Earnings call transcript Q4 2022

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Operator

Good afternoon, my name is John and I'll be your conference operator today. I would like to welcome everyone to the KB Home 2022 Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode, following the company's opening remarks we will open the lines for questions. Today's conference call is being recorded and will be available for replay at the company's website, kbhome.com through February 11.

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

Jill Peters

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

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

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

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

with that, here is Jeff And Mezger.

Jeff Mezger

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

share million, our $XXX XXXX, $X.XX, a billion, produced up revenues rise a We XX% financial of of results are of during of pleased diluted $X.X net XX%. XX%, year-over-year with in which per earnings income we increase and of

to in operating value return to equity points over on to to and Our basis top-line with of XX% book XX%, over of growth, together growth our drove share expansion contributed margin per $XX. the XXX our XX.X%

financial of years and company's of work their proud in of generating our the one in hard history. I our team strongest performance am

sold market under Although delivered that than year navigating are homes we conditions different today. we the were this we acknowledge

as were and extended persistent municipal construction times, numerous supply delays accomplished well also remarkable obstacles, as our interest rising We despite rates. including significantly that these results inflation recognize and chain issues

quarter current the range guidance year Given are we first we and for are our XXXX housing a the providing full revenues. giving environment, market of expected today for only

to we revenue billion, to historical we the within levels of valued for times, deliveries relative backlog As our year, homes, times our our a overextended achieve $X.X of to due supporting are more between sale timeframe traditional at has while build and longer do a months XXXX, we committed significant projection roughly over to six to months reducing become so with begin from close. X,XXX backlog seven cycle

our the features with an tend model, our home choosing lot attachment and their the their have Built-to-Order to emotional select, personalizing to and finishes. their preferred buyers plan With homes floor they on

closing For quarter. close universe their homes the the most our when part, during buyers and of did are deliverable XX% roughly are completed

These buyers, quarter. our with us confidence giving is to backlog convert are slightly backlog, in which ability close their third Although the on sequentially, January November, declined our cancellation below percentage locked are of and was still buyers in and February. higher paying closings. together our represent cash, our rate moderation of in mortgage increased in our XX% it increased beginning buyers historical peaking our average, we in to cancellations backlog compared a sequentially, on significantly as to further our anticipate rates our XXXX A and December after who to also

by ratio an margin lower both margin operating effectively gross XX.X%, of generated billion of $X.X income on With higher share diluted-earnings charges, to We as of XXX inventory basis achieved in a nearly costs. the per focused managing year-over-year representing a fourth total points quarter, of XX% SG&A and earnings. revenues and respect related up we year-over-year, $X.XX, increase we excluding driven

at communities our market and revenues committed we stemming implied remain balancing conditions. guidance, acknowledge to missed cycle our the deliveries open of ongoing of I and companies with or was to in energized. time higher new overhead challenges navigate construction, combination to a completion latter in with relative we from getting that current cancellations stages what to our We utility at communities and extensions were as homes on close that homes continue

advantageous segments of outlook to and we housing large continue business the that first and for these time serve buyers, growing and We believe market favorable. Gen-Zs as affordable of move the millennials up The primarily traditionally long-term remains the comprised the demographics market our cohorts. are first for

inventory XX% starts recently, price demand. housing points, remains to there an under-supply face our further the middle down continues of homes, at basis, demographic home industry current risen the buyers which pressures mortgage That and weak is uncertain made of existing has housing the economic since annualized rates, more behind market Although be year. persistent falling roughly on outlook, in said, now an underlying cautious have particularly inflationary higher with in and an of the resale serving the last

in were orders stemming net low and the year as fourth quarter, XXX X,XXX an Our a orders to gross cancellations. increase compared ago from of level in

of components Let each discuss separately. these me

to millions hundreds homes we sales. estimate in backlog that more similar XX value homebuilders to and per new get start to frame impact rather entering dollars. of pricing only and sales average an quarter, quarter in finished our other the way, the elected nearly community our protecting have at this we with backlog to sale, very quarter. pursuing had the of Given size the another and We softer of XXX been delivering our to of backlog than a backlog the of at To margins homes a discount we level margins our demand available our prioritized in the fourth for would solid incremental

we to gross our last we sequentially. shared in orders that interest softening call September, the had rise earnings On rates trend X%, with seen a in above

at orders level. in As in further. November, X% roughly October's moving October, month, in higher orders the stabilized declined rates Then, rates late lower our continued hitting with slightly gross

per gross absorption a our For of On gross pace the quarter, were a orders X.X basis, was orders month. X,XXX our XX%. per community year-over-year decline

