of resulting by quarter increase to sequential higher the end compared remainder and the conditions as expectations, growing of our year country. portfolio during community community

remaining for communities of open quarters year continue each We community count ending sequential end. to increases the approximately XXX and in at anticipate selling

are market to market count current community and pipeline conditions, we our and community achieve in of future of our housing support new will housing growth expansion Given confident openings, revenues. schedule gains land share that we

this first $X.XX strategy quarter, million its drive to BBB the a outlook -- including openings, land more credit development and to upsize returns rating In to and invested at our $XXX and borrowing year Financial borrowings $XXX $XXX end we drive changed million outstanding. cash rating $XXX its including the supports operate billion, from February, credit we revolving our an future land continue approximately to term unsecured capacity a January facility was with acquisition In the & million as XXXX. fiscal credit its stable. facility, During the investments to community by reaffirmed efficient and end $X.XX had credit we land At and increasing to of maturity the completed Poor's positive expect to total quarter revolving extending The unsecured focused we billion Under facility. in XX% amendment growth. of outstanding business year-over-year level under capacity our Services February XXXX new extension first available quarter the in with XXXX, $XXX of increase to million million. to our liquidity end, no Standard

XX% equity $X.XX stockholders our quarter-end and Our $XX.XX. increased was year-over-year book billion, per value to share

ranges, operating market, margins. Given by housing XXX XX% with in our of XXXX margin margin we growth increase XX.X%, would, and our further on We expect that midpoint strength year, year-over-year continue in metrics. top driven improvements while revenues expansion our In and SG&A of emphasis the our improvements increasing full continued improving both line our the operating confident and gross guidance count basis and summary, community point points growth a using to XXXX for These a backlog, equity in our drive our of from strategy we XX.X% book value per over principles are community an our in anticipated financial turn, year-over-year basis opening the returns and our by a in will current on share producing XXX in return-focused excess higher up housing the execute XX%, results in ratio. plans to in meaningful plan on of expected we year-end XXXX. return the generate key expense a to substantially of

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

Operator

of question line your first proceed Our John question. with Please the from Instructions] with [Operator comes UBS. Lovallo

John Lovallo

anticipate my sounds like first experienced Thank you you the some any in that there that has think arms I'm rate you'd one, mortgages of for seen rates, that would any you moderation demand in haven't you've slowing given been use yet. Maybe do And to your it see interest any questions. But seven incremental curious seen? where or any first? taking year markets you adjustable of five

Jeff Mezger

our in as John, comments, credit very the the in buyer And I is and on, the in, in I strong today. buyer. the touched a profile it's think business it's locations we're very that I part shared in profile part it's operating strong prepared demographics and

moved. and So to loan stress anything the qualify so and They're than to other have not evidence borrowers' for on not make a any of app loan. we're We're a in approval. not seeing get But product far far, any rates -- seeing type. having their shift a ability do

think the first catering and higher when it's of the tier to strong is for a where buyers strong put I you move-up of or buyers, in house demographics, a we're time the context available no So, buyers. mix first it the

if down. no change keep will ball So of rates we're far. had far, a so seeing in all going so no but we're things We on rising, happen sign crystal what seeing behavior

John Lovallo

discount why and stock Okay. is encouraging. book. in know, don't given XX%, at, you of a And trading bullish I XX% to ton mean, that buying aren't going just stock? I your guys That's outlook,

Jeff Mezger

value, we company We on commentary, the returns. if foremost to For whether this a debt to see think is metrics you and profitably in and operating past, need us. in the of starts, value and for to talked for generating also we equity if And improve allocation growth it's returns-focused We're that In balanced a capital we've sort And our going the through some investing as ratio retire take is grow equity we or book growth in addition stock. we've us We to return continue incredible And and always future our first going XXXX, our continue lot about in in reduction. and approach you the share. now back at our to improving ratios. growth, paid improve be we growth, through done still strategy. that's job debt we're this his to don't and that, to look outstanding the shared did various cash. year, dividends, one creating and Jeff company for

operating on what's and based So balanced our always a Rob, the continue like approach. we'll add continue we've what's play our excess to do of the state to to navigate needs, done market anything. want in cash, have you

Rob McGibney

covered. No it's well think I pretty

Jeff Mezger

Okay.