With these locked looking their the confidence good to home of though the we at believe unusually at sequential rate our low beginning of fourth loans. it historical was had in due way still times, XX%, quarter they move represented a is reason average. our cancellation primary homes buyers qualified forward relative to increase, start backlog below for be cancellations dynamics slightly on purchases to were many on even The backlog, a continue respect although to lack mid-teens and cancellations, in their uncertain we the during understand to for orders of XX,XXX the gross cancellations and At the large to level quarter. the our backlog

about For gross align split unsold homes ended starting business the roughly we levels. of sales we X,XXX and have targeted, which manage were starts unsold sold. expect to these the quarter, production continue we strategic to and of range quarter with with homes to this the in production, X,XXX XX% our [indiscernible] our historically return XX:XX to pace of continue

has selling always in each Built-to-Order been we offered have remains communities. and Our homes, of quick but priority our move-in homes

basis the reductions We large season. of delivering selectively continue community more while on also community-by-community and we are pricing concessions other we still backlog, spring a performance, dynamics local monitoring selling ahead getting on and are our to aggressive emphasize individual market

backlog. first and To have steps prior By net quarter most the in weeks translates be the range the delivered orders targeting revenue projected our as given slower incredibly prior the we the approximately of our year XX% first comparison taking, the X,XXX strong 'XX XX% demand of of will be existing -- of of This the comparable versus we our to we XX% first and to of first our period. XX% 'XX down are into more we are between in orders are Through our year-over-year end quarter, expect support the down this taking quarter, five in communities, period, period. a to range. at net midpoint orders actions an net relative

Concurrent we to costs to will are start buyers with cycle and significant pursuing our moves, us with achieve times. cost, taking delivery and and at are enable work pricing lower in targets. This help the offset construction homes concession to sales the steps our reductions and we

pause our with as for color Rob? that, a and moment some Rob to update. provide me approach, operational an well to With as respect sales let ask

Rob McGibney

Jeff. you, Thank

and division to effort requires This start with focus product, concessions competitive sales teams and with our protecting respect me analyzing. reiterating to out. on on the price, I continuously deep the heavily effort. submarket inventory are resale dynamics both of leadership by orders which new rebuild delivers backlog understanding engaged generating in new have our Let a been as markets, it and also backlog teams each the this of and our our finished

backlog the depending utilizing are how strategies two We we in a on homes sales many have community. different in

to those emphasis communities by remaining large to more sales lock backlog placing you're and sell, down help far our rate until programs on more interest of are reductions delivered. have more in backlog For produce that with our and price particularly de-emphasizing backlogs, temporary is than

would to a have price in lever receive lower While orders, in sales, know in to may which similar we sales we we recognize the backlog a if most price the generate buyers rate new the regardless expect effective loan. also that their locked is new many that community base reduction of on they

to our a to it high of prices the traditionally to of advantageous point for particularly homes communities are clearing could for sales. price impact result, base a time a typically resold is us As slower be the is the what not in in as year significant, backlog that lower market

have able to backlog where impacted. back interest turned be increases with the a values. XXXX were without significant that That adjusted percentage The in to instances, very certain and we will a we rose, pricing as backlogs, half smaller second pull communities most in small price the quickly rates impact said, of backlog recent in only market

share me Let examples. some

inventory the in are homes a XXX have XXX incentivizing or speculative margins. backlog Competitors with $XX,XXX. to backlog over in -- community XX% in We mid by submarket discounting $XX,XXX their at Austin in

electing are adjusting backlog more the before deliver We to price. of

XX XX%. backlog and have margins we In over multiple homes Orlando, in approaching with

specs other are As in discounting Austin, builders the submarket their in significantly.

chasing our on of instead the these delivering the backlog lowering stabilize result more better these and of of In expect backlog consider far awaiting homes inventory markets. a financial to to reductions their speculative in in homes We that each by allowing pricing of that are the pricing. delivering examples, are before buyers are completion we base occurring personalized market focused we

price defined market by with the our more strategy backlogs respect to smaller programs. down communities the base with rate lock Our product buy affordable with has and combination through reductions in making interest

improved has have opened We pricing. peak backlog Phoenix found a and by our in of price with XXX we as community lowering community to May or market remaining a the example, homes $XX,XXX in the and near sell. pace at this For XX result. This in year by

a is backlog able prior the market example purchased homes only about amount slowing, Raleigh, Another with this so we the backlog were We reduction to few in price. homes and at to aggressively increased in equal prices had that an remaining and impact a XX community community in price were higher $XX,XXX sell. a implement in to

divisions has been through able Empire One best illustration our time the of of fastest in a higher quickly which the from more company. backlog the fourth cycle our to are its rotate quarter. division Inland backlog heading division in our its benefits and is delivered percentage where The

all quarter-to-date Empire adjusting and quarter, in in quarter, aggressive division more in with has fourth margins. Inland to was achieved the result, market sales divisions a XXXX the be of first able solid still the the the late result in best defined our prices As

strength the some sales is communities. prices now lifting IE in division in With the

submarket. on have Our making pristine sales process certain looks models, community in the the executing remains we place ensuring the fundamentals, conducting outreach our the from rooted targeted in interest and signage the brokers right thoughtful and in to staff sales to list that the that and

is Beyond our think necessary generate target for support to range these basics, we're sales doing to what revenue the year. we

and affordable own made I into all That community story. individually What community the offering you its with across examples remains more our communities product said, consistent buyer pool. every to rotation is shared qualified expand we has each the ongoing our that smaller illustrate

floor of the in or and offer delivered feet. feet, consistent average we at backlog in square XX% plans X,XXX homes quarter footage communities X,XXX those of remained at below the about While fourth our

initiatives cost We to offer to customers. our and also interiors engineering with along elevations ultimately other base lower reduction value are price a our

cost Our of costs down a reduction started direct in one we've started average in achieved and initiatives in our homes are August. relative to the driving $XX,XXX a November

are teams reductions, more Our cost front negotiating the the particularly currently end significant in construction of stages.

but it was and times from drywall days experienced frame, frame build sales improvement down from by XX days, of coming from and Overall between two to the costs. are we XX addition end bifurcated to to to times back-end, improved Build in and five days extensions sequentially day final. a front drywall

persisted industry I chain issues which our from issues drywall five certain the and chronic supply to a areas, stage While in material related the the ongoing to more was electrical markets our by supply extension as completion day to volume that production all homes complete and the chain of with in will builders of plagued municipal issues delays infrastructure about have overall address in less push the moment, about availability year-end. combined

to day homes slower production and expect through frame in of is move the a pace lower into reduced resulted improvements in volume these our given to construction this we the the second the of The as schedule the sales current XXXX. XX time improvement stage. has of from of reflection first The waterfall half sale starts across market, build better industry in XXXX at we half

materials, components, and building HVAC had that equipment garage including are of such products. for other to doors flooring while electrical improving concern, still some long is As standing areas as windows, been availability products and issues,

construction tirelessly continue issues teams to possible chain trade as of as the homes shortages. move supply labor Our work customers efficiently on despite behalf and the our through to cycle,

action times. divisions in significant historical the end new of times front of our we We are place gradually the XXXX. an plan in we the has significantly of with times lower our to by industry into our reduce to improvement believe starts build encouraged can build and year, the build by return Each end

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

Jeff Mezger

The Rob. remain use of Home profile our venture strong. Loans credit Thanks, that buyers mortgage joint KBHS

payment use the For the of loans products, saw quarter, while equates adjustable took $XX,XXX. we which these customers vast cash XX% we products, an of of fixed of as qualified The KBHS nearly to uptick use in was majority fourth rate buyers mortgage. offer. during customers lower average conventional the And rates down rate for products interest advantage the these funded a XX%,

As to over XXX. these score their income of was FICO levels, the income was and average buyers household $XXX,XXX

While buyers are income a in level qualify to that that continue immediate healthy we we our income mortgage attract and to make significant submarkets, above with at able target payment. rates household higher credit down

investments toward related heavily reduced again development land acquisition fourth the In our spend, we quarter, with and skewed fees.

land closing contract. where our the and we prices away been extend the cases, X,XXX timelines. investment, longer we also during due no In We canceled renegotiating about purchase have that the certain terminated expenses. from contracts to can walking comfortable are reduce contracts to and we quarter, We purchase on achieve required diligence deposits have lots returns

remain our $XXX we in in to For dividends. cash over the $X.X and returning and and billion year, approach, share development balanced stockholders investing of acquisition million repurchases through land capital

investments year. spend about and our land were year-over-year of Our heavily was lower the million half towards $XXX weighted the first by

stockholders our our cash homes be materially flow. return production, in spend continue to also once resume our land attractive With under This healthy which cash at improve, us more in it land positions a lower us of the of and generate level to build market to basis. excess expect our cost conditions will portion a and opportunistically improve enabled investing to will in will a to reduce that investment both times anticipation we 'XX and

XX% stands are position with year-over-year. about models. owned controlled, including lot having owned of Our only finished, lots Of at XX,XXX construction, a a and roughly XX,XXX under are or house reduction XX,XXX X,XXX over these,

space lots. large development a our building start with limit We continue to of inventory to balance phasing finished our up

outlay. developing basis, and phases on reducing on lots smaller cash creating adjusted our focus Our time is

the savings contracted lots Relative the costs, pursuing land We the development XXXX both prices. to lots, own industry. of as slows XX% these also across development selling before vintage are average in or our in on we approximately of run-up and prior

markets. have position We cost favorable lot a solid across and our distribution good a with basis

the lots fourth in XX should growth or own control and that community with in new anticipate in count opened us XXXX. we We communities provide we quarter the

appropriately Our market the have current well most openings performed priced conditions. recent gate, of for out grand

open orders rates. support continue more lower we we help at even As to absorption expect growth to net our this will communities,

entire our I year, recognize resilience team to throughout our and Before thank wavering like commitment for wrap to never KB homebuyers. incredible from their up, the I'd their Home serving

that team's Journal. work, companies of ranking be U.S., a result a Wall with in effectively As The of The recognized by Street was our hard in XXX as honored developed Home conjunction KB most rankings. to was into managed the recent the Drucker Institute company included was one the

of Responsible were to a to we only our our multiple Most addition, receive cases, Companies national America's In company Newsweek's for results list distinctions XXXX both initiatives. recognition in years row. the named of these our related in ESG was In to homebuilder

business don't While right with awards, things. the these our provide that winning honors manage goal we're we of the recognition third-party doing