Operator

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

Truman Patterson

John's on sales I hoping but rates in affordability follow you first home West, Is deeper, that in today, the et of that up we any California in March sort moved you the to question I’m most color new there, California, cetera, higher X%. in in and clearly March, generally now, fell the about and of down traffic demand dig state sales orders the correct? as of the in pushback. as think on constrained Southern, have in like It not you sounds nation, dig a February can just submarket, had little want seeing state. all current Northern, either are

Jeff Mezger

most the challenged mean Truman. state. highest of of you if the point, of California, the supply most correct, price obviously, any but so it's think constrained I it's affordably market, market That's also

taking over demand as because constrained price more can't you it community. value, opportunity environment, you replace advantage excess because We're easily the think price reflects can't our land communities in look We're when And we'll your you replace -- for So of hot. at again, the far supply. and to of a have letting that. going it's communities And order pace. run tilt you I the not

actual than If community comp you it else. anything was sales, at think I look the driven more

very I Our as both every strong. that more urban areas coastal as would very well coastal are And areas, bit working absorption were say today. inland the the areas, rates are strong sides

Truman Patterson

then order through started Okay. cadence could versus help contract. generally quickly get the your you you how think And start? have generally starts the at us community buyer costs speaking, Thank And the with long after you how that just for the you level, do that. home signs do locked in for

Jeff Mezger

the Rob, do that want as operator expert the you take one? to call, on

Rob McGibney

Yes. Sure.

division and our So on Truman, starts division, started on -- product. sometimes costs are the typically, sale depends days. -- we've that a sometimes it XX house home getting depends generally, when got book-to-order depends on the the locked. And we're XX the But between on

minor Over few been on amount or the we're that. and shortly start, exposure locked of past the year, but after to a generally there's a lumber other things, at

down locked is the cost backlog our side. of majority on the So

Operator

Thank you.

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

Alan Ratner

for my taking Thanks questions.

So popping continue closing of probably is your up not kind just But costs and rate maybe And if for on in sure last a backlog marketing few rest couple builder you might very seen of the forward websites, incentives point. on fires a any for around and of outlook skittish reluctant margin some at your of lot closing widespread rates to move potentially related I'm kind on terms guys the costs in to and this of lock now? conservatism the this year. baking days, be Are it's to right having periods. and of they're curious some I'm trajectory I've upward that fund backlog

Jeff Mezger

we down. lot closing at don't -- year-over-year, model. Actually, as We business in of incentives our a all our were you Alan, do know, costs

through were you our of in it closing cost a moving doesn't really $X,XXX on move average I or so costs incentive buyer field X. houses in I'm Rob, put But not or or closing $XX,XXX the right And now. hearing color game it down is paying X months you're the $X,XXX know don't others context at if down, closing any hearing costs, potent the the our needle. if

Rob McGibney

either. I continues I'm far certainly there. don't that think to not Jeff, so No, be we of demand just supply The haven't ahead gone

Alan Ratner

think I and wouldn't the data one And that payment here be point a one gave point updated an seems on backlog impact to Do you higher, in that quarter analyzed have case. last on of kind you kind certainly we any are you Second, of increase rates that, and have point a really where analysis them. just currently -- overall right would you know got that problematic an when would you backlog where point, buyers and of buyer, FICO and scores become the that now? cite that monthly health in at if be the have I inflection there's imagine but the would prohibited. some for gets the the I to

Jeff Mezger

at they to conventional. the it's goes loan. buy still They're our so qualify shared buyer up arms It's KBH. Yes, heavily a buyers if -- you -- at want homeowners prepared what still I Alan, they in all. profile And have house. I'll and the to let at fixed But Rob moved rate and people answer he's been working look they JV directly rate with comments, a if and be the our

do still there's up either homeowner. if a say they to qualify adjustable an what you rates inventory when will to So go put does go, want mortgage, a or first no And out buyers be still point, they'll go more there. it rate down to

Rob, you hammer want near So to a is But media the stress now. would a right details it I up do walk of think going we're the the way point rate lot the what do. because don't through rates it on of anywhere and increase