In long-tenured and with more look steered move as business market closing, ability multiple successfully have balance the less forward although confident we continuing navigate to cycles. greater solid progress uncertainty year. a expect you and to in are team experienced our through conditions has through with company XXXX, a our to on our we the We along of in update sheet, challenging visibility these we to that

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

Jeff Kaminski

outlook I the full XXXX everyone. cover performance afternoon, for commentary fourth will XXXX. of our as financial good well as our and and Jeff quarter you, year, Thank now highlights for on

results, including that drove share. our and increase year-over-year XX% our earnings the significant diluted in growth margin revenues quarter, a in per In solid in produced operating we financial expansion an

our softening execution and enabled In generate and financial demand persistent diluted meaningful per portfolio These we and experienced inflationary included results to throughout the addition, revenue year, year robust operating full us in challenges higher growth, results. returns. and communities considerable operational half, margin expansion, strong second of share earnings the while exceptional chain solid supply

$X.XX In reflecting overall were a four up Southwest Housing revenues delivered increases price. selling XX% year of and the the a ago, region X% fourth average billion from Southeast. all X% from in in of XX% quarter, the a our regions, in housing were in XX% rise homes up their in revenues to with ranging increase our

Looking delivering though ahead be continue on navigating focus chain sold as we backlog quarter, supply housing to constraints. conditions ongoing the to market will XXXX challenging, homes will we large anticipate improving our and of first

For the billion. $X.XX housing $X.X a revenues to quarter, expect to we in of billion range generate

XXXX we revenues billion, supported billion forecasting year, $X open portfolio full our range the housing For and a to are selling $X growing in backlog of of by communities.

Jeff As full providing of market In quarter, housing $XXX,XXX. overall outlooks the revenues. price XXXX, for economic mentioned, average year delivered for are to given selling increased guidance uncertain we fourth the approximately only and our homes

projecting this of approximately average year-over-year be price $XXX,XXX the for first price to in is are home XXXX Sequentially, when quarter, represents the reflecting and and geographic X% delivered X% an We $XXX,XXX challenging prevailing sold. expected at conditions selling a market midpoint. mix housing community selling average to reduction or up the shifts

million, XXXX $XXX.X for quarter XX% as the income the operating $XXX.X year-earlier up fourth Homebuilding for totaled compared million quarter. to

margin Our in XX.X% compared to XX.X% fourth homebuilding XXXX quarter. operating income was the

year margin margin of and XX.X%, gross profit ratio. million versus mainly basis Excluding this approximately both our $XX.X was approximately in operating million SG&A XXXX expense points, a reflecting inventory period XXX related charges up ago, in improvements our $X.X

abandonments relating impairments of will charges be and portfolio included three of X.X% approximately income margin, related XXX of our We inventory XX the our quarter homebuilding charges to active related XXXX any operating million of to out XX.X%. to communities. quarter impact anticipate communities year $XX.X current end excluding inventory million $X.X relating of first selling The projects

the XX.X%. quarter XX earlier from fourth housing improved margin profit quarter XXXX year to points basis gross Our

by concessions quarter response XXX charges, and the impact costs and Excluding to our basis in XX.X%. selling adjustments other inventory for to gross increased selective partly price related the the improvement offset demand margin higher points average impacts year-over-year, construction This expanded of conditions. of softer reflected primarily prices,

higher decrease price, profit housing a XX%. impacts to the are margin quarter concessions during expected the the operating and gross range XX% We for first of buy-downs, The such construction mix the as expected XXXX when are shifts rate lower first-half, costs from mainly sequential selling lower started, were of mortgage the leverage. reflects average homes delivered majority to the in be XXXX forecasting

and improved mainly Our of XXXX selling, ratio lower from due sales a for leverage commissions, year employee with administrative costs expense basis decrease higher ago, to XXX general associated X.X% certain in operating plans enhanced points and quarter a reflecting revenues. performance-based the external fourth compensation

higher XXXX, continue first revenue quarter to on to our prior-year level SG&A count year. aligning leverage the we period, in XXXX with forecasting costs expenditures the community lower revenues, focus we from compared fixed on are XX.X% XX.X% in In reduced approximately with costs overhead along expense primarily levels expected reflecting to be ratio our to with as of XX.X% associated the current will the

our million million fourth the quarter, Our of credits, income tax energy $X.X favorably the represented $XX.X industry-leading expense reflecting was of approximately for initiatives. tax impacted by is rate an benefit and of sustainability XX% tax effective Federal

period. our expect for reported $XXX.X to XX%. XX% tax prior first per XX% the XXXX the effective approximately up be XXXX income to as we million year compared for $X.XX and fourth quarter share net the diluted rate quarter, or respectively Overall, of We

SG&A both increase margin expense strong the our share, increased housing earnings full $X.XX XXXX ratio robust basis our by billion, with very XXX improvements our financial points to diluted on are an to of operating pleased our and XX%, by and gross year, of XX.X%, Reflecting Compared our XXXX margin revenues expanded in reported results, measurable nearly per we $X.X to we XX%. performance.

We quarter. from up XX% community XXX the to XXX now up quarter of active the from count, our XXX communities, a year corresponding in average with Turning ago. year ended fourth was XXXX XX%

up XX% the of our to in year-over-year, four all count to of XXXX with in range increases community expect XX% We average our regions. first be quarter

year-earlier our to response XX% to acquisitions development, investments expenditures and quarter, Having during pivoted million our to with softening in housing land continue compared to fourth year moderate down $XXX in demand, the strategy the we the in quarter. XXXX earlier land market

Land XX% acquisitions from same ago. million represented investment, only decrease fourth a the of the of year a $XX total quarter quarter

transaction move also our that pipeline pricing return deals abandoning while longer to terms and for no evaluated our renegotiate thresholds. and many We others met

In the $XXX acquisition million investments our the half. during million half, second first XXXX declined to to land new compared $XXX as

strategy, modified to also some land our have and next areas. demand development certain electing build local expected cases, phases start to We smaller in further align with phases of in to

During cash completed the year, to we million $X.XX first generated to our from operations the billion upsizing and initiatives including quarter. our improve $XXX facility several unsecured of revolving balance sheet credit liquidity, and secured in --

We our $XXX total also a our of under $XXX of million and $XXX $XXX liquidity third $X.XX was loan the the and of revolving facility. notes with senior notes senior refinanced million issuing $XXX term million quarter. senior credit borrowing quarter fourth year-end, by approximately in million our At under in available of cash unsecured billion, capacity eight-year million

XX.X% to to XX.X% the XXXX, improved year-end for compared to ratio capital previous at debt Our year.

term We debt in have loan's our next June expiration, XXXX with until the maturity no note XXXX. maturities senior

which XX% XX%. increased $X.XX as our a discount and equity significant the stockholders stockholders' to addition, outstanding average returned up price book $XXX at to cash of about billion ended by $XX.XX shares X% ago per $XX a value. paying repurchasing million $X.XX our with a of of year million shares billion, we $XX.XX, of compared of book our of In $X.XX dividends to per over an value We million or share, share and year

achievements equity notable most XX.X%, the a a improvement of to one of on with XXXX in expansion points. year-over-year significant basis XXX Finally, return

outlook to we given business optimistic XXXX, about very conclusion, strong in pleased and trends favorable the the financial challenging our under new a with market, homes. continued housing In performance. are we of we remain face XXXX long-term environment the demographic expect production Though fundamental for

and returns-focused believe stockholder unique addition, in evolving debt position, enhancing opportunistic with be while business our capital and value. principles growth maturities, strong allow build-to-order us capital deployment our conditions, plan on to on liquidity we for focus and In profile model durable our the of our XXXX financial will In to with continue execute XXXX, beyond. through long strategy a runway including carefully to long-term market we allocating

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

Operator

Thank you.

We line with will And a now [Operator Please question-and-answer question of with Barclays. conducting Matthew first Instructions] question. Bouley from the your session. comes our be proceed

Matthew Bouley

at all Hey, everyone. for for helpful taking top. the there you Thanks good the the very detail gave afternoon, questions. And

on reset gross So, you holding first I'm of just correctly? about but XXXX in think aggressive yeah, margin you should margin therefore, side? but you're price the hearing I understand sequential do you know as off we giving QX margins outlook, hard So sort seems or another start price the that QX to the to margin you've implication guidance, more is beyond of to decline more guiding to get the margin be in if on further aggressive it saw adjustments, the sort question QX, is made and to before gross there, this decline

Jeff Kaminski

holds, well. our it of the selling decline. season what of price really a takes have that a Spring further both right the quarter. and sales what guide to to offset uncertainty lot of think backlog. offsets is the the levers there year of fair a current I in just We're potentially now, of depends didn't Matthew, working lot we're close out market first pull which amount the any new there's we is terms why looking on beyond implication just lot on And we of remainder out A to as

reflecting decreases gross our lot next of We quarter. expect lumber starting the a cost construction We'll margin see in mainly -- price achieve the decreases. in second to

looking the mortgage interest move. we where for There's well Cancellation fluctuations that could on as rate rates are happen depending based to buy-downs, on, activity is one related some mitigation. where

some see a to pressure bit that resell mitigation those expect little of on weaker homes having We the market. removes a into and

cost in initiatives we levels spec the finally, that see engineering and side terms then levers on can And nature. of continued value our lowering and pull some that we of

So for Spring to it's the keep what why we until it and just uncertain right market. we didn't way just now which us holds see that the guide is prefer in

Matthew Bouley

thank Jeff, there, for you helpful that's No, it. Got that.

deployment Second sort talked one, XXXX. of capital you I careful about mean in

it spend like as do expectation sound reduced build cash meaningful for mean, So this is land there times. I an year. you generation does more

capital So expand on of can that, sort scenario? you sort and deployment the share side repurchase on just in of that

Jeff Kaminski

Right.