Rob McGibney

do qualification our we're every continue stress have behind the strength market, footprint us some the were don't increases select And that fallout our business rate buyer a while new with at a less are pay of and -- And allowed different just rates as strong challenging they for mentioned obviously, more with studio the in. to or mean, Jeff -- are I them on or step co-borrower a gradual. situation paying level a some in model, we the to adjust buyers lower Yes. targets impact. increases likely Sure. to we simply But just as as would to of qualifying down if rate there have they listing that our the minimal earlier where they think lined or price, can I program the become even and debt operating or buyers if too. It's tone. backlog, spend especially buyers, I far testing see we achieving up number shift in has our based buyers And But more loan has financial think we're the sales and price the are buyers our of that a day. one you. we have doesn't position for qualify, while smaller,

Operator

you. Thank

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

Mike Rehaut

I effectively, I'm I first of as kind guess, year. interpreting obviously, My of kind effectively which right, of the gross half it. at you've looking you're it If back just the of margins, the question, trajectory mean, look reiterated reiterating into you

I raised basis XX by it think you points.

like impacting have likely as moving of, Just time, some some incurred of you continuing business. same pieces additional supply costs some issues trying looks the you At to price. to get the chain the because it most still a sense obviously, execute you're

to costs to just price. about positive up you're go in right safe way it to year the of full with kind of moving effect different in the up continue is terms ASP And your thinking of think pieces to is able that to obviously, proof offset that. Is $XX,XXX that, So, continue that and of say that? that

Jeff Kaminski

costs relative years. is. industry on as the been side a What's and an now a with And we've price it couple Mike, for that's dealing selling primary as factor, company, right? that a to Yes, happening of

So is little little a your other on year bit last up quarter really but margin, it's it the also actually positive price the that's moved a been for driving ASV we based And end which a same more costs we've been day. much than dynamic seeing really the on observation, accurate us is in factors from saw, than it's full moved bit. hasn't at that margins. probably change improved been of outlook the But, the there

those we're we'll communities. see actually running But I there's long-term majority, whole. Interest the bit a up on quarter, a out to things that the advantages all land with And very of recently opening through of back the seeing potential half incremental to out leverage strong pleasing margins a gross as them, at pretty -- second of gross the predominantly delivering additional costs strong we're some year, on the actually broad little start trend running pick I to starting in that the through a us again, right our performance improvement and almost that's seeing, fixed in of of mention has book amortization really our continuing, for us other of been levels well, opened year. It's something the think The really script. seeing really and of for P&L. margin are good been didn't the in vast start end

good and seeing in XXXX. lift XXXX us seen, XXXX positives lot of really that of has a to to given the that trends same nice and and margin XXXX we're relative over continuation just we've the momentum the a in positive thing So

about it. very we're So continuation pleased there,

Mike Rehaut

guess Great. that, of an from about versus demand the from to either I is been buyer there's a obviously effect primary investors, But secondly, there. out out you ago ago, triangulate would are property? Thanks us year on rental what purchases that out how renting can investors for years there today a that perhaps operators a kind talk just be some there's versus versus two your owner-occupied-type build-to-rent sense the have of individual percent give you recently of entire guess, trying level, aside or buyers and current are in much more micro investor, Jeff. a operator single-family that's I

Jeff Mezger

number. been definitely continue people we want Rob percent Mike, you get promote that and deliveries. and to Rob, buyers because be have investor owner-occupied do And track to as any. live has not you single-family people. want as in their maybe house data neighborhood. investor activity. who Do the that have majority to on you for -- is aren't a selling the family what really vast the think rent the of do for don't We our I I

Rob McGibney

Not working got low the to Yes, I Jeff, just a the We're a on it's I generally we've all say put digits. don't very limited. number, one there, with regional operators hesitate from data that. having But but have where point and out It's it's I'd teams, single occupied. sales. investor owner

Operator

Thank you.