on of business, what quite we're very In and continue future a us balanced focus reduction. debt then three to to dividends see about can in now, all on order now, buybacks. used we see measured We've be generation investments I in and strong years priority the base is been ourselves business. talked right to the pivot a expect growing to about it. think the confident, very land, say you dividends thoughtful and we've be the of focus always and We now, capital. consider in past, of stewards optimistic and deployment base deploy land continuation ago of see cash the business capital to approach. expect there opportunities I to able and those of to good share should on a few on we'll do We priorities out to XXXX from And

future buyback we've time per increase increase returns to increase with value been our market and share share, earnings been per value, us, view each we've book the given the for at share amazingly same now current especially every buyback so which with per book winner initiated, future that and able the been has is much our right buyback. under the My strategy has value

we strategy. and a and be as that I we measured thoughtful like forward. maintain, said, really we But approach move will balanced like So

Operator

the Thank Stephen Evercore your line our ISI. next question. you. proceed And comes of Please with Kim from question with

Stephen Kim

sort been price, equation. it. not are Yeah, starting the of of the follow cost reductions, just side And builders guess of Jeff, thanks very stabilization appreciate it sort we're certainly We've the much guys, that just real to getting hearing on side. hear actually labor construction to wanted up, I in on

it So I'm in maybe reasonable a to of reductions, prices? sort type but expect on is as of quantification you're you quantify it some curious too, would seeing, given is benefit, lumber could about the lumber around to and what spreading is products implosion if on can labor, success the trades well of in the late-stage you're give actually just I you you us the seeing are you it what cost little talked love having

Jeff Mezger

you to do want Rob, take that.

Rob McGibney

our we on cost it's construction mentioned, $XX,XXX a were -- Steve, to November Jeff. our down start August house side, I the from start. Sure,

the costs just -- of on of back but lower say, front in effort we're feeling the in the partners our not the there's getting innings is. less impact than still of there there's more starts lumber, would are it traction early those where across trades, reduction trade that's half more I markets too, other cost it's, so we're So end and the

lot likely and cost I'd those isn't pass So the doing end, the just renegotiating cost this reductions a felt it's as lot out early work on and value us, haven't of our now And customers. innings started we're simplification, and of we right the allowing it'll reduction savings initiatives lowering cost spec through really elevations that market and the have the back play engineering, a trades adjusting getting on those drive to say it end, front come levels, just yet. to our onto to in of

Stephen Kim

are And about your sort in own observed I spend, there. balance of the lots, of going think, might Well, see talked, owned that year. we first to Yeah, lots I'm opening that as helpful. another magnitude owned into a to the terms quarter, sort the we lots. vein, lots. inventory owned be own options, in you're be little think Jeff, quarter curious for, lots, sheet take bit were reasonable, million I I including reasonable get down up tough and little you $XXX on things over to -- ask XXXX wanted I your, it's I'm not that about it's it that the In be to out Jeff, land whether in continue lots, be by down that somewhere something would dollars that's next of could particular, overall, about that total to is a really, communities And going reduction but think and you XX,XXX to of your sure year-end? this looking we're the think to but obviously,

Jeff Mezger

lots will know count your I deliver don't numbers, time, it, but purchased to at I But know continuing at would any WIP. go QX. on we lot our you so being down backlog therefore our expect you Steve, looked and we're quarter, that XXX I'll it same the Jeff the so in don't with we've if to further right like number I now that total pretty we're and our tight about. land talk our at spend went leave is delivery down, exact look fourth value, the and to dollar know

a see the I good right So growth support in go 'XX, basis lot so lots We on 'XX, our that spot, you'll 'XX, count we're do for own now down. think good with hold and buy rather portfolio, time the to go to and lot cash wait grow back redeploy. our right anything to don't pressure so feel for we'd we and have our to

see QX. a to Jeff, lot little in could we we count dollars? for So will while. want a down It you could, continue talk

Jeff Kaminski

Yeah.

end would is generate we and we that go, As into be year cash lower we as generally through But Steve. I that the Company I that think at the far flow redeploy move inventory expectation the don't balance could it our to operating mean end on dollars like as other a forecast, XXXX. the investment of for assume reasonable sheet. some uses things

Operator

you. Thank

Please next of line will J.P. the question Our from Michael Rehaut, come with your with Morgan. question. proceed

Michael Rehaut

margins mentioned as little of you're me six one. like the question, second part maybe that a maintain which everyone. first Help they're as operating certain in and that, of know so my a the to hundred margin bit guidance drivers on quarters to can ago. afternoon, protecting aggressive instances go help getting of I with getting first reconcile couple there, that than aggressive points but first of where trying to gross taking to some it gross ago, the some you backlog quarter. me questions. your lower three is I I XX% for wanted does said quarter months a my first the reconcile the communities circle good Thanks, guess backlog, I back smaller I appreciate the you statements and you broadly, least maybe backlogs as the in mix guidance incentivizing and or the onto the of amount statement in and is several I'll a basis let's XX%, guess delta the say sound of or lower that's you leverage, not

Jeff Kaminski

Right.

closing the As what keeping like offering the less backlog it lumber more have to in little started on or so we those way and we their main that the prices, in just quarter. most lumber The talked aside remarks, continued second for down the pricing right that call based quarter-over-quarter homes year decline lot an of just it in right a homes been we trough to we're construction prepared bit pretty hit close first going activity starting like, lags last concessions and are quarter see what's have our going the Higher we because a about hitting of margins are driver homes, mind in to go expected as lock there's us now, really, our close look and to that on the has margin mid-year and buyers of basically more order a to that in quarter, the is in quarter. it convince basically costs the in homes now lower the close, on to like in closing opposed of first hit we obviously, certain are are bit it's that set them about little outlook first area. to when

Michael Rehaut

Well, again, but it sense on keep backlog to I around to to is of would six tried incentive today of, amount on to of it months extent I the maybe average a just that. the guess what get versus ago? that, appreciate be helpful minimum in incremental kind a really as follow you've that a

you forward remarks, sales the And sorry, you're where the Inland Empire, weeks, -- generated the and perhaps sales said through about I'm margins going last for work kind a broader that said of pace more in terms kind what starting you solid highlighted with that's quickly mean of better to and you've importantly, more prepared few curious margins, think there better solid how in your of company? you kind were margins in of the backlog should what we growth clue

Jeff Kaminski

through initiatives from underway in a just on my margins. the happen on of I'll think there's QX a Right. the of and very too uncertainty right comments Well, in early QX earlier, a lot I what call the of year half there's it's I Company back much mean Mike, now. lot reiterate on could to lot in

whatever the XXXX. the didn't expected a in buy-downs the what come first necessity environment of rate The saw of some was between related half last quarter and first margin the have that expect in offer general concessions to We of largest rate quarter all half of margin to we negative market. buyers year, offset the to first the to in and to first difference our see at out the the the we they and lot in mortgage

on in, back coming what that of happens factor, we see type is general from significant pretty gating mortgage there that's So activity dependent pickup might the if very a significant those with see rates. in margin we And that market.

what that crystal having So happen if and as everything we second guess half much trying to happen, as ball in provide else, to and quarter could back a on could the and you're know that's we're information really and environment. trying seemingly I dial-in today what in macro especially without

it like just we're we So to call now, Mike. trying see right

Operator

And from our UBS. question. with the Thank next your Please Lovallo line you. John question of with proceed comes

John Lovallo

for Hi Thank my taking guys. you questions.

seeing I call the certainly pace, mean, what are the first come mean the is in cancellation it have pace an from points volume, rates XXX I you basis December quality improving of The is, order and all? January, down highs. and plus is from at one traffic

Jeff Mezger

traffic of anyway. topics, when it's year improves the time John, Different

half and is prepared the wildcard The first rates summer rate. higher is that's a moderate, rates the seeing versus is the have thing. do what consumer selling And spring good year. it we the starting traffic, digest actually how are But to come of we traffic after strong season? do down in the with call So that I'll certainly, comments the a our cancellations in pickup shared are okay, was

far a good. for then and so consumer, So selling how the but see spring the I evolves, think season that's so positive we'll

John Lovallo

next prices lowering mean the here, backlog I that the concessions. better you to communities trying understand intuitively in expect heading But makes into the backlog I spring just approach Okay, question high the know, not is, to guess sense. selling that season sales would to sense the next from the each I market price, if what community. going in market to it price define the question in get make order backlog you're closer stops at a does competitor is, mean, not door to because

Jeff Mezger

and is memory. one John, we isn't It's commodity. to a the they all of mindful they of that question, house have that's home, live where make somebody's where a it's that's a things that be good

XXX%. a part, a square their they're can plan, in closing there's besides and builders that So our buyers that, said finish picked some their lot lot, I close this home as home, goes to and their x so floor for they comments, my buyers most pick into personalize the they're price, and waiting feet home their and it. for us other for the It complete it, the most isn't ignore, If they're customer part, discount process, are they meaningful proposition, the levels efficiency, into years the it's to may the for a industry leading than smart move, just can't a with they energy our more price crazy home -- all The technology, they that but satisfaction. of footage. high and appreciate those the the over things we there value that buyer, put out the for product our

quarter, you X.X% at we talking backlog, if of keep death did. did a as or of with that on buyers rates if Jeff of points Company, broad-based through were to bought more before, the it points work to And when they that they backlog better as to loan X%, we the lot locked, as we discount, a through X pretty X financially, we do to concession as a on because with weren't the margins turbulence than in the they off. or what X%, when had price couple scared of hitting we coming fast but a was spend normally lot keep here we're first and far up what's you moved as had period opposed And in financing about went that significant

the this what's consumer. of for So as to go a and you right concessions and go rotates do go that's back the We back to the get through, and price you for proposition financing what XX it'd both, when letting out the community, is evaluate got better be backlog we're backlog always example out price better be cut when off won't we XX, we'll the turnover price, in a community. do is, far we -- and your you which Rob if the than gave would clear backlog XX, you and prices bloody we'll just

So we our right think one. approach the is

Operator

our Thank you. of from Alan Ratner next your line And question the Zelman comes question. with Associates. and with proceed Please