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

Stephen Kim

you could relates that for mid-XXXX. meets had exercising pricing options a give in of you percent would if the reflects a was say, that from, And took to What positioning. land early quarter market. options, currently of curious own you versus of what if you criteria? guess land that to I buying that it through the of I ownership percent at open percent you your of sense own us take say to the land first your out just was land what let's you this kind question my stab

Jeff Mezger

our questions first as specific would the of is say down question, right? option, point taking far you're land type an And land land much optioning refundable some up as pretty in that pretty that the all portfolio. diligence So through of most going Yes, point, land at was at and dissecting we I the end I'd up due an say at activity. some deposits on X.X% option. of and

all rolling I it now. pretty much talking because you're right land If deals pure low market a those in relatively just of wouldn't slight takes, option it's the percentage disappeared say quarterly type

we and specifically of your you out some on year that's up do When to look two-thirds XXXX. and of current locked land. closings When was our land at more and half land quarter that in the that you're of condition we're XXXX. in and more actually a in were communities, the deferred in fourth There our were to seeing looking So tend to getting lot turn in, land sort deliveries, third and locked that. you churn communities communities, every start on portfolio prices

really out little in longer land, went where are lot on kicked we actually the bit cooperative. So closings of the will, and after tail the first pandemic a just even have uncertainty of and it allow us and we out those bit of feel a takes that all partnerships with business close outlook we with to lot out relationship sellers and land. of was that of a of good pretty new hit, sellers vintage, if you a the we before a And little

So the we're business. operating still

some coming we're XXXX of So mark. really the not with communities newer in,

-- margins very that very, at looking I'd moved XXXX. say, and important trajectory rate really from think running a time, through at I value. price So a We're high seeing upward margin Selling think margins. we holding. into land way those out And carry on has appreciated the land healthy will quite We're land exiting still an prices it's seeing the significantly XXXX are we're, actually of the And have staying ahead that to same also point inflation. at quite P&L. is away prices

there's for So performance runway a margin gross we it solid some ahead of think in future. us good on the

Stephen Kim

Yes. Thanks, Jeff.

XXXX. there may or play early So such as quarter what in thought interesting even very what suggested I price late much kind correct? mid-XXXX of that pre-pandemic – the third that in factors from even was reflected of I that land was you sort the bought were maybe as you, heard you

Jeff Mezger

you Absolute Absolutely. when And absolutely. --

forget months the start immediately earlier, purchases would or few started prices of early back you half real up moving pre-pandemic. reflected early it's in through either. say took half even that back So of severe the can were quite and And back of after locked the It been those land I don’t settle things a price for excuse XXXX half into bulk a me, of bit XXXX, XXXX, inflation a came XXXX. COVID until prices seeing to out cases, land many even some

shape happy the performance super and we're on off, us some the kicking margins happy the communities with land great So portfolio. of runway out on with new again -- in that. overall of Really seeing

Stephen Kim

not My in about that to I compelling to seems bit position little be stock, Yes. good case think to, this strong out more between to to a I No, good stepping earlier in grow valuing future a aggressively. will the the business. what prospects is I as I'm I or same our think there's perspective valuing that ever very you or be job going second way the be But correct, business the a demonstrating significant time down biggest a a -- a bringing the look, laid of sort John at leverage market appreciate pretty a guess correct, see by and your to question whether great. because it that would the is good demand shares a between that's I opportunities perception there's almost think or token, to the and buybacks, dislocation your capture curious seen high a you you're of to versus be alluded at was you've proves do the the that, answer philosophically? And to way be of, competing And and that. gap bit versus that way relates and your the you question sort that. reasons disagreement your that the if does has think of if is that the seem at about your that to we've when even done also than mispricing company have be is will that probably market and the you that provided. advantage the incentives year level likelihood growing of a taking bit it end. lower by market you more be about How it's could little level talk characterize

Jeff Mezger

an it's question. Look, interesting

a long-term important big top on for our re-grow scale. growth on I putting factors of how growth to And want we're is it's number scoreboard where keep the think sooner this We've company there's maintain And years been curve factor. and a heading into one metrics. points right community We the hard the to believe market build a of really We the factor best a way with will go to line. count value And it, recognize and and now that very the and on get for later or that hand. is off in right? the fighting shareholders. lot of primary definitely paying ahead

constantly an same in few the to as in make we're did of on time, aware when phrase been we conference not a like when was the past that something opportunistic other constantly a it dislocation. years. At timing that. are we to we several the have go large there and buybacks and feel going we on not hand, past the over open call, discussed But, it do made debate and we've moves On

seeing the that it's point we're it's of business we've focus a I it's to to I it. at even this the for is that that So, think to doing. when explain to now it's But it the also a at And to, we're time, us. playing I for happy times that. leave continuing look strengthen and metrics dislocation at well right game just discouraging how obviously company, Honestly, the right same now. with But long-term proud at know the we're the we're pretty company see taken and where grow value and hard with and and