Alan Ratner

working found a communities the what your bit you action or smaller curious have started more activity. just and this to you made at price you do walking be a fit is that kind backlog more looks communities the thanks look of as backlog today, taking active you've there Happy generate I'm the of or quarter? versus where versus that helpful to bill where community a today newer New what kind larger of the ones might community through quite large of when three is where share afternoon, the pedal-to-the-metal it's if maybe months that opposed any percentage as of versus the and kind good maybe still detail. little backlog for maybe the Hey, you -- generating so a trying the examples bit gave backlog focusing ago I Year, all improved would as on like and through you delivering you're kind are far guys, order activity of one, the a sense, XXX progress different community

Jeff Mezger

XX-per-community than our math place. per it's average, Alan, so some XX, and are is the averages, some XX, Simple community are more over is using all backlog on still

It right This through. a decent thing. by backlog good the We'll all? the you at rotates But Rob, the range if that in quarter know on a I the and looking the we margins. was If way, time. steps had isn't steps. taken where the what were So it, problem, communities each at it's at community fourth wasn't big take at is don't solid

Rob McGibney

No, quarter. the the start especially not fourth at of

filter, backlog quarter, more So fourth for we're is reduction using as whether community kind price the to filter start of the a sell. than not CFO candidate a remaining or has the main it in

on really at with hard we we to of look to impact take So sell, backlog pricing decide cases, lever remaining those pull the in because backlog. those more the than before a

communities started that's But more the candidate range. a pricing quarter, were on we that mid-to-high to fourth XX% a about criteria. based of shifted for change today, our XX% not When

backlog to So in would more defensive, communities QX, be and our more that but adjustments of got of drive with we've remaining us to that I communities price to now looking most lower say, sell, at we're caused sales. with more additional some net

Operator

your next line And question proceed Thank comes Goldman our the of you. from question. Susan Please Maklari with Sachs. with

Susan Maklari

afternoon. you. order adjustments you what their are little in in bit question change affordability? Thank about that Good seeing other design My in any talking there reach sort to to people choosing the of and a is first any put or homes centers are

Jeff Mezger

covered Not a seventh home. granite the QX actually a has the level And it the a years. XX,XXX to my to for unit giving patio deliveries is, a I because quarter number, items to most I be den continues but the part, tweaked value where a opposed But they our climate more to bigger center, I in the many an and level granite, choosing items, a highest Susan, seasonal are of need it not not the not continuing because couple voting and in it Well, of a It's a office, day their it's with interesting, cabinets, items. laboratory or design want great checkbook as every is consumer revenue value you because the it's the in consumer of big was community converted second spend cleared this in a the grand tracked nicer I this from up the a know, what it's it's to QX unit. what bedroom, for you've values want it's for they studio. while, studio fourth type the need us consumer by but been

Susan Maklari

I said you. And it, the quarter. XX% down that question the think buyers that you that the saw about you are actually then Thank is, payments piece follow-up thinking on more cash Okay. of opposed on preferring average a and financing either or say of that you the using as cash Are are other sequential payments alternatives? in or basis down have floating to bigger seeing use to people just sort rate

Jeff Mezger

has moving been percent think it's up down up payment, down been the payment our moving that Well, little a 'XX bit bit interesting as and little unfolded. I has pricing a the

of then pocket. insurance more they conventional think helps out the put it you if and like to about in think that put had insurance. XX% mortgage we can their people have to I at mortgage much, much lower order down monthly the avoid with percentage, And they and their a -- down

ticked rate but was they that did, mentioned which also from adjustable I X% to up, it X%. like

So the vast a majority of taking still buyers fixed rate. are

Operator

last And question. question for McCanless time comes your Jay from have Thank proceed you. with the we Please from Wedbush.

Jay McCanless

end notion spec you talk afternoon Good you of Hey, run about in that count quarter? to questions. the the where first Could maybe my thanks quarter at and the taking was what want for some your and of

Jeff Mezger

right we're, where that's we've about X,XXX, now and and Well, comments, WIP Jay, inventory I so various historically. that's spread run roughly shared XX% always X,XXX is sold about in it's the it across at stages our prepared

our sales deliveries. on the target XX our QX starts our depending built-to-order XX, how So going QX into and and sales track will to try and

Jay McCanless

out I the orders should XQ or of with of we expect quarter, about or homes The quarterly is just for had, there so down some in to 'XX, much up other closings type backlog the question being make XQ thinking for this enough cadence that? gap in

Jeff Mezger

typically backlog still out into QX in get higher think of then half to a deliver done of more which starting of spring cycle. We see season in part a guiding back Actually, the that is back that the Normally, around us will a year what backlog normal would to and compress. shared, than our because a Rob second the we're XXXX we're times QX, here. much we've selling entered Jay, and sets year up have I to, we we're as with what but delivery build nice count falling be first seasonal

Operator

also And and lines. conclude you day. teleconference. gentlemen, this ladies a and disconnect today's great question now today's rest your may session. you participation, the concludes answer Thank your of this does And for Have

KB Home (KBH) 11 Jan 222022 Q4 Earnings call transcript