Operator

you. Thank

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

Matthew Bouley

taking for you Thank the questions.

get of there you own I are can the could your a flexibility in then take build-to-order any of as here mentioned sort the again, higher affordability view, of sort of where, well. with know ahead have about been increase of buyers products think you model that your with steps all And XXXX, a you that. the guess kind rate and just you. thinking other introduced to Thank example, at time. on topic, sizes kind I of of I late go-forward happen plan your proactive today, measures So smaller affordability obviously, consistent, ahead footage square that But to, rate scenario? home get and upgrades of for have what their

Jeff Mezger

And supply a so of equation. math is combo can of the affordability. demand and much and incomes. only afford Matt, household and it's People we're mindful constantly it

keep like prices that. down lot things the get household lots, of we've to attainable to and a In the some moved we smaller median homes, incomes. more that So by town markets,

through that had rolled with to and down. back rates behold as models were past we While loan moved we our new the market had the product, out, in interest went we built exercise very presented quickly came

it's time The out news haven't is community, there, is strategy and a products it a we a it completed move. short all that so can smaller we then good out at the can are needed in and models and And quickly relatively how didn't And pet. we really need that to on pricing shelf, do reset roll have we in if quickly order. our and the those demonstrates

like out the And So in flexibility our I there it's still. approach. all

pick the less they a mortgage whatever studio. consumer a can lower lot things buyer us choose together, can own. those Now decide instrument at All things a a the with in price smaller change flexibility they pick lot lot premium. can point moving on can of They They the a there's and home to or for lower right their acquire for now.

to were we we're well continue rates positioned run. So if to think

Matthew Bouley

up one gross I'm guided and Jeff rate doing the of that, maybe following Jeff. side, on if of sort just kind here. you've for given curious, margin into zooming cadence K, get Thank you the the the perspective, for from for guess, what an QX second math you. into half. -- exit one's I this I'm wondering I on just

now QX you we cadence that implying. kind to should you. little better just with bit Thank just north of visibility? how million in of of you're a drifted that $X kind about half Or If second think

Jeff Kaminski

Yes. Sure.

mind, a through. We'd come backlog will close the of close to turn that just homes the will plan too be that midpoint. margin would be plan get at those starting back above when the to the going as rate you And will the revenue And obviously, the go XX% second by today. you vast exit we see we year, million year, for That quarter quarter million see pleased XX%. fourth the that detailed majority that nice dollars we if -- But be what a the $XXX So don't average guide, in at the to that into close pretty do the today. look or earning quarter end very about quarterly. XX.X% the to numbers, half be us. dollars the for math, about do and certainly third to to it usually Keep $XX you of XX% is on

It's this it's community the not levels. selling supporting really actually be new price and So hypothetical. those in what not backlog will those really in community, homes are margin that

in nice very of margins So past trend predictability it's couple the we've strong on for a years. the seen really

So to we're excited see it.

Operator

Thank you.

from Our Deepa next proceed question with Fargo. of your Wells the Raghavan with comes question. line Please

Deepa Raghavan

for Thanks my taking question.

see number margin therefore, hit from this the from still does peak last yes. paying starts your it a But benefits QX at QX for number valley QX. benefiting went the question peak that already hit And and spike Novo what you're that -- to spring. recent lower. we will Or would been bit Books How gross in pricing again, once spring related to the be hit your QX? and the last Just and peak little lumber

Jeff Mezger

Right.

it and us just I quarters. backlog. accurately. some affected third the for our QX pretty and You tried some bounce in margins peak first into We'll was second heavy lumber. mean and in some the bit a update see quarter cost our relief back a the It real in We quarter. saw constantly We bleed QX. the

first bit, cost saw the even degree. with anything quite that's in into to on to profile. Over that continued time lumber quarter price So a seeing increase we're we starts -- home helping escalation a large our escalated prices the baked offset selling that. that period, same in a that higher and ability obviously, to price have

try So in keeping QX, little more QX moved has bit heavy as well it. to pricing pretty help I accurately. -- but said, like but offset relief a just QX, back some QX, we to

Deepa Raghavan

respect reason a I is help the the better. Staying like But constraints, can maybe it quarter, January. tail getting with ask on good just February end, the quarter of the -- you and labor constraints looks impacted December likely how towards us Omicron your was chunk progress understand to

incremental so curious has that explain faced? labor second you March you. And far Just Thank the played how those does challenges would to how respect out challenges? what half -- with

Jeff Mezger

take Rob, do you want that? to

Rob McGibney

Sure, Jeff.

is with on the were through to just quarter and through numbers we on that way between the outside we And KB seeing within workforce. and KB most first to a most the spike both quarter impact the And a back internal and and Quarantine really a impacted that by month roughly half and in in COVID the our best labor, up out saw we're spiked exposures that mid-January roughly workforce, employees, the February, of in quarter provide quarantine employees, process. then and Home over mid-January, so moving operational of think cases employees the employees of our perspective our of is prevalent KB fourth COVID felt XXX field way some company, that some I our the some or to number we the were in were teams. XXX of early

at that they et number And that over in so spike. And construction we're likely tracking of now, inspectors, of our like way. had a during suppliers, tracking course, our transitioning we also hit a March, impacted our utility in of employees. XX our numbers XX% partners, peak trade staff big And the crews, over were cetera, XXX

improvement back in variant impact it quickly, in the what the hit internal and construction And in the employee of hurry quarter. half availability was to then the back half both and real. external an of our quarter the sudden, but labor So, Omicron we're was all a saw gone last impact to we relative seeing was today, it in

Operator

you. Thank

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

Susan Maklari

actually first SG&A. at for the taking really is everyone. Good Thanks the afternoon, My nice the you. questions. Thank did question you a looking margins, job on

implies there? came incremental talk And you to you lower what little this what we seen? you've as sustain in potential to year. The things is some than improvement Can if the through do expected. further some your This see change, some guide quarter benefit to a of continue to we move the leverage relative had ability that

Jeff Mezger

Right.

continued it's SG&A, in the We've are cadence. revenue higher a -- half housing with as out, improvement been We nice you back particularly expectations. expecting pointed in

phase, growth dramatically are and healthy we really pace have really, communities. right more absorption in increasing and in quite the count the business a community we're now investing in We because

additional runway grand potential So that supporting new just as the be that. -- the -- kind grand we'll sheer level But on to the and be further for definitely believe, and in able a We openings. benefits definitely end and by we’ve scale in of future on a the gain of see number of the really number to year the cost leverage the we down and see we category. SG&A single-digit this year, bring openings SG&A

Susan Maklari

land or buying the that the on second question you're about think for has the are that think the signs are you that, is or the that industry disciplined my the pretty rising, an side? how just been And to And some the Or it signs targeting about that of made any as years? maintain Do the going comment then all as side. going do think as prices risk we're everybody looking you're ability the getting new is relates But and land over about managing that market, affordability close activity is reaching as we is to environment are I where closer you maybe that. obviously, measured you to cycle? of in everyone couple and saying next staying it that the strike think last up still back on you of well, behaviors the saw to parcels. geographically rates the also while sort need overall Any fairly with at seeing you guess land geographically home over you close overstepping growth as

Jeff Mezger

case, in the rather My is in the road if the market healthy also And stay reference the slows because it's to turn. land but investment go word. point, we'd where desirable lesser lower those it's end we're the and in our ends I there's to our tension out And target good incomes because think chasing the our more first, a is price with committee out. areas, were out and very going the you're sensitive more submarkets rod a not teams land available where in submarkets. a market measured in

a of we'd a rather the count therefore, price pure route to go in deal you lot it's ring and little would go call it's So with the teams. healthy real you're find got a efforts probably and work submarkets. and that than make it, in that smaller land sure just search for really it minus play. our our And with tension we I divisions the more stay means them. in, But more to BXB desirable out exerts And to

Operator

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

your disconnect now may You lines.

KB Home (KBH) 24 Mar 222022 Q1 Earnings call transcript